[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

                               __________

 Printed for the use of the Committee on Health, Education, Labor, and 
                                Pensions



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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

                              ----------                              


                        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.
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           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.]