Republicans on the House Committee on Education and the Workforce released the College Cost Reduction Act, which proposes a wide range of changes to higher education. Much is in the bill, but the most important changes revolve around transparency, financial aid reforms, deregulation, and accountability.
Transparency
The bill would make several changes to improve transparency, which would help students, parents, and policymakers make more informed choices.
One significant change is that the bill would mandate standardized financial aid award letters. Many colleges engage in borderline fraudulent practices like not distinguishing between grants and loans or not telling students the total cost of attending. The bill would put an end to this. The main danger here is a badly formed or applied standard, but this danger seems minimal so far.
In addition, the bill would mandate and expand on the Department of Education’s (ED) College Scorecard data collection and publications—another good change. College Scorecard has exposed lots of higher education to scrutiny, much of it unflattering, and this will safeguard against a future ED scrapping the initiative to protect colleges.
Another transparency change would be the requirement for many colleges to offer a price guarantee to students based on the duration of the program, such as a commitment to keep tuition steady for four years. I lean against this idea.
While I don’t like that colleges can entice students with deceptive practices like scholarships that only cover the first year, leaving the student to pay unexpectedly higher amounts in later years, I also don’t like things that interfere with market price mechanism. What happens when we have a reckless president whose policies lead to eight percent inflation? Colleges should have as much flexibility to respond to such shocks as possible and a government-induced pre-commitment on prices limits that.
Financial Aid Reform
The bill would dramatically revamp many aspects of financial aid.
One of the most important changes is that it would replace the Cost of Attendance (CoA) when determining aid eligibility with the Median Cost of College.
Under current law, each college sets its own cost of attendance, and federal financial aid then essentially tries to provide enough aid to reach that level—subject to program-specific caps like the $7,395 max for Pell grants. Instead of letting each college set its own target, the median cost of college would establish a uniform target by academic field and credential based on the median CoA for that type of program—e.g., a bachelor’s in nursing.
As I’ve noted previously—here for the full length study, here for a related op-ed—this would:
- “Improve the financial aid application process by better protecting student and parent privacy as well as providing students with information about their aid eligibility earlier than the current system does;
- Enhance the competitive landscape, which would improve accountability, encourage cost containment, and lower prices at some colleges;
- Neutralize the Bennett hypothesis—increases in aid leading to higher tuition—by severing the link between an increase in tuition and an increase in aid eligibility;
- Incentivize colleges to measure and improve quality.”
The bill would also make a few changes to grant programs.
First, it would provide extra Pell grant funding for juniors and seniors who are likely to graduate and are attending a program that will substantially increase their earnings. It would also replace the Federal Supplemental Education Opportunity Grant (FSEOG) and the Leveraging Education Assistance Program (LEAP) program with Promise grant:
The PROMISE Grant formula rewards colleges for strong earnings outcomes, low tuition, and enrolling and graduating low-income students. The maximum amount an IHE can receive under the PROMISE program each year is capped at $5,000 per federal student aid recipient.
I have mixed feelings about this.
FSEOG should be put to rest. While designed to provide a supplemental grant for low-income students, in reality it was a subsidy for colleges with large endowments because funding was allocated not based on the number of low-income students at each college, but rather based on historical allocations. While Promise is an improvement, I am generally skeptical of grants to institutions rather than students.
Loan limits would also receive a makeover. Parent PLUS and Grad PLUS loans would be eliminated, which is great news. Borrowing limits would be changed to $50,000 for undergraduates—currently $31,000 for dependent undergraduates and $57,500 for independent undergraduates—$100,000 for most graduate students, and $150,000 for graduate professional programs—currently unlimited under Grad PLUS. In isolation, you could argue these new limits are too high, but some accountability provisions—discussed shortly—help guard against this.
Repayment would also be improved. The bill would replace the plethora of current repayment programs with two options, a standard mortgage style 10-year repayment plan, and a new income driven repayment plan which would require borrowers to pay 10 percent of their income exceeding 150 percent of the poverty line. Any unpaid interest would be waived, and at least half of each payment would go towards paying down principal. A cap on total payments would be set at the amount paid under the 10-year standard plan.
The new plan is mostly an improvement. The income share—10 percent—and multiple of the poverty line—150 percent—are both moves in the right direction after decades of erosion. But there are a couple of changes I’d avoid if possible. For example, interest capitalization is characterized as a “predatory practice,” but especially in the context of the flexible repayment that income-driven plans provide, it is no such thing. Rather, interest capitalization is the price that students with low incomes pay for being able to defer payments until their income is higher. I don’t see how you can call interest capitalization predatory without calling interest in general predatory. The old ban on usury was not a good policy, and neither is banning interest capitalization.
Origination fees would also be eliminated under the bill. However, if we move to a competitive lending market with many private lenders—as we should—then origination fees should be on the table as one of the ways for lenders to compete rather than be banned outright.
The total amount repaid is also capped at the amount that would be paid under the 10-year plan. I don’t see why total repayment under the income-driven plan should be capped. Relative to the student who repays over 10 years, a student who pays over 20 years receives a real benefit—delayed repayment— and there is nothing wrong with having him pay more in interest for that benefit.
Deregulation
The regulatory environment would also be improved in two ways—deregulation, including the 90/10 rule and gainful employment, and limiting new regulations that increase costs such as the Biden administration’s new student loan repayment plan nor would the Secretary be able to require accreditors to consider additional requirements when acting as a gatekeeper for federal financial aid.
Accountability
Lastly, the bill would enhance accountability in higher education.
One way it will do so is by improving accreditation. Accreditors would not be allowed to require “any litmus tests, such as requiring adherence to diversity, equity, and inclusion standards, as a condition of accreditation.” It would also close the elastic loophole, preventing both accreditors and the ED Secretary from imposing any federal financial aid eligibility requirements other than the 10 that Congress has already mandated.
But the most exciting change—for policy analysts, anyway—is the new risk-sharing requirement for colleges. While the details are a bit complicated, the general idea is that when a college’s former students do not repay their loans, the college would be required to pay for them—essentially reimbursing the government for the money lost on the loan. The share of taxpayer losses that a college would need to reimburse would depend on several factors, with lower-cost and high-value-adding colleges—as measured by graduates’ earnings relative to what they paid in tuition—paying a lower share than high-cost and low-value-adding colleges. Preston Cooper has run the numbers on some of this, and I’ll be exploring these policies in these pages over the coming months as well.
Overall, the College Cost Reduction Act would be a dramatic improvement for higher education. The bill is getting rave reviews from right-of-center analysts such as Beth Akers, Michael Brickman, and Preston Cooper. While I would make a few changes here and there if I could, if given a take-it-or leave-it choice, I would take it in a heartbeat.
Photo by jkiddmedia — Adobe Stock — Asset ID#: 117692122
With just a few adjustments in the text of the article, it could be about pricing in health care, the variance in hospitalization costs across the nation, even within single states.
How come the concern for students when the matter of “free market” pricing is behind a lot of overpricing across the spectrum of services and goods? The College Cost Reduction Act seems to me yet another poorly thought-out outcome of “politics as usual.”
Are you familiar with what ED Sec Bill Bennett said 40 years ago — that the price of college would inevitably rise to the amount of financial aid provided to students.
He was right — higher education has outpaced the inflation rate ever since. There is no free market because — as Dr. Gillen points out, there is a Federal blank check for whatever the institution wants to charge. It’s actually cheaper for a middle class student to go to Amherst College than to UMass Amherst, even though the price of UMass is far less.
The only medical example comparable to this would be childbirth in the late ’80s — the YUPPIE parents had insurance plans with virtually unlimited payments for childbirth so hospitals started to build uber-expensive “birthing suites” so as to compete with peers for these lucrative patients. And that’s what higher education has been doing for the past 20 years — fancier and fancier campi to compete with each other, with price being no concern because of ED’s virtual blank check, albeit with loans.
We have food stamps — now an EBT card — and give people a set weekly dollar amount for food. It’s a fixed amount that one can spend wisely or not.
Now imagine if the program was instead a blank check — that recipients were instead entitled to a shopping cart full of groceries — that they could buy whatever they wanted, wherever they wanted, and the government would pay the bill, regardless of what it was.
What do you think would happen? Yes, people would be buying the most expensive stuff and the fanciest (read “most expensive”) stores. And that’s what has happened to higher education. What Median Cost of College does is to instead say “this is the median of what families spend for food — spend it as you like.”
One practice which always struck me as odd, at the university where I used to work, was the official policy of charging students from higher-income families more tuition, and then transferring some of the excess revenue to cover the fees of students from lower-income families. This was something that administrators often boasted about doing at public meetings. What struck me as odd was that the administrators clearly saw this as a virtuous deed on their (i.e. the administrators themselves) own part. While charging lower-income students less may have been justified, it seemed to me that if anyone got credit for this eleemosynary impulse, it should be the better-off families who were actually out-of-pocket as a result.
I think the biggest issue is that colleges sell courses while students buy degrees — and the colleges are really being fraudulent because the individual course has no intrinsic value, only the degree does.
Hence, I believe that college education should be sold as a whole — not only a guaranteed price for four years but everything free after that. Take a UMass Amherst — you are not going to graduate from there in less than five years without paying extra for either on-line or summer courses because you can’t get all your classes, in the right order, otherwise.
The flat degree cost would eliminate this — UMass would either have to hire more professors or absorb the loss — a student’s inability to get courses should be the college’s fault.
“What happens when we have a reckless president whose policies lead to eight percent inflation?” And what happens if the next president has zero percent inflation?
How about all the people who got fixed rate 3%-4% mortgages and are still only paying that now that we have 8% inflation? Every other business deals with this…
I would like to extend the Fair Debt Collection Practices to colleges. Back in the 1960s, people were allowed to buy furniture on credit, to pay off one piece and then buy another, but if they defaulted on any one item, all the furniture was repossessed.
That’s now illegal, and should be for colleges as well. They shouldn’t be allowed to withhold transcripts — records of courses already paid for — to collect a disputed bill from a former student. And things like state statutes of limitations (which apply to all other debts) should apply as well — either sue the student within 6 years or decide it isn’t worth it, just like every other business has to do.
I like the idea of a Median Cost of College but worry about more expensive majors with high attrition rates. For example, engineering has a lot of people who transfer into other subjects (many become excellent high school science teachers) and it would be inherently unfair to base the price on engineering courses on the salaries of the 50% who graduate with that degree without adjusting for the 50% who don’t.
However, this would instantly end the “arms race” — if it’s cheaper to go to a more expensive college (and right now it often is) — well that’s where we get colleges becoming more like spas. But if students could see a (personal) financial gain from going to a less expensive institution, that would push institutions toward austerity. And if it costs more to major in Women Studies, that would also be truth-in-advertising…
I’d also like to see some liability on the colleges for those who don’t graduate — if you don’t think the kid is going to make it, either don’t let him in or provide him the resources necessary to graduate. (Historically, some of the HBCUs did the latter and were quite open about it — and produced excellent graduates in the day.)
It comes back to the colleges selling courses and both students and society paying for degrees. Part of me wants to go back to the 19th Century when transcripts remained in the Registrar’s Office and all prospective employers got to see was the diploma, which may or may not have had honors notations on it.
I would also like to see them held to the same rules that casinos are — when a casino or state lottery advertises about someone winning big, they also have to mention (at least in fine print) what the odds of someone winning are. What infuriates me are the UMass ads that start with the Boston skyline and then profile a few very successful UM graduates — not only is UMass Amherst 2 hours from Boston, but for every successful biotech graduate, there’s probably 100,000 (or more) who aren’t that successful.
They really ought to have to mention that — oh, and maybe that there is no UMass campus in the Seaport District. (UMass Boston is on the old city dump, in a different part of the city.)
Above all else, I’d like to see higher education treated like — and regulated like — a business. It no longer is a charity and hasn’t been in decades. It’s a business with profit, loss, and more than a few inevitably going into bankruptcy — at this point, institutions are going to inevitably fail regardless of what is done. I haven’t seen any Studebakers recently, either…