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Pell Grant Changes Hit Transfer Students Hardest

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One of several recent Pell Grant changes has made it harder for some students to finish school and earn a degree, according to Inside Higher Ed. Effective July 1st this year, the federal government decreased the duration of Pell eligibility from 18 semesters to 12 semesters as a means of both cutting costs and incentivizing students to graduate on time. While most students take less than 12 semesters to earn their bachelor’s degree, existing Pell recipients (who expected to receive 18 semesters of eligibility) were not grandfathered in when the changes took place.

Of the estimated 62,000 students affected by the change, colleges say the hardest hit were transfer students and students who have attended some college, but never earned a degree. More specifically, many impacted students seem to be those who:

  • Left school before graduating, but have returned to complete their degree;
  • Transferred, or “swirled,” between multiple schools—a growing trend in higher education;
  • Enrolled with a for-profit institution, but transferred elsewhere before graduating; and/or
  • Changed programs multiple times within the same school.

According to an “informal tally” by the California State University system, about 6,100 of the system’s students (4 percent) lost Pell Grant eligibility because of the new 12-semester limit.

Since some students who lose eligibility may not be able to afford to continue their education and earn a degree, this change could conflict with the government’s emphasis on improving graduation rates and increasing the number of degree-holders. However, as Congress gears up to deal with impending sequester cuts, the financial benefits of these types of tough decisions are increasingly likely to outweigh the nonfinancial costs.

“Pay As You Earn” Program Goes Live

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The Department of Education released a set of final regulations today that will implement the new Income-Based Repayment provisions explained in our last blog post. Borrowers who took out student loans on or after October 1, 2011 will be eligible for the program. Borrowers who fall into that category, and who also took out loans on or after October 1, 2007, can retroactively include those loans in the new IBR plan.

The Department of Education acknowledges that there has been some concern about the plan, as the New America Foundation in particular has claimed it will help mostly high-income, high-debt borrowers and give universities incentives to keep tuition high. However, the department does not believe there is conclusive evidence that this is true and will be implementing the program as soon as possible, perhaps as early as this fall.

The new regulations also include a provision making it easier for borrowers who experience a “total and permanent disability” to discharge their student loans. Previously, borrowers with disabilities had to notify each sub-lender and guarantee agency separately. The new system will allow them to submit just one discharge application to the Department of Education.

Proposed Income-Based Loan Repayment Plan Helps Wealthy, Not Low-Income Borrowers

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The New America Foundation recently released a report on impending changes to the federal Income-Based Student Loan Repayment Program (IBR). The report claims that these changes will benefit high-income, high-debt borrowers, not low-income students with moderate student loan debt (note that the current average undergraduate debt load is $26,000).

IBR is a system in which borrowers peg monthly payments to adjusted gross income (AGI), protecting borrowers from paying high monthly payments if AGI is low. In the past, monthly payments under IBR were capped at less than 15 percent of AGI, minus a cost-of-living adjustment equal to 150 percent of the federal poverty line. Any balance that remained after 25 years of on-time payments was forgiven.

The new system, intended to help low- and middle-income students in the face of skyrocketing tuition, was introduced by Congress in 2011. This new IBR program would peg payments to no more than 10 percent of AGI, less 150 percent of the federal poverty line, with any balance forgiven after 20 years. While this measure was intended to target the neediest borrowers, the New America Foundation found that it makes very little difference for most low-and middle income students. Most students with moderate student debt and a consistently low income will pay $5 to $20 less per month under “new IBR”. However, students with high incomes and high student loan debt—i.e., graduate and professional students—will pay much less, and will be more likely to have their loans forgiven in the long run.

The New American Foundation claims that these changes will be costly and of little benefit to low-income students. It proposes several changes to “new IBR,” including:

  • Make new IBR available only to borrowers who make less than 300 percent of the federal poverty line;
  • Provide loan forgiveness after 20 years only if the student’s initial debt amount was less than $40,000, higher amounts would be forgiven after 25 years; and,
  • Require married couples who repay their loans through IBR to file jointly, and use their combined household income for the AGI calculation. Currently, a married couple may file separately, allowing a spouse with student loans and a small income to qualify for loan forgiveness and low monthly payments despite living in a high-income household.

