Tag Archives: Financial aid policy

Student Loan Interest Rates Will Increase on Monday

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Congress headed home this evening for the Fourth of July recess without implementing legislation to prevent an increase in the interest rate on federally subsidized students loans. As a result, interest rates will double for students on Monday from 3.4% to 6.8% on new subsidized Stafford loans.

Over the last year, Congress has been working on efforts to prevent what will now take place on Monday.

The Obama administration and Congressional Republicans supported a long-term change to how interest rates are determined for all federal student loans. Those plans differed in the particulars, but both would have tied interest rates to market rates, allowing them to rise without a cap as interest rates go up in the broader economy. Congressional Democrats pushed for a one- or two-year extension of the current 3.4 percent interest rate for subsidized student loans, arguing that the issue should be settled when Congress debates broader higher education legislation in the coming years.

It appeared earlier this week that a bipartisan compromise proposal might be the way to go. However the proposal could not garner sufficient bipartisan support in the Senate and its fate in the House remained uncertain.

Whether students will actually pay the new rate is unclear. On Thursday, Senator Tom Harkin, the Iowa Democrat who chairs the education committee, said that he wanted a one-year fix that would apply retroactively. Since the federal government is the lender for all new student loans, Congress could adjust interest rates after the fact. But where the money will come to pay for the extension, which last year cost $6 billion, is an open question.

The Other Washington Continues Work on Student Loan Interest Rates

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The U.S. Senate is reported to be near a bipartisan compromise regarding student loan interest rates, but it is unclear if the Senate and the U.S. House will be able to find common ground before July 1.

On Monday, the interest rate will increase from 3.4% to 6.8% for federally subsidized Stafford loans without legislative action.

After a year of work on finding a solution and several proposals from both chambers, both parties, and the President it appears there may be emerging a compromise in the Senate. A proposal is circulating that would establish market-based interest rates that split the difference between the Administration’s plan and an earlier proposal put forth by Senate Republicans.

The proposal  would base interest rates on the 10-year Treasury note: undergraduate Stafford loans would have an interest rate of the 10-year Treasury rate plus 1.9 percentage points. Based on Tuesday’s 10-year Treasury note, that would lead to undergraduate loans with an interest rate of about 4.5 percent. Graduate and parent PLUS loans would have higher rates. Rates would vary from year to year for new loans, but remain fixed over the life of the loan.

The House Republican plan is based on similar principles, but would reset the interest rate each year for existing loans based on market conditions — a truly variable rate.

Senator Tom Harkin, the Iowa Democrat who chairs the Senate Committee on Health, Education, Labor and Pensions, was said to be a major hurdle. Harkin is now circulating a market-based proposal of his own. Harkin’s plan would include an interest rate cap — said to be a deal-breaker for Senate Republicans.

The question is whether House Republicans would support the bill. House Republicans have so far been unwilling to support legislation that increases the deficit within the five-year window — the reason their interest rate bill included a variable rate for student loans that resets each year.

If a Senate compromise can’t get enough support to pass the House before the July 1 deadline, Congress could also reach a retroactive compromise that affects loans the Education Department has already made.

Majority Coalition Caucus Releases Higher Education Funding Proposal

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Yesterday the Senate Majority Coalition Caucus released a proposal to increase funding for higher education in Washington.

Overall the proposal would increase funding for all higher education by $300 million in the 2013-15 biennium. This is a 10% increase in funding from the 2011-13 biennium.

The increase includes a 3% decrease in student tuition costs this year, $50 million in performance funding for high demand degrees and other metrics, and an expansion of the State Need Grant program by 7% to serve an additional 4,600 FTE.

In addition by taking these actions the proposal secures GET’s future by eliminating the $621 million unfunded liability and creating a $421 million surplus.

Some of the details of the proposal are identified in Senate Bill 5883. The remaining details, such as how the baseline is defined and how the funds are split over the biennium, will be shared in the Senate’s 2013-15 biennial operating budget proposal expected in the next couple of weeks. Until all the details are known it is unclear how this proposal will impact institutions and students, including Evergreen.

