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Pell Expenditures Decrease as Recipients Increase

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The Pell Grant program, the largest federal student grant program, was expected to be $20 billion short of the $40 billion price estimated for FY12 (which ended July 1). However, the Department of Education surprised many with newly-released data showing the federal government not only spent well under that estimate at only $33.4 billion, but in fact $2.2 billion less than FY11.

Recently, Pell eligibility increased dramatically as college enrollments rose and the recession continued to impact family/student income. This trend continued in FY12 and, interestingly, the dip in Pell spending occurred despite a 58,000 increase in Pell recipients—to almost 9.7 million. In fall 2011, nearly one quarter of UW freshmen were Pell eligible.

Reasons for the decline in Pell spending include:

  • The elimination of the year-round, or summer, Pell Grant, which allowed students to qualify for two awards in a year.
  • More students attending college part time as part-time status reduces Pell award amounts.
  • Fewer students attending for-profit institutions, which tend to enroll students who qualify for larger awards. Recent bad press and slumping enrollments have hit for-profits hard. Consequently, the number of Pell recipients at for-profits declined by 108,000 students, to roughly 2.1 million, and accounted for $1.4 billion of the decrease.

The drop in Pell expenditures is a relief for most lawmakers as they face next year’s “fiscal cliff” and must address both the impending tax hikes (when Bush tax cuts expire) and the automatic spending cuts (as mandated by the sequester). The Obama administration and congressional Democrats have resisted financial aid-related budget cutting, maintaining the maximum Pell award of $5,550 and writing specific protection for Pell Grant funding into the Budget Control Act. However, recent financial straits have already caused the federal government to eliminate several student loan programs such as the previously-mentioned summer Pell Grant, the six-month grace period for loan repayment, subsidized Stafford Loans for graduate students, and incentives for early loan repayment. With the sequester and difficult budget decisions looming on the horizon, it is safe to say that no funding is safe.

Federal Report Makes Economic Case for Higher Ed

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The US Departments of Treasury and Education teamed up to analyze higher education and economic data, and released a short report that highlights the following familiar points:

  • Education is correlated with higher earnings: median weekly earnings for a worker with a BA degree are now 64% higher than for a worker with only a high school degree.
  • Education is key to socio-economic mobility: almost half of children born into the bottom income quintile remain there as adults compared to only 20% of those who receive a degree.
  • Funding cuts result in higher tuition: Public funding for institutions has, on average, declined from 60% of revenue to less than 40% over two decades while tuition revenue has increased by almost the same amount of the decline.

As a result of the above, federal financial aid has become an increasingly important contributor to college affordability, comprising over half of all grants and loans awarded to students. While protecting and increasing federal funding for aid is imperative, the report makes clear that states and institutions will have to make changes as these trends continue or broad access to higher education in the US will be at serious risk.

Department of Education Ranks Colleges by Cost

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The US Department of Education released their second annual ranking of universities by cost. Users can rank institutions by tuition rate (sticker price) or by a net cost of attendance measure. Institutions are also ranked by annual percentage increases in these measures. The Department presents these data as a tool to help students and families find good educational and financial fits when selecting an institution, and also aims to publically identify and shame institutions that increase tuition the most.

While any attempt to centralize and simplify higher education data to facilitate easier consumer evaluation and comparison is an important effort, there are many potential unintended consequences relating to both the measures used and in aggregating this type of information across such a large, varied set of institutions. Economists Robert Archibald and David Feldman address some of these problems in an Inside Higher Ed piece published today.

For Profits Resist Executive Order Protecting Veteran Students

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We’ve blogged about recent federal scrutiny of the for-profit higher education sector, and specifically about their reported exploitation of veteran students. In addition to new Department of Education higher education regulations implemented last year, President Obama signed Executive Order 13607 in late April. The Order charges several administrative agencies (Defense, Veterans Affairs, and Education) with developing a set of principles that will apply to all institutions receiving funds from federal military and veteran education benefits programs, including the GI Bill. The Principles must be developed within 90 days of the Order and ensure the following for all students eligible for such benefits:

  • Require that institutions provide prospective students with information about the total cost of the education and the portion of that cost that will be covered by their military or veteran benefits as well as estimated student loan costs.
  • Require that institutions provide prospective students with clear data about student outcomes such as graduation rates and time to degree.
  • End all fraudulent or overly aggressive recruiting techniques.
  • Provide individualized educational plans detailing how a student will fulfill program requirements and provide an estimated time to degree.
  • Provide a contact for financial and academic advising to each student.

The Order also mandates development of a centralized system that allows any student receiving military or veteran benefits to register complaints with the federal government. Additionally, it seeks to trademark the term GI Bill and other related terms to cut down on misleading or faudulent use.