To learn more, check out a discussion of the plan in the Chronicle of Higher Education.

California’s Prop 30 Loses Ground in the Polls

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Last week, a Los Angeles Times/USC poll found that support for Proposition 30 is dwindling. Only 46 percent of registered voters now approve the California ballot initiative designed to deflect almost $1-billion in state higher-education cuts—a 9-point drop over last month’s poll by the same organizations. Meanwhile, 42 percent of respondents oppose the proposition.

If Prop 30 passes:

  • The state’s sales tax would increase by 0.25 percent through 2016;
  • Californians earning more than $250,000 would pay higher income taxes through 2018;
  • The resulting $6 to 8.5 billion in additional revenue generated each year would allow the state to continue its current level of higher education funding into, at least, the coming year; and
  • The University of California system would freeze undergraduate tuition rates.

If Prop 30 fails:

  • California community colleges would lose $338 million;
  • The California State system would lose $250 million—requiring the system to lay off (by their estimate) 1,500 faculty and staff, reduce next year’s Fall enrollment by about 20,000 students, and increase tuition and fees for in-state students by 5 percent; and
  • The University of California system would lose $375 million—resulting in, as System officials declared, a tuition increase of as much as 20 percent.

Proponents of Prop 30 face resistance from the state’s fiscal conservatives and competition from another ballot initiative, Proposition 38, which would raise income taxes through 2024 and direct most of the $10 billion per year in revenue toward K-12. If both bills pass, California’s constitution requires that the proposition with the most votes cancel out the other. This is because Prop 30 and Prop 38 both increase personal income tax rates and could, therefore, be seen as conflicting. However, Prop 38 appears to have little momentum, relative to Prop 30 and it is unlikely that both bills will pass.

Largest U.S. For-Profit University Closes Half Its Locations

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The New York Times reported last week that the University of Phoenix will be shutting down 115 of its 227 locations over the next year—25 main campuses and 90 learning centers. The roughly 13,000 students affected by the closings (4 percent of the total student body) will have the option of either transferring to the university’s online classes or moving to another physical location. In addition, the Apollo Group, which owns the university, announced it is laying off 800 employees (4.7 percent of the university’s total staff).

The changes surprise some as Phoenix was a booming success for over a decade. However, in 2011, for-profits as a whole began to struggle. Tightened regulations; a poor economy; growing competition from MOOCs and other online providers; and scrutiny of the sector’s unethical recruiting practices, low graduation rates, high default rates, and use of federal funds caused for-profit enrollments to fall significantly relative to other sectors (as discussed in a previous post). And, as enrollments fell, so did revenue. The University of Phoenix was among the hardest hit. Compared with the same fiscal quarter a year ago, student enrollment at Phoenix dropped nearly 14 percent and Apollo’s net income plummeted 60 percent.

So, will the University live up to its name and rise anew from the remains of its finances and reputation? Or could Phoenix’s decline foretell the impending doom of other for-profit institutions? Time will tell.

Average Student Debt in 2011 reaches $26,600

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The Institute for College Access and Success (TICAS) recently released a report detailing average student debt amounts for the class of 2011. Of the students that earned a bachelor’s degree that year, two thirds held student debt amounting to $26,600 per student on average. The highest levels of debt were found in the Northeast and Midwest, while the South and West had lower levels of student debt. The student borrowing increase is particularly troubling since many recent graduates face high unemployment rates and low salaries when they leave school, making it more difficult to repay loans.

While higher sticker prices generally correlate with higher debt amounts, this is not always so: small private colleges may have large endowments or enroll fewer low-income students and therefore have small average debt rates. For example, Princeton and Yale Universities, with estimated cost of attendance of over $50,000 per year, have some of the lowest student debt rates in the nation. Private for-profit schools, however, have some of the highest tuition and debt rates in the nation, with some reports estimating 96 percent of students take out loans, and borrow 45 percent more that students at private non-profit and public institutions.

Washington is performing better than the national average both in the percentage of students taking out loans, and average debt at graduation. Fifty-six percent of Washington students took out loans (vs. 67 percent nationally) and average loan amount at graduation totaled $22,244 in 2011 ($4,356 below the national average). These statistics include averages from public and private non-profit institutions, but exclude data from private for-profits. The UW’s statistics are even more encouraging: less than half of UW students took out loans, and average debt amount at graduation in 2011 was $20,316, more than $6,000 below the national average. Furthermore, UW students are less likely to default on their loans: UW’s three-year cohort default rate (CDR) is 3.1 percent, compared to the national CDR average of 13.4 percent.