Senate Bill 5883 as summarized by the Caucus:

Baseline Funding

  • Declares that institutions are legally entitled to receive a baseline level of funding
  • Directs that any ivnestments made for new programs or expansions of programs will produce a step adjustment in the per-student rates
  • Directs that any state funds above the rate needed to meet the baseline will be distributed proportionately among the two-year and four-year sectors and be used for performance
  • Declares an intent of the Legislature to, no later than April 26 2015, revisit the baseline funding levels established and determine whether any step adjustments are necessary

Performance Funding

  • Builds on the performance structure established through House Bill 1795 in 2011
  • Provides funding for the four-year public baccalaureates as specified in the state budget based on a three-year average of performance specified in metrics
  • The metrics include: (1) Average time to degree for undergraduate students, (2) Number of undergraduate high-demand degrees, (3) Freshment retention, (4) Low-income populations, and (4) Space utilization
  • Funding is awarded based on a three-year average of improved performance or for those institutions that are the highest performer in the specific metric.
  • Adds space utilization to the dashboard for the public baccalaureates
  • Repeals performance plans and other obsolete statutory language

Tuition-Setting Authority

  • Tuition setting authority for resident undergraduates is maintained through academic year 2018-19 with some changes
  • In Fiscal Years 2014 and 2015 tuition is required to be 3% lower than the tuition rates for resident undergraduates in the 2012-13 academic year and;
  • Beginning with the 2015-16 academic year tuition cannot exceed inflation except when state funding to meet the baseline is not provided. In this instance institutions are given the authority to increase resident undergraduate rates by an amount not to exceed the amount necessary to reach the baseline

Congress Reaches Deal on Student Loan Interest Rates, But Loans Still to Become More Expensive

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The U.S. Senate reached an agreement on legislation to prevent student loan interest rates from doubling on July 1.

Earlier this week the U.S. Senate agreed to extend the current 3.4 percent rate on Stafford loans for one year and provide $700 million extra for deficit reduction. The $6.7 billion agreement would primarily be funded from two pension measures.

The first would change how private pension interest payments are calculated. The second would increase premiums for companies participating in the Pension Benefit Guaranty Corporation. The two changes to pension measures would provide $5.5 billion.

The additional $1.2 billion would come from limiting how long a student could receive Stafford loans to 150% of the average time it takes to complete a degree. Currently there is no limit on loans.

The agreement now goes to the House for consideration. The U.S. House previously passed a loan extension bill that paid for the legislation by using funds from a preventative care fund in the health care law.

House leadership is signaling that a vote on the agreement will come early next week.

Despite this deal, college students will still see an increase in the cost of their federal loans.

Beginning on July 1 students seeking an advance degree will be responsible for paying the interest on their federal loans while they are in school and immediately after they graduate.

In addition undergraduate students who take out federally subsidized loans will no longer have their interest covered by the government during the six months after they complete school. This change applies to new loans issued through July 2014.

These students may benefit from the lower interest rate, but they will be charged this interest as soon as they graduate. For students who apply for federal loans next year they will have a higher interest rate – 6.8% – and have to pay as soon as they get done walking across the stage.

U.S. Senate Committee Passes Education Spending Bill

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This week the U.S. Senate Appropriations Committee passed a spending bill that will increase some federal funding for higher education.

The bill would increase the maximum Pell Grant by $85 in the 2013 fiscal year and give $100 million more in funds to the National Institutes of Health.

The maximum award for the Pell Grant would increase from $5,550 to $5,635 in the 2013-14 academic year. The increase is a result of a mandatory inflation adjustment. Discretionary spending to the program would remain flat.

The bill also would keep spending flat for most other student-aid programs for the 2013 fiscal year, including the Supplemental Educational Opportunity Grants and Federal Work Study.