Although the Executive Order applies to all institutions who enroll students receiving these benefits, including the UW, the vast majority of violations of these principles exist in the for profit sector. Recognizing that the sector is most affected by the new Order, the Association of Private Sector Colleges and Universities is  appealing to Congress by arguing that the Administration is creating unessecary and duplicative oversight. In the meantime, the involved agencies are moving forward in compliance with the Order.

Obama’s Blueprint for Higher Education Affordablity

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As reported on the UW Office of Federal Relations blog, President Obama made a splash in the higher education community last week when he outlined new proposals for higher education reform in his State of The Union Address and in a speech at the University of Michigan. Many are praising the President’s focus on the value of higher education in today’s economy, and in particular, the importance of high quality, affordable higher education. However, a proposal to more closely tie federal financial aid funding  to some kind of institutional performance measures has proved more controversial.

In what the Administration is calling a Blueprint for College Affordability, Obama has proposed that Congress significantly increase available federal campus-based aid (primarily Perkins loans) and distribute the funds based on three institutional performance measures, including relatively low net tuition levels or low tuition growth, providing a good value to students, and serving low-income students. Until a detailed policy proposal is unveiled (likely after the election), it is difficult to know how substantial a shift this may be for institutions, but it is clearly an attempt to send a message to institutions about cost control. Obama stated, “If you can’t stop tuition from going up, then the funding you get from taxpayers each year will go down.”

Other proposals included in Obama’s blueprint, include:

  • Creating a $1 billion Race to the Top program to reward states for making systemic changes in education policy and funding to increase efficiency and effectiveness.
  • Creating a $55 million First in the World competition to provide seed funding for institutions or other nonprofits to innovate.
  • Publishing a ‘College Scorecard’ for each institution, which will provide clear, comparable information on college costs, financial aid, graduation rates and, if these data become available, potential earnings.
  • Asking Congress to make the American Opportunity Tax Credit permanent, extend the lowered federal student loan interest rate (3.4%), and double the number of federal work study jobs.

Without policy details it is hard to know how these reforms might affect specific institutions, but because it marks a shift from previous federal efforts to facilitate attainment by increasing federal aid and easing federal loan repayment pressure, it is an important development and one that we will keep a close eye on.

Tax Benefits Increasingly Key to College Affordability

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Note that the report summarized in this post reflects data through 2007-08. We know from more recent data that 2009’s expansion of the American Opportunity Tax Credit (formerly the Hope tax credit) has more than doubled both benefit and participation rates, so we anticipate future reports to reflect similar but magnified findings.

In its latest Stats in Brief report, the US Department of Education analyzed the impact of federal education tax benefits on college costs for families in 2007-08. The report analyzes three different types of education tax benefits that applied in that year: the Hope tax credit, the Lifetime Learning credit, and the tuition and fees tax deduction.

Eligibility for the credits and deductions was based on student enrollment status, family income level, and citizenship status, and benefits could only be claimed based on the net tuition paid, after grant aid and veterans’ benefits had been taken into account. During the time period analyzed, the Hope credit could be deducted multiple times for multiple children, with a maximum of $1,650 per dependent student. The Lifetime Learning credit and the tuition and fees deduction could only be claimed once per return, with maximums of $2000 and $4000, respectively. The report showed that higher education tax benefits have become an increasing source of student aid: total benefits reached $6.85 billion in 2007-08, and comprised 6 percent of the federal government’s aid dollars that year.

Other interesting findings include:

  • 47 percent of all students in 2007-08 were estimated to have received a federal education tax benefit, reducing college expenses for the year by an average of $700. By contrast, only 27 percent of students received a Pell Grant the same year.
  • Tax credits were most beneficial for low-middle and high-middle income families: low-income families generally do not have enough after-grant net tuition expenses to qualify for benefits, and most high-income families exceed income limits. Of low-middle income families, 56 percent received tax benefits in 2007-08, compared to 63 percent of high-middle income, 48 percent of high income and 29 percent of low income families.
  • While the average benefit for families  in 2007-08 was $700, high-middle income families received an average of $1000 and low-middle income families received $900 in tax benefits.
  • On average, tax benefits decreased the cost of college attendance by about 5 percent.

For more information, check out the full report. To learn more about available tax credits, visit UW’s Office of Student Financial Aid or the IRS’ website.

Higher Ed News Roundup

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With the special legislative session wrapped up here in Washington, and regular session not set to begin until January 9th, here is some of what has been happening in higher education elsewhere.