Despite UW’s better than average loan data, it is important to note average debt has been growing every year, even at the UW, and other forms of financial aid are still critical in order to preserve access and set graduates up for success when they leave school.

To read more, check out our brief on the subject, and TICAS’ interactive debt mapping tool.

Universities Propose Innovative Deals in Attempt to Stabilize Tuition Rates

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A recent Insider Higher Education article describes the inventive deals that a handful of public universities are pursuing in an effort to keep tuition rates from rising. By offering tuition freezes in exchange for either (1) increased state funding or (2) individual student efforts to graduate on time, universities hope to meet public demands to stabilize tuition and also ease the financial burden of doing so.

1. Public institutions can afford tuition freezes if states pick up the slack. On several occasions, the University System of Maryland has successfully encouraged state lawmakers to “buy down” potential tuition increases. And just last Friday, the University of Minnesota’s Board of Regents accepted a proposal to freeze undergraduate resident tuition if the state provides an additional $42.6 million over the coming two years. This approach has been successful in some states, but the article mentions a major problem: “many states simply don’t have the money or the political will to invest in education at the moment.” However, even when schools do not expect to receive more state support, these proposals may at least spark conversations about the crucial linkage between falling state appropriations and rising tuition rates.

2. Benefits of better on-time graduation rates may be enough to offset costs of tuition freezes. Getting more students to graduate sooner can improve a university’s ranking, lower its students’ average debt, and make room for more incoming students. For some schools, this is enough incentive to provide tuition freezes in a targeted manner. Last week, leaders of the Indiana University system offered to freeze tuition for students who have earned 60 credits by the end of their sophomore year and are, therefore, on track to graduate within four years. Additionally, UT-Austin will pilot a program next year that would award students who receive Federal Direct Unsubsidized Loans with $1,000 of loan forgiveness for each semester they stay on pace to graduate in four years. UT-Austin’s Director of Student Financial Services said the program could save students up to $12,000 over the course of their education.

As public institutions continue to face dwindling state appropriations and increased pressure to stabilize tuition, we may see more of these innovative proposals.

New Study Suggests Liberal Arts Colleges Are Disappearing

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A landmark study from 1990 classified 212 US institutions as liberal arts colleges, but new research shows a 39 percent decline in that number—only 130 institutions currently meet the original study’s classification criteria. Of the 82 institutions no longer classified as liberal arts colleges, a handful were subsumed by larger institutions, while about half had shifted their mission away from the standard liberal arts definition.

Historically, definitions of liberal arts colleges (including Carnegie Classifications) have highlighted their focus on undergraduate studies; selective admissions; small class sizes; emphasis on nurturing diverse perspectives and personal growth; and de-emphasis on cultivating professional skills. According to the more recent study, however, many liberal arts institutions are now offering more “professional” programs and incorporating more research into their curricula. The authors speculate that liberal arts colleges may be making this shift away from their standard definition in response to economic pressures. For example, schools may be attempting to:

  • Offset dwindling revenue streams by attracting new segments of the market;
  • Remain competitive in a market flooded by online and for-profit institutions; or
  • Accommodate students’ increased focus on vocational preparation.

To expand on that last point, recent federal and state-level preoccupation with graduates’ potential earnings has put liberal arts colleges in a difficult position as degrees in traditional liberal arts fields (i.e. social sciences and humanities) may be less lucrative for graduates than other degrees (i.e. professional or STEM degrees). For example, according to CollegeMeasures.org, the average first-year earnings of a graduate with a four-year degree in the State of Virginia are about $30,000 if the degree was in sociology or about $46,000 if the degree was in civil engineering.

A widely-regarded strength of the US higher education system is its diversity. However, if liberal arts colleges shift their missions to include the research and career-preparatory goals of other schools, the system may become more homogeneous—leaving students with fewer educational options.