In addition the bill would:

  • Increase funding for international and foreign-language programs (from $74 million to $75.7 million)
  • Provide funding for the First in the World program which would allow colleges to test new approaches to education
  • Restore eligibility for federal financial aid to students without high-school diplomas or GED’s who have passed an “ability to benefit” test
  • Restore $50.72 million in funding for the Math and Science Partnership program
  • Reduce funds to Race to the Top for elementary and secondary education to office the restoration to the Math and Science Partnership program

The bill now goes to the full Senate for a vote. The U.S. House Appropriations Panel is expectd to draft its own version of the bill next week.

Joint Committee Looks Ahead to Report on Impact Tuition-Setting Authority and Opportunity Scholarships & Expansion Program

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The Washington Joint Legislative Audit and Review Committee (JLARC) met yesterday to begin work on a report that will not be finalized until 2018.  The intention of starting now is to ensure that the data needed to complete the analysis is in place over time in order to meet legislative intent.

The focus of the presentation to the Committee was on the proposed scope and objectives of the report which will result in an audit of the impact of tuition-setting authority to public, baccalaureate institutions (HB 1795) and the creation of the Opportunity Scholarships and Opportunity Expansion program (HB 2088). 

Specifically the Committee will look at the impact of institutional tuition-setting authority on student access and affordability as well as on institutional quality.  In addition the report will evaluate institution’s compliance with specific provisions in HB 1795. Among those provisions:

  • Changes in undergraduate enrollment, retention, and graduation by race and ethnicity, gender, state and county of origin, age, and socioeconomic status;
  • Impact on student transferability, particularly from Washington community and technical colleges;
  • Changes in time and credits to degree;
  • Changes in the number and availability of online programs undergraduate enrollments in the programs;
  • Changes in enrollments in the running start and other dual enrollment programs;
  • Impacts on funding levels for state student financial aid programs;
  • Any changes in the percent of students who apply for student financial aid using the FAFSA;
  • Any changes in the percent of students who apply for available tax credits;
  • Information on the sue of building fee revenue by fiscal or academic year; and
  • Undergraduate tuition and fee rates compared to undergraduate tuition and fee rates at similar institutions in the global challenge states.

With regard to the Opportunity Scholarship and Opportunity Expansion program the focus will also be on student access and affordability.

Both of the pieces of legislation require a JLARC study in 2018. The Committee plans to combine the two studies into one report.

Congressional Republicans Release Budget Proposal

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Late this week the Republicans in the U.S. House of Representatives released a budget proposal for fiscal year 2013.

According to the author of the budget proposal. U.S. Representative Paul Ryan, the proposal would reduce next year’s deficit to $797 billion, a lower figure than the $977 billion deficit the Congressional Budget Office estimates would result from the president’s budget. Ryan also estimates it would reduce deficits over the next decade by $3.3 trillion more than the Obama budget.

The proposed budget would impact multiple frederal programs and services. The proposal cuts discretionary spending beyond the required reduction levels  in the debt ceiling agreement established last year. The budget would set discretionary spending for 2013 at $1.03 trillion, which is $20 billion less than the discretionary cap agreed when Congress increased the debt limit in August. The proposed budget also instructs six committees to find $261 billion in replacement savings over 10 years, and $18 billion in savings in the next year alone.

The limits to discretionary spending will impact all non-military and non-entitlement programs, including several higher education programs. The one exception in the budget is basic research which is funded at current maintenance levels. Beyond the decrease in discretionary funding, the budget proposes a handful of key changes specific to higher education.

Within the framework of the proposed budget, changes to higher education are noted under the heading “Repairing the Social Safety Net”. According to the budget proposal:

The safey-net system created in the last century is in dire need of a new round of reform. Government programs that aim to support the safety net are failing the citizens who rely on them and the taxapyers who fund them. A system designed for mid-20th century demographics and economics is ill equipped to deal with the unique pressures of the 21st century.  From a budgetary perspective, these programs are growing at an unsustainable rate…From a moral perspective, which well-intentioned, the paternalistic structures of these programs fail the very people they are intended to help.

