[Senate Hearing 114-627]
[From the U.S. Government Publishing Office]
S. Hrg. 114-627
REAUTHORIZING THE HIGHER EDUCATION ACT: ENSURING COLLEGE AFFORDABILITY
=======================================================================
HEARING
OF THE
COMMITTEE ON HEALTH, EDUCATION,
LABOR, AND PENSIONS
UNITED STATES SENATE
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
ON
EXAMINING REAUTHORIZING THE HIGHER EDUCATION ACT, FOCUSING ON ENSURING
COLLEGE AFFORDABILITY
__________
JUNE 3, 2015
__________
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COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS
LAMAR ALEXANDER, Tennessee, Chairman
MICHAEL B. ENZI, Wyoming
RICHARD BURR, North Carolina
JOHNNY ISAKSON, Georgia
RAND PAUL, Kentucky
SUSAN COLLINS, Maine
LISA MURKOWSKI, Alaska
MARK KIRK, Illinois
TIM SCOTT, South Carolina
ORRIN G. HATCH, Utah
PAT ROBERTS, Kansas
BILL CASSIDY, M.D., Louisiana
PATTY MURRAY, Washington
BARBARA A. MIKULSKI, Maryland
BERNARD SANDERS (I), Vermont
ROBERT P. CASEY, JR., Pennsylvania
AL FRANKEN, Minnesota
MICHAEL F. BENNET, Colorado
SHELDON WHITEHOUSE, Rhode Island
TAMMY BALDWIN, Wisconsin
CHRISTOPHER S. MURPHY, Connecticut
ELIZABETH WARREN, Massachusetts
David P. Cleary, Republican Staff Director
Evan Schatz, Minority Staff Director
John Righter, Minority Deputy Staff Director
(ii)
C O N T E N T S
__________
STATEMENTS
WEDNESDAY, JUNE 3, 2015
Page
Committee Members
Alexander, Hon. Lamar, Chairman, Committee on Health, Education,
Labor, and Pensions, opening statement......................... 1
Prepared statement........................................... 4
Murray, Hon. Patty, a U.S. Senator from the State of Washington.. 7
Collins, Hon. Susan M., a U.S. Senator from the State of Maine... 50
Franken, Hon. Al, a U.S. Senator from the State of Minnesota..... 52
Cassidy, Hon. Bill, a U.S. Senator from the State of Louisiana... 54
Bennet, Hon. Michael F., a U.S. Senator from the State of
Colorado....................................................... 55
Murkowski, Hon. Lisa, a U.S. Senator from the State of Alaska.... 58
Warren, Hon. Elizabeth, a U.S. Senator from the State of
Massachusetts.................................................. 59
Isakson, Hon. Johnny, a U.S. Senator from the State of Georgia... 61
Whitehouse, Hon. Sheldon, a U.S. Senator from the State of Rhode
Island......................................................... 63
Scott, Hon. Tim, a U.S. Senator from the State of South Carolina. 65
Casey, Hon. Robert P., Jr., a U.S. Senator from the State of
Pennsylvania................................................... 67
Baldwin, Hon. Tammy, a U.S. Senator from the State of Wisconsin.. 68
Murphy, Hon. Christopher, a U.S. Senator from the State of
Connecticut.................................................... 70
Witnesses
Scott-Clayton, Judith, Ph.D., B.A., Assistant Professor of
Economics and Education, Teachers College, Columbia University,
New York, NY................................................... 9
Prepared statement........................................... 11
Akers, Elizabeth, Ph.D., Fellow, Brown Center on Education
Policy, The Brookings Institution, Washington, DC.............. 18
Prepared statement........................................... 20
Alexander, F. King, Ph.D., B.A., M.S., President and Chancellor,
Louisiana State University, Baton Rouge, LA.................... 26
Prepared statement........................................... 27
Mitchell, Michael, Policy Analyst, Center on Budget and Policy
Priorities, Washington, DC..................................... 30
Prepared statement........................................... 31
Kennedy, James, Associate Vice President for University Student
Services and Systems, Indiana University, Bloomington, IN...... 41
Prepared statement........................................... 43
(iii)
REAUTHORIZING THE HIGHER EDUCATION ACT: ENSURING COLLEGE AFFORDABILITY
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WEDNESDAY, JUNE 3, 2015
U.S. Senate,
Committee on Health, Education, Labor, and Pensions,
Washington, DC.
The committee met, pursuant to notice, at 10:06 a.m., in
room SD-430, Dirksen Senate Office Building, Hon. Lamar
Alexander, chairman of the committee, presiding.
Present: Senators Alexander, Isakson, Collins, Murkowski,
Scott, Cassidy, Murray, Casey, Franken, Bennet, Whitehouse,
Baldwin, Murphy, and Warren.
Opening Statement of Senator Alexander
The Chairman. Good morning. We're looking forward to this
testimony. We have a terrific group of witnesses--many Senators
interested--on a subject that a lot of people care about, the
cost of attending college.
Senator Murray and I will each have an opening statement,
and then we'll introduce our witnesses. After the testimony,
we'll each have 5 minutes of questions so that we can have a
conversation. We'll ask the witnesses if they'll try to
summarize their remarks in about 5 minutes. That will give us a
chance to have a good discussion.
The question before us is: Can you afford to pay for
college? I believe the answer for most Americans is yes. For
millions, 2 years of college is free. It is never easy to pay
for college, but it is easier than many think, and it is unfair
and untrue to make students think that they can't afford
college. I believe we should stop telling students they can't
afford college.
Four weeks ago, I spoke at the graduation ceremonies in
Morristown, TN, at the Walters State Community College. Half
the students are low-income. For them, 2 years of college is
free, or nearly free. The Pell grant is up to $5,370, and
tuition for an average community college across the country is
about $3,300. So for the 4 of 10 undergraduates in the United
States who attend 2-year colleges, college is affordable,
especially in Tennessee, where our State has made community
college free for every student, every high school graduate.
Another 38 percent of undergraduate students go to public
4-year colleges and universities where the average tuition is
about $9,000. That means about three out of four of our
undergraduate students are at public institutions.
At the University of Tennessee, Knoxville, one-third of the
students have a Pell grant, and 98 percent of the freshmen have
a State Hope Scholarship, which provides up to $3,500 annually
for the first 2 years and $4,500 for the next 2 years. So for
most students, a public university is affordable, and those
include some of the best colleges and universities in the
world.
What about the 15 percent of our students who go to private
universities where the average tuition is $31,000? Here is what
John DeGioia, the president of Georgetown University, told me
this week. At Georgetown, the cost of college is about $60,000
annually.
He said,
``First, we determine what a family can afford to
pay. Then we ask students to borrow $17,000 over 4
years. Then we ask the student to work 10 to 15 hours
under our work-study program. Then we pay the rest of
the $60,000. That costs Georgetown about $100 million a
year.''
He said they work with 21 other private universities that
have the same sort of plan. He said that Harvard, Yale,
Stanford, and Princeton are even more generous. Even for these
elite universities, they may be affordable.
Finally, 9 percent of students go to for-profit colleges,
where tuition is about $15,000.
OK. Let's say that your family still is short of money.
Taxpayers will loan you the money on generous terms. We hear a
lot about these student loans. Are taxpayers being generous
enough? Is borrowing a good investment? Are students borrowing
too much?
One way to answer these questions is to compare student
loans to automobile loans. When I was 25, I bought my first
car. It was a Ford Mustang. The bank made my father co-sign the
loan because I had no credit history and no assets. I had to
put up my car as collateral. I had to pay off the loan in 3
years.
If you are an undergraduate student today, you are entitled
to borrow at least $5,000 to $6,000 from the taxpayers each
year. It doesn't matter what your credit rating is. You don't
need collateral. The fixed interest rate for new loans is 4.29
percent this year.
When you pay your loan back, you don't have to pay more
than 10 percent of your disposable income each year. If that
doesn't pay it back over 20 years, your loan is forgiven.
Is your student loan a better investment than your car
loan? Cars depreciate. The College Board estimates that a 4-
year degree will increase your earnings by $1 million, on
average, over your lifetime.
Is there too much student loan borrowing? The average debt
of a graduate of a 4-year institution is about $27,000. That's
about the same amount as an average car loan in the United
States.
The total amount of outstanding student loans is $1.2
billion. That's a lot of money, but the total amount of auto
loans outstanding in the United States is about $950 billion.
Excuse me. The student loans is $1.2 trillion. Auto loans is
$950 billion. I don't hear anyone complaining that the economy
is about to crash because of auto loans, nor do I hear that
taxpayers should do more to help borrowers pay off their auto
loans.
You might say, ``What about the $100,000 student debts? ''
The answer is debts over $100,000 make up 4 percent of student
loans, and 90 percent of those are doctors, lawyers, business
school graduates, and others who have earned graduate degrees.
Nevertheless, it is true that college costs are rising and
that a growing number of students are having trouble paying
back their debt. Seven million, 17 percent, of Federal student
loan borrowers are in default, meaning they haven't made a
payment on their loans in at least 9 months. The total amount
of loans currently in default is about 9 percent of the total.
All those loans get paid back one way or another, usually.
The purpose of this hearing is to find ways to keep the
cost of college affordable and to discourage students from
borrowing more than they can pay back. I'm going to submit the
rest of my statement for the record to save a little time and
just summarize these remaining points.
I suggest five steps the Federal Government could take to
make college more affordable and to discourage students from
borrowing more.
One, is to stop discouraging colleges from counseling
students about how much they should borrow. We've had witnesses
here who have told us that they're not allowed to require
additional counseling before students borrow.
Two, help students save by graduating sooner. Senator
Bennet and I and others have introduced the FAST Act which
would make the Pell grant available year-round.
Three, make it simpler to pay off student loans. A
Tennessee college president told me last week it took him 9
months to help his daughter pay off her student loan, and he
had the help of his financial aid officer.
Four, allow colleges to share in the risk of lending to
students.
And five, point the finger at ourselves in Congress. In my
opinion, State aid to public universities is down because of
the imposition of Washington Medicaid mandates and a
requirement that States maintain their level of spending on
Medicaid. In the 1980s, Tennessee was paying 70 percent of the
cost of a college education. Medicaid spending was 8 percent.
Today, it's 30 percent--Medicaid spending--and the dollars have
come right out State-supported universities.
Chancellor Zeppos of Vanderbilt told us that the Boston
Consulting Group estimated that it cost Vanderbilt University
$150 million in 2014 to comply with Federal rules and
regulations, about $11,000 per student, which is more than the
average tuition and fees for a 4-year public university. Zeppos
co-chaired a report to us that said that universities are
ensnared in a jungle of red tape.
We should take steps to make college more affordable. I
believe we should also cancel the misleading rhetoric that
causes so many students to believe they can't afford college.
Community college is free for many. At UT Knoxville, 75
percent of your tuition may be aid. Even at elite private
universities, college may be affordable. If you still need to
borrow money, your student loan is likely to be about the same
as your car debt, and your student loan is a better investment.
Dr. Anthony Carnevale of Georgetown says that without major
changes, the American economy will fall short of 5 million
workers with postsecondary degrees by 2020. It's a better
investment for our country, too.
[The prepared statement of Senator Alexander follows:]
Prepared Statement of Senator Alexander
The question before us is, can you afford to pay for
college? I believe the answer for most Americans is, yes. And
for millions, 2 years of college is free. It is never easy to
pay for college, but it is easier than many think and it is
unfair and untrue to make students think that they can't afford
college.
Four weeks ago, I spoke at the graduation of 800 students
from Walters State Community College in Morristown, TN. Half
those students are low-income. Their 2 years of college was
free, or nearly free, because taxpayers provided them a Pell
grant of up to $5,730 for low-income students and the average
community college tuition is about $3,300.
For the nearly 4 of 10 undergraduate students in our
country who attend 2-year institutions, college is affordable.
Especially in Tennessee, where our State has made community
college free for every high school graduate.
Another 38 percent of undergraduate students go to public
4-year colleges and universities where the average tuition is
about $9,000.
At the University of Tennessee, Knoxville, one-third of
students have a Pell Grant. Ninety-eight percent of in-state
freshmen have a State Hope Scholarship, which provides up to
$3,500 annually for freshmen and sophomores and up to $4,500
for juniors or seniors.
For most students, 4 years at a public university is
affordable and these include some of the best colleges and
universities in the world.
What about the 15 percent of students who go to private
universities where the average tuition is $31,000?
Here is what John DeGioia, the president of Georgetown
University, where college costs are about $60,000 annually,
told me this week.
First, he said,
``We determine what a family can afford to pay. Then
we ask students to borrow $17,000 over 4 years. Then we
ask the student to work 10-15 hours under our work-
study program. Then we pay the rest of the $60,000
which costs Georgetown about $100 million a year.''
He said that 21 other private universities that work
together on financial aid have the same policies and that
Harvard, Yale, Stanford and Princeton are even more generous.
Even these so-called elite universities may be affordable.
Finally, another 9 percent of students will go to for-
profit colleges, where tuition averages $15,230 a year.
OK, despite all this, let's say your family still is short
of money for college. Taxpayers will loan you money on generous
terms.
We hear a lot about these student loans.
Are taxpayers being generous enough? Is borrowing for
college a good investment? Are students borrowing too much?
One way to answer these questions is to compare student
loans to automobile loans.
When I was 25 years old I bought my first car. It was a
Ford Mustang. The bank made my father co-sign the loan because
I had no credit history and no assets. I had to put the car up
as collateral. I had to pay off the loan in 3 years.
If you are an undergraduate student today, you are entitled
to borrow at least $5,500 from the taxpayers each year. It
doesn't matter what your credit rating is. You don't need
collateral. The fixed interest rate for new loans this year is
4.29 percent.
When you pay your loan back, you may elect to pay no more
than 10 percent of your disposable income. And if at that rate
you don't pay it off in 20 years, the loan is forgiven.
Is your student loan a better investment than your car
loan? Cars depreciate. The College Board estimates that a 4-
year degree will increase your earnings by $1 million, on
average, over your lifetime.
Is there too much student loan borrowing?
The average debt of a graduate of a 4-year institution is
about $27,000--or about the same amount of the average new car
loan.
About 8 million undergraduate students will borrow about
$100 billion in Federal loans next year. The total amount of
outstanding student loans is $1.2 trillion. That's a lot of
money, but the total amount of auto loans outstanding in the
United States is $950 billion, and I don't hear anyone
complaining that the economy is about to crash because of auto
loans--nor do I hear that taxpayers should do more to help
borrowers pay off their auto loans.
Well, you might say, what about all those $100,000 student
loan debts?
The answer is, debts over $100,000 make up only 4 percent
of student loans, and 90 percent of those borrowers are
doctors, lawyers, business school graduates and others who have
earned graduate degrees.
Nevertheless, it is true that college costs have been
rising and that a growing number of students are having trouble
paying back their debt.
According to the Department of Education, about 7 million,
or 17 percent, of Federal student loan borrowers are in
default--meaning they haven't made a payment on their loans in
at least 9 months.
The total amount of loans currently in default is $106
billion or about 9 percent of the total outstanding balance of
Federal student loans--although the Department also says that
most of those loans get paid back to the taxpayers, one way or
another.
The purpose of this hearing is to find ways to keep the
costs of college affordable and to discourage students from
borrowing more than they can pay back.
Here are five steps the Federal Government could take:
Stop discouraging colleges from counseling
students about how much they should borrow. Federal law and
regulations prevent colleges from requiring financial
counseling for students, even those clearly at risk of default
who are over-borrowing. At a March 2014 hearing our committee
heard from two financial aid directors who said that there was
no good reason for this. One said,
``Institutions are not allowed to require additional
counseling for disbursement. We can offer it, but we're
not allowed to require it. And without the ability to
require it, there's no teeth in it.''
Help students save money by graduating sooner. For
example, our bi-partisan FAST Act would make the Pell Grant
available year-round to students so they can complete their
degrees more quickly and start earning money with their
increased knowledge and skills.
Make it simpler to pay off student loans. Last
week, a Tennessee college president told me it took him 9
months and the help of a financial aid officer to make a full
one-time payment on his daughter's student loan.
Allow colleges to share in the risk of lending to
students. This could provide an incentive to colleges to keep
costs down and to students to borrow no more than they can pay
back.
Point the finger at ourselves. Congress is one
cause of higher college costs. The main reason State aid to
public universities is down is the imposition of Washington
Medicaid mandates and a requirement that States maintain their
level of spending on Medicaid. In the 1980s when Tennessee was
paying 70 percent of the cost of its students' college
education, Medicaid spending in Tennessee was 8 percent. Today
it's 30 percent, and the dollars have come right out of State-
supported colleges.
Chancellor Nick Zeppos of Vanderbilt University told this
committee that the Boston Consulting Group estimated that the
cost for Vanderbilt to comply with Federal rules and
regulations on higher education was $150 million in 2014,
equating to about $11,000 in additional tuition per year for
each of the university's students.
Zeppos co-chaired a report commissioned by a bipartisan
group of Senators on this committee that told us that colleges
and universities in this country are ensnared in ``a jungle of
red tape.''
We should take steps to make college more affordable but we
should also cancel the misleading rhetoric that causes so many
students and families to believe they can't afford college.
This is untrue and unfair.
It's untrue because:
If you're a low-income community college student
your education may be free thanks to a taxpayer Pell Grant.
If you're a 4-year UT Knoxville student--between a
Pell Grant and the Hope Scholarship--75 percent of your tuition
may be covered with student aid you never have to pay back.
Even at elite private universities, if you are
willing to borrow $4,500 a year and work 10-15 hours a week,
the university will pay what your family can't.
If you still need to borrow money to help pay for
a 4-year degree, your average debt is going to be roughly equal
to the average car loan. And your college loan is a better
investment.
Your student loan is a better investment for our
country as well. Dr. Anthony Carnevale of Georgetown University
says that without major changes the American economy will fall
short of 5 million workers with postsecondary degrees by 2020.
The Chairman. Senator Murray.
Opening Statement of Senator Murray
Senator Murray. Thank you, Mr. Chairman. I want to thank
all of our witnesses who are here today.
You know, for many Americans, higher education can be a
ticket to the middle class. It's not just important for
students and their future. It's also important for our economy.
A highly educated workforce is going to help our Nation compete
in the 21st century global economy. We should be working on
ways to help more students earn their degree and gain a
foothold into the middle class.
I personally know how critical this is because I saw it
with my own family when I was growing up. When I was just 15,
my family fell on hard times, but because of strong Federal
investments, all of my brothers and sisters and I were able to
get a quality education. We were able to afford to go to
college through Pell grants and other Federal aid programs.
I really come to this believing that we should ensure
students continue to have the success and the same
opportunities that my family did. Today, skyrocketing costs can
be a major barrier for students to go to college and to stay in
school until they complete their degree.
I was in my home State of Washington a few weeks back,
visiting with some students at Central Washington University.
Many of those students were the first in their families to go
to college. They told me about the troubles they and their
peers had even just imagining being able to afford college
growing up in low-income communities. I have heard this over
and over again from students and families in my State.
Last week, I met with community college students in Seattle
who told me about the challenges of having to hold down two
jobs, while also being full-time students, just to keep up with
the rising tuition and fees and rent. They will still end up
with loan debt when they graduate. That really places an unfair
burden on our students and their ability to succeed.
In our country today, many students are doing the right
thing. They are working hard in school and they are getting
into college. They want to take the next steps to move into the
middle class, but the high cost of college creates
insurmountable roadblocks. Across the country, average annual
tuition at public universities has gone up by more than $2,000
since the recession alone. That is an increase of nearly 30
percent.
Over the last 20 years, tuition has gone up far faster than
inflation, while real family incomes, of course, have declined,
but our investments in need-based aid have not kept up. This
has made it much more difficult for young people, particularly
from low-income families, to complete a college degree.
A high sticker price can deter some students from even
applying to college. Quite often, increasing tuition means
students have to borrow more and more, saddling them with the
crushing burden of student debt.
According to the Federal Reserve, outstanding student debt
is now more than $1.3 trillion. There are now 41 million
Americans, 41 million Americans, with Federal student loan debt
today, up from 28 million in 2007. Seven in ten college seniors
who are graduating from a public or private nonprofit college
have student loan debt, with an average of $28,400 per
borrower.
Several factors contribute to the increase in college
tuition. First and foremost, we have seen deep State funding
cuts at public colleges and universities, which more than
three-quarters of our students attend. Today, 47 States are
spending less per student on higher education than they did
before the recession, according to the Center on Budget and
Policy Priorities and the analysis of one of our great
witnesses today.
When student funding is cut, colleges and universities look
to make up the difference with higher tuition, cuts to
educational and support services, or both. A recent analysis by
Demos found that declining State support is responsible for 100
percent of the increase in tuition at community colleges and 79
percent at research institutions.
In my home State, State support per student is down more
than 28 percent since the recession. Tuition at several of our
4-year universities has increased by more than $5,000 and by
more than $1,000 at our community colleges.
I have heard some of my colleagues argue that Medicaid and
higher college costs are somehow directly linked. Nothing
forces States to fund one at the expense of the other.
Ultimately, State budgets, just like our Federal budget, are
about values and priorities. State lawmakers have tough choices
to make about spending cuts and raising revenue to fund vital
priorities like healthcare and higher education.
Even as the economy has begun to recover, State investments
in higher education have not begun to bounce back fast enough.
I believe this committee should look at ways to leverage
Federal investments to stem the decline in State support for
higher education.
There are other ways I believe we should look at to help
students and families to bring down the cost of college. I
believe we need to protect need-based grant aid so low and
middle-income students are not priced out of attending college.
Students should also have access to simple, transparent
consumer information on costs, expected debt and earnings, and
available financial aid, so consumers can make fully informed
decisions.
As we embark now on a bipartisan process to reauthorize the
Higher Education Act, we've got to make sure that all of our
students from all walks of life have the opportunity to further
their education and secure their ticket to the middle class.
Expanding access to higher education is a crucial part of
building an economy that works for all of our families, not
just the wealthiest few.
I look forward to hearing from all of our witnesses today
on this critical question of how to make sure our colleges are
affordable for today.
Thank you very much.
The Chairman. Thank you, Senator Murray.
I'm pleased to welcome our witnesses. Our first witness is
Dr. Judith Scott-Clayton, assistant professor of economics and
education at the Teachers College of Columbia University. She
has appeared before us before. We welcome her.
Our next witness is Dr. Elizabeth Akers, fellow at the
Brown Center on Education Policy at the Brookings Institution.
Welcome, Dr. Akers.
I'll ask Senator Cassidy to introduce our third witness
today.
Senator Cassidy. Thank you, Mr. Chairman. I appreciate this
opportunity. I'm honored to introduce and welcome Dr. King
Alexander to this hearing. Among other things, he's actually
one of my bosses, so I feel obligated to say what a great guy
you are, King. By the way, you pay me nothing, but could you
pay me some more?
[Laughter.]
He's the president and chancellor of Louisiana State
University, which is also my alma mater. Prior to this
appointment, Dr. Alexander was president of Cal State
University Long Beach, one of the Nation's largest public
universities, and during his tenure twice named as the Cal
State University Student Association President of the Year,
which represents all 23 California State Universities and more
than 440,000 students.
Dr. Alexander previously served as president of Murray
State University, faculty member at the University of Illinois
Champaign Urbana, where he was the director of Graduate Higher
Education Programs. As a teacher and administrator, Dr.
Alexander has received many honors, served on numerous higher
education and statewide organizational leadership boards, and
often asked to represent public higher education colleges and
universities before Congress. I'll also add that in our
conversations, he has taught me a lot about higher education
financing.
Dr. Alexander, thank you for being here.
The Chairman. Thank you, Senator Cassidy. The only reason
Dr. Alexander got a longer introduction is because he's from
Louisiana, and he has a fortuitous name.
[Laughter.]
Next, we'll hear from Michael Mitchell, policy analyst at
the Center on Budget and Policy Priorities. He focuses on State
budget and tax policies there and has conducted research on the
effects of budget cuts on communities of color and the impacts
of the recession on young adults.
Our final witness is Mr. James Kennedy, associate vice
president of the University Student Systems and Services at
Indiana University in his role there. He is also the
university's director of financial aid.
Welcome to all of you. Why don't we start with Dr. Scott-
Clayton and go right down the line. If you would each summarize
your remarks in 5 minutes or so, we'll then go to questions.
STATEMENT OF JUDITH SCOTT-CLAYTON, Ph.D., B.A., ASSISTANT
PROFESSOR OF ECONOMICS AND EDUCATION, TEACHERS COLLEGE,
COLUMBIA UNIVERSITY, NEW YORK, NY
Ms. Scott-Clayton. Chairman Alexander, Ranking Member
Murray, and members of the committee, thank you for the
opportunity to testify today. I would like to provide a bit of
background about college affordability, in general, and then
focus on what the Federal Government can do immediately to
improve it.
First, the college affordability crisis is real. College
attainment has never been more important for economic mobility.
Yet State disinvestment in public institutions has led to both
increases in tuition and decreases in resources available per
student. Both of these have consequences.
College attainment is becoming increasingly unequal by
family income, even among fully qualified students. As the
economist, Susan Dynarski, noted in yesterday's New York Times,
among students with top test scores, only 41 percent of the
poorest kids earn a bachelor's degree, compared to 74 percent
of kids from high-
income families. This is a tragic waste of human potential.
It's getting worse, and it demands policy solutions.
However, in terms of Federal policy, the challenges to
college affordability may be different than what people usually
think. If we focus on the wrong problems, we're likely to end
up with the wrong solutions.
First, while tuition is rising, financial aid is higher
than many people realize, and affordable options do exist. Only
about a third of students pay full sticker price, and the
average full-time undergraduate receives about $8,000 in grant
aid, as well as $6,000 in other aid to help pay for college.
Community college students receive enough, on average, to cover
tuition and even some of their additional living expenses.
This is not to say that aid is sufficient to completely
meet all students' needs or that affordable options are just as
good as more expensive ones. Too many students leave money on
the table, failing to apply for aid that might help them
persist to a degree, or, even worse, failing to apply for
college at all because they assume they can't afford it.
Second, student loan debt is lower than news headlines
might lead you to believe. More than two-thirds of college
entrants borrow less than $10,000. Those with higher levels of
debt typically have higher levels of degree attainment and,
thus, higher earnings potential.
Still, the risk of default is concentrated among borrowers,
particularly, who attend for-profit institutions or who leave
school without any degree at all. The standard 10-year
repayment schedule unnecessarily burdens borrowers when their
earnings are lowest and most variable.
The real college affordability crisis is not that we're
spending too much on college and saddling graduates with too
much debt. The true crisis is that Federal student aid has
become more essential for more students than ever before. The
complexity of the system is undermining its effectiveness.
For many families, the college decision is not an exciting
and joyous one, but, instead, is scary and overwhelming.
Unfortunately, the burdens of complexity and confusion fall
most heavily on the very students who need aid the most--low-
income students, minorities, and first generation college
goers--who are the least likely to have a family member,
friend, or counselor who can guide them through their options
and help them fill out the FAFSA.
Too many of these students fall off the path to college
early, not because they ever actively decide that it's not
worth it, but because they simply assume that they don't have a
choice. We can't keep tinkering around the edges of an aid
system that was designed nearly half a century ago. We need
meaningful Federal aid reforms, and we can't afford to wait.
First, we should simplify the unnecessarily complex Pell
eligibility formula and get rid of the FAFSA. If eligibility
were based only on tax information already available from the
IRS, and if this information were drawn from a prior tax year,
eligibility could be calculated automatically without the need
for a separate application, and students can learn about aid
early enough for it to actually influence their college choice.
Second, streamline Federal student loans into a single
program with income-based repayment. Income-based repayment
needs to be the default so that students don't have to navigate
additional paperwork to enroll. The adjustment of monthly
payments needs to be automatic, much like social security
deductions, so that payments are based on current income, not
income from several months or a year ago.
To some ears, these recommendations might sound boring, too
technocratic, or small-minded in light of the serious
challenges that we're facing. Complexity and confusion are far
more than just an annoyance for low-income families. To the
contrary, research has convincingly shown that when the
complexity of financial aid is reduced, it significantly
increases enrollments for low-income students.
Importantly, the impact of these reforms could reverberate
even beyond financial aid. The current system requires an army
of high school and college staff, community-based
organizations, and volunteers just to help low-income students
figure out the FAFSA and their student loan options.
If Federal policymakers could empower students with simple,
early information about financial aid, these precious, highly
skilled resources could be redirected to helping students
figure out where to go, what to study, and how to succeed in
college, not just figuring out whether they can afford to go at
all.
Thank you.
[The prepared statement of Dr. Scott-Clayton follows:]
Prepared Statement of Judith Scott-Clayton, Ph.D., B.A.*
Chairman Alexander, Senator Murray, and members of the committee:
My name is Judith Scott-Clayton. I am an assistant professor of
economics and education at Teachers College, Columbia University, as
well as a research fellow of the National Bureau of Economic Research
and a senior research associate at the Community College Research
Center. Over the past decade, I have conducted my own research on the
impacts of financial aid policy, reviewed the evidence from others
doing work in the field, and participated in policy working groups
examining financial aid and other college access interventions at both
the State and Federal level. Thank you for the opportunity to testify
about the current landscape of college affordability and to suggest
promising directions for reform.
---------------------------------------------------------------------------
* Note: The views expressed are those of the author and should not
be attributed either to Teachers College, Columbia University; the
Community College Research Center; or the National Bureau of Economic
Research.
---------------------------------------------------------------------------
In the following testimony, I focus on three questions: (I) What is
the affordability crisis? (II) Should public investments be broad-based
in the form of tuition subsidies, or targeted in the form of financial
aid? And (III) What does research suggest are the highest-impact
directions for Federal policy reform?
i. what is the affordability crisis?
The answer to this question might seem obvious: ``The price of
college is rising out of control, and too many students are getting
crushed under the weight of excessive student loans.'' Indeed, it's no
mirage that prices are rising steadily. Over the past 20 years,
published tuition and fees at public 4-year institutions has more than
doubled in real terms, and stood at $9,139 in 2014-15 (Baum & Ma,
2014). Including room and board brings costs even higher, to $18,943 on
average at public 4-year institutions. Private institutions are more
than twice as expensive, on average. Nearly two-thirds of bachelor's
degree graduates take on student loans, with an average cumulative
amount of close to $30,000 for those who borrow. The recent recession
brought these problems into high relief, as public institutions enacted
particularly steep tuition increases and the dismal economy placed
strains on graduates saddled with high debt.
The facts cited in the prior paragraph are absolutely real. But for
the reasons I describe below, focusing on sticker prices and aggregate
debt levels alone can be deceiving, and can distract us from the real
factors driving the real affordability crisis we face today. We do have
a college affordability crisis in this country, but it may be different
from the one most people think we have.
1. Tuition increases in the public sector largely reflect shifts in
who pays for college rather than increases in the cost of providing a
college education. Costs themselves are not spiraling out of control:
over the past decade per-student spending has risen by just 8 percent
at public research universities, 1 percent at public master's/
bachelor's degree granting institutions, and has actually fallen by 12
percent at community colleges (Hiltonsmith, 2015). However, tuition has
been rising much faster than costs as institutions attempt to fill in
the budget gaps caused by declining State support. States provide
public institutions with 25 percent less funding per student than they
did just a decade ago (Mettler, 2014; Desrochers & Hurlburt 2014).
2. Increases in net tuition and fees (i.e., after accounting for
grants and scholarships) have been less dramatic than increases in
sticker prices. While students are picking up the burden of decreased
State investment, students today also receive substantial amounts of
financial aid, so focusing on sticker prices alone can be deceiving. In
2013-14, full-time undergraduates received an average of over $14,000
in aid, including over $8,000 in grants (College Board, 2014). After
accounting for grants and tax credits, net tuition and fees at public
4-year institutions rose by 53 percent over the past two decades,
compared to a 117 percent increase in sticker prices (Baum & Ma, 2014).
The picture is further distorted when we focus on the most headline-
grabbing prices of elite private institutions, rather than on more
affordable options that do exist. For needy students, the current
maximum Pell grant covers almost two-thirds of average tuition and fees
at a public 4-year institution. For students attending community
colleges, the maximum Pell is larger than average tuition and fees,
enabling students to use the remaining amount to cover books, supplies,
transportation, or basic living expenses.
3. Rising returns to college credentials means that most graduates
still will be significantly better off financially than non-graduates,
even after subtracting out loan repayments. After taxes, median
earnings of young workers with associate's degrees are about $4,000
higher per year than for those with only a high school diploma. If
these graduates devote half of that after-tax premium to loan
repayment, they could repay a $22,000 loan at 6.8 percent interest in
20 years (Baum & Ma, 2014). For bachelor's degree recipients, the
earnings premium is even higher; a typical graduate could repay a
$30,000 loan over 10 years without devoting more than 25 percent of
their extra earnings to debt repayments (Baum & Ma, 2014).\1\ Thus,
average levels of student loan debt are not particularly worrisome;
what is worrisome is when students incur loans without earning a
degree, or when they experience financial hardships that leave them
unable to manage even relatively small repayments.
---------------------------------------------------------------------------
\1\ Note that current interest rates are lower than 6.8 percent.
---------------------------------------------------------------------------
So what is the true affordability crisis we're facing?
1. Access to college is becoming increasingly unequal by family
income. While levels of college enrollment have risen substantially
over the past 30 years, the gaps in enrollment and completion between
high- and low-income families are actually greater for recent cohorts
than for those born in the early 1960s (Bailey & Dynarski, 2011).\2\
Income inequality in college degree completion is even higher than for
college entry, and these gaps cannot be completely explained away by
differences in preparation.
---------------------------------------------------------------------------
\2\ The gap in college enrollment rates between the top and bottom
quartiles of family income for cohorts born in the early 1960s was 39
percentage points, rising to 51 percentage points for cohorts born in
the early 1980s. Controlling for differences in test scores reduces the
gap to 14 percentage points in the earlier cohorts and 26 percentage
points in the more recent cohorts.
---------------------------------------------------------------------------
2. Students' college choices require tradeoffs between
affordability and quality, but both of these can be difficult to assess
in advance. Even among those who enter college, institutions are
increasingly stratified in terms of resources, and these resources
matter for student success. Meanwhile, college costs are increasingly
individualized, varying dramatically across students within an
institution, as well as across institutions for a given student. This
complexity leads to suboptimal decisions: some qualified students fail
to enroll anywhere, while others incur the costs of college but leave
before ever earning a credential.
3. Student loans are structured to inflict maximum confusion and
distress. Student loans are too confusing, which leads some students to
take out too much while others take out too little, instead working so
much that they have little time left for their studies. Student loan
repayments are structured to be unnecessarily burdensome to recent
graduates and those facing temporary economic hardship. Strikingly,
default rates are not strongly related to the size of students' debts--
those with the highest debt levels are typically students with graduate
degrees and the best prospects for repayment, while those who default
often do so on relatively small debts (Dynarski & Kreisman, 2013; Akers
& Chingos, 2014a).
Thus, the true affordability crisis is not that we, as a Nation,
are spending too much on college and saddling graduates with too much
debt. The true crisis is that low- and moderate-income students are
being left behind, either because they fail to enroll or because they
enroll in under-resourced institutions that do not serve them well. The
result is a waste of human capital, which in an era of global
competitiveness, is what our Nation can afford least of all.
ii. high-tuition, high-aid versus low-tuition, low-aid: an economic
perspective on the role and form of public subsidies for postsecondary
education
Before delving into the research evidence, it is worth stepping
back to consider the role and form of government subsidies to higher
education in the first place, as well as the role for private
resources. The economic rationale for public intervention in higher
education finance rests on three potential market failures (Barr,
2004):
1. First, the social returns to higher education may exceed the
private returns, thus justifying broad-based public subsidies. To the
extent social returns are particularly high for disadvantaged groups,
targeted subsidies may be justified on both equity and efficiency
grounds.
2. Second, private credit markets may not enable individuals to
sufficiently borrow against future income to finance optimal
educational investments, thus justifying public provision of (or at
least public backing of) student loans.
3. Finally, young people--particularly those from disadvantaged
backgrounds--may have incomplete information leading them to
underestimate the benefits (or overestimate the cost) of higher
education, thus justifying the provision of targeted grants to improve
access.
Economic theory and decades of empirical evidence demonstrate that
public subsidies for college work: when costs to students go down,
enrollment goes up and vice versa (Long, 2008; Deming & Dynarski, 2009;
Dynarski & Scott-Clayton, 2013).
But what form should these subsidies take? The advantage of a high-
tuition, high-aid model is that it makes use of private resources from
those students who can afford to pay, while enabling any given level of
public subsidies to go further by better targeting to students who need
assistance most. But as higher education has increasingly moved to a
high-tuition, high aid model of finance rather than a low-tuition, low-
aid one, the third type of market failure--information constraints--has
become increasingly problematic and is undermining the impact of
financial aid. Evidence suggests that aid programs that are most
effective tend to have simple, easy-to-understand eligibility rules and
application procedures (Dynarski & Scott-Clayton, 2006)
An alternative way to deal with information constraints is simply
to return to a low-tuition, low-aid financing model that lowers prices
for everyone. Lower sticker prices certainly simplify the marketing
message, and indeed, many other countries offer free postsecondary
education. But there are risks to reliance on public finance that ought
to be acknowledged as well: in many countries, free higher education
comes at the cost of limited enrollment slots, and/or lower quality. As
the British economist Nicholas Barr (2010) explains:
Countries typically pursue three efficiency goals in higher
education: larger quantity, higher quality, and constant or
falling public spending. Systems that rely on public finance
can generally achieve any two, but only at the expense of the
third: a system can be large and tax-financed, but with worries
about quality (France, Germany, Greece, Italy); or high-quality
and tax-financed, but small (the UK until 1990); or large and
high-quality, but fiscally expensive (as in Scandinavia) (Barr,
2010, pp. 3-4).
As the United States falls behind other countries on measures of
educational attainment and social mobility and leaps ahead on measures
of inequality, now is hardly the time to reduce our investments in
education. I would advocate strongly against any efforts to reduce
Federal student aid as well as against State trends toward
disinvestment. But whatever the level of public funding, the stakes
have never been higher to ensure that every dollar spent has the
maximum impact--not just for the sake of taxpayers, but for the sake of
students themselves, who make the biggest investments of all.
iii. what does research suggest are high-impact directions for
federal policy reform?
Proposal 1: Dramatically simplify the aid application and renewal
process and get rid of the FAFSA
Base Pell awards for most students on a limited number of
data elements that are available from the IRS so that aid is easily
predictable and no separate application is needed.
Eligibility should be based on prior-prior year tax
information so that students know how much Federal aid they will get
well in advance of college application deadlines.
Ideally, Pell eligibility would be fixed for several
years, eliminating the need to reapply each year during a course of
study.
Any college student who wants a Federal loan or Pell grant has to
file a Free Application for Federal Student Aid (FAFSA), the complexity
of which is well-documented. With well over 100 questions about income,
assets and expenses, the FAFSA approaches the IRS Form 1040 in length,
and is longer and more complicated than the 1040A and 1040EZ, the tax
forms filed by a majority of taxpayers. Research has documented that
most of the information on the form is unnecessary; students' Pell
eligibility can be determined with a high level of precision using just
a handful of elements from the form (Dynarski & Scott-Clayton, 2006,
2007; Dynarski, Scott-Clayton & Wiederspan, 2013).
What sometimes gets lost in discussions about FAFSA simplification
is that this is not a technocratic obsession with making a form
shorter, this is about making sure that financial aid reaches the very
students who need it most, before they conclude that college is out of
reach. Of course, for well-off students and their families, the process
is just an annoyance. But for lower income and first-generation
students who are unsure about their ability to afford college, when the
time comes to file a FAFSA it may already be too late. College
preparation starts well before the end of high school, and expecting
students to just ``trust us'' that college will be affordable when they
get there is foolish policy. Students that assume college is out of
reach may never seek out the information that would challenge that
assumption, and may not take the steps they need academically to be
prepared.
An influential experimental study by Bettinger, Long, Oreopoulos,
and Sanbonmatsu (2012) provides dramatic supporting evidence. In the
experiment, some low-income families who visited a tax-preparation
center were randomly selected to receive personal assistance with
completing and submitting the FAFSA. The intervention took less than 10
minutes and cost less than $100 per participant, but increased
immediate college entry rates by 8 percentage points (24 percent) for
high school seniors and 1.5 percentage points (16 percent) for
independent participants with no prior college experience. After 3
years, participants in the full treatment group had accumulated
significantly more time in college than the control group. Removing the
FAFSA as a barrier to enrollment thus appears to be one of the most
cost-effective strategies for reducing inequality in college attainment
that researchers have identified.
While the U.S. Department of Education has made progress in recent
years in reducing the number of questions on the FAFSA and enabling
some students to automatically import tax information from the IRS,
these improvements have had an arguably limited impact on the
application experience overall. In particular, they do not enable
students to easily discern their eligibility well in advance of
application. Two specific reforms would achieve that goal: (1) basing
eligibility for most students on a very limited set of factors, such as
adjusted gross income and family size, so that prospective students
could easily determine their eligibility without having to fill out
lengthy calculators, and (2) basing eligibility only on prior prior-
year income tax data (e.g., 2013 tax year information for students
enrolling in 2015), so that all students could have a firm
determination more than a year in advance of enrollment.
Various teams have articulated how this could work (including the
Financial Aid Simplicity and Transparency [FAST] Act introduced by
Senators Alexander and Bennet; as well as proposals by The Institute
for College Access and Success, 2007; Dynarski & Scott-Clayton, 2007;
Baum & Scott-Clayton, 2013). There may be more than one workable model,
as long as the goals of communicating eligibility early and eliminating
the need for a separate application are achieved. While some have
expressed concern that States and institutions might require additional
aid applications if the FAFSA is eliminated, this is a surmountable
problem. A simplified formula can replicate State aid awards as well as
Federal aid awards (Baum, Little, Ma & Sturvesant 2012); the most elite
private institutions already use additional forms and will continue to
do so. If necessary, the Federal Government could use inducements to
encourage institutions not to add forms.
Proposal 2: Streamline student loan options and repayment plans.
Remove repayment risk by automatically enrolling all
students who take loans into an income-contingent repayment plan.
Ensure that students understand the loan repayment process
upfront, so that they are not afraid to take advantage of this
important tool for access.
While student loans are unpopular, they are still an important tool
for maintaining college access. Quasi-experimental evidence from the
United States and other countries suggests that access to student loans
does increase college enrollments (Dynarski, 2005; Solis, 2013;
Wiederspan, 2015; Dunlop, 2013). While non-experimental evidence also
suggests that loans are not as much of an inducement as grants (Heller,
2008), this is unsurprising given that loans are not worth as much to
students. But since they also cost the government only a few cents on
the dollar to provide, they are likely to remain a critical element in
college financing. And in fact, the vast majority of borrowers are able
to repay thanks to strong earnings prospects for those with higher
education (Akers & Chingos, 2014a).
Nonetheless, students' discomfort with student loans as they are
currently designed is understandable. Many students don't even know how
much they have taken out in loans, let alone what their monthly
repayments will be (Akers & Chingos, 2014b). Moreover, as Dynarski and
Kreisman (2013) point out, the default loan repayment plan asks
students to pay back their student debt over a 10-year period right
after college, when earnings are lowest and most variable, creating
non-trivial repayment risk. Moreover, the current provisions intended
to protect students against default (including loan deferment,
forbearance, and existing income-based, income-contingent, and extended
loan repayment plans) are themselves so complex that many students at
risk fail to take advantage of them before they get into repayment
trouble.
Student loans need to be restructured to minimize students'
repayment risks and to better communicate both risks and protections
upfront. Dynarski and Kreisman (2013) have proposed defaulting all
student borrowers into an income-contingent repayment system that would
collect repayments as a proportion of income automatically through the
tax system. The repayment period would extend up to 30 years, or until
the loan is paid off, whichever comes first.
In the world of higher education policy, the issues of student loan
repayment and ensuring college access upfront are too often separated.
But this is precisely the problem with student loans--too many students
(and policymakers) view them as a burden to be dealt with on the back
end rather than as a potentially powerful tool for increasing access at
the front end. Indeed, to many students, loans hardly feel like a form
of college aid at all; counterintuitively, a loan which is meant to
help students afford college may instead feel like a disincentive to
enrollment. But with streamlined, income-contingent repayments and
better guidance upfront, student loans might be much less scary and a
much more effective tool for promoting access than they currently are.
iv. concluding thoughts
Federal student aid, particularly the Pell Grant and Stafford Loan
programs, are at the foundation of our Nation's efforts to increase
college enrollment and attainment. Given the stakes involved--for both
students and taxpayers--it is essential that every dollar of student
aid have the maximum impact. The two sets of reforms suggested above
are research-based and have the potential to substantially improve the
effectiveness of Federal investments in postsecondary education.
As a concluding thought, in the ongoing policy deliberations around
college affordability, it is important to keep in mind that
affordability isn't just about what or how students pay for college,
but also about value--the quality of education that students receive
for their investment. There is tremendous variation in quality across
institutions, and even across programs within institutions, and
evidence suggests that this variation matters for students' future
outcomes (Bowen, Chingos & McPherson 2009). The lower-cost option is
not always better for either students or taxpayers; programs that
appear more expensive in terms of costs per enrollee may actually be
cheaper in terms of costs per graduate (Levin & Garcia 2013).
Thus, figuring out the cost side of the college cost-benefit
equation only gets a student halfway to a good decision. While efforts
to provide more accessible information on college quality--by providing
comparisons of graduation rates, employment rates, and default rates
are laudable, research suggests information alone isn't enough to help
students make good college choices (Bettinger, et al. 2012; Nunez
2014).
Ultimately, making good college choices requires individualized,
personalized guidance that has proven to be effective (Castleman, Page
& Schooley 2013; Hoxby & Turner 2013; Bettinger & Baker 2011) but is
difficult for the Federal Government to provide directly. But if
Federal policymakers can simplify the cost calculus for students and
their families, it could free up armies of high school counselors, aid
administrators, college advisors, and volunteers nationwide that are
currently devoted to helping students fill out FAFSAs and navigate the
student loan system. Instead, these ``boots on the ground'' could
redirect their valuable time and expertise to helping students identify
a high-quality college option that not only fits their budget, but
furthers their educational aspirations. And students themselves could
worry a little less about money, and a little more about what they need
to do academically to prepare for and succeed in college.
Thank you again for the opportunity to provide these comments to
the committee. I look forward to your questions.
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The Chairman. Thank you, Dr. Scott-Clayton.
Dr. Akers, welcome.
STATEMENT OF ELIZABETH AKERS, Ph.D., FELLOW, BROWN CENTER ON
EDUCATION POLICY, THE BROOKINGS INSTITUTION, WASHINGTON, DC
Dr. Akers. Good morning, Chairman Alexander, Ranking Member
Murray, and distinguished members of the committee. My name is
Beth Akers. I'm an economist by training and presently a fellow
at the Brookings Institution, where I carry out research on the
economics of higher education. Thank you for giving me the
opportunity to be here today to share my thoughts on this
important issue.
I'd like to start by laying out three facts that are
related to the issue of college affordability, none of which
will be a surprise to anyone in this room, I'm sure.
No. 1, students and their families are spending very large
sums of money in pursuit of college degrees. The average
student earning a bachelor's degree at a 4-year private
nonprofit institution will pay upwards of $94,000 in tuition,
fees, and room and board over the course of their enrollment.
This amount is almost twice the median household income in the
United States in 2013.
No. 2, as a Nation, we're spending a tremendous amount of
money on higher education, and we're relying heavily on debt to
support that spending. U.S. households are now holding $1.2
trillion in education debt on their personal balance sheets.
And, last, No. 3, there are more households with student
loan debt today than ever before, and the balances that they're
holding are at the highest levels in history. Thirty-eight
percent of young households are now holding some level of
student debt. That's up from 11 percent in 1989. Their average
balances have more than tripled during that time from about
$5,800 to almost $20,000 today.
Discussions of college affordability often dwell on these
three points. Unfortunately, without additional context, they
tell us almost nothing about whether or not college is
affordable. Rather, they simply tell us that college is
expensive, and, unfortunately, that's not the same thing.
Let's consider the first point again. The price tag of our
education is high. We know that. In order to know whether it's
affordable, we need to know what that price tag is actually
buying. Research tells us that education buys students access
to higher earnings.
While the exact figures vary across different studies, it's
been consistently found that the lifelong financial dividends
of a college education exceed the up-front cost by a very wide
margin. A recent report from the Federal Reserve Bank of New
York indicated that the financial return on a college degree
might be about 15 percent, which is a very generous return by
pretty much any standards.
On the second point regarding the $1.2 trillion in
outstanding student loan debt, as we consider the question of
affordability in higher education, let's not make the mistake
of thinking that these dollars were effectively thrown into
some sort of black hole of the economy. Rather, this debt is
simply a derivative of a significant national investment we've
had in higher education, which is an asset we believe pays
large dividends to individuals and, therefore, necessarily also
to the broader economy.
Back to the third point on debt. It's important that we
don't forget that debt is simply an instrument that allows
borrowers to tap into their future earnings in order to make
investments that they would not have otherwise been able to
afford. It is not inherently good or bad.
What we should be asking ourselves is whether our current
system of student lending sufficiently enables this transfer of
wealth across stages of life, from a time when an individual is
reaping the financial benefits of an education with higher
earnings to an earlier period when the individual is facing the
up-front cost of investing in higher education. My recent work
on this question showed that despite the dramatic tuition
inflation we've seen over the last two decades, the month-to-
month burden of student loan repayment has not increased for
the typical borrower.
I'll conclude with three final points. First, college is
affordable for the average student in the sense that it will
pay for itself in the long run. Second, student loans are a
critical tool for ensuring that all potential students,
regardless of their wealth, are able to access the benefits,
financial and otherwise, that higher education affords.
And, third, college is affordable, on average, but it is
inevitable that some students will not see a positive return on
the dollars that they invest into higher education. Therefore,
it's important that a streamlined system of income-driven
repayment exists to ensure ex-post universal affordability.
Thank you for your attention. I look forward to your
questions.
[The prepared statement of Dr. Akers follows:]
Prepared Statement of Elizabeth Akers, Ph.D.
introduction
Good morning Chairman Alexander, Ranking Member Murray, and
distinguished members of the committee. Thank you for giving me the
opportunity to be here today to share my thoughts on this very
important issue.
My name is Beth Akers. I am a fellow at the Brookings Institution
where I carry out research on the topic of higher education, with a
particular focus on student loans. I've been engaged in research
related to higher education policy since 2008 when, in my role as staff
economist at the Council of Economic Advisers, I assisted the
Department of Education as they quickly implemented the Ensuring
Continued Access to Student Loans Act. My testimony is informed by the
time that I've spent engaged as a researcher in this field, first as a
graduate student in the Economics Department at Columbia University and
then as a Fellow at the Brookings Institution.
background
Over the past two decades there's been a dramatic increase in the
share of young U.S. households with education debt. The incidence has
more than doubled, from 14 percent in 1989 to 38 percent in 2013 (Table
1). Not only are more individuals taking out education loans, but they
are also taking out larger loans. Among households with debt, the mean
per-person debt more than tripled, from $5,810 to $19,341 during the
same period (2010 dollars). Median debt grew somewhat less rapidly,
from $3,517 to $10,390 (Figure 1, Table 1). Among all households,
including those with no debt, mean debt increased eightfold, from $806
to $7,382 (Table 1).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Only a trivial number of households had more than $20,000 in debt
(per person) in 1989/1992, whereas in 2013, almost one-third of those
with debt had balances exceeding $20,000 (the change in the
distribution is illustrated in Figure 2). The incidence of very large
debt balances is greater now than it was two decades ago, but it is
still quite rare. In 2013, 7 percent of households with debt had
balances in excess of $50,000 and 2 percent had balances over $100,000
(Akers and Chingos 2014b).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The large increases in education debt levels over the last two
decades are often attributed to the increases in tuition charged by
colleges and universities. There is also evidence that college students
are relying more on debt to finance college costs and paying less out-
of-pocket (Greenstone and Looney 2013b), suggesting that student
behavior is changing in ways that favor loans over other ways of paying
for college. Furthermore, there have been shifts in the level of
educational attainment and demographic characteristics of the U.S.
college-age population that could impact observed student borrowing.
Estimates suggest that roughly one-quarter of the increase in student
debt since 1989 can be directly attributed to Americans obtaining more
education (both through increased enrollment and increased levels of
attainment) while increases in tuition can explain 51 percent of the
increase in debt observed during this period (Akers and Chingos 2014a).
Recognizing that the increases in borrowing are driven by multiple
factors, some of which are less concerning than others, highlights an
important point. The growth in student loan debt is often discussed as
a problem in and of itself. However, to the extent that borrowers are
using debt as a tool to finance investments in human capital that pay
off through higher wages in the future, increases in debt may simply be
a benign symptom of increasing expenditure on higher education. On the
contrary, if these expenditures were spent in ways that don't pay
dividends in the future, then the observed growth in debt may indicate
problems for the financial future of borrowers.
evidence on affordability
Positive Return on Investment
The most direct way to examine whether borrowers are using debt to
finance investments that will pay off is to measure the financial
return that their investment will yield in terms of lifetime earnings
(relative to what they would have earned if they had not enrolled in a
program of higher education) and compare it to the upfront cost of
enrollment. Despite the recent recession, the significant economic
return to college education continues to grow, implying that many of
these loans are financing sound investments. In 2011, college graduates
between the ages of 23 and 25 earned $12,000 more per year, on average,
than high school graduates in the same age group, and had employment
rates 20 percentage points higher. Over the last 30 years, the increase
in lifetime earnings associated with earning a bachelor's degree has
grown by 75 percent, while costs have grown by 50 percent (Greenstone
and Looney 2010). There is also an earnings premium associated with
attending college and earning an associate's degree or no degree at
all, although it is not as large (Greenstone and Looney 2013a). These
economic benefits accrue to individuals, but also to society, in the
form of increased tax revenue, improved health, and higher levels of
civic participation (Baum, Ma, and Payea 2013).
Studies that seek to identify the causal relationship between
education and earnings draw similar conclusions. A recent study,
published by researchers at the Federal Reserve Bank of New York in
2014, suggested that the financial return on a college degree, when
expressed as a rate of return, was 15 percent and had held steady at
that level (a historic high) for the previous decade. A valuable
insight from this work is that the return on college has not fallen,
despite the growing cost of attendance and stagnant earnings growth
across the economy. This counterintuitive result is driven by the
decline of earnings among workers without college degrees (Abel and
Deitz, 2014). These statistics indicating large financial returns on
investments in higher education suggest that, for the average student,
college will pay for itself in the long run.
Month-to-Month Affordability of Student Debt
The long run financial return is an important indicator of
affordability, but it could potentially obscure more transient
challenges faced by households. For example, an increase in debt may be
affordable in the long run but impose monthly payments that squeeze
borrowers in the short run, especially early in their careers when
earnings are low. However, month-to-month affordability of student debt
does not seem to have declined in recent history. The ratio of monthly
payments to monthly income has been flat over the last two decades
(Figure 3, Table 2). Median monthly payments ranged between 3 and 4
percent of monthly earnings in every year from 1992 through 2013. Mean
monthly payments, which are larger than median payments in each year
due to the distribution being right-skewed, declined from 15 percent in
1992 to 7 percent in 2013 (Akers and Chingos 2014b).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The ratio of monthly payments to monthly income stayed roughly the
same over time, on average, at each percentile and for each education
category. By this measure, the transitory burden of loan repayment is
no greater for today's young workers than it was for young workers two
decades ago. If anything, the monthly repayment burden has lessened.
This surprising finding can be explained in part by a lengthening
of average repayment terms during the same period. In 1992, the mean
term of repayment was 7.5 years, which increased to 12.5 years in 2013.
This increase was likely due primarily to loan consolidation, which
increased dramatically in the early 2000s (Department of Education
2014, S-16). Loans consolidated with the Federal Government are
eligible for extended repayment terms based on the outstanding balance,
with larger debts eligible for longer repayment terms. Average interest
rates also declined during this period, which would also lower monthly
payments (Table 3).
In order to appreciate how much of a burden monthly payments place
on households, it's useful to compare student debt payments to other
household expenses. In Figure 4 average monthly student loan payment
(based on data from 2010) is plotted together with the average monthly
expenditure in each major consumption category (this data comes from
the 2012 Consumer Expenditure Survey, which is administered by the
Bureau of Labor Statistics). The largest categories of monthly
consumption expenditure are housing ($1,407), transportation ($750) and
food ($588). Monthly student loan payments are relatively small
compared to these expenses, and at $242, are closer in scale to monthly
spending on entertainment ($217), apparel ($145) and health care
($296). There is relatively little variation in monthly loan payments
(due to consolidation with longer repayment terms for larger debts)
(Akers 2014a).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Student Debt is a Poor Indicator of Economic Hardship
It might seem reasonable to be most concerned about the plight of
individuals with large outstanding student loan balances, but evidence
suggests that these individuals may not be faring any worse than
households with smaller balances or no student debt at all. The highest
rates of financial distress, as indicated by late payments on household
financial obligations, are seen among households with the lowest levels
of student loan debt. Households with large debts tend to have higher
levels of educational attainment and earnings, on average, and miss
bill payments less often. Among households with outstanding education
debt in the lowest quartile of the debt distribution ($0-$3,386), 34
percent report having made a late payment on a financial obligation in
the past year compared with 26 percent of households with education
debt in the highest quartile ( $18,930). Households with student loan
debt do not show indications of financial distress more often than
households without student loan debt (Akers 2014b).
conclusions
This body of evidence contradicts the notion that a crisis of
college affordability exists on a macro level. However, it is
undeniable that many individuals and households are facing serious
economic hardship that can be explained completely or in part by their
spending on higher education. Like any other investment, the returns to
higher education are not guaranteed. While the average student will see
a large financial return on the dollars they spend on higher education,
some students will find that their investment won't pay off. We can
reduce the frequency of this occurrence by ensuring that students have
the information and resources they need in order to make good decisions
about college enrollment. For instance, a national level data base that
reports earnings by institution would succeed in helping students to
avoid enrolling at institutions that do not have a track record of
success. This would succeed in creating more institutional
accountability without additional government intervention.
An additional way to improve outcomes for students is to simplify
the Federal lending program both on the front end, with the menu of
services, and also on the backbend with a more streamlined system of
repayment. Recent work on this issue has revealed that students have
relatively little understanding of their financial circumstances while
they are enrolled in college. About half of all first-year students in
the United States seriously underestimate how much debt they've taken
on. Even more concerning is the fact that among all first-year students
with Federal student loans, 28 percent report having no Federal debt
and 14 percent report that they have no debt at all (Akers and Chingos
2014c). Removing the complexity of the Federal aid system could
potentially succeed in making it easier for students to comprehend
their circumstances and to make better informed decisions.
However, some of the uncertainty about the payoff of college is
unavoidable. For example, some students will invest in developing
skills that will ultimately become obsolete due to unanticipated
technological or policy innovation. It's important that the government
provide insurance against these types of occurrences both for the sake
of ensuring individual welfare and also to discourage debt aversion
among potential students. Income-driven payment programs, like the ones
currently in place for the Federal student lending program, are the
appropriate tool for providing a safety net to borrowers.
In sum, college is affordable in the sense that on average it will
pay for itself in the long run with heightened wages. However, to
ensure that college is universally affordable ex-post, it's necessary
to maintain a robust system of income-driven repayment such that
students are insured against their investment not paying off. Last, we
need to ensure that both the system of Federal lending and the safety
nets that exist to support it are simple enough that the benefits of
these policy innovations can be fully realized.
References
Jaison R. Abel and Richard Deitz, ``Do the Benefits of College Still
Outweigh the Costs?'' Federal Reserve Bank of New York Current
Issues in Economics and Finance, vol. 20, no. 3 (2014), available
at http://www.newyorkfed.org/research/current_issues/ci20-3.html.
Elizabeth Akers and Matthew M. Chingos. 2014a. ``Is a Student Loan
Crisis on the Horizon?''' Brown Center on Education Policy,
Brookings Institution, available at http://www.brookings.edu/
research/reports/2014/06/24-student-loan-crisis-akers-chingos.
Elizabeth Akers and Matthew M. Chingos. 2014b. ``Student Loan Update: A
First Look at the 2013 Survey of Consumer Finances.'' Washington,
DC: Brown Center on Education Policy, Brookings Institution,
available at http://www.brook-
ings.edu/research/papers/2014/09/08-student-loan-update-akers-
chingos.
Elizabeth Akers and Matthew M. Chingos. 2014c. ``Are College Students
Borrowing Blindly?'' Washington, DC: Brown Center on Education
Policy, Brookings Institution, available at http://
www.brookings.edu/research/reports/2014/12/10-borrowing-blindly
akers-chingos.
Elizabeth Akers. 2014a. ``The Typical Household with Student Loan
Debt.'' Washington, DC: Brown Center on Education Policy, Brookings
Institution, available at http://www.brookings.edu/research/papers/
2014/06/19-typical-student-loan-debt-akers.
Elizabeth Akers, 2014b. ``How Much is Too Much? Evidence on Financial
Well-Being and Student Loan Debt.'' Washington, DC: Center on
Higher Education Reform, American Enterprise Institute, available
at http://www.aei.org/publication/how-much-is-too-much-evidence-on-
financial-well-being-and-student-loan-debt/.
Sandy Baum, Jennifer Ma and Kathleen Payea. 2013. ``Education Pays,
2013.'' Washington, DC: The College Board, available at https://
trends.collegeboard.org/sites/default/files/education-pays-2013-
full-report.pdf.
Department of Education. 2014. ``Student Loans Overview: Fiscal Year
2015 Budget Proposal.'' Washington, DC: U.S. Department of
Education. http://www2.ed.gov/about/overview/budget/budget15/
justifications/s-loansoverview.pdf (accessed June 13, 2014).
Michael Greenstone and Adam Looney. 2010. ``Regardless of the Cost,
College Still Matters.'' Brookings on Job Numbers blog, October 5.
http://www.brookings.edu/blogs/jobs/posts/2012/10/05-jobs-
greenstone-looney.
Michael Greenstone, and Adam Looney. 2013a. ``Is Starting College and
Not Finishing Really that Bad?'' Washington, DC: Brookings
Institution, Hamilton Project, available at http://
www.hamiltonproject.org/files/downloads_and_
links/May_Jobs_Blog_20130607_FINAL_2.pdf.
Michael Greenstone, and Adam Looney. 2013b. ``Rising Student Debt
Burdens: Factors behind the Phenomenon.'' Brookings on Job Numbers
blog, July 5, available at http://www.brookings.edu/blogs/jobs/
posts/2013/07/05-student-loans-debt
burdens-jobs-greenstone-looney.
Table 1.--Incidence and Amount of Debt Over Time, Age 20-40
----------------------------------------------------------------------------------------------------------------
Incidence Those with Debt
Year [In Mean ------------------------ Cell
percent] Debt Mean Median size
----------------------------------------------------------------------------------------------------------------
1989................................................... 14 $806 $5,810 $3,517 971
1992................................................... 20 $1,498 $7,623 $3,730 1,323
1995................................................... 20 $1,475 $7,521 $3,577 1,429
1998................................................... 20 $2,539 $12,826 $8,027 1,362
2001................................................... 22 $2,881 $12,939 $6,156 1,307
2004................................................... 24 $3,402 $14,204 $7,503 1,246
2007................................................... 28 $4,583 $16,322 $9,728 1,144
2010................................................... 36 $6,502 $17,916 $8,500 1,865
2013................................................... 38 $7,382 $19,341 $10,390 1,623
----------------------------------------------------------------------------------------------------------------
Notes: All amounts are in 2010 dollars.
Source: Akers and Chingos 2014b
Table 2.--Payment-to-Income Ratios
--------------------------------------------------------------------------------------------------------------------------------------------------------
Payment to Income
------------------------------------------------------------------------------ Monthly Monthly
Year Mean [In P10 [In P25 [In P50 [In P75 [In P90 [In payment payment
percent] percent] percent] percent] percent] percent]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1992.............................................. 15 1 2 4 10 20 $431 $4,367
1995.............................................. 11 1 2 3 7 15 $226 $4,433
1998.............................................. 11 1 2 4 10 22 $296 $4,694
2001.............................................. 6 1 2 4 7 13 $266 $6,323
2004.............................................. 6 1 2 3 6 11 $194 $5,247
2007.............................................. 5 1 2 4 6 10 $218 $5,789
2010.............................................. 7 1 2 4 7 15 $234 $5,424
2013.............................................. 7 1 2 4 8 16 $254 $5,420
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes: Includes households age 20-40 with education debt, wage income of at least $1,000, and that were making positive monthly payments.
Source: Akers and Chingos 2014b
Table 3.--Average Loan Terms and Interest Rates, Largest Loan
------------------------------------------------------------------------
Interest
Year Term Rate [In
percent]
------------------------------------------------------------------------
1992............................................... 7.5 8.3
1995............................................... 8.8 8.3
1998............................................... 10.5 8.4
2001............................................... 9.9 8.0
2004............................................... 13.7 4.7
2007............................................... 14.1 5.5
2010............................................... 13.4 5.5
2013............................................... 12.5 5.9
------------------------------------------------------------------------
Notes: The average loan term and interest rate are calculated based on
the largest education loan held by each household in the SCF.
Source: Akers and Chingos 2014b.
The Chairman. Thank you, Dr. Akers.
Dr. Alexander.
STATEMENT OF F. KING ALEXANDER, Ph.D., B.A., M.S., PRESIDENT
AND CHANCELLOR, LOUISIANA STATE UNIVERSITY, BATON ROUGE, LA
Mr. Alexander. Thank you, Chairman Alexander and members of
the HELP committee, for this opportunity to share with you some
of my thoughts regarding the important national issue of
college and university affordability and access.
I'm president of Louisiana State University, which is a
Land-Grant, Sea-Grant, and Space-Grant university with an
enrollment of nearly 44,000 students. We take great pride in
providing high-quality educational opportunities at a student
cost well below the national average. Our State ranks third
lowest in student indebtedness in the country, and we'd like to
stay that way. That's why we're asking you for your help.
This morning, I'd like to focus my comments on the ongoing
and greatest challenge facing public higher education today,
which is the continual decline of State appropriations. I will
also provide some policy recommendations and proven examples of
how Federal Government can actually better utilize its leverage
to ensure that there will be affordable public colleges and
universities for students in every State for years to come.
What no one expected in 1972 was that States would get out
of the higher education funding business. What no one expected
in 1981 was that State--that's when State reduction started to
occur, and a 3\1/2\ decade decline we've experienced in the
State public funding decline. The result has been that State
funding for higher education sits currently around 48 percent
below where it was in State tax effort in 1981, which measures
State spending by the percentage of per capita income by State.
In other words, States began getting out of the higher
education business to the point that the Federal Government has
now become the primary funding source through tuition and fee-
based programs, which it wasn't intended to be in 1972. For
example, if current State funding trends persist, Colorado will
become the first State not to spend a penny on public higher
education less than a decade from now.
This means that existing primary school children in
Colorado will have no affordable public college or university
options in less than a decade. States that will soon follow
Colorado in abandoning their public commitments will be
Louisiana, 2 years later; Massachusetts; Rhode Island, 2 years
later; Arizona in 2030; South Carolina in 2031; Vermont, 1932;
Oregon, 1934; and so on.
The interlocking relationship between student aid, public
State funds, and student tuition increase is indisputable. If
we do not look to new Federal policies to address this issue,
we will continue to decline, watching our 25- to 34-year-olds
rank 12th in the OECD standards in terms of college completion,
compared to our older population ranking first--our 55- to 64-
year-olds--in OECD standards.
To assist in addressing the college affordability issue,
first, we need to review all Federal policies to ensure that
price sensitivity is not incorporated into the formulas.
Campus-based Federal funding, SEOG, and work-study actually
provides additional funding to institutions that charge more,
incentivizing institutions to charge more.
For example, the California State University, with over
230,000 Pell grant eligible students, receives the same amount
of SEOG funding as the Ivy League institutions with only 10,000
Pell grant students. The Ivy League, with 10,000 Pell grant
students, receives twice the work-study as California State
University with 230,000 Pell grant students.
However, I would say the most important Federal policy
recommendation that I would make today is to use Federal
leverage to ensure that States maintain their public support of
higher education. Today, the diversity of American higher
education is, indeed, threatened by the elimination of public
college and university student options.
The time has come for a new Federal partnership. Federal
partnerships are not new to higher education. We are a Land-
Grant university, which was a Federal partnership established
in 1862. That was a Federal-State partnership using Federal
leverage.
More recently, Federal leverage was used with the passage
of the 1972 Higher Education Act, where we encouraged States
through the SSIG program, of which only 19 had State student
aid programs. Federal matching programs encouraged States with
matching funds to adopt State student aid programs. Within 4
years, nearly 40 States had adopted those programs.
Further evidence was found with the stimulus packages. If
the stimulus packages did not include the maintenance-of-effort
provisions that said that States could not accept stimulus
funds if they cut their budgets below 2006 funding levels, then
those funds would not have been received by States. Nearly 20
States adopted the policies that cut their budgets nearly to
the Federal limit of where they could go, but they would not
cross the Federal leverage line.
Before we increase Federal spending awards and expand
Federal loan caps, we need to make sure that States are staying
in the game, making sure that States are not disinvesting.
Before we put $200 more into a Pell grant, we need to ensure
that the back door of these houses is closed so that--it
doesn't do a Pell grant student any good if we increase it by
$200 when our States are increasing their tuition and fees and
$900.
Now is the time that we do need Federal leverage to make
sure States do not abandon their responsibilities to public
higher education.
Thank you very much.
[The prepared statement of Dr. Alexander follows:]
Prepared Statement of F. King Alexander, Ph.D., B.A., M.S.
Thank you, Mr. Chairman and members of the HELP (Health, Education,
Labor, and Pensions) Committee, for this opportunity to share with you
some of my thoughts regarding the important national issue of college
and university affordability and access.
I am president of Louisiana State University, which is a Land-
Grant, Sea-Grant, and Space-Grant university with a total enrollment of
more than 44,000 students. We take great pride in providing high-
quality educational opportunities at student costs well below the
average of our ``Flagship'' and ``High Research'' public university
peers.
Before making my comments, I wanted you to know that I have been
very fortunate to represent public colleges and universities in 2003
and 2007 to the U.S. House Committee on Labor and Education on this
very same topic of college affordability. Because this issue has
clearly not been resolved in the intervening years and continues to
demand congressional attention, the time has come to explore new and
proven policy directives to address college affordability and access.
This morning I would like to focus my comments on the ongoing and
greatest challenge facing public higher education today, which is the
continual decline of State appropriations. I will also provide some
policy recommendations and proven examples of how the Federal
Government can better utilize its fiscal leverage to ensure that there
will be affordable public college and university options for students
in every State.
state appropriations decline
At the inception of the Higher Education Act in 1965 and throughout
subsequent Federal debates that culminated in 1972 with the creation of
numerous Federal grant and loan programs, it was assumed that any new
Federal funding policies would simply supplement State funding, not
replace it. Many policymakers believed that States would always be the
primary funding source for public higher education with the Federal
Government playing only a small complementary role, which is not the
case today. Another assumption that would prove to be a major
miscalculation on the part of Federal policymakers was that States
would of their own volition maintain or increase their current levels
of fiscal commitment to public higher education. To the detriment of
public higher education institutions and leaders, this presupposition
would prove quite erroneous as State governments began to reduce
funding less than 10 years later in 1981, resulting in a continual
ballooning of student tuition and fees that we have steadily
experienced in State colleges and universities to this day.
What no one could have anticipated in 1981 was that the State
reductions experienced in the early 1980s were just the beginning of a
3\1/2\ decade decline in State support for public higher education. The
result has been that State funding for higher education sits currently
around 48 percent to 50 percent below where it was in 1981 in State tax
effort, which measures State spending as a percentage of higher
education support by State per capita income.
In other words, States essentially began getting out of the higher
education funding business, to the point that the Federal Government
has now become the primary funding source through tuition and fee-based
programs. For example, if current State funding trends persist,
Colorado will become the first State not to spend a single penny on
public higher education in 2025. This means that existing primary
school children in Colorado will have no affordable public college or
university options in less than a decade. States that will soon follow
Colorado in abandoning all their public higher education funding
include my own State Louisiana in 2027, Massachusetts and Rhode Island
in 2029, Arizona in 2030, South Carolina in 2031, Vermont in 2032,
Oregon in 2034, and Wisconsin/Minnesota/New York/Montana in just a
little more than 20 years from now.
As many recent reports have clearly indicated, while State
appropriations continue to vanish from the higher education landscape,
student tuition and fees for the vast majority of American students
will continue to increase, forcing further growing reliance on Federal
direct student aid grant and loan programs. In a report released
earlier this year, ``Pulling Up the Higher Ed Ladder: Myth and Reality
in the Crisis of College Affordability'' by Robert Hiltonsmith of the
Demos organization, declining State support was responsible for almost
80 percent of net tuition increases from 2001-11. According to the
report, as States withdraw from their responsibilities--as they have
done since the early 1980s--tuition is raised to keep universities
afloat.
The interlocking relationship between public institutions, tuition
and fee policies, and State appropriations is an area that seems to be
pervasively misunderstood by both taxpayers and policymakers. Over the
last decade, other studies have highlighted the instability of State
appropriations and the effects of State policy on public institution
tuition changes. In a congressionally mandated NCES study on college
costs and prices in 2006, it was shown that State general fund
appropriations were by far the most significant factor in determining
public college and university resident tuition rates.
If we don't look to new Federal policies to address this ongoing
State funding dilemma, we will continue to witness an international
(OECD) decline in the percentage of our 25-34-year-old population with
college degrees, which has fallen to a ranking of 12th. This declining
international ranking is even more problematic when you consider that
our 55-64-year-old population ranks first in the same OECD category. If
our young people can't afford college, particularly public higher
education, we will continue to plummet in these metrics and lose our
international competiveness on a variety of levels.
new federal policy directives
To assist in addressing the college affordability issue, a number
of Federal initiatives should be considered. First, review all Federal
student aid programs to eliminate or reduce ``price sensitivity''
formulaic factors. Many Federal student aid programs used price as an
important financial component in qualifying for larger Federal
assistance awards. Two of those programs are considered campus-based
Federal assistance programs and include the Secondary Educational
Opportunity Grant program and the Work-Study program. Evidence of the
dramatic variations in award amounts exists throughout the United
States. As just one primary example, in 2013-14, SEOG funds distributed
to all eight high-cost Ivy League institutions totaled about the same
Federal funding as the total amount received by all 23 California State
Universities. In the Federal Work Study program in 2013-14, nearly
twice as much funding was granted to Ivy League campuses than the
entire California State University. This is particularly problematic
when you consider that the eight Ivy League campuses have about 100,000
total students with only around 10,000 Pell Grant or lower income
students combined, while the California State University has 430,000
students and nearly 200,000 Pell Grant or lower income students.
Second, create Federal pressure to have States review their State
student aid programs to eliminate or reduce ``price sensitivity'' as a
formulaic factor. One important challenge created by the success of the
Federal SSIG and LEAP program is that many of these State-based
programs are extremely price sensitive, which means award amounts and
the ability to receive awards are based in part on what the institution
charges. Programs such as these exist in many States and a few have
even been named ``tuition equalization'' programs. This essentially
incentivizes many private not-for-profit and for-profit institutions to
inflate pricing. Perhaps the most egregious example of this problem
resided in the State of California through their Cal Grant A program.
Three years ago, it was discovered after many years of State student
aid funding that the average student award from this program varied
from around $5,000 for California State University students to an
average of $10,000 to $13,000 to students attending high-priced private
and for-profit institutions--with no regard for the quality of
education these students were actually receiving. These figures are
also problematic since for-profit institutions not only receive larger
State student aid grants in some cases like California, but enroll only
11 percent of the Nation's student population while acquiring nearly 30
percent of all Pell Grants and registering approximately 47 percent of
all student loan defaults.
Third, whenever feasible, maintain Federal direct student aid loan
limits and caps. When Federal student aid loan limits are increased,
many institutions are incentivized to also increase their student
tuition and fees. One example was the Middle Income Assistance Act in
1978, which expanded loan availability to middle- and upper-income
students eventually increasing loan caps years later. The result was
that student loan debt increased rapidly, as did student tuition and
fees. Many believe the combination of both State appropriation
reductions in the early 1980s and the increased availability of Federal
student loans at the same time dramatically fueled the student tuition
and fee increases of that decade, creating the $1.3 trillion student
loan problem we face today.
Finally, my most important Federal policy recommendation is to
utilize Federal financial leverage to ensure that States maintain their
public support of higher education. Today, the diversity of American
higher education is threatened due to the elimination of affordable
public college and university student options. The time has come for a
Federal-State partnership or match to incentivize States to continue
their public investments in their public colleges and universities.
Federal-State partnerships are not entirely new to higher education
in the United States. Perhaps our greatest example of how effective
such Federal-State partnerships have been is the Morrill Act or Land-
Grant Act of 1862. In this case, Federal lands were given to State
governments throughout the United States in exchange for the creation
of new public colleges and universities primarily developed to educate
more engineers, agricultural scientists, and military science
graduates. This Federal-State partnership could arguably be considered
the foundation of what led the United States to become the world's
leader in higher education development a century later. The success of
the Morrill Act also led to the creation of the second Morrill Act in
1890, which required each State from the former Confederacy to
designate a separate land-grant institution for persons of color.
More recently, Federal leverage was used again with the passage of
the 1972 HEA reauthorization with the creation of the State Student Aid
Incentive Grant (SSIG). This was a new Federal matching program
designed to encourage States to create State student aid programs or
increase funding to existing ones. In creating SSIG, the Federal
Government sent a clear message to States to either reallocate funds to
begin supporting these programs or match additional State funding to
these grant programs. The Federal matching funds proved extremely
effective and encouraged 20 additional States to adopt State student
aid programs within 4 years. This is proof positive that Federal
matching programs work when it comes to incentivizing State funding
behavior.
Further evidence of the effectiveness of Federal leverage can be
found in the reauthorization efforts of the Higher Education Act in
2007 when a first ``maintenance of effort'' (MOE) provision was added
to protect higher education from dramatic cuts. Then in 2008 and 2009,
the same MOE language was successfully transferred into the American
Recovery and Reinvestment Act (ARRA), which allowed for the use of
education stimulus funds only if States didn't cut their higher
education budgets below 2006 State funding levels. Ironically, a few
months after the MOE was passed by Congress, a critical mass of States
began to cut their higher education budgets to the very edge of where
Federal penalties would apply. The Federal leverage worked well and
States remained very reluctant to cross the Federal line, ultimately
stemming the mass State disinvestment trend across the Nation.
Before we further increase Federal student aid awards or expand
Federal student loan caps, we need to ensure that States don't continue
disinvesting in their public higher education institutions. It makes
little sense to increase a Pell Grant award by $200 or $300 when State
funding reductions force public institutions to increase tuition and
fees by $900. In short, we need to close the back door before we
continue putting money through the front door. None of my other
recommendations will make a difference without Federal incentives for
State higher education support.
Fifty years after the Higher Education Act was passed, the time has
come for us to create a new Federal/State partnership that could
incentivize States to maintain or even increase their levels of
support. This could reverse the detrimental State funding trends that
we continue to experience and perhaps save American public higher
education by ensuring its accessibility and affordability for future
generations to come.
The Chairman. Thank you, Dr. Alexander.
Mr. Mitchell.
STATEMENT OF MICHAEL MITCHELL, POLICY ANALYST, CENTER ON BUDGET
AND POLICY PRIORITIES, WASHINGTON, DC
Mr. Mitchell. Chairman Alexander, Ranking Member Murray,
members of the committee, thank you very much for this
opportunity to testify on college affordability. My name is
Mike Mitchell. I'm a policy analyst with the Center on Budget
and Policy Priorities, a policy institute which focuses on
research and analysis on budget and tax policy issues at the
State and Federal level. My research has focused on State
investments in higher education.
My oral remarks today will hone in on three key points.
First, States have made dramatic cuts to higher education
funding since the onset of the 2008 recession. Over that same
time period, second, we have seen significant increases in
tuition at public 4-year colleges. Then, finally, as this shift
from State investment to higher tuition has occurred, there is
the potential for harm to students, particularly low-income and
students of color, at public 4-year and 2-year colleges.
State and local tax revenues play a critical role in
funding higher education. Unlike private institutions, which
may rely upon private gifts or large endowments, public 2- and
4-year colleges typically rely on State and local
appropriations to fund teaching and education purposes.
In 2014, State and local dollars constituted slightly more
than half of educational revenues used directly for teaching
and education. For public colleges and universities, State
support today is well below what it was in 2008. In aggregate,
States are spending $13.3 billion less on higher education
today than they were in 2008. On a per-student basis, we see
that this is about a 20 percent decline in higher education
funding across 2- and 4-year public colleges. All but three
States, as Senator Murray pointed out--Alaska, North Dakota,
and Wyoming--are spending less per student today than they were
before the recession.
Over that same time period, we have seen increases in
tuition at public 4-year colleges, in some States, dramatically
so. In six States, for example, we've seen tuition increases
above 60 percent--average annual increases above 60 percent.
Over that same time period, in Arizona, the No. 1 State in
tuition increases, it rose by 84 percent.
Encouragingly, I will say that over the past few years, we
have seen States start to put dollars back into their higher
education systems. However, that reinvestment has not been
enough to make up for the total amount of cuts. Again, over
that same time period, as States have started to reinvest, we
have seen tuition increases that have been much more moderate
than they were over the worst years of the economic recession
and major years of cuts.
Again, what does this mean for students? It's important to
keep in mind that for low-income students and students of
color, sticker shock is a very real phenomenon, and that, for
these students, they are more likely to borrow and to take on
higher levels of debt to fund their education, even at public
4-year institutions.
Student debt levels overall for all students are
increasing, and the share of students taking on debt is also
going up. This can present a host of challenges threatening
college completion, which is another population of students we
need to be very mindful of in terms of having debt but not
necessarily the diploma to be able to pay this off, but then
also for those who do graduate, what higher levels of debt can
do in terms of pushing off major lifetime milestones and other
important actions and activities.
Moving forward, strengthening State investments in higher
education will play a huge role, at the very least, in ensuring
that more students can enter higher education and complete. In
order to make this happen, State policymakers will need to make
the right tax and budget choices over the coming years and must
avoid additional cuts to higher education that will make it
much harder for students to enter and complete in college.
Thank you very much for your time, and I look forward to
answering any questions you may have.
[The prepared statement of Mr. Mitchell follows:]
Prepared Statement of Michael Mitchell
Thank you for the invitation to testify today. I am pleased to be
able to speak to you about college affordability, State support for
higher education, and how rising costs have affected students across
the country. I am Michael Mitchell, Policy Analyst at the Center on
Budget and Policy Priorities. We are a Washington, DC-based policy
institute that conducts research and analysis on budget, tax, and
economic policy, policies related to poverty, and a number of social
programs at both the Federal and State levels. The Center has no
government contracts and accepts no government funds.
My testimony today will focus on four key points: (1) States have
made dramatic cuts to higher education funding since the onset of the
Great Recession; (2) we've seen rapid growth in tuition costs at public
4-year institutions over the same time period; (3) higher costs have
hurt students and families, especially those with low or moderate
incomes and students of color; and (4) while States reduced higher
education funding, the Federal Pell Grant program continued to provide
important support to low-income students. I conclude with
recommendations for Federal and State policymakers that would enable
more students, particularly low-income students, to access and graduate
from college.
i. states have made dramatic cuts to higher education since 2008
State and local tax revenue is a major source of funding for public
colleges and universities. Unlike private institutions, which may rely
upon gifts and large endowments to help fund instruction, public 2- and
4-year colleges typically rely heavily on State and local
appropriations. In 2014, State and local dollars constituted 53 percent
of public institutions' education revenue--the funds used directly for
teaching and instruction.\1\
---------------------------------------------------------------------------
\1\ State Higher Education Executive Officers Association, April
2015.
---------------------------------------------------------------------------
While States have begun to restore funding, appropriations are well
below what they were in 2008--20 percent per student lower--even as
State revenues have returned to pre-recession levels. Compared with the
2007-08 school year, when the recession hit, adjusted for inflation:
State spending on higher education nationwide is down an
average of $1,805, or 20.3 percent, per student.
Every State except Alaska, North Dakota, and Wyoming has
cut per-student funding.
Thirty-one States have cut per-student funding by more
than 20 percent.
Six States have cut per-student funding by more than one-
third.
Per-student funding in Arizona and Louisiana is down by
more than 40 percent.\2\ (See Figure 1.)
---------------------------------------------------------------------------
\2\ CBPP calculation using the ``Grapevine'' higher education
appropriations data from Illinois State University, enrollment and
combined State and local funding data from the State Higher Education
Executive Officers Association, and the Consumer Price Index, published
by the Bureau of Labor Statistics. Since enrollment data are only
available through the 2012-13 school year, enrollment for the 2013-14
school year is estimated using data from past years.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Over the past year, States have moved to restore some of that lost
funding. (See Figure 2.) Thirty-seven States are investing more per
student in the 2014-15 school year than they did in 2013-14. Adjusted
---------------------------------------------------------------------------
for inflation:
Nationally, spending is up an average of $268, or 4
percent, per student.
The funding increases vary from $16 per student in
Louisiana to $1,090 in Connecticut.
Eighteen States increased per-student funding by more than
5 percent.
Four States--California, Colorado, New Hampshire, and
Utah--increased funding by more than 10 percent.
Still, in 13 States, per-student funding fell over the last year--
declining, on average, by more than $50 per student. Adjusted for
inflation:
Funding cuts vary from $6 per student in Illinois to $179
in Kentucky.
Five States--Alaska, Arkansas, Kentucky, Texas, and West
Virginia--cut funding by more than $100 per student over the past year.
Three States--Kentucky, Oklahoma, and West Virginia--have
cut per-student higher education funding for the last 2 consecutive
years.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
why did states cut higher education funding?
The cuts resulted from State responses to the deep recession and a
slow recovery.
While Federal aid prevented even deeper cuts, State tax
revenues fell very sharply and are only now returning to pre-recession
levels. The recession of 2007-09 hit State revenues hard, and the slow
recovery continues to affect them. High unemployment and a slow
recovery in housing values left people with less income and less
purchasing power. As a result, States took in less income and sales tax
revenue, their main sources of revenue for funding education and other
services. By the fourth quarter of 2014, total State tax revenues were
only 2 percent greater than they were at the onset of the recession
after adjusting for inflation.\3\
---------------------------------------------------------------------------
\3\ CBPP analysis of Census quarterly State and local tax revenue,
http://www.census.gov/govs/qtax/.
---------------------------------------------------------------------------
States relied heavily on Federal assistance to stave off even
deeper cuts to higher education in the early years of the economic
downturn. The American Recovery and Reinvestment Act provided States
with roughly $140 billion to fund existing State spending--including
funds intended to support higher education. Unfortunately, this
additional Federal fiscal support dried up after only a few years,
despite the fact that States continued to face sizable budget gaps.\4\
Partially because of this, the most dramatic cuts to higher education
occurred in fiscal year 2012, years after the recession's start.\5\
---------------------------------------------------------------------------
\4\ Nicholas Johnson, Phil Oliff, and Erica Williams, ``An Update
on State Budget Cuts,'' Center on Budget and Policy Priorities,
February 9, 2011, http://www.cbpp.org/research/an-update-on-state-
budget-cuts.
\5\ CBPP calculation using the ``Grapevine'' higher education
appropriations data from Illinois State University, enrollment and
combined State and local funding data from the State Higher Education
Executive Officers Association, and the Consumer Price Index, published
by the Bureau of Labor Statistics.
---------------------------------------------------------------------------
Limited revenues must support more students. Public higher
education institutions are educating more students, raising costs. In
part due to the ``baby boom echo'' causing a surge in the 18- to 24-
year-old population, enrollment in public higher education was up by
nearly 900,000 full-time-equivalent students, or 8.6 percent, between
the beginning of the recession and the 2013-14 academic year (the
latest year for which there are actual data).\6\
---------------------------------------------------------------------------
\6\ State Higher Education Executive Officers Association, April
2015. Note: while full-time-equivalent enrollment at public 2- and 4-
year institutions is up since fiscal year 2008, between fiscal years
2012 and 2013 it fell by approximately 150,000 enrollees--a 1.3 percent
decline.
---------------------------------------------------------------------------
The recession also played a large role in swelling enrollment
numbers, particularly at community colleges, reflecting high school
graduates choosing college over dim employment prospects and older
workers entering classrooms in order to retool and gain new skills.\7\
---------------------------------------------------------------------------
\7\ See, for example, ``National Postsecondary Enrollment Trends:
Before, During and After the Great Recession,'' National Student
Clearinghouse Research Center, July 2011, p. 6, http://pas.indiana.edu/
pdf/National%20Postsecondary%20Enrollment%20Trends.pdf. A survey
conducted by the American Association of Community Colleges indicated
that increases in Fall 2009 enrollment at community colleges were, in
part, due to workforce training opportunities; see Christopher M.
Mullin, ``Community College Enrollment Surge: An Analysis of Estimated
Fall 2009 Headcount Enrollments at Community Colleges,'' AACC, December
2009, http://files.eric.ed.gov/fulltext/ED511056.pdf.
---------------------------------------------------------------------------
Other areas of State budget also are under pressure. For example,
an estimated 485,000 more K-12 students are enrolled in the current
school year than in 2008.\8\ Long-term growth in State prison
populations--with State facilities now housing nearly 1.36 million
inmates--also continues to put pressure on State spending.\9\
---------------------------------------------------------------------------
\8\ National Center for Education Statistics, Enrollment in public
elementary and secondary schools, by level and grade: Selected years,
fall 1980 through fall 2023, Table 203.10, http://nces.ed.gov/programs/
digest/d13/tables/dt13_203.10.asp?current=yes.
\9\ CBPP analysis of data from U.S. Department of Justice, Bureau
of Justice Statistics.
---------------------------------------------------------------------------
Many States chose sizable budget cuts over a balanced mix
of spending reductions and targeted revenue increases. States relied
disproportionately on damaging cuts to close the large budget
shortfalls they faced over the course of the recession. Between fiscal
years 2008 and 2012, States closed 45 percent of their budget gaps
through spending cuts but only 16 percent through taxes and fees (they
used Federal aid, reserves, and various other measures to close the
remainder of their shortfalls). States could have lessened the need for
deep cuts to higher education funding if they had been more willing to
raise additional revenue.
ii. tuition costs have grown rapidly as state support has declined
Tuition costs in most States have climbed higher than they were
before the recession. Since the 2007-08 school year, average annual
published tuition has risen by $2,068 nationally, or 29 percent, above
the rate of inflation.\10\ Steep tuition increases have been
widespread, and average tuition at public 4-year institutions, adjusted
for inflation, has increased by:
---------------------------------------------------------------------------
\10\ CBPP analysis using the College Board's ``Trends in College
Pricing 2014,'' http://trends.collegeboard.org/college-pricing/figures-
tables/tuition-fees-room-board-time. Note: in non-inflation-adjusted
terms, average tuition is up $2,948 over this time period.
more than 60 percent in six States;
more than 40 percent in 10 States; and
more than 20 percent in 33 States. (See Figure 3.)
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
In Arizona, the State with the greatest tuition increases since the
start of the recession, tuition has risen 83.6 percent, or $4,734 per
student, after adjusting for inflation. Average tuition at a 4-year
Arizona public university is now $10,398 a year.\11\
---------------------------------------------------------------------------
\11\ Ibid.
---------------------------------------------------------------------------
As States have begun to reinvest in public higher education,
tuition hikes in 2014-15 have been much smaller than in preceding
years.\12\ Published tuition--the ``sticker price''--at public 4-year
institutions increased in 34 States over the past year, but only
modestly. Average tuition increased $107, or 1.2 percent, above
inflation.\13\ Between last year and this year, after adjusting for
inflation:
---------------------------------------------------------------------------
\12\ Costs reported above include both published tuition and fees.
Average tuition and fee prices are weighted by full-time enrollment.
\13\ This paper uses CPI-U-RS inflation adjustments to measure real
changes in costs. Over the past year the CPI-U-RS increased by 1.47
percent. We use the CPI-U-RS for the calendar year that begins the
fiscal/academic year.
Louisiana increased average tuition across its 4-year
institutions more than any other State, hiking it by nearly 9 percent,
or roughly $600.
Four States--Louisiana, Hawaii, West Virginia, and
Tennessee--raised average tuition by more than 4 percent.
In 16 States, tuition fell modestly, with declines ranging
from $6 in Ohio to $182 in New Hampshire.\14\
---------------------------------------------------------------------------
\14\ CBPP calculation using the College Board's ``Trends in College
Pricing 2013,'' http://trends.collegeboard.org/college-pricing. See
appendix for fiscal year 2013-14 change in average tuition at public
four-year colleges.
---------------------------------------------------------------------------
iii. cost shift harms students and families, especially those with
low incomes
During and immediately following recessions, State and local
funding for higher education has tended to plummet, while tuition has
tended to spike. During periods of economic growth, funding has tended
to recover somewhat while tuition has stabilized at a higher level as a
share of total higher educational funding.\15\ (See Figure 4.)
---------------------------------------------------------------------------
\15\ State Higher Education Executive Officers Association, ``State
Higher Education Finance: fiscal year 2013,'' 2014, p. 22, Figure 4,
http://www.sheeo.org/sites/default/files/public
ations/SHEF_FY13_04252014.pdf.
---------------------------------------------------------------------------
This trend has meant that over time, students have assumed much
greater responsibility for paying for public higher education. In 1988,
public colleges and universities received 3.2 times as much in revenue
from State and local governments as they did from students. They now
receive about 1.1 times as much from States and localities as from
students.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Nearly every State has shifted costs to students over the last 25
years--with the most drastic shifts occurring since the onset of the
Great Recession. In 1988, average tuition costs were greater than per-
student State expenditures in only two States, New Hampshire and
Vermont. By 2008, that number had grown to 10 States. Today, tuition
revenue is greater than State and local government funding for higher
education in half of the States, with seven--Colorado, Delaware,
Michigan, New Hampshire, Pennsylvania, Rhode Island, and Vermont--
requiring students and families to shoulder the lion's share of higher
education costs by a ratio of at least 2 to 1.\16\
---------------------------------------------------------------------------
\16\ State Higher Education Executive Officers Association, April
2015; government funding includes dollars from both State and local
funding sources.
---------------------------------------------------------------------------
The Effects of Shifting Costs on Students, Families, and the Economy
The cost shift from States to students has happened over a period
when absorbing additional expenses has been difficult for many families
because their incomes have been stagnant or declining. In the 1970s and
early to mid-1980s, tuition and incomes both grew modestly faster than
inflation, but by the late 1980s, tuition began to rise much faster
than incomes.
Rapidly rising tuition at a time of weak income growth has damaging
consequences for families, students, and the national economy.
Tuition costs are deterring some students from enrolling
in college. While the recession encouraged many students to enroll in
higher education, the large tuition increases of the past few years may
have prevented further enrollment gains. Rapidly rising tuition makes
it less likely that students will attend college. Research has
consistently found that college price increases result in declining
enrollment.\17\ While many universities and the Federal Government
provide financial aid to help students bear the cost, research suggests
that a high sticker price can dissuade students from enrolling even if
the net price, including aid, doesn't rise.
---------------------------------------------------------------------------
\17\ See, for example, Steven W. Hemelt and Dave E. Marcotte, ``The
Impact of Tuition Increases on Enrollment at Public Colleges and
Universities,'' Educational Evaluation and Policy Analysis, September
2011; Donald E. Heller, ``Student Price Response in Higher Education:
An Update to Leslie and Brinkman,'' The Journal of Higher Education,
Volume 68, Number 6 (November-December 1997), pp. 624-59.
---------------------------------------------------------------------------
Tuition increases are likely deterring low-income
students, in particular, from enrolling. Research further suggests that
college cost increases have the biggest impact on students from low-
income families. For example, a 1995 study by Harvard University
researcher Thomas Kane concluded that States that had the largest
tuition increases during the 1980s and early 1990s ``saw the greatest
widening of the gaps in enrollment between high- and low-income
youth.'' \18\ These damaging effects may be exacerbated by the relative
lack of knowledge among low-income families about the admissions and
financial aid process. Low-income students tend to overestimate the
true cost of higher education more than students from wealthier
households, in part because they are less aware of financial aid for
which they are eligible.\19\
---------------------------------------------------------------------------
\18\ Thomas J. Kane, ``Rising Public College Tuition and College
Entry: How Well Do Public Subsidies Promote Access to College? ''
National Bureau of Economic Research, 1995, http://www.nber.org/papers/
w5164.pdf?new_window=1.
\19\ Eric P. Bettinger, et al., ``The Role of Simplification and
Information in College Decisions: Results from the H&R Block FAFSA
Experiment,'' National Bureau of Economic Research, 2009, http://
www.nber.org/papers/w15361.pdf.
---------------------------------------------------------------------------
These effects are particularly concerning because gaps in college
enrollment between higher and lower income youth are already
pronounced. In 2012 just over half of recent high school graduates from
families in the bottom income quintile enrolled in some form of
postsecondary education, as opposed to 82 percent of students from the
highest income quintile.\20\ Significant enrollment gaps based on
income exist even among prospective students with similar academic
records and test scores.\21\ Rapidly rising costs at public colleges
and universities may widen these gaps further.
---------------------------------------------------------------------------
\20\ College Board, ``Education Pays: 2013,'' http://
trends.collegeboard.org/sites/default/files/education-pays-2013-full-
report-022714.pdf.
\21\ In a 2008 piece, Georgetown University scholar Anthony
Carnavale pointed out that ``among the most highly qualified students
(the top testing 25 percent), the kids from the top socioeconomic group
go to 4-year colleges at almost twice the rate of equally qualified
kids from the bottom socioeconomic quartile.'' Anthony P. Carnavale,
``A Real Analysis of Real Education,'' Liberal Education, Fall 2008, p.
57.
---------------------------------------------------------------------------
Tuition increases may be pushing lower-income students
toward less-selective institutions, reducing their future earnings.
Perhaps just as important as a student's decision to enroll in higher
education is the choice of which college to attend. A 2013 study by the
Brookings Institution revealed that a large proportion of high
achieving, low-income students fail to apply to any selective colleges
or universities.\22\ Even here, research indicates financial
constraints and concerns about cost push lower income students to
narrow their list of potential schools and ultimately enroll in less-
selective institutions.\23\ In a different 2013 study, economists
Eleanor Dillon and Jeffrey Smith found evidence that some high-
achieving, low-income students are more likely to ``undermatch'' in
their college choice in part due to financial constraints.\24\
---------------------------------------------------------------------------
\22\ Christopher Avery and Caroline M. Hoxby, ``The Missing `One
Offs': The Hidden Supply of High-Achieving, Low-Income Students,''
National Bureau for Economic Research, Working Paper 18586, 2012,
http://www.brookings.edu//media/projects/bpea/spring-2013/
2013a_hoxby.pdf.
\23\ Patrick T. Terenzini, Alberto F. Cabrera, and Elena M. Bernal,
``Swimming Against the Tide,'' College Board, 2001, http://
www.collegeboard.com/research/pdf/rdreport200_3918.pdf.
\24\ Eleanor W. Dillon and Jeffrey A. Smith, ``The Determinants of
Mismatch Between Students and Colleges,'' National Bureau of Economic
Research, August 2013, http://www.nber.org/papers/w19286. Additionally,
other studies have found that undermatching is more likely to occur for
students of color. In 2009 Bowen, Chingos, and McPherson found that
undermatching was more prevalent for black students--especially black
women--relative to comparable white students.
---------------------------------------------------------------------------
Where a student decides to go to college has broad economic
implications, especially for disadvantaged students and students of
color. A 2011 study by Stanford University and Mathematica Policy
Research found students who had parents with less education, as well as
African American and Latino students, experienced higher postgraduate
earnings by attending more elite colleges relative to similar students
who attended less-selective universities.\25\
---------------------------------------------------------------------------
\25\ Stacey Dale and Alan Krueger, ``'Estimating the Return to
College Selectivity Over the Career Using Administrative Earning
Data,'' Mathematica Policy Research and Princeton University, February
2011, http://www.mathematica-mpr.com/publications/PDFs/education/return
tocollege.pdf.
---------------------------------------------------------------------------
iv. federal financial aid helps low-income students afford higher
tuition costs, but debt is still growing
Federal financial aid has played a critical role in partially
offsetting higher costs for students and families. Pell Grants are the
signature form of Federal grant support, and help more than 8 million
students afford college. Research shows that Pell Grants and other
need-based aid help students attend and graduate from college. Students
qualifying for Pell Grants are more likely than other students to face
significant hurdles to completing college, such as single parenthood
and lack of financial support from their own parents. Controlling for
these risk factors, a Department of Education study found that Pell
Grant recipients who graduate do so faster than other students.\26\
Further, research on need-based grant aid more generally has shown that
such aid increases college enrollment among low- and moderate-income
students.\27\
---------------------------------------------------------------------------
\26\ Christina Chang Wei, Laura Horn, and Thomas Weko, ``A Profile
of Successful Pell Grant Recipients: Time to Bachelor's Degree and
Early Graduate School Enrollment,'' National Center for Education
Statistics, July 2009, http://nces.ed.gov/pubs2009/2009156.pdf.
\27\ See Susan Dynarski and Judith Scott-Clayton, ``Financial Aid
Policy: Lessons from Research,'' The Future of Children, Spring 2013,
http://futureofchildren.org/futureofchildren/publications/docs/
23_01_04.pdf.
---------------------------------------------------------------------------
As noted, college costs--even at 2-year and 4-year State
institutions--have risen sharply. Congress increased the maximum value
of Pell Grants and modestly increased eligibility between 2007 and
2010, though it later pared back some of these expansions. It also
indexed the maximum Pell Grant to inflation from 2013 to 2017, though
college costs have been increasing faster than inflation, a trend that
is projected to continue. The increase in Pell Grants has partially
offset reduced State support and the erosion of Pells' value as a share
of total college costs over time. Still, Pell Grants now cover only
about 30 percent of the cost of attendance at public 4-year colleges,
the lowest share since 1974.\28\
---------------------------------------------------------------------------
\28\ Brandon DeBot, ``House Budget Would Reduce College Access by
Cutting Pell Grants,'' Center on Budget and Policy Priorities, March
25, 2015, http://www.cbpp.org/blog/house-budget-would-reduce-college-
access-by-cutting-pell-grants.
---------------------------------------------------------------------------
While Federal financial aid has helped lessen the impact of tuition
and fee increases on low-income students, the overall average cost of
attending college has risen for these students. As a result, the net
cost of attendance at 4-year public institutions for low-income
students increased 12 percent from 2008 to 2012, after adjusting for
inflation. For low-income students attending public community colleges,
the increase over the same time period was 4 percent.\29\
---------------------------------------------------------------------------
\29\ College Board, ``Cumulative Debt of 2011-12 Bachelor's Degree
Recipients by Dependency Status and Family Income,'' October 2014,
http://trends.collegeboard.org/college-pricing/figures-tables/net-
prices-income-over-time-public-sector.
---------------------------------------------------------------------------
Low-Income Students Still Face High Levels of Debt
Because grants rarely cover the full cost of college attendance,
most students--and low-income students in particular--borrow money. In
2012, 79 percent of low-income students--from families in the bottom
income quartile--graduating with a bachelor's degree had student loans
(compared with 55 percent of graduating students from higher-income
families).\30\ Nearly 9 of 10 Pell Grant recipients who graduate from
4-year colleges have student loans, and their average debt is nearly
$5,000 larger than their higher-income peers.\31\
---------------------------------------------------------------------------
\30\ College Board, ``Trends in Student Aid, 2014: Median Debt
Levels of 2007-08 Bachelor's Degree Recipients by Income Level,''
October 2014, Figure 2010_9, http://trends.collegeboard.org/sites/
default/files/2014-trends-student-aid-final-web.pdf. Low-income
dependent students are defined as students from families earning less
than $30,000 annually, while high-income students come from families
earning more than $106,000.
\31\ The Institute for College Access and Success, ``Pell Grants
Help Keep College Affordable for Millions of Americans,'' March 13,
2015, http://ticas.org/sites/default/files/pub_files/overall_pell_one-
pager.pdf.
---------------------------------------------------------------------------
Debt levels have risen since the start of the recession for college
and university students collectively. By the fourth quarter of 2014,
students held $1.16 trillion in student debt--eclipsing both car loans
and credit card debt.\32\ Further, the overall share of students
graduating with debt has increased since the start of the recession.
Between the 2007-08 and 2012-13 school years, the share of students
graduating from a public 4-year institution with debt increased from 55
to 59 percent. At the same time, between the 2007-08 and 2012-13 school
years, the average amount of debt incurred by the average bachelor's
degree recipient with loans at a public 4-year institution grew from
$22,000 to $25,600 (in 2013 dollars), an inflation-adjusted increase of
$3,600, or roughly 16 percent. By contrast, the average level of debt
incurred had risen only about 3.7 percent in the 8 years prior to the
recession.\33\ In short, at public 4-year institutions, a greater share
of students are taking on larger amounts of debt.
---------------------------------------------------------------------------
\32\ Federal Reserve Bank of New York, ``Quarterly Report on
Household Debt and Credit,'' February 2015, http://www.newyorkfed.org/
householdcredit/2014-q4/data/pdf/HHDC_2014Q4
.pdf.
\33\ College Board ``Trends in Student Aid,'' Figure 13A,3http://
trends.collegeboard.org/student-aid/figures-tables/average-cumulative-
debt-bachelors-recipients-public-four-year-time.
---------------------------------------------------------------------------
v. conclusion
States have cut higher education funding deeply since the start of
the recession. These cuts were in part the result of a revenue collapse
caused by the economic downturn, but they also resulted from misguided
policy choices. State policymakers relied overwhelmingly on spending
cuts to make up for lost revenues. They could have lessened the need
for higher education funding cuts if they had used a more balanced mix
of spending cuts and revenue increases to balance their budgets.
The impact of the funding cuts has been dramatic. Public colleges
have both steeply increased tuition and pared back spending, often in
ways that may compromise the quality of education and jeopardize
student outcomes. Students are paying more through increased tuition
and by taking on greater levels of debt.
Strengthening State investment in higher education will require
State policymakers to make the right tax and budget choices over the
coming years. A slow economic recovery and the need to reinvest in
other services that also have been cut deeply mean that many States
will need to raise revenue to rebuild their higher education systems.
At the very least, States must avoid shortsighted tax cuts, which would
make it much harder for them to invest in higher education, strengthen
the skills of their workforce, and compete for--or even create--the
jobs of the future.
At the Federal level, to enable low-income students to access and
succeed in higher education, policymakers should ensure adequate
support for the Pell Grant program and targeted refundable tax credits.
My colleagues at the Center who specialize in Federal budget and tax
policy have identified specific policy recommendations that Federal
lawmakers could pursue to help students access higher education:
Protect and maintain the current assistance level of the
Pell Grant program by continuing to index the maximum grant to
inflation after 2017. As the costs of college have increased over time,
the value of the Pell Grant has fallen; the maximum grant now covers
roughly 30 percent of the average cost of a 4-year public college, the
lowest share in 40 years.\34\ The maximum Pell Grant is currently
indexed to inflation through 2017, after which the grant's value will
erode further as it is frozen and loses some of its real value each
year.
---------------------------------------------------------------------------
\34\ Brandon DeBot, ``House Budget Would Reduce College Access by
Cutting Pell Grants,'' Center on Budget and Policy Priorities, March
25, 2015, http://www.cbpp.org/blog/house-budget-would-reduce-college-
access-by-cutting-pell-grants.
---------------------------------------------------------------------------
Reach a bipartisan agreement that undoes and replaces
sequestration to relieve the pressure on non-defense discretionary
funding. Under current law, this funding will continue to fall as a
share of the economy, which will put further pressure on the
discretionary portion of Pell Grant funding, as well as other student
aid and education programs. While discretionary spending was not
responsible for our long-term deficit/debt problems, the share of
spending (as a percent of our economy) on non-defense discretionary
programs is headed to the lowest levels ever since 1962 as a result of
the 2011 Budget Control Act and other appropriations cuts.\35\
---------------------------------------------------------------------------
\35\ David Reich ``Sequestration and Its Impact on Non-Defense
Appropriations,'' Center on Budget and Policy Priorities, February 19,
2015, http://www.cbpp.org/research/sequestration-and-its-impact-on-non-
defense-appropriations.
---------------------------------------------------------------------------
Make permanent the American Opportunity Tax Credit (AOTC)
and key provisions of the Child Tax Credit (CTC) and Earned Income Tax
Credit (EITC) that are set to expire at the end of 2017. The AOTC,
which is refundable up to $1,000, reaches millions of low-income
students who did not benefit from its predecessor, the Hope Credit
(which is not refundable and to which the AOTC will revert if no action
is taken). In addition, research suggests that income from the working
family tax credits (EITC and CTC) may boost college enrollment and
completion, both because of the skill gains made from better K-12
educational attainment, and by making college more affordable in the
spring before enrollment (through increased tax refunds).\36\
---------------------------------------------------------------------------
\36\ Chuck Marr, Chye-Ching Huang, Arloc Sherman, and Brandon
DeBot, ``EITC and Child Tax Credit Promote Work, Reduce Poverty, and
Support Children's Development, Research Finds,'' Center on Budget and
Policy Priorities, April 3, 2015, http://www.cbpp.org/research/eitc-
and-child-tax-credit-promote-work-reduce-poverty-and-support-childrens-
development'fa=view&id=3793.
---------------------------------------------------------------------------
A large and growing share of future jobs will require college-
educated workers. Sufficient funding for higher education to keep
tuition affordable and quality high at public colleges and
universities, and to provide financial aid to those students who need
it most, would help the Nation develop the skilled and diverse
workforce that is critical to our economic future.
The Chairman. Thank you, Mr. Mitchell.
Mr. Kennedy.
STATEMENT OF JAMES KENNEDY, ASSOCIATE VICE PRESIDENT FOR
UNIVERSITY STUDENT SERVICES AND SYSTEMS, INDIANA UNIVERSITY,
BLOOMINGTON, IN
Mr. Kennedy. Chairman Alexander, Ranking Member Murray, and
distinguished members of the committee, my name is James
Kennedy. I'm the associate vice president of University Student
Services and Systems at Indiana University. Thank you today for
giving me the opportunity to discuss the initiatives underway
at Indiana University that assist students to better manage
student debt and cost of their college experience.
One of my primary responsibilities is working with all
seven Indiana University campuses on financial aid issues.
Indiana University consists of 110,000 students, of which
84,000 receive some type of financial assistance. Providing
programming and advising for students regarding financial aid
and debt management continues to be a high priority and is
included in the Bicentennial Strategic Plan for Indiana
University.
I'm here to discuss our success with three major
initiatives in lowering student loan debt. Through our
comprehensive financial literacy program started a little more
than 2 years ago, a detailed review of financial aid processes,
and the university's commitment to student success and degree
completion, we have helped Indiana University undergraduate
students lower their borrowing substantially, approaching 16
percent over 2 years with savings of approximately $44 million.
Indiana University's Office of Financial Literacy and its
IU MoneySmarts financial education program were established to
assist students in making informed financial decisions before,
during, and after college. The goal is to provide students with
information that will increase the likelihood of them making
smart personal finance choices. Initiatives include one-on-one
appointments, classroom-setting education, interactive online
material, and events and workshops.
A 60-minute online financial training module was initiated
in 2013 for all new students. This module includes information
on student loans and financial basics such as savings,
budgeting, and credit. In the 2 years since implementation, we
have averaged an 80 percent completion rate.
Moneysmarts.iu.edu is our main source of financial
information for students. Included in this tool are weekly
financial sessions and episodes of our ``How Not to Move Back
in With Your Parents'' pod cast. This pod cast is averaging
over 3,000 play requests per month. In addition, a group of
undergraduate students from various disciplines constitute an
IU MoneySmarts Team that provides one-on-one peer mentoring
financial sessions and/or group presentations to students.
Starting in the 2012-13 academic year, Indiana University
started sending annual debt letters to all student borrowers.
In our discussions with students, we discovered that many did
not have knowledge of their overall student loan debt until
graduation or when they started repayment.
While students completed the required Department of
Education entrance and exit loan counseling requirements, there
was no information actively provided to the students while they
attended. The annual debt letter gives students information on
all Federal loans as well as the private loans processed though
Indiana University and includes cumulative debt, estimated
monthly repayment, estimated interest rate, and remaining
eligibility based on dependency status. Other important
information is also provided to students. The annual debt
letter has been well-received and has resulted in many student
inquiries about managing student loan debt.
In the fall of 2015, Indiana University will start sending
to all new transfer students a debt letter before they start
classes to assist with financial planning. Our analysis has
shown that transfer students who have accumulated excessive
student loan debt from previous institutions will need
additional counseling to be successful in completing their
degree.
Financial aid process changes have also been implemented,
including the cost of attendance methodology, how information
is presented on financial aid award letters, earlier
interventions with students not meeting satisfactory academic
progress requirements, limited aid appeals, and continuing
touch points to counsel students with debt issues and more
targeted institutional aid to keep the net cost down.
Under the direction of Indiana University President Michael
McRobbie, we have implemented several completion initiatives,
which have the secondary benefit of decreasing the amount of
money students will need. The ``15 to Finish'' campaign
promotes taking 15 credits per semester to graduate in 4 years
and minimize debt. Interactive degree maps are used to provide
students a clear pathway to finish their baccalaureate degree
in 4 years.
Early alert systems allow professors to identify students
with academic issues and direct them to their advisors for
assistance. The financial aid staff and campus advisors work
closely together to counsel students on credit completion
standards and the impact of withdrawal on State and Federal aid
eligibility requirements. These partnerships allow for improved
counseling to students and have been strongly promoted through
our student loan debt initiatives.
Together, the goal of these three major initiatives is for
students to have manageable levels of debt once they achieve
their goal of a college degree.
Thank you for the opportunity to share our student loan
debt initiatives at Indiana University.
[The prepared statement of Mr. Kennedy follows:]
Prepared Statement of James Kennedy
Chairman Alexander, Ranking Member Murray, and distinguished
members of the committee, My name is James Kennedy and I am the
associate vice president of University Student Services and Systems.
Thank you for giving me the opportunity to discuss the initiatives
underway at Indiana University that assist students to better manage
student debt and costs through their college experience.
One of my primary responsibilities is working with all seven
Indiana University campuses on financial aid issues. Indiana University
consists of 110,000 students. Over 84,000 students receive some form of
financial assistance. Bloomington is our flagship campus with over
46,000 students, Indiana University Purdue University Indianapolis
(IUPUI) is the urban and medical school campus with over 30,000
students and the Indiana University regional campuses with an
additional 34,000 students. Providing programming and advising for
students regarding financial aid and debt management continues to be a
high priority and is included in the Bicentennial Strategic Plan for
Indiana University.
I'm here to discuss our success with three major initiatives in
lowering student loan debt. Through our comprehensive financial
literacy program started a little more than 2 years ago, a detailed
review of financial aid processes, and the university's commitment to
student success and degree completion, we have helped Indiana
University undergraduate students lower their borrowing substantially--
approaching 16 percent over 2 years with savings of approximately $44
million.*
---------------------------------------------------------------------------
* Retrieved from Federal Student Aid Data Center https://
studentaid.ed.gov/sa/about/data-center/student/title-iv.
---------------------------------------------------------------------------
office of financial literacy
Indiana University's Office of Financial Literacy and its IU
MoneySmarts financial education program were established to assist
students in making informed financial decisions before, during, and
after college. The goal is to provide students with information that
will increase the likelihood of them making smart personal finance
choices relevant to their goals. Initiatives include one-on-one
appointments, classroom-setting education, interactive online material,
and events and workshops. The program also provides tools, resources,
and tips from experts to assist students in learning positive financial
decisionmaking.
A 60-minute online financial training module was initiated in 2013
for all new students. This module includes information on student loans
and financial basics such as savings, budgeting and credit. In the 2
years since implementation we have averaged an 80 percent completion
rate. Moneysmarts.iu.edu is our main source of financial information
for students. Included in this tool are weekly financial lessons and
episodes of our ``How Not to Move Back in With Your Parents'' pod cast.
This pod cast is averaging over 3,000 play requests per month. In
addition, a group of undergraduate students from various disciplines
constitute an IU MoneySmarts Team that provides one-on-one peer
mentoring financial sessions and/or group presentations to students.
financial aid business processes
Starting in the 2012-13 academic year, Indiana University started
sending annual student loan debt letters to all student borrowers
(attached). In our discussions with students, we discovered that many
did not have knowledge of their overall student loan debt until
graduation or when they started repayment. While students completed the
required Department of Education entrance and exit loan counseling
requirements, there was no information actively provided to the
students while they attended. The annual debt letter gives students
information on all Federal loans and private loans processed though
Indiana University including cumulative debt, estimated monthly
repayment (based on 10-year repayment), estimated interest rate,
remaining eligibility based on dependency status, and other important
information to assist students with understanding their student loan
debt. The annual debt letter has been well-received and has resulted in
many student inquiries about managing student loan debt.
In fall 2015, Indiana University will start sending to all new
transfer students a debt letter before they start classes to assist
with their financial planning. Our analysis has shown that transfer
students who have accumulated excessive student loan debt from previous
institutions will need additional counseling to be successful in
completing a degree.
Based on student feedback, Indiana University has made several
revisions to the financial aid award letter provided to students.
Before these changes, combining aid types caused confusion for
students. Now the letters separate gift aid (grants and scholarships)
from self-help (loans, work-study). Indiana University uses the
Department of Education Shopping sheet for all students, and, with
additional steps in the student loan processes, has created more
awareness about student loans and provided more opportunities for the
student to reduce loans and ask questions.
Other financial aid process changes include the cost of attendance
methodology (including options for reducing the cost of books), earlier
interventions with students not meeting Federal aid satisfactory
academic progress requirements, limited aid appeals, continued review
of touch points to counsel students with debt issues, and more targeted
institutional aid to keep the net cost down.
student success and completion
Under the direction of Indiana University President Michael
McRobbie, we have implemented several completion initiatives, which
have the secondary benefit of decreasing the amount of money students
will need. The ``15 to Finish'' campaign promotes taking 15 credits per
semester to graduate in 4 years and minimize debt.\2\ Interactive
degree maps are used to provide students a clear pathway to finish
their baccalaureate degree in 4 years. Early alert systems allow
professors to identify students with academic issues and direct them to
their advisors for assistance. The financial aid staff and campus
advisors work closely together to counsel students on credit completion
standards and the impact of withdrawal on State and Federal aid
programs eligibility requirements. These partnerships allow for
improved counseling to students and have been strongly promoted through
our student loan debt initiatives.
---------------------------------------------------------------------------
\2\ Indiana 15 to Finish-http://www.in.gov/che/3126.htm.
---------------------------------------------------------------------------
The Finish in Four Program freezes tuition and fees for those
students on track to graduate in 4 years after their sophomore year.
Summer discounts and targeted financial aid have also been implemented
to encourage graduation in 4 years. Indiana University had 20,000
students receive an Indiana University degree in May. This is a new
record for the university.
For assistance after a student has left, Indiana University has
partnered with an outside firm to counsel all student loan borrowers at
the Indiana University regional campuses to ensure borrowers understand
the various student loan repayment options. Students are also contacted
when they become past due. Indiana University is committed to taking
all steps to ensure students understand loan obligations and avoid
default. While it's too early to measure the overall impact of
contacting students once they are no longer attending, Indiana
University has seen a significant decrease in the campus 2012 draft
cohort default rates released in February 2015.
While we would like to see students not have the need for loans,
financing a college degree through debt is the only option for many
students. As noted by many studies, the value of college degree
continues to grow. Counseling students to graduate with a manageable
amount of student loan debt is the goal of Indiana University student
loan debt initiatives.
next steps to reduce student loan debt
Looking forward, with 2 or 3 years' experience and data, Indiana
University will continue to measure the overall impact on our student
loan debt initiatives. We will continue to find other ways to educate
students on financial literacy. Upcoming initiatives include targeted,
proactive financial literacy interventions with students with excessive
yearly/cumulative debt. For the Indianapolis and regional campuses, the
university is considering moving to a banded tuition model as currently
in place at the Bloomington campus. This would promote on-time
graduation by having a flat fee for taking 15 credits versus a per
credit charge. Payment plan options to assist families with more
flexible monthly options to reduce their reliance on loans are being
reviewed. Financial aid 4-year maps to assist families with aid
planning is another concept under review.
conclusion
Our goal at Indiana University is to address student loan debt
through the Office of Financial Literacy, the financial aid office
business processes, and the focus from the entire university on student
success and degree completion. With strong support from Michael
McRobbie, Indiana University president, on addressing student debt
issues, our initiatives are having an impact. Together, our goal is for
students to have manageable levels of student loan debt once they
achieve their goal of a college degree.
______
Attachment: Example--Indiana University Student Loan Debt Letter
John Doe,
222 Indiana Street,
Elkhart, IN 46517-9999.
Dear John: This is a personalized summary of your estimated current
student loan indebtedness. This information is being provided to you
before you take on additional debt for the upcoming academic year. We
encourage you to make use of the academic and financial planning
resources suggested here (see other side) to minimize future borrowing
while you complete your degree at Indiana University.
---------------------------------------------------------------------------
\1\ See the ``Important Information'' section on the other side of
this letter regarding all loan estimates.
---------------------------------------------------------------------------
Estimate of Your Total Education Loans: $12,000\1\
Interest Rates
Student loan interest rates vary based on when you borrowed and the
loan type. Calculations in this letter are estimated at <>.
Estimated Monthly Payment--All Loans
Total Education Loans: $12,000
Standard Repayment Term: 10 years
Assumed Interest Rate: 6.8 percent
Monthly Payment: $138.10
Cumulative Payments: $16,571.38
Projected Interest Paid: $ 4,571.38
Federal Stafford Loans
The Federal Stafford Loan program provides the majority of funds
for IU students. The total you have borrowed from this program,
including both subsidized and unsubsidized loans, is $12,000.
The maximum you may borrow for your dependency status and degree
objective is $31,000.
You have borrowed 39 percent of your current limit.
Other Education Loans
The estimated total of your education loans includes amounts below,
based on Indiana University's records about your borrowing history:
Federal Perkins Loans: $0
Private Loans Certified at IU: $0
Other Loans Certified at IU: $0
(May include Grad PLUS and Federal Health Profession Loans)
Academic & Financial Planning Resources
Loans offered for the upcoming academic year are not included in
the figures provided in this letter. There is still time for you to
reduce future debt by planning your expenses carefully and borrowing
only what you really need. Meet with your advisor and set a plan to
expedite completing your degree, if possible. We encourage you to make
use of these resources to find ways to balance your budget:
MoneySmarts: http://moneysmarts.iu.edu/index.shtml.
You are also invited to make an appointment or drop by the
Financial Aid Office to review your loan debt figures, talk about
future borrowing and discuss repayment options with a counselor.
The standard 10-year repayment plan for Federal Stafford Loans is
one of many options. To find out about alternatives, visit this site:
https://studentaid.ed.gov/repay-loans/understand/plans.
To calculate payments on loans of all types; or to estimate your
monthly obligation for your cumulative debt under various repayment
options, visit this web site: http://studentaid.gov/repayment-
estimator.
Loan Terms Glossary--https://studentloans.gov/myDirectLoan/
glossary.action.
Important Information About These Loan Estimates\2\
The most accurate information about your Federal student loans
(excluding Title VII and VIII Health Profession Loans) is available in
the National Student Loan Data System (NSLDS). http://www.nslds.ed.gov/
nslds_SA/.
---------------------------------------------------------------------------
\2\ IMPORTANT: Figures provided in this notice are NOT a complete
and official record of your student loan debt.
---------------------------------------------------------------------------
Log in using your personal information and the 4-digit PIN you used
to sign your FAFSA.
Please read this important information about why loan totals in this
letter may be incomplete or inaccurate.
Students who have borrowed at multiple institutions, who
have consolidated loans, had loan debt discharged or forgiven, or who
have repaid a portion of their debt may find that these estimates are
inaccurate.
Grad PLUS Loans, Federal Health Profession Loans, State or
institutional loans and private loans from other institutions are not
included in these estimates.
Federal Health Profession Loans, institutional loans and
private loans certified at IU before the 2004-05 academic year are not
included in these estimates.
Interest that accrues while you are enrolled, which must
be paid first or capitalized (added to your debt), has not been
projected here and therefore has not been included in these estimates.
The Federal Stafford and Perkins Loan figures in this
letter are based on the most recent information sent to Indiana
University by NSLDS and should include loans from any institution.
However, if you recently received Stafford or Perkins loans at another
institution, these may not have been included in the information
provided by NSLDS.
State Teaching scholarships and Federal TEACH grants,
which may be converted to loans if scholarship terms and conditions are
not met by the recipient, are not included in these estimates.
Education loans your parent took out on your behalf, and
parent loans you may have taken for your children, are not included in
these estimates.
Loans included in this letter may have been discharged or
forgiven.
The Chairman. Thank you very much. We'll now begin a 5-
minute round of questioning.
Dr. Scott-Clayton, you know what this is, right? I wanted
to do that before Senator Bennet did it.
[Laughter.]
This is the Federal student loan application, 108 questions
long, correct?
Ms. Scott-Clayton. That's the FAFSA.
The Chairman. Would it surprise you if I told you that the
president of Southwest Community College in Memphis says that
he thinks he loses 1,500 students a semester because of the
complexity?
Ms. Scott-Clayton. That would not surprise me.
The Chairman. Are you familiar with the FAST Act that
Senator Bennet and Senators Burr and Isakson and Senator Booker
and Senator King have introduced?
Ms. Scott-Clayton. Yes, I am.
The Chairman. It has these provisions. It would reduce this
108 questions to two. It would tell families that they could
fill it out in their junior year of high school. It would
combine two Federal grant programs into one Pell grant program
and reduce the number of loan programs. It would provide for
year-round Pell grants, discourage over-borrowing, and simplify
repayment options. Are you familiar with the proposed FAST Act?
Ms. Scott-Clayton. Yes, I am.
The Chairman. Do you think it would address the testimony
that you gave that the complexity of the Federal aid system is
a significant barrier to a large number of students? I might
ask you also before you answer: Would you be surprised to learn
that a college president in Tennessee took 9 months to help his
daughter pay off her student loan because they kept finding
there was no way to fully pay it off, even though there is a
very generous procedure for paying off loans?
Ms. Scott-Clayton. That does not surprise me. At community
colleges, in particular, people may be surprised that the rate
of Pell grant receipt at community colleges is about the same
as at private 4-year institutions. The reason for that is
because of low application rates, low FAFSA application rates.
There are likely many more students at community colleges who
could qualify for more aid than they're getting if they could
get through the application process.
I do think that the FAST Act would be a significant
improvement, a meaningful improvement, and would potentially
bring more students into college. We should not be looking at
that--we get into trouble when people think that this is just
about a form and making a form easier for people who are
already going to go to college and already have a parent or a
counselor who can help them fill out this really annoying form.
It's not just about the form. It's about being able to
communicate to students early, not just in 11th grade, but in
ninth grade, in eighth grade, that there is money available to
help them go to college. This is not a trivial reform. This is
something that could make a real difference, and it has an
unusual degree of consensus from across party lines. I think it
would be a very helpful policy.
The Chairman. Let me ask you and Dr. Akers this question.
I've been intrigued by the fact that the average car loan in
the United States is about the same as the average student loan
for an undergraduate. It's about $27,000. The total amount of
student loans is about $1.2 trillion, and the total amount of
auto loans is about $950 billion.
Why do we not hear anything about auto loans being a great
burden for Americans? Why do we not hear anything about auto
loans causing individuals to not be able to pay their other
responsibilities when it's demonstrably true that a $27,000
student loan is a better investment than a $27,000 car loan?
Are we exaggerating the difficulty of student loans?
Dr. Akers, do you want to try that? I mean, I was thinking
as you testified if I could substitute car loan for every time
you mentioned student loan, you could have made some of the
same testimony.
Dr. Akers. Sure. There's a tremendous amount of anxiety
around student debt right now. Some of that might be driven by
the fact that we have, really, a new population of borrowers in
the Federal student lending system than we had----
The Chairman. Why aren't they worried about borrowing
$27,000 for a car?
Dr. Akers. I can't tell you that, to be honest. I do know
that there is a lot of concern----
The Chairman. It seems to cause nobody any problem. I mean,
I've yet to see one report that says that's about to bring down
the American economy. Yet there are all these reports about the
student loan bubble, and the student loan bubble is about the
size of the car loan bubble, the way I can figure it.
Ms. Scott-Clayton. Can I just add two things to that? One
is that people have a lot more experience with car loans than
they do with student loans. Student loans are something that
you do once in a lifetime, and, as Beth said, many students
aren't--their parents didn't have to go through that
themselves, so they're not able to advise students the way they
might be able to about a car loan.
Second, a lot of the anxiety comes from the fact that
people know that college is absolutely essential, that it's
absolutely necessary, and that's what creates this high level
of anxiety, whereas with a car loan, frankly, you might be able
to get away without one, or you can borrow your brother's or
your friend's.
The Chairman. My time is up.
Senator Murray.
Senator Murray. Or you can sell it if you need to.
[Laughter.]
Dr. Alexander, we have heard from today's witnesses that it
will take increased investments from States to accomplish the
goal of making college more affordable, especially at our
public institutions which serve about three-quarters of our
students, actually. In Louisiana, State support per student is
down 43 percent since the recession began, and now you're
facing more cuts, I understand.
In your testimony, you mentioned the importance of
leveraging Federal resources in order to encourage States to
invest more in their colleges and universities. In your
experience, have Federal incentives or leverage been effective
in the past?
Mr. Alexander. From my experience and what I've studied, it
has been very effective. Go back to SSIG and State student aid
programs that I mentioned in 1972. Within 4 years, the number
of States that adopted those programs for the Federal match had
doubled.
More recently, with the stimulus packages, what most people
don't realize about the stimulus packages is that they did have
a floor, and that floor was the 2006 funding level. Many
States, nearly 20 States, cut their budgets to where that floor
was and did not cross that threshold during the stimulus era.
When the packages left, States such as California and
others where I was at the time immediately dropped their
budgets to 1994 and 1995 funding levels, because there was no
more Federal leverage. Federal leverage works, and it works in
many ways.
The latest is the fact that Tennessee does offer free
community college education. Seventy-five percent of those
funds were provided by the Federal Government to offset tuition
and fees that the students paid. The big piece of the Tennessee
leverage issue is that Tennessee must keep their 25 percent
leverage, their 25 percent State appropriations, in place for
2- and 4-year institutions in order to receive those funds.
I wish we had that plan working for us in Louisiana right
now, because we're looking at an 82 percent budget reduction
that basically knocks us down to the lowest level that we have
had in funding since we started measuring it before 1961.
Senator Murray. Any thoughts on how we could mirror some of
those successful efforts when we reauthorize the Higher
Education Act?
Mr. Alexander. I think that we have $170 billion at the
Federal level going into revenues for higher education, and we
need to utilize as much of that as possible. Even incentivizing
$10 billion of that to encourage States to reinvest, to
continue investing, to reward States that are not cutting their
budgets, to reward States that put money into public higher
education--that could be the most affordable tactic that we
take at the Federal level, to reward States for remaining
affordable, keeping students out of debt, and keeping their
effort at higher levels before they get out of the higher
education business.
Senator Murray. Mr. Mitchell, let me turn to you. Your
research shows that even while the economy is beginning to
recover, 47 States are spending less per student than they did
before the recession. In Washington State, cuts like these have
led to a nearly 60 percent increase in tuition at our public
universities in just 6 years.
The University of Washington's State funding has been cut
in half since the recession. Students attending the UW in the
fall of 2007 owed a little more than $6,000 in tuition and
fees, and today that has almost doubled, more than $12,000. By
the way, that doesn't include rent or food or transportation or
all those other costs that a student has to pay. To me, this is
really unacceptable.
I wanted to ask you, from your perspective as a State
budget analyst, what is keeping States from making these
important investments?
Mr. Mitchell. First and foremost, I don't think you can
overstate just how dramatic the decline in revenue was right
after the recession. States cumulatively saw budget shortfalls
above $100 billion for multiple years, and so cuts were deep in
higher education. Many States at that time when they were
facing these shortfalls chose dramatic budget cuts over looking
at a balanced approach of revenue--targeted responsible revenue
increases matched with some kind of budget restrictions.
As you said, revenues are starting to come back to pre-
recession levels. However, when we look across the States, it's
only at about 2 percent above revenues prior to the recession.
In many States, it's still very difficult for them to put these
resources back into higher education, especially across a
larger population of students.
I did want to make one other point regarding the chairman's
earlier question on why we care about debt. For low-income
students and for students of color, we're seeing these students
take on higher levels of debt, but not necessarily completing
college. The question of is it a good investment--sure, if you
complete the investment.
For students who are dropping out who do not necessarily
have the diploma but do have the debt--because some of the $1.2
trillion in debt is held by those students as well. We need to
keep that in mind.
Senator Murray. Is the debt that is growing for them part
of the deterrent of why they don't finish college?
Mr. Mitchell. Oh, there's absolutely concerns for students
who are looking at college and questioning whether or not it is
an investment, even though, as other panelists here have said,
it absolutely is. However, because they do not have the
information on the front end to make that decision, it becomes
much more muddy for them.
Senator Murray. Thank you. My time is up.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Murray.
Senator Collins
Statement of Senator Collins
Senator Collins. Thank you very much, Mr. Chairman.
Prior to my election to the Senate, I worked at a college
in Maine, Husson University, and at that time, some 85 percent
of the students there were first-generation college students,
and virtually all of that group received some sort of Federal
financial aid. It was there that I learned that there was often
a lot of pressure on the students to drop out of school, get a
job, buy that car, because of the cost that they were bearing
despite the financial aid that they were receiving.
That's the group that I am most concerned about. We know
and we heard from Dr. Akers today that individuals who complete
their college career are going to have lifetime earnings that
are far higher than those with just a high school degree. There
are those in the middle who have gone to college for a couple
of years, amassed debt, and then dropped out, who are really in
the worst situation.
That's why I'd like to ask the panel your opinion of
programs like the TRIO program, which helps to provide
counseling support, not only to students who are thinking of
going to college, but throughout their college careers. I've
also seen programs at Eastern Maine Community College in Maine
called College Success programs that work with this vulnerable
group to encourage them to hang in there and helps them deal
with whatever issues that they have so that they complete their
college degree.
If we could go down the list--because if you think about
it, that's the group that really is most vulnerable. They amass
debt, and yet they don't get the benefit of the higher earnings
that come from college completion.
Ms. Scott-Clayton. Your concern is absolutely on target,
and one way that the Federal policy reform can help here is--so
these guidance and support services that you're talking about
are absolutely critical in the current system. What if we could
simplify student aid so that it didn't have to be so
complicated, so it didn't require this army of support
services?
If we could take that off the table so that students could
borrow without that worry, without having a fear that they're
going to go into default, and if they could get all the aid
that they're entitled to--what if we could re-devote all of
those guidance and support services to helping students figure
out what classes they should take, what program they should be
in, what do they need to do academically to get their degree so
that they get that payoff.
Dr. Akers. I absolutely agree that we could be doing more
to help students make better decisions on the front end,
whether it be first-generation or not. Simplification is
important in achieving that objective. I also think additional
counseling could potentially have a positive impact there.
We do have evidence that students in their initial years of
school have very little information about their personal
financial circumstances, and given that, it's difficult to
imagine that they're really making the correct decisions or the
decisions that are in their own best interest.
Last, I'll say that, given all of that, we can improve
front end decisionmaking. We will never get rid of the
inevitability that some students will make bad investments, and
so I want to emphasize the importance that we do need to
maintain safety nets for borrowers who don't see a positive
return on their investments.
Mr. Alexander. TRIO programs do work, but they only impact
1 of 20 eligible students that need them. I'd like us to
revisit an idea the Federal Government could certainly do, and
it's in 1972. Currently, there are no incentives to educate and
enroll low-income students, particularly for private rankings
for cost. Low-income students cost more money, and there are no
incentives to enroll more Pell grant students.
I'd like us to revisit what happened in 1972. When we
passed the Pell grant program in 1972, Congress also passed the
cost of education allowances, which allocated $2,500 to every
institution following the Pell grant student to those
institutions, much like a Title I school gets extra Federal
support.
We authorized it in 1972. That would incentivize
institutions to take the $2,500 per Pell and put them in the
programs that help the low-income students stay and graduate.
With no incentives in place right now, there is no--we'll see a
continual decline of low-income student success.
This is one way that we can do--it's already been
authorized. We've just never put any money into the cost of
education allowances to encourage institutions to succeed with
low-income students.
Mr. Mitchell. From a State perspective, I would want to
point out that as State cuts have taken shape, higher
education--institutions of higher education have had to make
choices about where they're going to pare back their own
budgets in the instances where tuition revenue wasn't able to
make up the difference. One of those areas that we've seen cuts
occur is student support services, and some of those services
go toward helping students, especially those students most at
risk of dropping out--preventing that from happening.
There are absolutely, as you said, things at the Federal
level, but also States need to be mindful of this as well.
Mr. Kennedy. Senator Collins, I would just add that I
believe we need to keep track of these students and keep--if
they're not doing well academically or if they're having
financial issues. The key is really keeping on track. Nobody
wants to see a student leave after a couple of years, and that
does, unfortunately, happen, especially when they have student
loan debt.
Having manageable amounts of debt and the students feeling
like they're in control, really helps. If it gets to be too
much, and they feel they have to go work too much, or take away
from their studies, that really hinders their ability to move
forward.
Senator Collins. Thank you.
The Chairman. Thank you, Senator Collins.
Senator Franken.
Statement of Senator Franken
Senator Franken. Thank you, Mr. Chairman.
Dr. Alexander, I have a bill that I plan to introduce this
year called the College Access Act that would address the
college affordability problem at the front end before students
take on debt. Under my bill, as a condition for receiving
Federal funds, States would agree to implement reforms to make
college more affordable and increase the percentage of first-
generation and low-income students attaining a postsecondary
credential.
My question to you is how would you design such a program
to encourage States to best support college access and
affordability to first-generation and low-income college
students?
Mr. Alexander. The best design in this program would be to
match States that maintain certain levels of per-student
spending and to incentivize them by giving them a higher amount
of support through the program if, indeed, they are succeeding
in enrolling Pell grant and low-income student populations. Ten
years ago, we finally got institutions to start admitting how
many Pell grant students were at their institutions and how
many were succeeding.
I know at California State University and at Louisiana
State University, we make this information available to
parents, taxpayers, students, consumers just to show how many
of our Pell grant students or low-income students are on our
campus so we don't move back away from low-income serving
populations. The danger in having what we have had with the
U.S. News and World Report and many of the current measures
that have been in place is that they encourage institutions not
to enroll low-income students.
In fact, with State appropriation reductions, what we've
also seen is an increased interest and an increased
attractiveness of out-of-State students, such as Colorado,
Oregon, and others, that supplant the in-State low-income
populations of those various States, because they come in with
more revenues, they come in with greater test scores, and at
the expense of the low-income population of those States. We've
seen in many instances a supplanting of low-income students
with out-of-State students because of State appropriation
reductions.
Any bill that addresses that issue, that encourages us to
attract, retain, and graduate more low-income students must be
consistent with keeping our States--their tax effort and per-
student spending at a certain level in order to receive those
funds.
Senator Franken. Exactly, and thank you for that answer.
Mr. Kennedy, right now, financial aid award letters are
confusing. They often don't clearly indicate what a grant is
versus what a loan is. Sometimes they're called award letters,
and I don't know how many people consider a loan an award.
I have a bipartisan bill with Senator Chuck Grassley that
would make sure that students and their families and counselors
get clear and uniform information so that they can make apples
to apples comparisons between what the different schools that
the students have been accepted to are offering. I'm pleased
that Indiana University has changed its financial aid award
letter to separate grants and scholarships from loans.
Can you elaborate on how the initiatives you've introduced
at Indiana, such as uniform financial aid award letters and
additional funding aid to counseling, have affected student
borrowing?
Mr. Kennedy. Yes, Senator Franken. You know, we had some
focus groups with students--that's where most of it started--
just to find out what the confusing parts were for students.
Like you mentioned, that was very confusing to students, having
all the awards or how you want to categorize--all the aid types
together, and we really wanted to separate that so students
would really understand that this is a student loan and they
have to repay it versus a grant or a scholarship.
Our experience has been that any touch point that we have
with students, whether it's the financial aid notification,
it's counseling, it's some of our financial literacy
initiatives, it's working with advisers--anything that we can
do as a touch point to talk to students about aid, because one
of our pieces with our student loan debt letter was we realized
that students--and I guess we were pretty much horrified by the
fact that when talking to students, they would say, ``I have
$10,000 in student loan debt'' when it was actually $25,000.
They didn't really have a clue at all as to how much they
had accumulated up to a certain point. For planning purposes,
we really wanted to make sure that throughout their whole
experience, they understand exactly how much money they have
out in student loan debt and what the repayment is going to be
so they can plan accordingly once they leave the institution.
To answer your question, anything we can do, any touch
point with students to talk about student loan debt is very
important.
Senator Franken. Thank you very much.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Franken.
Senator Cassidy.
Statement of Senator Cassidy
Senator Cassidy. I enjoyed all of your testimonies. Thank
you. As you spoke, I had this sense of the Greek myth of
Tantalus, because we have incredible pressure to increase
financial aid to students. But the more we offer--and Senator
Warren, has offered good legislation--I don't like your tax
position. The more we offer, the more the States received.
If the goal is to make tuition affordable, and we try and
raise aid, again, like Tantalus, it just receives because the
States pull away. By the way, I read this--or I heard it from
you, from you, from you, from you, from the GAO, and from this
report that States cutting aid is the principal reason tuition
has increased. There is quite a consensus on this.
Dr. Alexander, you mentioned something that I heard Lamar
say when I was in Congress. You mentioned that Tennessee's
Medicaid has gone from 8 percent of its budget to 30 percent of
the budget, implying concomitantly that Tennessee's support for
higher ed, except in the community college where there's
essentially a maintenance of effort requirement, has declined.
One has risen. One has declined. Dollars are fungible, and
States are moving it to where there's a maintenance of effort.
With that preamble, I'm against States being mandated to do
something. It appears unless States are mandated to do
something, they're not going to do so.
Let me ask you again, seeing that we have a maintenance
effort for secondary education, and we have a maintenance of
effort for Medicaid, please explore with me this maintenance of
effort. I don't think the States should be told what to do. On
the other hand, except where we tell them what to do, they're
going to shift dollars to where we tell them what to do. Does
that make sense?
Mr. Alexander. It certainly does, and Senator Alexander's
question is right about the Medicaid growth in all this. The
challenge is that this cost isn't going away, and as States
back out of their responsibilities, the cost is falling on the
backs of students, and it's falling on the backs of the Federal
Government.
The Federal Government was not supposed to be putting in
2\1/2\ times what States do in support of revenues for higher
education. That will be 3\1/2\ times. That will be 4\1/2\
times, because the $80 billion that States are putting into it
will diminish and this will quickly grow for the Federal
Government's burden, whether it's Pell grants, SEOG grants,
subsidized loans.
This burden will be transferred to the Federal Government,
and we will have a Federal system of higher education, no
longer State systems, but we'll have a Federal system of higher
education unless we stop States from getting out of the higher
education business. I think you're exactly right. ESEA actually
is a great example of what States will do with certain
incentives.
In 1965, when we decided that Title I schools should be in
existence and the Federal Government should put extra money
into poor schools, the first thing that States did was start
backing their money out. They backed their money out in
numerous States, and that led to numerous court cases
culminating with Bennet v. The Department of Education in
Kentucky in 1985 that said States can't supplant their money
with Federal money. Currently, we've got a supplanting
situation in higher education.
Senator Cassidy. Let me stop you. Paradoxically, the only
way we maintain a State role is if we mandate a State role.
Mr. Alexander. That actually has worked in so many
different areas, because the States are getting out and will
continue to get out of the higher education business. We have
States who have turned down Medicaid funding matches but still
cut higher education at the same time.
Senator Cassidy. I also understand, which I did not
appreciate before. Dr. Akers, I was struck by what you said.
This is actually a bargain. Most people are able to pay off
their student loans, as Chairman Alexander said, because the
people with $100,000 loans are, frankly, making a lot of money,
and they're able to pay it off over time because their income
befitted.
On the other hand, Mr. Mitchell, you make the point that
it's going to be the poor person, the person of color, that is
actually going to disproportionately suffer as States withdraw
their contribution and the cost of tuition rises. If you will,
if we're concerned about income inequality, this issue of
States backing out of tuition support actually contributes to
income inequality. Is that what I got from you?
Mr. Mitchell. The concern there is that those students,
those low-income students and students of color, who either
never make it onto a college campus or don't complete to
graduation, won't see the investment returns that some students
do, especially higher income students. That is a problem, not
only for those students, but also just for our broader economy
and for a country that's becoming more diverse.
There was one other point, though, on State budgets and
kind of the pressures on State budgets. There are a number of
areas we look at with State priorities and what States need to
spend on. One of those other areas that we've looked at is
correction spending. This is not a place where there is an
interaction with the Federal Government, but yet increases in
cost at the State level have been rising over the past few
years.
State policymakers do have to make decisions about whether
or not to increase revenue, cut spending in other areas to make
investments in higher education possible. It's important to
note that at the State level as well.
Senator Cassidy. I'm out of time. Thank you very much. I
yield back.
The Chairman. Thank you, Senator Cassidy.
We'll have a second round of questions because Senator
Cassidy got into my favorite subject, which is what is the true
cause of the loss of State support for higher education. I'm
not going to abuse my chairman's position to take up time to do
it until my turn comes.
Senator Bennet.
Statement of Senator Bennet
Senator Bennet. Thank you, Mr. Chairman. Thank you for
holding this hearing, and I won't dwell on the FAFSA or even
unroll my FAFSA but just say that I hope with your leadership
we're going to be able to get this across the finish line. It
would make a difference to millions of people in the country.
I want to say how much I appreciated Senator Cassidy's
preamble, because I don't disagree with it. The important part
of this is to think about the practical effect of how our
Federal system has conspired against young people in this
country over decades. It has resulted--the polite way of saying
it, I guess, is the way Dr. Scott-Clayton has said. College
attainment is increasingly becoming less equal--was your
testimony.
Another way of saying it, is that our system of higher
education--and I would say combined with our system of K-12
education--is conspiring to compound income inequality in this
country rather than relieve income inequality in this country,
and it is certainly true. The evidence is absolutely clear.
While we can speak in averages about the average experience
that people have in this country, the way people in poverty
intersect with our system of K-12 and higher education bears no
resemblance to the way people that are more affluent intersect
with the system. It's very important for people to understand
that on this committee and in this Senate.
Forty years ago, if you were 22 years old, your Pell grant
covered 67 percent of the average cost of college. Today, it
covers 27 percent of the average cost of college. Interestingly
enough, the average age in the U.S. Senate is 62 years old.
When we were in college, we were content with a system that
provided 67 percent of aid. Today, it covers only 27 percent.
That doesn't seem fair to me.
I know the reasons why, but we have to figure out as a
country, working with States and local governments, how we're
actually going to provide a deal that's different than the one
people are getting today and looks more like the one people had
when we had a rising middle class in this country. Otherwise,
we're not going to have a rising middle class in this country.
In 2012, if you were in the bottom quartile of income
earners in the United States, the net average cost of the
average college to you after student aid is accounted for,
after Pell grant is accounted for, was, I think, 85 percent of
your annual income. If you were in the top quartile, it cost
you 15 percent of your annual income.
I don't know what that is except a recipe for cementing
income inequality in this country rather than relieving it. I
wish that the--I'm sorry to go on so long, but I wonder if the
panel--and I'll start with you, Dr. Scott-Clayton--can give us
your best idea for how we can deal with this. Dr. Alexander has
spoken to it a little bit, but why don't we just go down the
list?
Or tell me that I'm wrong. Give me the evidence that
actually our system of K-12 education and our system of higher
education and the billions of dollars that we are spending on
those are actually diminishing income inequality in the United
States of America. If you've got that evidence, I'd love to see
it.
Ms. Scott-Clayton. One thing I do want to say is that part
of the anxiety that we're feeling, as you mentioned, is looking
back on a prior era when it wasn't this hard. One of the
reasons why it wasn't so hard in a prior era is because not as
many people were going to college. I do think we need to be a
little bit careful. If we look internationally at the places
where college is free, they achieve that by restricting access.
Senator Bennet. That's a very fair point. I'd say in
response that we are in a global economy today that is
requiring that if you want to live in a middle class family,
you need some attainment north of a high school education. It
only means it's more challenging for us, because we have to do
it.
The second thing I would say to that is from the
perspective of the student, the individual, that's pretty cold
comfort.
Ms. Scott-Clayton. Absolutely. What it means is that the
role of financial aid is more important than ever.
Senator Bennet. Because while the purchasing power in this
country for things like television sets and bicycles and other
things has grown dramatically, the percent of your income that
you're going to have to spend just to hang on in college is
dramatically different than it was 30 years ago. Sorry to
interrupt. I'll stop.
Ms. Scott-Clayton. I completely agree with you. Goal No. 1
should be to make sure that every dollar that is invested has a
maximum impact, and then let's continue this conversation and
not lead down the road of State disinvestment and Federal
disinvestment in student support.
Dr. Akers. One thing that's captured in your remarks is the
fact that price has increased dramatically. Federal support for
higher education hasn't kept pace with that, obviously. That's
in regard to your comments about the Pell grants.
What this means is that in order to invest in higher
education, students have to become more levered than they were
historically, so essentially putting all of their eggs in one
basket when that wasn't the case before. That just reflects a
fundamental change in the market for higher education.
What I would add to that is what that really emphasizes is
a critical need for safety nets, because, as I said before,
there are investments that will not pay off despite the fact
that they pay off on average. Those are going to be a part of
the Federal loan system that's growing in importance over the
coming years.
Mr. Alexander. The richest institutions in this country,
the ones that are most capable of serving larger low-income
populations, have the smallest number of low-income students.
We need to re-incentivize this and reward the institutions who
are the most affordable and the ones that are keeping students
out of debt and who are serving low-income populations and
serving them well. That's where the funding should go. We
should examine whether we should be giving money to industrial
park universities that are leaving 50 percent of all their
graduates in defaults.
Mr. Mitchell. You raise a wonderful point around the Pell,
and I wanted to say at the Federal level, one thing that could
happen is just making sure that we protect and maintain the
purchasing power of the Pell.
Currently, the maximum grant is indexed to inflation.
However, after 2017, that will no longer be the case, and that
maximum grant will be frozen, which will only accelerate kind
of the decline in the ability of Pell to help low-income
students afford higher education. That's another point to keep
in mind.
Mr. Kennedy. I'd say we have to continue our commitment to
low-income students. We're very fortunate in Indiana to have a
very good State aid program, and we also use a lot of our
institutional aid because we want to have those low-income
students be successful at our institution. We have to continue
with that.
Senator Bennet. Thank you, Mr. Chairman. I apologize for
going over.
The Chairman. Thank you, Senator Bennet.
Senator Murkowski.
Statement of Senator Murkowski
Senator Murkowski. Thank you, Mr. Chairman.
Thank you to each of you. We have a very interesting panel
here this morning.
I appreciate very much the comments by my colleague from
Louisiana in talking about this supplanting of the State's
dollars for Federal and the direction that we really take in
that regard. In looking at some of the numbers, Alaska is out
there as being one that's still in the winning category.
Not so much right now. The price of oil is down. We're
looking at a $2 billion hole in our State's budget. The
pressure then on the State and where dollars are going for
education is, again, a consideration and a factor for us.
We are seeing, again, the same situation that you've seen
with so many other States, where you're seeing State support
for the University of Alaska system going down. The costs are
going up for faculty, for maintenance, and so, as a
consequence, our tuition costs also are rising.
This is a concern that I have, and I'm trying to
understand--Dr. Alexander, you have mentioned several times now
that we need to be utilizing the Federal leverage that we have.
You mentioned, $170 billion to reward States.
Again, how we as policymakers here with a tough budget
situation as well--you know, you've got the States that are
saying, ``We can't piece it together.'' They're looking to the
feds to help do that. Do we really have $170 billion that we
can provide for incentives to the States?
I understand what you're saying in terms of there must be a
way to reward the States. Again, short of the actual
appropriation dollars that we're looking at, what more do we
need to be doing to leverage the Federal side?
Mr. Alexander. The $170 billion is the aggregate. You need
about $10 billion to incentivize States. The argument is we
keep coming here over and over again to increase a Pell grant
at a ratio that is much less than what our public universities
are having to increase.
We're completely negating any increase in student aid each
and every year, if we don't close the back door, the back door
being States, and if we don't incentivize States to prioritize
higher education, like we have highways, like we have Medicaid,
like we've done other things.
I do think that we need to put a priority on the next
generation of students, and that priority is that we need to
rethink how we're using the $170 billion, because, as Senator
Bennet pointed out, as Chancellor Charlie Reed once said, if
you're poor and you're smart, you have about a 10 percent
chance still to graduate from college. If you're rich and
you're stupid, you have a 90 percent chance--that's a quote
that we gave here about 5 years ago--even despite the $170
billion that we're putting into this to change that around.
I'm hoping that we use those resources more effectively,
encouraging States to remain affordable, encouraging States
to----
Senator Murkowski. How do you do that more effectively,
then?
Mr. Alexander. You put matching funds on the table for
States that put money into higher education or at least, at
this time, maintain the current funding levels in per-student
funding for higher education. Those matching funds were
utilized, certainly, in stimulus packages throughout the United
States and could be utilized, and it could get our legislators
to be more serious about not cutting higher education at a time
when higher education is probably the easiest cut to make in
every State in the country. We sit out there with no
dedications, and that's one reason why we're declining at such
a rapid pace.
Senator Murkowski. We've had good discussion about just
this issue a lot this morning. I don't want to belabor it more.
Again, looking to those ways that we can encourage the States
to make that commitment, is going to be huge.
Senator Collins mentioned a point, too, that as the States
are making these decisions on where they find their cuts, the
cuts so often come in the student services, the counseling,
those services for those who most need that help in
understanding what their debt burden is. Those are gone, and
then the students are left hanging.
Mr. Kennedy, I appreciate the student loan debt letter that
you have attached as part of your testimony. I looked through
it. It looks readable. Hopefully, it's just on 1 page, two-
sided, so that it's there for the student. It's transparent in
terms of what it is that the student is then obligated for.
I don't know whether Indiana is on the cutting edge in
terms of making something readable and understandable and other
universities are following suit. I'm going to make sure that
the University of Alaska system looks at it, because it's
helpful for us. The more that we can do that, the more it's
going to help as our students are trying to understand what
they're facing and the burdens when we see these cuts and these
reductions.
My time has expired, Mr. Chairman. Thank you.
The Chairman. Thank you, Senator Murkowski.
Senator Warren.
Statement of Senator Warren
Senator Warren. Thank you, Mr. Chairman.
We need to reduce the cost of going to college, but we
can't do it until we get the facts straight on what is driving
the cost of college and how student loan debt is affecting our
families.
Dr. Akers, you've written several analyses of the impact of
student loan debt, and you gave some summary of that here
today. You used data from the Survey of Consumer Finances,
which is conducted by the Federal Reserve Board. I noticed that
your conclusion based on these data contradicts the Federal
Reserve's analysis of its own data.
For example, you say that typical borrowers are, ``no worse
off now than they were a generation ago,'' while Federal
Reserve Chair Janet Yellen seems to think that many borrowers
are worse off. Chair Yellen analyzed Federal data about
families in the lower half of the income spectrum, and data
show that in less than two decades, outstanding student loan
debt jumped from 26 percent of average income up to 58 percent
of average income. That's more than double.
Do you dispute the Fed's analysis of their own data?
Dr. Akers. Absolutely not. There's room here for both of us
to be contributing valid points----
Senator Warren. Let's start. You think the Federal Reserve
got this part right?
Dr. Akers. Sure, sure. I think they're right. There's truth
in both of the claims.
Senator Warren. Let me ask about that. This is a huge
increase in the debt to income ratio, and yet you say in your
published work that you believe borrowers are no worse off than
their counterparts were 20 years ago, and I'm trying to
understand that.
Dr. Akers. Sure. The basis for that statement perhaps is
what I can offer here. First of all, when we look at the long-
run affordability of these student loan debts, we lean on the
information that we have that the returns to college education
are positive, on average. In a long-run sense----
Senator Warren. So wait. The question is not whether or not
it's still good to go get a college education. I think everyone
in the room signs on to that proposition. The question is
whether or not people who are trying to do it now are in a much
tougher spot than people who were trying to do it a generation
ago. You describe it as no worse off.
Yet, based on your numbers, borrowers' annual income over
this time period has gone up by 17 percent. Their debt load is
up by 150 percent. They have a little more money and a lot more
debt over the last generation. How can you say they're not
worse off?
Dr. Akers. It's important to remember that when we're
comparing income to debt accumulation, we need to be thinking
about lifelong income and not just annual income.
Senator Warren. That is what we're talking about.
Dr. Akers. We don't need annual income to keep pace on a
dollar-for-dollar basis with the amount of debt that's
increased or the increase in price, essentially, in order to do
the cost-benefit analysis for college, in general.
Senator Warren. I'm sorry. We're back to the original
point. The question is not does it make sense financially by
the time you're 65 to have gotten a college diploma. It
certainly does.
I'm looking at your published statement that today's
generation is no worse off than 20 years ago. Yet all I can see
is that income has gone up 17 percent. Debt has gone up 150
percent. It seems to me that means that people today are a
whole lot worse off, on average, if they have to borrow money
to go to school.
Dr. Akers. I'll offer an additional statement to support
that claim, and that's based on the transitive burden that
student loan debt is imposing on these households. What we look
at is what is the ratio of monthly payments to monthly income
for these young households who are carrying student loan debt,
and we see, surprisingly, that it has remained flat or even
declined over the past 20 years.
Senator Warren. In fact, I looked at that part of your
research, and what that part of your research says is that
families today are stretching it out--a much bigger debt
burden, but they're stretching it out over decades longer than
they used to. You say they are no worse off, even though they
will be paying more interest, and they will be paying for a
much longer period of time. They're no worse off because they
can pay more, they can pay longer, they can pay when they
should be working on helping their own children get an
education, and when they should be saving money for retirement.
You know, a lot of people would think that being able to
pay off your debt in 10 years versus being able to pay it off
in 20 years or 30 years, you're worse off if you have to make
those same payments over a much longer period of time.
Dr. Akers. Yes, absolutely. That piece of evidence alone
doesn't tell us anything about what's happening to the long-run
well-being of these borrowers and how it's changed over time.
There are two aspects of affordability. First is the long-run
affordability. The best evidence we have on long-run
affordability comes from our estimates of the financial return
on the investment and then the transitive burden or the month-
to-month affordability.
Senator Warren. As I said, what we're trying to get is the
intergenerational, because what I'm focused on is the question
of whether or not kids are doing worse today. It just seems to
me, based on your research and on the Fed's research, both of
which show a substantial increase in debt loads, that it is a
serious problem.
I don't think it's responsible to sit here and claim that
borrowers are, ``no worse off'' while people are still
struggling to make much higher student loan payments than ever
before and carrying their debt for much longer than ever
before. It seems clear to me that the Federal Reserve, the
Consumer Financial Protection Bureau, the Treasury Department,
and other experts who have been sounding the alarm on student
debt got it right.
Rising student loan debt is hurting our families and it's
hurting our economy. We need to make changes. We need to make
them now. That means taking an objective look at our student
loan program instead of trying to sweep this problem under the
rug.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Warren.
Senator Isakson.
Statement of Senator Isakson
Senator Isakson. Thank you, Mr. Chairman. You know, I was
thinking when I listened to Senator Bennet--I went to the
University of Georgia in 1962, which was back when the earth
was cooling a long time ago, and I know things aren't
necessarily relevant, but we're all sitting here on a ham
sandwich starving to death.
When I went to the University of Georgia in 1962, they
admitted every applicant who was a graduate of a Georgia high
school. Dean William Tate, who was the dean of students, would
get you in the Fine Arts Auditorium on the first day--2,000
freshmen--and he would say, ``Look to your left and look to
your right, and one of you won't be here next quarter.'' They
managed the cost of the university through attrition of
academic achievement, but they took everybody who applied.
Today at the University of Georgia, they have 7\1/2\
applicants for every one person they accept, No. 1. No. 2, the
graduation rate is probably not 100 percent, but it's certainly
in the 1990s. Every one of those students enters the University
of Georgia on some type of a scholarship because of the Hope
Scholarship Program.
We have a lot to be thankful for in terms of what our
education has done over the last 53 years. I remember my dad
calling me in the living room when I graduated from high
school, and he said,
``Son, I'm going to make you two promises for higher
ed. One is if you go to the University of Georgia, I'll
pay for the cost of your education as long as you don't
go 1 day longer than 4 years.''
I went to the University of Georgia, and I went to summer
school for three summers to make sure it was 4 years when I got
out. Necessity is the mother of invention, and therein lies
part of our problem.
We need to start educating students on what it's going to
take them to pay the debt that they owe and give them enough
relevant information early in the decisionmaking process so
they borrow on a more reasonable basis, No. 1; and, No. 2,
recognize our university system cost is in large measure
because of the competitive nature of our university system.
Everybody is trying to have the best student personal
fitness program, the best football team, the best library, the
best everything else. We've got a lot of bricks and mortar
costs and everything, and it's going to continue to go up.
The point I want to make is that you can't compare apples
and oranges. You've got to compare apples and apples, and we're
lucky to be where we are. We're at a break point. We're at a
point where we may kind of invert because of the rising cost of
higher education and because of the rising debt of students.
What you're doing at the University of Indiana system is
really remarkable. I agree with Lisa in terms of what she said
about the letter, but, more often, recognizing early that
tracking students, making students aware of the cost of
borrowing, and helping them and counseling them in borrowing
makes all the difference in the world, and I commend you for
doing that. We ought to be doing that at every institution in
higher learning.
Second, there are lots of examples where students who have
fallen through the cracks--minority students, poor students,
people like that--are now being helped by universities--two in
Georgia, for example. Georgia State University has developed a
program called Panther Grants, where they track 24,000 students
at Georgia State University, and if they see one falling
through the cracks because of finances, they call them in. More
often than not, a small amount of money at a critical time in
their education can keep them in school versus dropping out to
work.
Georgia State's average Panther Grant is $300, yet they've
saved countless students from dropping out of school and going
to work. Georgia Tech has a program now called the Wayne Clough
Full Scholarship Program, where if you're academically
qualified and economically not able to pay for tuition, you go
to the Georgia Institute of Technology on a full boat as long
as you do $2,500 in student work during the course of the year.
That's the Wayne Clough Scholarship Program.
We have universities in Georgia that are creating ways to
bring those students who might fall through the cracks or the
shrinking middle class back into our university system. I know
I'm supposed to ask a question and I'm not doing it.
[Laughter.]
The point I want to make is we've got a lot to be thankful
for about where we are. I don't know how much the State of
Georgia spends on the University of Georgia, but probably 75
percent of its revenues in 1962 when I went there. I think it's
23.5 percent. I don't know what Louisiana State is.
Mr. Kennedy. Thirteen.
Senator Isakson. Thirteen? What is Indiana?
Mr. Kennedy. A little bit higher than that. I think about
18 percent.
Senator Isakson. Most universities in the country are 25
percent or less--State universities. That's down from 75
percent or more 50 years ago. Look at what we have as a
product.
The important lesson on the cost of higher education is
that the university systems of the United States of America
have an obligation to the potential students of those
universities to give them the best debt education they can, the
best timely information they can, and the best creative
opportunities they can to continue to go to those universities,
and recognize every brick and mortar that you put on that
campus contributes to the higher cost of the university that
you're running. Every now and then, when we look for
alternatives to bricks and mortar, we're probably going to be a
lot better off in terms of managing our cost.
You're welcome to comment on that if you want to. I just
had to get that out. That's my story and I'm sticking to it.
The Chairman. Thank you, Senator Isakson.
Senator Casey is not here. Senator Whitehouse.
Statement of Senator Whitehouse
Senator Whitehouse. Thank you, Mr. Chairman. It seems
fairly recently that we had the news that student loan debt in
the country broke through a trillion dollars, and now it
appears to be at $1.3 trillion. It's accelerating at an
astounding rate.
Behind those big numbers are stories like my constituent,
Ashley Kenihan from Riverside, who is a nurse at Miriam
Hospital, one of our great hospitals. She loves her work. She's
proud of what she does. She may be an expert nurse, but she
wasn't an expert financier, and she's now carrying six
different student loans, some of which have very high interest
rates. She's estimating her payoff is over $200,000.
She's looking around for fairly simple measures, like is
there a way to consolidate all those loans at a lower rate.
Given that we're loaning the big banks money at virtually zero
percent, why not help students like Ashley or, I should say,
nurses like Ashley, because she's through her student years.
All of us are sympathetic to that problem, and we all want
to help. We also want to make sure that it's really helping.
This business of flooding more student aid into the higher
education system--if you're not backstopping to make sure
that--you're actually really funding the State general assembly
by allowing them to offset every additional dollar you get with
State cuts and also taking the incentive out from the
universities to meet any kind of basic cost or, at least, cost
reporting standards, what--are there any good examples out
there at the State level perhaps or even at the individual
university level where somebody has addressed the danger of
that kind of gamesmanship in the system and tried to hold both
the university and the State alternative funding source
accountable?
Do we have good models to work off, or are we in terra
incognita here?
Mr. Alexander. We have very good viable models. The key, is
protecting those models and protecting the institutions that
have done exactly what you said. Only 30-plus percent of the
students that get out of Louisiana State University graduate
with any debt whatsoever. The national average is almost 75
percent.
We need support to stay where we are. We need support to
ensure that the States help keep us where we are. If this
continuation of a shift from the State to the Federal student
aid program moves forward as it's been going, and this trend
continues, where States get out of higher ed and the Federal
Government picks up through the programs, students will be in
much, much greater debt each and every year as we go forward.
There are many institutions that could be supported through
State support but also through Federal recognition of the
institutions nationwide who are affordable, who are keeping
students out of debt.
Senator Whitehouse. Maintenance of effort is a doctrine
that has a long history, often of rather squirrelly definition.
Are there examples of how you can hold, for instance, a state's
feet to the fire on this with terms that are more definite and
more measurable and less amenable to gamesmanship than just the
old maintenance of effort game?
Mr. Alexander. I can say with regard to the stimulus
package for higher education, it was the most important part of
that stimulus package, because you had many States that even
cut their budgets within half a percent of the line that they
couldn't cross. And once that line was removed, those States
cut their budgets back to 1994 and 1995 levels. They had
nothing to maintain them at 2006 levels. In addition to that,
I'll use ESEA and Title I schools.
Senator Whitehouse. Is that because this is something as
simple and measurable as a State appropriation, and so
maintenance of effort doesn't get fogged into----
Mr. Alexander. You cannot cut below a certain level if you
accept Federal funds. This also applies to ESEA and Title I
schools.
Senator Whitehouse. Then what's the universities'
commitment not to just take that extra funding both from the
Federal Government and the State and give everybody a new
uniform and everybody a----
Mr. Alexander. I can speak on behalf of the public
universities. The public universities' commitment is, we don't
want to go up in tuition. We don't want to go up $900. If we
get enough State support or maintain State support, we don't
have to increase our cost. Therefore, our students do not have
to incur greater debt upon graduation, and/or students will get
into debt at graduation.
Senator Whitehouse. My time has expired, Mr. Chairman. I
just want to let you know that I appreciate the process that
you and the Ranking Member have embarked on on the Higher
Education Act. I thought we had a really great outcome on the
Elementary and Secondary Education Act, and I appreciate how
well the committee is working together on this set of problems.
The Chairman. Thank you, Senator Whitehouse. We all have
enjoyed the quality of the witnesses and the opportunity to
work together on such important issues. Thank you for your
comment.
Senator Scott.
Statement of Senator Scott
Senator Scott. Thank you, Mr. Chairman, and thank you for
holding such an important hearing on such an important issue.
Dr. Akers, I appreciate you putting the point on the core
of the problem and talking through the cost and challenges that
so many students face in obtaining what is a very important
component to success in America, which is, of course, more
education.
As I talked throughout the State of South Carolina with
many of the presidents at colleges in South Carolina, I ran
across a Dr. Miller, who is the president at Greenville Tech.