Overall Higher Ed Enrollments Drop, But Four-Year Public School Enrollments Continue to Rise

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For the first time in 15 years, fewer students are enrolling in higher education overall. Enrollments at public four-year and private non-profit institutes actually increased, but falling for-profit and two-year enrollments pulled down the average. According to preliminary data released this week by the U.S. Department of Education’s National Center for Education Statistics, colleges and universities eligible for federal financial aid experienced a 0.2 percent decrease in their total enrollments between Fall 2010 (21,588,124 students) and Fall 2011 (21,554,004 students). Although slight, this drop could indicate that fewer individuals are using some sectors of higher education as a refuge from the recent recession and/or that rising tuition rates are driving students out of some markets. Regardless, the new trend could be problematic for those advocating for higher education attainment as well as for universities hoping to derive more revenue from increased enrollments.

Some specific findings include:

  • For-profit institutions were hit the hardest. Enrollments dropped by 1.9 percent at four-year for-profits and by a whopping 7 percent at two-year for-profits. This is likely due to tougher federal regulations on for-profits as well as for-profit institutions deciding to use more selective admissions practices.
  • Two-year institutes struggled, while four-year schools continued to thrive. Two-year enrollments (across all sectors) are down by an average of 2.4 percent, while four-year enrollments are up an average of 1.2 percent. Much of the two-year drop was driven by the aforementioned drop in two-year for-profit enrollments; however, California’s recent limit on community college enrollments can also help explain the decrease in two-year numbers.
  • Part-time enrollments grew, but full-time enrollments shrunk. About 0.8 percent more students enrolled in part-time programs (across all sectors), whereas 0.8 percent fewer students enrolled in full-time programs. Two possible explanations are that the job market has recovered enough to keep more students employed or that more students now need income to support themselves during school.

UW enrollments reflect those of four-year public institutes across the country. Total enrollments at four-year public institutes increased by an average of 1.5 percent from Fall 2010 to Fall 2011. UW’s total enrollments (undergraduate and graduate students combined) increased by 1.6 percent from Fall 2010 (49,940 students) to Fall 2011 (50,745 students) and by another 1.6 percent from Fall 2011 to Fall 2012 (51,576 students). For more UW enrollment statistics, see the UW Profiles.

Supreme Court Justices Hear (and Question) Arguments in Fisher v. University of Texas

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The U.S. Supreme Court heard arguments yesterday in the landmark affirmative action case Fisher v. University of Texas (UT) (please see our previous blog for more information). Four Justices will need to support UT if it and, potentially, public colleges across the nation are to continue using race and as a factor in admissions decisions. Three justices hearing the case have historically supported affirmative action. A fourth supporter, Justice Kagan, recused herself because she played a role in preparing the Obama administration’s UT-supportive brief. The other five justices have typically expressed doubt over affirmative action’s value. Of these, Justice Kennedy is regarded as the most plausible swing vote. A 4-4 tie would uphold the federal appeals court ruling that UT’s program is constitutional.

Justices seeming to favor Fisher questioned:

  • If UT could know it had achieved a desired level of diversity without setting a target and verifying its students’ self-reported race; and,
  • Whether an admission process is truly fair if it benefits minority students from affluent backgrounds as much those from poverty. Justice Alito Jr. said: “I thought the whole purpose of affirmative action was to help students who come from underprivileged backgrounds.”

Justices seeming to favor UT questioned:

  • Whether Ms. Fisher’s suit is even legal, given UT’s statement that she would have been rejected regardless of race considerations; and,
  • Why the Court should change its 2003 decision on Grutter v. Bollinger—“A case into which so much thought and effort went and so many people around the country have depended,” said Justice Breyer.

Both sides agreed that the Court may have led colleges astray in 2003 by ruling that applicants’ race could be considered in order to assemble a “critical mass” of minority students. They said the term “critical mass” (defined by Grutter as the sufficient number of minority students to ensure they feel comfortable speaking out, not isolated) encourages colleges to aim for some numerical threshold of minority students, but such an approach could violate the Court’s ban on college’s use of quotas. After the arguments, the esteemed SCOTUSblog offered that: “Affirmative action is alive but ailing, the idea of ‘critical mass’ to measure racial diversity is in very critical condition, and a nine-year-old precedent may have to be reshaped in order to survive.”

The Court is expected to decide the case in spring or summer of next year.