Specific to higher education the budget proposal notes that:

Globalization and technological advances have made the modern economy more complex and dynamic. The new reality is workers at all levels must be ready to update or learn new, more specialized skills to match the changing needs of employees competing in the global economy. Federal higher eduation and job-training programs must be reformed to help workers adapt to this new challenge. Current federal aid structures are exacerbating a crisis in tuition inflation, plunging students and their families into unaffordable levels of debt or foreclosing the possibility of any higher education at all…these young adults are graduating with enormuous loan repayments and having difficulty finding jobs in our low-growth economic environment….But, instead of helping more students achieve their dreams, studies have shown that increased federal financial aid is simply being absorbed by tuition increases…when it comes to job training and continuing education, the current policy landscape is dotted with failed, unaccountable and duplicative programs.

The higher education context laid out in the budget proposal drives three major recommendations for change to current higher education policy.

Pell Grant

The proposal calls for placing the Pell Grant on a “sustainable path by limiting the growth of financial aid and focusing it on low-income students who need it the most”. The goal, according to the proposal, is to force institutions to reform and adapt and to ensure that Pell spending goes to students who truly need it.

In addition the proposal makes the argument that federal intervention in higher education should be focused on financial aid as well as policies that maximize innovation and ensure a robust menu of intitutional options from which students and their families can choose. To achieve this goal the suggestion is made to re-examine the data made available to students to make certain students and familes are prepared with information that will assist them in making their postsecondary decsions.  Finally the proposal recommends removing regulatory barriers in higher education that act to restrict flexibility and innovative teaching, particularly as it relates to online coursework.

The proposal does not state specific spending levels for the program.

Change How Student Loans are Viewed on the Federal Government Balance Sheet

The budget proposal would authorize the use of “fair-value” accounting principles for any legislation dealing with federal loan and federal loan guarantee programs. The budget would make this change by altering the Credit Reform Act (1990).

The Act allows Congress to treat loans differtently from other types of spending in the federal budget. Before the Act was passed, loans were measured in the cash flow of expenditures and repayments in a given year. After the Act, the cost to the government of loan programs was measured using the total value of the loans.

This change would allow for market risk to be taken into consideration rather than relying on the Treasury borrowing rate. As a result student loans would appear to be a slight loss on the government’s balance sheet, because it would take into account the difference between what the govenrment would earn and what a private leander would earn on the loans. As a result the change would make the federal deficit appear slightly larger.

This, however, does not mean that changes to loan programs are inevitable.  But, the impact, critics share, is that this accounting change would change how loan program costs are scored by the Congressional Budget Office. Some argue that this change would create a more difficult enviornment for new loan programs. Additional loans would appear to lose the govenrment money in the long term, not break even which makes for a harder sell.

Consolidate Overlappyting Job-Training Programs into Accountable Career Scholarships

The proposal calls for consolidating several job-training programs into scholarships to “improve access to career development assistance and strengthen the first rung on the ladder out of poverty”. The budget would establish, from the consolidation of these programs, a streamlined workforce development system with fewer funding streams that provide accountable, targeted career scholarship programs.  In addition the proposal would improve oversight and accountability for job-training programs by tracking the type of training provided, the cost per student, employment after training, and whether or not trainees are working in the field for which they were trained.

Other Budget Proposals

The congressional Democrats have not released a budget proposal. However earlier this year President Obama did release a budget proposal. An overall comparison of President Obama’s budget and the Republican proposal shows very different philosophies for moving forward.

Under the President’s proposal, funding for the National Science Foundation would increase by 5 percent, to $7.4 billion and the National Endowment for the Humanities  would get a slight increase, from $146 million to $154. The American Opportunity Tax credit is also made permanent – providing up to $2,000 per year for tuition.

With a goal for the US to “lead the world in college graduates by 2012,” specifics include:

  • Sustaining the maximum Pell Grant award of $5,635 through the 2014-2015 award year.
  • A one-year measure to prevent student loan interest rates from doubling this summer and doubles the number of work-study jobs over the next five years.
  • New reforms that shift federal aid away from colleges that do not keep tuition low.
  • Making permanent the American Opportunity Tax Credit.