He talked about the important role that technical schools can
play in reducing the overall burden and cost of education for
students. One point that he made was that if you compare
Greenville Tech to other 4-year institutions, the cost savings
per semester is around $4,500 per semester.
He also mentioned the fact that many schools, at least in
South Carolina and other States, are moving to a model where
you can allow--you have transfer agreements so you lose no
credits whatsoever. Could you talk a little bit about--if you
agree, can you talk a little bit about the opportunities of
reducing the cost of college by using technical schools? In
Senator Alexander's State of Tennessee, they're moving toward
making technical schools virtually--or 2-year schools--free.
The Chairman. Yes. That's been done.
Senator Scott. If that is a fact, can you talk about, (a)
many students want to go to the college of their choice and
spend 4 years there, and (b) perhaps you can save 30 percent to
40 percent of the cost of education by going to a 2-year school
and then transferring with those credits going forward to that
alma mater of your choice?
Dr. Akers. Sure. Thank you. Some of the sentiment that
you're capturing in your remarks is we've placed a lot of
emphasis on this dream of going to college, living on the
campus, having this experience, which is, in fact, a great
experience and a valuable experience. It has pushed consumers
away from thinking critically about the cost that they're
paying for college on the front end and really being critical
consumers and demanding that their institution is providing a
service to them that meets the dollars that they're
contributing.
The use of community colleges or alternative non-bachelor
granting institutions as a stepping stone to higher education
is a reasonable approach that is probably under-utilized.
Senator Scott. Has anyone quantified the actual savings?
Dr. Akers. I'm not familiar with work in that area, but it
might exist.
Senator Scott. I spoke as well with some of our 4-year
institutions--and this question and go to whoever wants to
answer it. Dr. Pastides at the University of South Carolina and
I talked yesterday about making Pell grants available during
the summertime again.
He talked about the opportunity cost that is lost in the
fifth and the sixth year of education. If I have the figures
right, the opportunity cost for the extra time in school for
those 2 years--the fifth and the sixth year--is about $77,738.
It seems like if you're spending more time in school,
you're actually, (a) accumulating more debt because, typically,
your 4 years are done with your financial aid and (b) you're
missing the opportunity of working and paying taxes, which is
an opportunity cost as well. If someone wants to comment on--
Mr. Kennedy--on the opportunity cost as well as the savings if
we were to make Pell grants available during the summertime.
Mr. Kennedy. Thank you, Senator Scott. We really liked
having the year-round Pell, because we could use it for our
students who were not completing the 30 credits. We've been
really focused on the 15 credits per semester so somebody will
graduate in 4 years.
Senator Scott. Yes.
Mr. Kennedy. We use the summer as kind of the make-up time.
If somebody is not on track to graduate, they can use the
summer. What we found is that the funding for summer is pretty
limited. Most students have already used their Federal
eligibility. There's a little bit of State eligibility. We feel
that putting that back in place would be very helpful to keep
students moving through and graduating in 4 years.
Senator Scott. One quick thought, Mr. Kennedy, while we're
on that topic. Dr. Pastides mentioned the fact that many of the
interns in accounting and other areas are going to focus during
a semester. If you're a CPA or if you're an accounting major,
the chances of you getting an internship January to April is
far better than June to August. If you want to give that
student the opportunity to get real skills at work, perhaps the
summertime Pell actually allows that to happen more often than
not, as well.
Mr. Kennedy. Very much.
Senator Scott. My time is up. Did you have a--Dr. Scott-
Clayton?
Ms. Scott-Clayton. Yes. I was just going to jump in with a
couple of points there. First, in terms of the student loan
debt and the tradeoffs between a 4-year versus a 2-year
technical degree, when we hear about the $30,000 typical debt,
that's referring to bachelor's degree graduates who borrow.
If we look instead at 2-year institutions, the rates of
borrowing overall are far, far lower, and the amounts that
students borrow, conditional on borrowing, are also lower.
Students at those institutions, if they're receiving a Pell
grant, are probably going to have their tuition fully covered
and even get some help paying for their other expenses.
Senator Scott. It certainly would then reduce the cost of a
4-year education for those students who transfer without any
debt at all.
Ms. Scott-Clayton. Yes.
Senator Scott. Mr. Chairman, my time is up, unfortunately.
Thank you.
The Chairman. Thank you, Senator Scott.
Senator Casey.
Statement of Senator Casey
Senator Casey. Mr. Chairman, thank you. I want to thank you
and the Ranking Member for the hearing.
One of the issues that so many of us in both parties have
been focused on is the issue of the middle class or the
inability for folks at a more regular rate to get into the
middle class. Some of that is what I would call a 40-year wage
growth problem. If we're not talking about higher education
when trying to solve the lack of wage growth over the last 40
years, we're probably not getting to part of the solution. This
is a timely hearing in so many ways.
I wanted to focus more narrowly on the Perkins program and,
in particular, the value of it but also the particular impact
in my home State of Pennsylvania. We have over 50,000 students
impacted by Perkins and more than 100 institutions. It has a
huge impact. We know that it's going to expire at the end of
this fiscal year, September 30 of this year.
I wanted to start with Dr. Alexander. In your testimony,
you stated--and I'm quoting in part on the first page--you were
referring to recommendations you would make of,
``how the Federal Government can better utilize its
fiscal leverage to ensure that there will be affordable
public college and university options for students in
every State.''
I would just ask you if you would include Perkins as one of
those.
Mr. Alexander. I would certainly--I think you can use any
of the $170 billion--Perkins is in that $170 billion--in
support of encouraging States to do the right things and
remaining affordable. Perkins will grow if tuition grows, and
the need for Perkins will grow.
Other campus-based programs that we're aware of--SEOG, as I
mentioned, and work-study--also need to be carefully examined,
because, currently, they're more price-based than they are
student-based or institutional-based. We need to examine the
fair share of which institutions are providing the best
opportunities.
All of that can be looked at and can be incentivized to
States so that States are also keeping their costs low, but
also keeping student indebtedness lower as well as they go
forward.
Senator Casey. In terms of your own institution, LSU, can
you put a metric or a description of what Perkins means at LSU?
Mr. Alexander. Perkins is very important. Because we're
lower cost, Perkins is vital to most of our institutions,
primarily because we're a poor State. We need revenues, and we
need support from the Federal programs to offset what our
States are unable to do.
My worry is that we don't remain the affordable State that
keeps students out of debt, and two-thirds of our students
don't graduate with any debt whatsoever. That's the goal at the
end of the day, to keep our students out of debt as they go
forward.
If they choose to have debt, we want to make sure that they
understand the low-interest rate debt, and we want to encourage
them to take as little as possible but enough to keep them on
track to finish. So Perkins is very important.
Senator Casey. The low interest rate connected to Perkins,
of course, is an important feature.
Mr. Kennedy, for Indiana, can you speak to Perkins in terms
of the impact or the value of it?
Mr. Kennedy. Yes, I can, Senator Casey. We have roughly
about $10 million a year we give out in Perkins loans to our
low-income students. We feel it's a very vital program because
it gives us some flexibility with the low-income students.
We really like that program, and we've used it a lot just
to help students, especially getting over--that have some
issues financially. That extra little amount can really help
them stay in school and finish their degree. We really like the
Perkins program, and we have strongly worked on that program at
Indiana University.
Senator Casey. That's great. Before I wrap--I've got about
a minute. Anyone else on Perkins? Any comments?
Ms. Scott-Clayton. I would just make the comment that a
concern is that students probably don't know about Perkins
until they're already on campus, and it can be very confusing
not only to have two different types of Stafford loans, but
also to have Perkins loans. If there's some way to get the
benefits of the institutional flexibility while reducing the
confusion and complexity that students face, That's something
to keep in mind.
The second piece is that campus-based aid programs are
extremely unequal in their allocation, and particularly with
respect to Federal work-study, which has been shown to be
effective. It's shown to be effective for the students who are
least likely to be getting it right now because their
institutions aren't getting sufficient funds.
Senator Casey. Thanks very much.
The Chairman. Thank you, Senator Casey.
Senator Baldwin.
Statement of Senator Baldwin
Senator Baldwin. Thank you, Mr. Chairman and Ranking
Member, for continuing in this series of important hearings. As
we take a deeper look at the investment that our States are
making in public university systems, I would make some
observations about my home State of Wisconsin.
Unfortunately, we are seeing my home State as an example of
this trend of disinvestment. Just by way of example, at our
flagship university, the University of Wisconsin Madison, State
funds today account for only 17 percent of total revenue. This
is down from 43 percent in the year 1974.
Earlier this year, our Governor proposed further slashing
of State support for the University of Wisconsin system,
cutting another $300 million in the next biennial budget. Last
week, a key legislative committee approved an ever so slightly
more modest cut of $250 million.
If approved by the full legislature, this will mark the
sixth budget in the last 7 years that cuts State support for
higher education. I fear this cut and others like it will limit
opportunities for more Wisconsinites, it will saddle more
families with student debt, and it will dim the job prospects
of the next generation and harm our Wisconsin economy.
I regret that I was unable to join this hearing during some
of the earlier opening remarks. At the risk of having you
repeat some of your earlier answers to questions and testimony,
I guess I want to start with you, Dr. Alexander.
You've noted that this trend is sadly not unique to my home
State of Wisconsin. Can you talk about the impacts that State
disinvestment has had and could continue to have on students
and families and the future vibrancy of our State economies,
and, frankly, just tell us what's likely in store for the
students and families in my State facing this massive
additional cut?
Dr. Kennedy. We've watched Wisconsin very closely----
Senator Baldwin. I'll bet you have.
Dr. Kennedy [continuing]. Because I think you're second in
the budget reduction right behind us. I'm very concerned about
the cuts that are going on in Wisconsin because I'm the father
of a daughter that goes to Wisconsin, and I know my tuition and
fees will be jumping rather rapidly. In addition to that, I'm a
graduate of the University of Wisconsin.
Without any utilization of Federal leverage to encourage
States and our State legislatures to keep their investments in
public higher education, the consequences will be that this
will shift onto the backs of students and families. The
societal gain or the societal support of our neighbor's child
will go away. It will become simply an individual benefit paid
for by the families and the individuals who receive it.
That will become a sad day in this country when we do not
have societal support on behalf of other State citizens to
support other children who may not be our own. That's the
direction we're going, and that's why I do think Federal
leverage is needed to encourage States to stay in the game and
not abandon these commitments.
Senator Baldwin. Mr. Mitchell.
Mr. Mitchell. If I could, just to make two other
observations, specifically to Wisconsin, over the past few
years, there have been significant tax cuts in the State of
Wisconsin that have made it very difficult for policymakers
within the State to put money toward higher education,
cumulative cuts that are around $2 billion over the past few
years, largely in property tax and certain income tax
reductions that haven't actually even been targeted toward low-
income households in the State. That's very important to keep
in mind, especially for potential budget cuts coming up in
Wisconsin.
I also just want to point out that this shift that we're
talking about is not as long-term as we sometimes communicate
it to be. When we look at education revenues right now in the
States, tuition is now about 50 percent of educational
revenues. Even 12 to 15 years ago, it was only at around 30
percent.
For lawmakers at the State level and at the Federal level,
It's very important to keep in mind that it's not so long ago
that we had made a commitment to higher education funding.
Senator Baldwin. Thank you.
The Chairman. Thank you, Senator Baldwin.
Senator Murphy.
Statement of Senator Murphy
Senator Murphy. Thank you very much, Mr. Chairman.
Thank you for sticking around for the last series of rounds
of questions from those of us who had other committee meetings
to attend. Let me add my thanks to the Chair and the Ranking
Member for the way in which we've conducted this discussion.
I wanted to continue to talk about this question of
accountability. I'm totally on board, Dr. Alexander, with the
idea that we should look at higher education funding in
somewhat the same way we look at transportation funding,
whereby we require a minimum State contribution; Medicaid
funding, for which we require a minimum State contribution. As
the numbers go up from the Federal Government, it just seems
like we should expect something from the State governments
other than cuts after cuts after cuts.
Your testimony also talks about this idea of return on
investment for a student, which is not just about the amount of
money they're spending, but it's about the outcome that they
receive as well. When you talk about accountability and
affordability, it is all relative to the benefit that they get
once they graduate and the amount of money that they're making
and whether that lives up to their expectations when they made
the decision to take out all of these loans in the first place.
It strikes me that as part of this conversation--and I'd
love to get the range of thoughts from the table--that we
should be talking about a couple of additional things. One is
making sure that students have really good information when
they decide to take out loans as to what the predictability is
going to be of their ability to repay it.
Today, we just don't have that data. We just don't have the
ability--in part because of a ban in our statutes on something
called the student union record--to actually tell students what
the average graduate of a particular institution is making, how
many of them are employed.
The second thing we can do is have a little bit tougher
accountability for schools, at least to catch the outliers who
aren't delivering results. Right now, the only hammer we have
is this default rate, this cohort default rate. If 30 percent
of your graduates aren't paying back their--no, are defaulting
on their loans, not paying back their loans, then you'll get
cutoff from student aid. That's it. We have no other way to try
to push schools toward accountability.
Should this be part of our conversation about
affordability, giving students some more information about the
return on investment that they're going to make, and perhaps
talking about some--you know, maybe even, at the outset, light
touch tools that the Federal Government can use to try to
ratchet up the accountability for results that schools are
getting?
Ms. Scott-Clayton. Thank you so much for this question and
comment. The first thing I want to respond to is the need for
better data on student outcomes, as well as better data about
student loan repayment and default.
There are critical holes in researchers' ability to figure
out what's going on, let alone students and their families.
There are movements afoot to make the problem even worse by
limiting a researcher's ability to use student record data to
look at things like what are the outcomes of students who
enroll in and complete different degree programs. That's a very
important point.
The second is that going back to this discussion about
affordability, affordability of the cost is just one-half of
the cost-benefit equation, and it's pretty complicated enough,
just to figure that piece out. Besides that, students also have
to make complicated tradeoffs about which program is right for
them and what their outcomes are likely to be if they go.
Providing better information, as there have been movements to
do, is helpful.
Students do need more than just information. They need
guidance, they need individualized and proactive assistance to
make these decisions, and there may be some light touch things
the Federal Government could do, just pushing out information
on where students can turn to for support with these decisions.
If the Feds could simplify the Federal financial aid piece
of it, again, that would free up resources, community
organizations, volunteers, college counselors, high school
counselors to help students with the even more difficult
question of where they should go.
Senator Murphy. My time is running down, but there's a
couple of other people who want to jump in.
Mr. Alexander. You ought to take a look at the institutions
that are fighting against this type of information. I'd love to
have a blue book where parents can walk in and assess what the
value of that institution is, because there are many
institutions that are overcharging in this Nation, and we had
to get--in the last reauthorization act legislated, they had to
admit how much student indebtedness they had.
We post what our starting salaries are. We post what our
mid-career earnings are, age 42 to 45. We post what our student
indebtedness is upon graduation. That's what parents want to
hear. That's the information that they can't get through
private news sources. This value-based discussion needs to be
pushed forward from the Federal Government to force every
institution to admit outcomes.
Senator Murphy. Dr. Akers, I'm a little over my time, but
I'd like to hear your----
Dr. Akers. Sure. Thank you. I appreciate it. I couldn't
agree more that we need more data available on institution-
level and program-level outcomes that students can use to make
better decisions about where to go to college, where to invest
their dollars.
We talk about creating a system of accountability, but
we're sort of ignoring the most fundamental system of
accountability, which is the consumers choosing where to spend
their dollars in higher education. Improving access to that
data through potentially the creation of a record system or
other means, would go a long way in creating the appropriate
incentives for institutions to be serving their students well.
Senator Murphy. I just remember an incredibly sophisticated
young man at a preparatory school in Hartford, CT, public
school, saying that he was taking out a boat load of loans to
go to MIT because he had made a decision that it was going to
pay off for him. The other kids around the table were just
glazed over. They had no idea what he was talking about because
they had really no information about how to make that choice
and no information given to them about the ways in which they
would go about doing that.
Thank you very much, Mr. Chairman.
The Chairman. Thank you, Senator Murphy.
This has been a terrific discussion, and you can see from
the interest of the Senators that we all feel that way. Let me
ask Senator Murray if she has any further questions or comments
that she'd like to make.
Senator Murray. I do have one more.
Dr. Scott-Clayton, I wanted to come back to you. You noted
that the Pell grant can cover tuition and fees for some
students like those who enroll at community colleges, and more
students ought to recognize just how affordable college really
is.
Students and families in my State tell me that tuition
isn't their only expense. It's, in fact, less than half of what
they have to pay just to survive. The Federal data that I see
shows that students from the lowest income families have to pay
almost $12,000 a year for college after the grant aid.
I wanted to ask you do you think we have done enough to
make college more affordable, or should we be providing
additional support for low-income students?
Ms. Scott-Clayton. I don't think we've done enough. I do
think we can do better. I do think, absolutely, for community
college students, tuition is not usually even the biggest
barrier.
There's been programs such as the ASAP program at CUNY that
make tuition completely free. The designers of that program
were actually surprised that that was not the expensive part of
the intervention. The expensive part was the metro cards and
the student advisers. I do think we can do more. Let's also
make sure that students know about the aid that's out there.
Senator Murray. Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Murray. I have just a
couple of questions.
Mr. Kennedy, we had testimony at a March 2014 hearing from
two financial aid directors who said that Federal laws and
regulations prevented colleges from requiring financial
counseling. One said institutions are not allowed to require
additional counseling for disbursement. ``We can offer it, but
we're not allowed to require it. Without the ability to require
it, there's no teeth in it.''
Do you agree with that? Do you find the rules and
regulations in your way as you try to step up your counseling
efforts?
Mr. Kennedy. Mr. Chairman, I feel what we've done with
financial literacy, kind of adding onto it--we haven't made it
required, but we've had great participation in that. We haven't
been hindered in our efforts with those regulations. It should
be strongly encouraged, with our success, that any type of
additional counseling is very much needed.
The Chairman. Do you think you should be prohibited from
requiring it?
Mr. Kennedy. I would say, no. Whatever we can do, I would
strongly encourage.
The Chairman. Thank you. Among the things I heard today--
the importance of counseling, the importance of clear
information, the importance of reducing complexity as a way of
releasing this army of people who could advise on other things.
I thought I heard general approval of the year-round Pell to
help speed students through more rapidly and, in fact,
hopefully, reduce the cost of college, if you get in the
workforce more rapidly.
One Senator mentioned we loan money to big banks at zero
and to students at 4.29. That's not exactly right. The Federal
Reserve loans money to banks overnight at near zero. We loan
money to students for about 10 years at 4.29.
It's also important to go back to where I started. The
message that always comes through at these discussions is how
much more we'd like to do, because it's never easy to pay for
college. It never comes through quite as clearly how affordable
things are.
I mean, if you're a low-income student in Tennessee,
community college is--or if you're any kind of high school
graduate in Tennessee, community college is free. If you're a
low-income student in any State, community college is free or
nearly free.
If you're a 4-year student at the University of Tennessee
Knoxville, 75 percent of your tuition is typically covered by
student aid. The president of Georgetown pointed out that even
if you want to go to one of the so-called elite universities
and you're willing to borrow $4,500 a year and work 10 to 15
hours a week, the university will pay for whatever your family
can't, and that the average student loan is about the same as
the average car loan. All that information suggests to most
students that there's a way to go to college.
The last thing I'd want to discuss a little bit before we
conclude is that we have Alexanders going in different
directions here. Dr. Alexander would have the Federal
Government require States to spend money on higher education.
I'd go just the opposite direction. I would say the Federal
Government ought to stop requiring States to spend money on
Medicaid.
I know anecdotal evidence isn't sometimes as good as
research, but I've had a vantage point that's pretty unique.
I've been a Governor in the 1980s and a university president
and a secretary of education, and now I'm here.
I've watched Medicaid spending in Tennessee go from 8
percent to as high as 33 percent of the State budget, and I've
made up those State budgets, and what we did was we took money
from higher education and put it into Medicaid. I resisted
that, and during the time I was there, we increased funding for
higher education more than any other State for 3 years. It was
a struggle even in the 1980s.
This isn't anything very recent. The reason for it is very
simple. The Federal Government defines what the Medicaid
benefits are. It mandates what States should do about them. The
States have to pick up 30, 40, 50 percent of the cost, and the
percent goes from 8 percent to 30 percent in Tennessee.
It's exactly true that as State support for the University
of Tennessee or LSU goes down, or California, tuitions go up. I
believe it's exactly true that as Medicaid mandates get
stiffer, tuition goes up.
If I were the Governor of Tennessee still, I would be
saying the reverse, Dr. Alexander. I'd be saying,
``Give us more flexibility, give us fewer Federal
definitions and fewer maintenance of efforts, and let
us put the money where the priorities are.''
My priority was on higher education. Our current Governor's
is on higher education. He's the one who made community college
free in Tennessee, which really doesn't cost very much money,
actually, because it's almost already free for every low-income
student.
Dr. Alexander, I'll ask you this. Why would you adopt a
policy of more Federal mandates when it's Federal Medicaid
mandates, in my opinion, that have basically caused the higher
tuition fees at LSU, Tennessee, University of California, and
every other State institution in the country?
Mr. Alexander. There are two points I'd like to make with
regards to that. By the time you get that behemoth turned
around and get that tackled, we'll have 15 States that will be
out of the public higher education business, that will not be
funding a single penny of higher education from Colorado to
South Carolina to Louisiana to Iowa.
The second point is that we did have 48 Governors against
us 10 years ago when we proposed the maintenance of effort
provision through the--the National Governors Association was
completely against it. We got Governor Schwarzenegger to be
neutral on it. As that went forward, within 6 months to a year,
those maintenance of effort provisions mattered to 20 States
immediately.
Our response to the National Governors Association was,
``If this was such a bad idea, why did it work so
well, and why did our States only cut their budgets to
where the Federal penalty kicks in? ''
The effectiveness--that period is the only time of fiscal
stability we've had with our State governments.
Without some kind of Federal support, without a redesign of
how we're using Federal funds to at least encourage States to
stay in the game, I think it will be well too late at the end
of the day for our States. They will bow out. It's my
responsibility to do everything I can to fight for the next
generation of students as others have done for an aging
population in healthcare.
The Chairman. I'm completely opposed to a Federal
maintenance of effort for higher education. If you have that,
you might as well just have the Federal Government take over
all the States. There wouldn't be anything left for Governors
or legislators to decide.
Mr. Alexander. I know you are.
The Chairman. I would respectfully disagree and say that my
goal would be to increase flexibility in the spending of
Medicaid funds and allow States to take that money and put it
into higher education, because for 30 years, I've watched it go
the other way.
We've had a lively debate in this committee about that ever
since I've been here with very different opinions about it.
We've had a good one from the panel today. It's been very
helpful. If any of you have additional--Senator Murray?
Senator Murray. I just want to make one comment. We won't
debate Medicaid right now, although I would say that many of
the students who are trying to pay their tuition don't want to
have their parents who are in nursing homes all of a sudden be
living at home with them. That's an additional cost. That's a
debate for another day.
I will just say that this panel has been excellent, and I
really do appreciate all of your input. The cost of college is
a roadblock to many young people today as well as the long-time
burden that student debt puts on them. It's a complicated
question, and I really think our committee needs to tackle it
in a bipartisan way.
I appreciate the Chairman's emphasis on the FAFSA form, and
that's an important area that we can look at. The whole issue
of college affordability is very complex and one that does need
to be tackled comprehensively.
Thank you very much.
The Chairman. Thank you, Senator Murray. We've made good
progress. As most people know, we were able to deal with the
Elementary and Secondary Education Act in a good way after 7
years of failure, really. We're trying to apply the same sort
of bipartisan participation to the Higher Education Act and
getting very good participation by both Democrats and
Republicans, thanks to Senator Murray's leadership.
Our hope is to be able to have a markup for the Higher
Education bill in the early fall. We'll see. We've got some
more hearings to have and a lot of work to do between now and
then. This has been very helpful.
I'd like to invite the witnesses--if they have something to
say, but they didn't get to say it today, we'd like to hear it.
The hearing record will remain open for 10 days to submit
additional comments and any questions the Senators may have of
you to followup. We plan to hold the next HELP hearing on
Reauthorizing the Higher Education Act on Wednesday, June 17.
Thank you for being here. The committee will stand
adjourned.
[Whereupon, at 12:18 p.m., the hearing was adjourned.]