If you were expecting big steps forward on the Higher Education Act from the House Committee on Education and Labor, prepare to be disappointed. Yesterday, the Democratic majority released the College Affordability Act—which for some reason says “Est. 2019” — and it delivers pretty much what we’ve seen established since about 1969: A general conviction that what higher ed mainly needs is more government money…and no openly for‐profit schools.
The centerpieces of the bill are federal funds to encourage states to make community colleges free, increases in Pell Grants, cheaper student loans, and cracking down “on predatory for‐profit colleges.” Let’s look at each of these very briefly.
Free Community College
The nearly 1,200 page bill, which committee staffers estimate would cost about $400 billion over 10 years, would offer funds to states that agreed to make their community colleges tuition‐and‐fee free while at least holding steady other higher ed funding. The bill sets up quickly escalating appropriations for this starting at about $1.6 billion in 2021, peaking at $16.3 billion in 2030.
This is short of the free four‐year college plans that some Democrats, especially on the campaign trail, are talking about, but it would nonetheless be a new federal effort to incentivize “free” college. But not only is the national debt approaching $23 trillion—where will the federal money come from? — states have major budget constraints of their own. Perhaps even more important, community college appears to be a poor investment, with the National Student Clearinghouse reporting that the share of students completing public 2‑year programs in 6 years is an anemic 39 percent.
There is little question that student aid has enabled colleges to increase prices—it’s baked right into them. Pell Grants are one band of a rainbow of aid sources, which also includes federal loans, work study, institutional grants, and more. This bill would increase the maximum Pell from $6,695 in 2021 to an estimated $8,305 by 2029. To put that in perspective, the average sticker price at a public four‐year institution in the 2018 – 19 school year was $10,230.
Cheaper Student Loans
This bill would also goose student loans by providing more generous terms; exempting from repayment in income‐based plans income under 250 percent of the poverty line (it is currently 150 percent); eliminating loan origination fees; and more. We need less generous aid in order to slow artificially fueled price inflation, as well as incredibly wasteful consumption — yes, waterparks, but also non‐learning—and this does the opposite.
Colleges run explicitly for profit — almost all institutions actually seek it—have long been an outsized target of politicians. This bill keeps it up by reinforcing “gainful employment” rules targeted at for‐profit schools, despite the fact that most people who go to any college do so to get a job, and enrollment at for‐profits has been roughly halved since 2010. It also goes after the “90−10” rule, which requires a school to get no more than 90 percent of its revenue via federal student aid but currently exempts the G.I. Bill. 90 percent is, of course, a lot of revenue to come via taxpayers, but for context one needs to remember that for‐profit colleges do not get big direct subsidies like public institutions, or tax‐favored donations like publics and private, non‐profits. Oh, and unlike those other sectors, for‐profits pay taxes.
This is in no way to suggest that admittedly for‐profit higher education works well—it does not—but the whole, massively subsidized system is broken. Unfortunately, this bill would only make matters worse.
For a few years, I have been posting an evolving list of empirical studies that have found that federal student aid programs help fuel rampant college price inflation. Why? Because I continually encounter people, often who work for or in higher education, who insist that there is no meaningful empirical evidence of big subsidies enabling big price increases, even if the possibility makes mammoth intuitive and theoretical sense.
A few days ago a new entry arrived for the list, a paper from the Federal Reserve Bank of New York. It finds that student loans have big inflationary effects, especially at four‐year private schools not focused on top academic performers, and that Pell Grants have smaller direct effects, but also likely lead to reductions in aid funded by institutions. It is yet one more study that shows that, contrary to the hopes of the American Council on Education–the premiere higher ed advocacy group – the inflationary effect of student aid is absolutely a subject that should “play a major role” in discussions about college affordability.
And now, the updated list:
David O. Lucca, Taylor Nadauld, and Karne Shen, “Credit Supply and the Rise in College Tuition: Evidence from the Expansion in Federal Student Aid Programs,” Staff Report No. 733, July 2015.
Dennis Epple, Richard Romano, Sinan Sarpça, and Holger Stieg, “The U.S. Market for Higher Education: A General Equilibrium Analysis of State and Private Colleges and Public Funding Policies,” NBER Working Paper No. 19298, August 2013.
Lesley J. Turner, “The Incidence of Student Financial Aid: Evidence from the Pell Grant Program,” Columbia University, April 2012.
Stephanie Riegg Cellini and Claudia Goldin, “Does Federal Student Aid Raise Tuition? New Evidence on For‐Profit Colleges,” NBER Working Paper No. 17827, February 2012.
Nicholas Turner, “Who Benefits from Student Aid? The Economic Incidence of Tax‐Based Federal Student Aid,” Economics of Education Review 31, no. 4 (2012): 463 – 81.
Bradley A. Curs and Luciana Dar, “Do Institutions Respond Asymmetrically to Changes in State Need‐ and Merit‐Based Aid? ” Working Paper, November 1, 2010.
John D. Singell, Jr., and Joe A. Stone, “For Whom the Pell Tolls: The Response of University Tuition to Federal Grants‐in‐Aid,” Economics of Education Review 26, no. 3 (2006): 285 – 95.
Michael Rizzo and Ronald G. Ehrenberg, “Resident and Nonresident Tuition and Enrollment at Flagship State Universities,” in College Choices: The Economics of Where to Go, When to Go, and How to Pay for It, edited by Caroline M. Hoxby, (Chicago, IL: University of Chicago Press, 2004).
Bridget Terry Long, “How Do Financial Aid Policies Affect Colleges? The Institutional Impact of Georgia Hope Scholarships,” Journal of Human Resources 30, no. 4 (2004): 1045 – 66.
Rebecca J. Acosta, “How Do Colleges Respond to Changes in Federal Student Aid,” Working Paper, October 2001.
Details are still emerging about the Obama Administration’s 2014 education budget proposal, but from the overview there seems to be a lot of bad stuff. Here are the hi — or low — lights, and links to some important context:
- Increase Department of Education spending to $71.2 billion, up 4.6 percent from 2012 enacted level: This is neither constitutional nor effective.
- “Invests” in preschool: Head Start, Early Head Start, and state programs either are shown to fail, or have little to no good evidence supporting them.
- $12.5 billion in mandatory funds to “prevent additional teacher layoffs and hire teachers”: We’ve been getting fat on staff — including teachers — for decades, and it hasn’t helped.
- $1.3 billion for 21st Century Community Learning Centers: Federal studies have found these have negative effects.
- Race to the Top for higher education: So far, RTTT has been big on promises, small on outcomes, and huge on coercion to adopt national curriculum standards.
- $260 million to scale up higher education innovation: MOOCS and other innovations have been developing pretty well without federal “help.”
- Maintain “strong” Pell Grant program: Pell is part of the tuition hyperinflation problem, not the solution.
There will no doubt be more‐detailed analyses of specific education proposals to come. Stay tuned!
The Bill and Melinda Gates Foundation has delivered a lot of money for ideas to make higher education more affordable. One of the many papers it funded came out of the New America Foundation last week, and the report contains lots of proposals for Gates to work with. Unfortunately, its backbone — making the Pell Grant an entitlement program — is a complete nonstarter. Not only does Washington need a new entitlement like the Super Bowl needed a sudden spike in hair dryer use, the Pell Grant is utterly unjust, taking from Peter and giving to Paul so that Paul can make a million extra bucks.
The first point should be self‐evident. Entitlements such as Medicare and Social Security are already gigantic fiscal asteroids hurtling directly at us. Indeed, at their present rate of growth, by 2050 entitlements will likely eat up every single cent the federal government brings in, leaving not a dime for defense and other discretionary spending.
A Pell entitlement would certainly be small compared to, say, Medicare. If I’m reading NAF’s report right, the total Pell cost in 2022, after all their recommended reforms, would be about $53.3 billion. (NAF says its plan would cost $94.4 billion over the next ten years “compared to current policy.” For simplicity, dividing $94.4 by ten and adding the resulting $9.4 billion to the CBO‐projected 2022 Pell cost of $43.9 billion yields $53.3 billion.) In contrast to that $53.3 billion, Medicare is expected to cost about $1 trillion in 2022. But while the cost would be relatively tiny, the root pathology would be the same: a program with funding put on autopilot.
And don’t think Pell won’t sneak up to include increasingly higher‐income people. No one likes seeing others get free taxpayer money, and no politician will let the “middle‐class” — whoever that is — get “squeezed.” Indeed, NAF tries to soften the blow for those who would lose tax deductions and credits under their plan (very good proposals, by the way) by noting that “some of the aid that these benefits provide to families with middle incomes will be replaced with the significant increases to the maximum Pell Grant that are proposed in this paper.”
All that said, the root objection to Pell applies, whether it is an entitlement or not: There is no just reason for taking money from Paul and giving it to Peter so that Peter can get much wealthier. But that is precisely what Pell is intended to do: Take money from taxpayers and give it to other people so that they can get degrees and earn “$1 million more over their lifetimes.” If any entity other than government were to do that, we’d call it “stealing.”
The Pell Grant program absolutely should not be an entitlement — we have way too many of those as it is. Even more important, though, Pell shouldn’t exist at all. It is, essentially, legalized theft.
Cross‐posted at seethruedu.com
On the day of the second presidential debate, I had the pleasure of participating in a panel discussion at debate-host Hofstra University. The topic was "defusing the student loan debt bomb," and I was the lone voice calling for an end to inflation-fueling federal student aid. My co-panelists were Tamara Draut of the think tank Demos, Above the Law blog co-editor Elie Mystal, and U.S. PIRG's Ed Mierzwinski.
I had perhaps the best interaction with Mystal, with whom I had interesting chats throughout the day. Mystal's response to my proposal was basically that poor and minority students need help, and phasing out federal aid would disproportionately hurt them. It was an argument with which I could sympathize, and it made more sense than just proclaiming "college education is a public good and should basically be free." Unfortunately, writing on his blog post-debate, Mystal said that my "view makes a certain kind of sense" but nonetheless smacks of "the classic, Republican 'f**k 'em' approach that disproportionately screws the poor and minorities."
Um, ouch. Ascribing callousness or cruelty to either me or Republicans because we don't like the negative effects of aid is, frankly, precisely why we can't have a reasoned debate about these things. Maybe I'm an exceptionally gifted multi-tasker, or maybe I've just contemplated some important logic and facts, but I can be against mega-inflation without being indifferent to the poor. Indeed, quite the opposite.
Quite simply, Pell Grants are not supposed to be for the middle class. As the U.S. Department of Education’s website makes clear, Pell is supposed to be for “low‐income undergraduate and certain postbaccalaureate students.”
So why characterize Pell as a benefit for the middle class? Because lots of people consider themselves to be in that group — which federal politicians rarely define — and policymakers want their votes.
Unfortunately, as Rep. George Miller (D‑CA) recently demonstrated, saying Pell is intended for the middle class also makes it a valuable weapon in waging class warfare.
“Pell is the reason they are able to go to college and get ahead,” Miller said in response to congressional Republicans purportedly looking to trim the program as part of debt reduction. “It’s a shameful excuse and an attack on middle class families.”
Other than their usefulness in browbeating those who’d dare propose education cuts, Pell Grants are, at best, of limited value. Yes, they are needed by some people to go to college, but that’s because they are largely built into college prices. Basically, give me a dollar more to pay for school and my college will charge me another buck.
Of course it’s not just Pell that influences prices — there are lots of other sources of aid, and colleges confront numerous variables that affect their costs — but subsidize something and prices will go up. And boy, do they go up in higher education!
One last consideration is crucial but rarely mentioned. One of the great political benefits of Pell is that to recipients it’s free dough — no need to pay it back. That lets politicians play Santa Claus, not the mean banker who sinisterly comes after you to return student‐loan money, plus interest. But keep in mind what, in most cases, college is ultimately for: to enable attendees to greatly increase their earnings. In light of that, how can politicians justify simply giving away money from taxpayers? Quick answer: They can’t.
Were you or I to do that it would be called “stealing.” When government does it, apparently, it’s called “helping the middle‐class.”
C/P from the National Journal’s “Education Experts” blog.
Want to know a major reason Washington won’t make the cuts we need? Because winning elections is largely about getting “middle‐class” votes, and just about any program can be spun as a savior for that big — but rarely defined by politicians — chunk of Americans.
Case in point, an animosity‐stoking assertion uttered last week by House education committee Ranking Member George Miller. As reported by CNN, the subject was the possibility of a cut being made to the federal Pell Grant program:
Rep. George Miller, a California Democrat, defended Pell Grant funding on Friday, calling it the “great equalizer” for millions of students.
“Pell is the reason they are able to go to college and get ahead,” Miller said. “It’s a shameful excuse and an attack on middle class families.”
Now, what’s wrong with this assertion (other than its obnoxiousness and assumption that Pell doesn’t mainly enable colleges to raise their prices)? According to the U.S. Department of Education’s description of Pell – and the long understood intent of the program — it isn’t for the middle class. It is for “low‐income” Americans:
The Federal Pell Grant Program provides need‐based grants to low‐income undergraduate and certain postbaccalaureate students to promote access to postsecondary education.
So much for Pell‐trimming proposals assaulting the middle class. Buy maybe Rep. Miller was doing more than just inaccurate, uncivil political posturing with his comments. Maybe he was revealing a dirty little secret: While Pell is better focused on low‐income students than many federal aid programs, over time politicians increasingly aim all education efforts at the big mass called the middle class. Maybe Miller was accidentally acknowledging that aid for the poor morphs into aid for the not‐poor because, well, that’s where the votes are.
Look at Pell, which, again, is relatively well targeted. In the 1975 – 76 school year, 1.2 million students received grants (table 1). By 2009-10, 8.1 million did — almost seven times more! Meanwhile, overall enrollment in degree‐granting institutions grew from about 11.2 million in 1975 to 20.4 million in 2009, less than doubling. Almost certainly, there has been less precise targeting to truly low‐income students. Indeed, about 6 percent of Pell recipients (table 3‑A) in 2009-10 came from families making at least $50,000 a year, or about the median household income in 2009.
Such expansion has been seen in K‑12 education, too, though one wonders if Pell is singled out for big bucks in the debt‐ceiling deal because people get Pell personally, unlike elemetary and secondary aid which goes to states and districts. Regardless, federal K‑12 funding has spread farther and wider over the decades as politicians have sought to keep money coming even as their districts have lost people, and as allocations have become less and less focused on individual students.
When waging class war, a powerful weapon is to portray your political enemy as intentionally hurting the most vulnerable people: the poor, children, etc. But the winning strategy? Sending money to the middle class, and capturing their precious votes.