Next Steps

Beginning with a committee markup Wednesday morning, the U.S. House of Representatives hopes to move the proposal through the House by the end of this week. And as most lawmakers  leave for spring recess, six House committees would be left with an April 27  deadline to report back legislation that would become a down payment of $261  billion in deficit reduction — to be brought to the floor in May.

Students Without Diploma or GED No Longer Eligible for Pell Grant

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As of July 1, when the new federal budget goes into effect, newly enrolled students are required to have a high school diploam or a GED in order to receive federal financial aid.

Prior to the passage of the latest federal budget, students who wanted to attend college but lacked a high school diploma or a GED were able to have access to federal financial aid by completing a basic skills test to prove their “ability to benefit” from a college education or successfully completing six credits.

As of July 1 these options will no longer meet federal eligibility requirements and students will have to earn a diploma or a GED to be eligible for aid.

Details Emerge About Obama’s Blueprint for Higher Education

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Late last week, several days after President Obama announced new proposed federal policies focused on the availability of affordable quality higher education, details  emerged about how the Obama Administration would go about achieving this goal.

In his State of the Union address, President Obama called for a comprehensive approach to tackling rising college costs. In a speech at the University of Michigan President Obama provided additional details about the framework by which he will work with Congress to establish a set of policies focused on increasing post-secondary education opportunities in the U.S.

The proposal put forth by the President would include several components.

  • Reform student aid to promote affordability and value: To keep tuition from spiraling too high and drive greater value, the President will propose reforms to federal campus-based air programs to shift aid away from colleges that fail to keep net tuition down, and toward those colleges and universities that do their fair share to keep tuition affordable, provide good value, and serve needy students well. These changes in federal aid to campuses will leverage $10 billion annually to keep tuition down. The President’s plan calls for shared responsibility between the federal government, states, and institutions of higher education to tackle rising college costs by  improving the distribution of federal financial aid and increase campus-based aid. This reform will reward colleges that are succeeding in meeting the following principles:
      • Setting responsible tuition policy, offering relatively lower net tuition prices and/or restraining tuition growth.
      • Providing good value to students and families, offering quality education and training that prepares graduates to obtain employment and repay their loans.
      • Serving low-income students, enrolling and graduating relatively higher numbers of Pell-eligible students.

In his proposal the President is proposing to change how funds for the Supplemental Educational Opportunity Grants (SEOGs), Perkins Loans, and Work Study are distributed by implementing an improved formula that shifts aid from schools with rising tuition to those acting responsibly, focused on setting responsible tuition policy, providing good value in education, and ensuring that higher numbers of low-income students complete their education. He is also proposing to increase the amount of campus-based aid to $10 billion annually. The increase is primarily driven by an expansion of loans in the federal Perkins program – which comes at no additional taxpayer cost.

Under his plan colleges that can show that they are providing students with good long-term value will be rewarded with additional dollars to help students attend. Those that show poor value, or who don’t act responsibly in setting tuition, will receive less federal campus-based aid.  Students will receive the greatest government grant and loan support at colleges where they are likely to be best served, and little or no campus aid will flow to colleges that fail to meet affordability and value standards.

 

  • Create a Race to the Top for college affordability and completion: The president will create incentives for states and colleges to keep costs under control through a $1billion investment in a new challenge to states to spur higher education reform focused on affordability and improved outcomes across state colleges and universities. The Race to the Top: College Affordability and Completion will reward states who are willing to drive systemic change in their higher education policies and practices, while doing more to contain their tuition and make it easier for students to earn a college degree.The President is proposing a program that would spur systemic state reforms to reduce costs for students and promote success in our higher education system at public colleges. This $1 billion investment would incentivize states to: (1) Revamp the structure of state financing for higher education; (2) Align entry and exit standards with K-12 education and colleges to facilitate on-time completion; and (3) Maintain adequate levels of funding for higher education in order to address important long-term causes of cost growth at the public institutions that serve two-thirds of four-year college students. The intention is that the Race to the Top for College Affordability and Completion would incentivize governors and state legislatures around the nation to act on spurring this innovative reform. Through cost-saving measures like redesigning courses and making better use of education technology, institutions can keep costs down to provide greater affordability for students.

 

  • A first in the World competition to model innovation and quality on college campuses: The president will invest $55 million in a new First in the World competition, to support the public and private colleges and non-profit organizations as they work to develop and test the next breakthrough strategy that will boost higher education attainment and student outcomes. The new program will also help scale-up those innovative and effective practices that have been proven to boost productivity and enhance teaching and learning on college campuses.  This initiative would provide modest start-up funding for individual colleges, including private colleges, for projects that could lead to longer-term and larger productivity improvements among colleges and universities – such as course redesign through the improved use of technology, early college preparation activities to lessen the need for remediation, competency-based approaches to gaining college credit, and other ideas aimed at spurring changes in the culture of higher education.

 

  • Better data for families choose the right college for them: The president will call for a College Scorecard for all degree-granting institutions, designed to provide the essential information about college costs, graduation rates, and potential earnings, all in an easy-to-read format that will help students and families choose a college that is well suited to their needs, priced affordably and consistent with their career and educational goals. The Administration will create a College Scorecard for all degree-granting institutions making it easier for students and families to choose a college that is best suited to their needs, priced affordably, and consistent with their career and educational goals.  The administration will also make an updated version of the ‘Financial Aid Shopping Sheet,’ announced in October, a required template for all colleges, rather than a voluntary tool, to make it easier for families to compare college financial aid packages. Finally, the President is also proposing to begin collecting earnings and employment information for colleges, so that students can have an even better sense of the post post-graduation outcomes they can expect.

 

  • Federal Support to Tackle College Costs In his State of the Union, President Obama called on Congress to: (1) Keep student loan interest rates low. This summer, the interest rates on subsidized Stafford student loans are set to double from 3.4% to 6.8% – a significant burden at a time when the economy is still fragile and students are taking on increasing amounts of debt to earn a degree. The President is asking Congress to prevent that hike from taking place for a year to keep student debt down, a proposal that will keep interest rates low for 7.4 million student loan borrowers and save the average student over a thousand dollars; (2) Double the number of work-study jobs available:  The President also proposes to double the number of career-related work-study opportunities so that students are able to gain valuable work-related experience while in school; and (3) Maintain our commitment to college affordability: Over 9 million students and families per year take advantage of the Obama Administration’s American Opportunity Tax Credit – supporting up to $10,000 over four years of college.  In his State of the Union address, the President called on Congress to make this tax credit permanent and prevent it from expiring in 2012.

Though many within higher education support the President’s intentions to provide access to an affordable quality education, many are concerned that the lack of recognition regarding the dramatic decline in funding at the state and local levels and the need for flexibility to manage these unprecedented time within the President’s framework may lead to greater harm than good.

Governor Names Scholarship Board

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This week Governor Gregoire appointed seven members to a board of directors to administer a scholarship program for middle-income families.

The members to the board are: Jim Albaugh, CEO of Boeing Commercial Airplanes; Brad Smith, General Counsel for Microsoft Corp; Mack Hogans, Senior Executive at Weyerhauser Co.; Kimberly Harris, CEO of Puget Sound Energy; Theresa Gillespie, Partner at Trilogy International Partners wireless communications investment company; Jim Sinegal, CEO Costco Wholesale Corp.; and Jerry Grinstein, former CEO of Delta Air Lines.

Esstablished in legislation passed during the 2011 session, the Opportunity Scholarship Program and the Opportunity Expansion Program were created to mitigate the impact of tuition increases, increase the number of baccalaureate degrees in high employer demand and other programs, and invest in programs and students to meet market demand fields of study while filling middle income jobs with a sufficient supply of skilled workers. 

The program is paid for through a public-private partnership. The scholarships are funded through $5 million form the state and $55 million form Boeing and Microsoft.