Federal Budget Agreement Preserves but Alters Pell Grants: It appears that a last minute FY2012 budget agreement in Washington DC will avert a federal government shutdown. It is reported that this agreement, which cuts billions of dollars and increases NIH funding by a modest one percent, preserves the maximum Pell Grant amount of $5,500 (a priority for Democrats), but alters eligibility. Under this language, Pell grants could only be used for 12 total semesters, not 18. Additionally, the annual income threshold at which a student is automatically determined to have zero Expected Family Contribution (EFC) is lowered from $30,000 to $23,000. Stay tuned to the Office of Federal Relations  for frequent updates on these budget negotiations.

Berkeley Unveils New Aid Program: UC Berkeley made big news this week for announcing a new financial aid program aimed at middle class Californians. Students from families making up to $80,000 per year already attend UC schools tuition-free in California. Under this new plan, UC Berkeley students from families making between $80,000 and $140,000 will have to contribute a maximum of 15 percent of annual income toweard the total cost of attendance at Berkeley (currently $32,000, including room and board). The student would also have to contribute about $8,000 per year via loans, work study or scholarships. According to the New York Times, based on current costs, this programs represents a discount ranging from 10 to 37.5 percent for families that fall within the specified income range. A number of private insitututions have similiar programs, but Berkeley is reported to be the first large public institution to follow suit.

Lariviere Out, Berdahl in at Oregon: After less than three years, Richard Lariviere has been fired by the Oregon State Board of Higher Education as President of the University of Oregon following a year in which he found himself at odds with the state System as he pushed for greater independence for the University of Oregon. The controversial move to oust a President who enjoyed student, faculty, and alumni support, was immediately followed by the appointment of Robert Berdahl as interim president. Berdahl is a former long-time University of Oregon professor and Dean, and has also served as the President of the University of Texas, and UC Berkeley Chancellor, among other roles. Berdahl recently ended his tenure as AAU President and took a highly publicized position as a part-time advisor to Lariviere at the University of Oregon.

More Higher Ed Cuts in CA: California Governor Jerry Brown announced another billion dollars in mid-year state  budget cuts this week as yet another growing budget deficit loomed. The mid-year cuts include another $300 million reduction for the state’s three higher education systems (UC, CSU, and community colleges), which comprise the largest public higher education system in nation. While UC hopes to use temporary funds to bridge this latest cut for a year, further capped enrollments and tuition increases may be likely throughout the system.

VA Announces New Investments in Higher Ed: Meanwhile, Virginia is one of the only states increasing higher education funding. Governor McDonnell announced a new $100 million in funding for higher education, alongside new capital funding for longer term growth. The money is intended to support the goals contained in legislation passed last year, including increasing college attainment in Virginia, increasing affordability, and increasing the number of STEM and health related degrees awarded.

State Revenue Down Again as Governor Prepares Budget

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Released this morning, the November state revenue forecast indicates that the state is short another $122 million below needed revenue for the current biennium. Dr. Arun Raha, Executive Director of the Economic Revenue and Forecast Council, wrote that uncertainty over Southern Europe’s debt crisis and potential political gridlock in Washington, D.C., produced largely expected economic results predicted in September’s dismal forecast. In essence, we still have a $2 billion budget problem and since September, it has grown by $122 million.

The Governor will use this forecast as her benchmark for budget reductions in the 2012 Supplemental budget (first supplemental budget of the 2011-13 biennium). All told, the Governor will need to cut over $2 billion from the current biennial budget in order to produce a balanced budget, which she is required to do before proposing any revenue increases to offset reductions.

This budget will be released this Monday, November 21. We will release a budget brief and blog detailing the impact of the Governor’s budget on the UW as soon as possible. While the Governor’s budget release is a critical first step of the special and regular legislative sessions, we are months away from a final legislative budget.

Scrutiny and Economy Taking Toll on For-Profit Higher Ed

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The past few weeks have brought a lot of bad news for the for-profit education sector. Federal and state scrutiny of practices, costs, and outcomes, combined with tightened regulations, high profile lawsuits, and student reaction to high prices in a bad economy, have taken their toll on the sector:

  • A state investigation has been opened to determine whether for-profit institutions have been improperly compelling employees to support the candidate currently opposing Kentucky’s Attorney General, a man who also happens to be leading a 20 state joint investigation into the practices of for-profit institutions.
  • Enrollments have plunged even more deeply than they did last year across the sector as a whole (14.1% on average), and most dramatically across the largest companies, including 47% at Kaplan, 41% at Apollo, and 26% at Corinthian Colleges.
  • As a result of tightening regulations, bad press, and plunging enrollment, stock prices are going down.
  • A journalist at the Atlantic is wondering if, in order to survive, these institutions should get out of the business of educating students and attempt to use their large infrastructure and resources as consultants to more traditional institutions that are needing to scale their online education operations, and increase their ability to serve the non-traditional student population.

To read related OPBlog posts, see: