President Obama proposes a free community college education but the Brookings Institution disapproves

Even a blind hog occasionally finds an acorn, and President Obama finally came up with a good idea for addressing the student-loan crisis--or at least the kernel of a good idea. In his State of the Union address, the President proposed offering a free community-college education to every American.

But the Brookings Institution apparently doesn't like that idea.  Stuart M. Butler authored a piece for Brookings on President Obama's plan and offered these criticisms.

Stuart M. Butler
Senior Fellow, Brookings Institution

First, Mr. Butler argued, "the plan is badly targeted." Providing free community-college education "would mean middle-income and even upper-income, students would get hefty subsidies, even though many do not need the help."

Of course this is true, but public K-12 education is also free to rich and poor alike; and I don't hear anyone complaining. And to suggest that rich kids would pass up elite institutions like Harvard to get a free education at a local community college is absurd.

Second, Mr. Butler argues that community college "is usually a dead end." Here, Mr. Butler stands on firmer ground. It is true that only a small percentage of community-college students obtain two-year degrees; and very few transfer into four-year colleges  and eventually get bachelor's degrees.

Mr. Butler suggests that the federal government should "help states and school districts provide a fuller range of opportunities at the high school and college levels, such as professional credentials, apprenticeships and high-school career academies." Yes, of course; but President Obama's plan doesn't preclude other avenues for providing post-secondary education. In fact, I understood the President's free community-college proposal to incorporate more than just traditional academic programs.

Finally, Mr. Butler offers his flimsiest objection to President Obama's plan--that it might cause high-performing high-school students to "settle" for a free community-college education rather than apply to more elite institutions. Right--like a high school kid with a realistic chance of getting into the University of St. Andrews in Scotland, where Mr. Butler studied, would turn St. Andrews down to get free schooling at Alamo Community College in San Antonio.

So what does Mr. Butler suggest?  He wants bigger Pell Grants that could be used at any institution, presumably meaning the expensive elite colleges where the Brookings Institution's policy wonks went to school, as well as the for-profit colleges that are ripping off low-income young Americans.

And Mr. Butler also wants President Obama to give "more enthusiastic backing to new, low-cost competitors to traditional colleges and universities." Duh, Mr. Butler. Community colleges are low-cost competitors to traditional colleges and universities.

Mr. Butler finished his Brookings puff piece with a flourish. "President Obama would be much wiser," Mr. Butler concluded, "to use his political capital to spur competition and real cost reduction in higher education rather than subsidizing community college education."  Whatever that means.

In my view, President Obama articulated the germ of a good idea--two free years of postsecondary education at the nation's community colleges to anyone who is qualified to enroll.  Of course, the community colleges need to do a much better job of matriculating their students; and the transfer of students from two-year institutions to four-year institutions needs to be made surer and more smooth.

The president calculated that his plan to offer a free community-college education would only cost the federal government about $6 billion a year--about one fifth of what the federal student-aid program is currently pumping into the for-profit college industry. If the federal government would stop propping up the for-profits and support community colleges, the public would actually save money--a lot of money.

On the other hand, if President Obama wants to offer free community-college education as a new feature to our present rickety student-aid program, then his proposal is merely a diversion from the hard task of reform . Unfortunately, I think the president wants to add a $6 billion free community-college plan to an out-of-control federal student aid program that already costs more than $100 billion a year..

References

Stuart M. Butler. Obama's SOTU Free College Plan is Bad for Poor Americans. Brookings Institution, January 20, 2015. Accessible at: http://www.brookings.edu/research/opinions/2015/01/20-obama-free-community-college-bad-idea-sotu-butler

Susan Dynarski and Daniel Kreisman. Loans for Equal Opportunity: Making Borrowing Work for Today's Students. Hamilton Project, Brookings Institution, October 2013. Accessible at: http://www.brookings.edu/~/media/research/files/papers/2013/10/21%20student%20loans%20dynarski/thp_dynarskidiscpaper_final.pdf


  

A Comment on Susan Dynarski's Op Ed Essay in the NY Times on President Obama's Proposed Federal College Rating System

Susan Dynarski contributed an op ed essay in a recent issue of the New York Times on President Obama's proposed college rating system.  As Ms. Dynarski explained, the President's intent is to rein in college costs.

Ms. Dynarski said up front that she does not think the President's proposal will help bring spiralling tuition costs under control--at least for the public colleges. She urged President Obama to slow down the initiative to put a college rating system in place in order to get it right.

I will go further and say that the President's college rating plan will do nothing to control college costs. Instead, it will simply add another layer of bureaucracy to the nation's higher education sector, which is already burdened with red tape created by efforts to comply with FERPA, the Clery Act, Title IX, the federal student aid program, and a blizzard of "Dear Colleague" letters issued by the Department of Education.

Without a doubt, the nation's elite schools will do just fine under any rating system that President Obama and Secretary of Education Arne Duncan are likely to devise; they have large endowment funds, lobbyists, and lawyers that will make sure they come out on top.  Don't worry about Harvard, Stanford, or Yale.

The HBCUs will also do all right under any rating system that the Obama administration designs; nobody wants to increase pressure on them. And, judging by their past success in fending off effective federal oversight, most of the for-profits will also manage to thrive under any new college rating system that is likely to be put in place.

But, as Ms. Dynarski pointed out, the new rating system will probably hurt the private, nonprofit colleges most, particularly the non-selective nonprofits that do not have large endowments.  Many may be forced to close their doors. She is right to warn that these colleges "will do everything they can to avoid this, including lobbying to tweak the ratings."

I hope President Obama and Secretary Duncan heed Ms. Dynarski's advice and put their college-rating system on the back burner.  If Obama and Duncan want to bring costs under control, they should continue putting the heat on the for-profit college sector, where tuition costs are highest. In my view, the for-profits should be kicked out of the federal student-aid program, which would cause most of them to be shut down. The federal aid money that now goes to the for-profits receive--about $35 billion per year-should be invested in low-cost community colleges.


References

Dynarski, Susan. Why Federal College Ratings Won't Rein in Tuition. New York Times, September 20, 2014. Accessible at:
http://www.nytimes.com/2014/09/21/upshot/why-federal-college-ratings-wont-rein-in-tuition.html

President Obama's Proposed College Rating Plan is a Non-Starter: Colleges Should Prepare for More Bureaucracy and Higher Costs

"When someone describes himself as a Christian businessman," my former law partner once observed, "I put my hand over my wallet."

I feel the same way when President Obama announces a new plan to help the middle class. When the President proposes to do something nice for average Americans, I get nervous.

And what is President Obama's latest proposal to help the middle class? According to a White House press release, President Obama wants to implement a college rating plan "to Make College More Affordable" and "A Better Bargain for the Middle Class."

That's right. Having mucked up health care, the President now plans to screw up higher education even more than it is already screwed up.

President Obama wants to help the
middle class. No, really!

Although the details aren't yet clear, the President's new system "will measure college performance through a new rating system so students and families have the information to select schools that provide the best value."  This new rating system, the White House assures us,  will "incentivize [sic]colleges to provide better value by improving performance, lowering costs, and investing in student access and success."

What's the President's ultimate goal? I think it is to shift federal aid money to certain favored institutions.  The press release says the Department of Education ultimately plans to give more federal student aid to colleges that provide the best value. According to the White House press release, students attending high-performing colleges would receive larger Pell Grants and more affordable student loans than students attending lower-ranked institutions.

So how will the President's latest grandiose scheme roll out?  This is my prediction:

1) First, DOE will vet its proposed college-rating regulations with higher education's powerful constituencies: the for-profit colleges;  elite schools like Harvard, Yale, and Stanford; and the Historically Black Colleges and Universities (HBCUs).  These groups will have their lobbyists and lawyers weigh in and make sure the new regulations won't hurt them. DOE will acquiesce to all these groups' demands.

2) Next, President Obama will sign executive orders and DOE will promulgate administrative regulations that will implement the President's new college-rating system.  All this will be accomplished without Congressional approval because Congress would never approve this hare-brained scheme.

3) Colleges will hire consultants and low-level bureaucrats to comply with the new rating system without changing the way they do business.  College costs will not go down. On the contrary, tuition will continue to rise faster than the rate of inflation just as it has for the last 30 years.

If President Obama and Secretary of Education Arne Duncan were serious about lowering college costs and providing a "better bargain for the middle class," they would kick the for-profit colleges out of the federal student aid program. The for-profits educate about 11 percent of all post-secondary students, but they get 25 percent of all the federal student aid money--about $35 billion a year.  They have highest student-loan default rates in the industry and low student-completion rates.

If the federal government shifted that $35 billion from the for-profit sector to community colleges, think what could be accomplished. Community colleges could educate the same groups of students now going to for-profit colleges for much less money.

But President Obama won't stand up to the for-profit college industry.  That would be too hard.  No, he would rather impose another level of bureaucratic reporting on colleges and universities that are already over-regulated.  That's President Obama's big plan to make college more affordable for the middle class.

References

White House Press Release. FACT SHEET on the President's Plan to Make College More Affordable: A Better Bargain for the Middle Class. August 22, 2013.

The For-Profits "Are Making Out Like a Bandit": Will Sheriff Obama Round Up those Bad Boys?

In a question-and-answer session with college students at SUNY at Binghamton, President Obama made clear that he understands what's wrong with the for-profit colleges.

 [T]here have been some schools that are notorious for getting students in, getting a bunch of grant money, having those students take out a lot of loans, making big profits, but having really low graduation rates. Students aren’t getting what they need to be prepared for a particular field. They get out of these for-profit schools loaded down with enormous debt. They can’t find a job. They default. The taxpayer ends up holding the bag. Their credit is ruined, and the for-profit institution is making out like a bandit. That’s a problem.

President Obama also said he understands that some for-profits are exploiting our military veterans:

[T]hey’ve been preyed upon very badly by some of these for-profit institutions.... Because what happened was these for-profit schools saw this Post-9/11 GI Bill, that there was a whole bunch of money that the federal government was committed to making sure that our veterans got a good education, and they started advertising to these young people, signing them up, getting them to take a bunch of loans, but they weren’t delivering a good product.

 Indeed, Senator Tom Harkin's Senate Committee report on the for-profits found that the for-profits soaked up a huge share of the money made available to military veterans under the Post-9/11 GI Bill, a law designed to extend educational benefits to veterans of the Afghanistan and Iraq wars.

Some for-profits are "making out like a bandit"

According to the report, the for-profits trained 25 percent of the participating veterans but received 37 percent of the Post-9/11 GI Bill money during the first two years the program was in place.  Eight of the top 10 education providers during that two-year period were for-profits, including the owners of the University of Phoenix, DeVry University, and Kaplan University (pages 27-28 of Harkin report).

Among the top ten participating institutions in this veterans program, the eight for-profits had the highest student withdrawal rates.  Apollo's student withdrawal rates for bachelor's degree programs was more than 50 percent. Kaplan Higher Education Corporation (owner of Kaplan University) had a 68 percent withdrawal rate for its four-year programs (page 29 of the Harkin report).

Will the Obama administration and Arne Duncan's Department of Education rein in these bad boys? I'm not sure. President Obama made it abundantly clear that he is willing for the federal government to continue funding for-profit colleges--the largest of which are publicly traded corporations or institutions owned by private equity groups.

 "For-profit institutions in a lot of sectors of our lives obviously [are] the cornerstone of our economy," President Obama said at the Binghamton gathering. "And we want to encourage entrepreneurship and new ideas and new approaches and new ways of doing things. So I’m not against for-profit institutions, generally."

President Obama's approach to for-profit colleges is basically in harmony with the Harkin Committee's viewpoint.  Like President Obama, the Harkin Committee acknowledged a place for the for-profit sector in higher education.  The Committee expressed the view that the public sector and nonprofit private colleges do not have the capacity to educate all the postsecondary students who want to be educated.

Personally, I disagree.  Why should the federal government pump $30 billion a year into the for-profit colleges in the form of federal student aid, when it is absolutely clear that the for-profit colleges have an overall poor record of performance and catastrophically high student-loan default rates? Shouldn't that money be going to the public institutions--particularly our community colleges?

So far, President Obama has been unwilling to take aggressive action to clean up or close the for-profit college industry.   For the time being at least, the for-profits will continue to "make out like a bandit," and President Obama will continue to critize them but do little or nothing to bring them under control.

References

Paul Fain & Scott Jaschik. Obama on Non-Profits. Inside Higher Education, August 26, 2013. Accessible at: http://www.insidehighered.com/news/2013/08/26/obama-speaks-directly-profit-higher-education-noting-concerns-sector

United States Health, Education, Labor and Pension Committee. For Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success. July 2012. Accessible at: http://www.help.senate.gov/imo/media/for_profit_report/PartI.pdf

Note: All quotes come from the Inside Higher Education article cited above.

Obama Signs a Bill to Reduce Interest Rates on Student Loans: This is Just a Side Show

Earlier this month, Congress passed a bipartisan bill to reduce interest rates on student loans, and President Obama signed the bill into law this week.  Under the new law, the interest rate on this year's undergraduate loans is set at 3.9 percent. For graduate loans, the rate is 5.4 percent. For loans taken out by parents, the new rate is locked in for this year at 6.4 percent.

Interest rates will rise if the interest rate on 10-year treasury notes goes up, which it is expected to do, but the maximum interest rate under the new law is capped at 8.25 percent for undergraduate loans. The cap for graduate student loans is set at 9.5 percent and parents' loans are capped at 10.5 percent.

The new law is good news, I suppose, and nullifies the 6.8 percent interest rate that undergraduates were paying before it was enacted. But make no mistake--the recent Congressional squabble about interest rates on student loans is just a side show. 

Why? Because almost everyone participating in the congressional debate on student-loan interest rates assumed that the borrowers will pay back the money. As I noted in a previous blog, the New York Times and Senator Elizabeth Warren talked as if the government would make an unseemly profit if the interest rate on student loans wasn't lowered.

 

Out of Control

All this is nonsense.  The student loan default rate is so high that the government is going to lose money no matter what interest rate it charges on student loans.  How high is the default rate? No one knows for sure because the Department of Education hasn't released the data.  But DOE itself estimates that 46 percent of students who borrow money to attend for-profit institutions will default on their loans at some point during the repayment period.

And, as everyone knows, DOE has been underestimating student-loan default rates.  So if DOE says 46 percent of students who borrow to attend for-profit colleges are going to default, it is a safe bet that the real default rate for this group is well over 50 percent. 

Furthermore, a lot of former students have gotten economic hardship deferments that temporarily excuse them from making loan payments; and these people aren't counted as defaulters. Nevertheless, a lot of these folks will never pay off their loans. 

As Senator Harkin's Senate Committee report pointed out, people whose loans are in deferments are excused from making loan payments, but the interest on the loans continues to accrue for most borrowers, causing students' overall debt to grow larger with each passing month.  Thus, economic hardship deferments are making it harder for debtors who obtain them to ultimately pay off their loans.

How many people have loans in deferment status? DOE hasn't released the number, but it could be millions.  As the Harkin Report explained, for-profit colleges are aggressively encouraging their former students to apply for economic hardship deferments in order to keep their institutional default rates down.  And these deferments are ridiculously easy to get.  According to the Harkin Committee,  sometimes it is just a matter of a phone call.

No--the federal student loan program is like an out-of-control express train that is headed straight for a cliff.  Congress doesn't care--those guys and gals plan on getting off at the next station. No, it is students--especially students attending for-profit colleges--who are going over the cliff with the train.

References

Josh Lederman and Philip Elliott. Obama Signs Student Loan Deal. MSN Money, August 9, 2013. Accesible at: http://money.msn.com/business-news/article.aspx?feed=AP&date=20130809&id=16792937

Crocodile Tears for Overburdened Student-Loan Debtors: Congress or the Obama Administration Should Do Something Tangible to Help These People

A recent article in the New York Times (Lewin, 2012) reported on the plight of older Americans who took out loans to pay for their children’s college education.   About 2.2 million people who are 60 years old or older owe on student loans, and the total amount of their debt is $43 billion. According to experts cited in the Times, almost all of these loans were taken out by parents to pay for their children’s education.  Parent Plus loans, loans taken out by parents for their children’s college education, now represent about 10 percent of all the federal student loan money that is borrowed.

Crocodile tears for the overburdened
student-loan debtor

Senior debtors who are in arrears on student loans can see their Social Security checks garnished.  So far this year, the federal government has garnished the Social Security checks of 119,000 people (as reported in the Times).  

President Obama and Governor Romney talked some about the federal student-loan crisis during the presidential campaign. President Obama made much of the fact that he pushed through the direct lending program for college students.  But neither President Obama nor Governor Romney offered any significant relief for the millions of people who are drowning in student-loan debt.  In my opinion, both men cried crocodile tears—expressing empathy and sympathy while proposing nothing that would give these sufferers some relief.

What can be done to help these poor people?

Proposal Number One. Congress should pass a law protecting people’s Social Security checks from garnishment for delinquent student loans. If Congress won’t do this, President Obama should stop the garnishment of Social Security checks by Executive Order, much the same way that he implemented the Dream Act, which Congress refused to pass.

Proposal Number Two. Overburdened student-loan debtors—including parents who went into debt to finance their children’s education—should have the same access to bankruptcy relief that is available to any other debtor who has unsecured loans.   Scholars have argued for this change in the Bankruptcy Code for many years.

Proposal Number Three. We’ve got to kick the for-profit colleges out of the federal student loan program.  The for-profit sector has the highest student-loan default rates, and many of them have engaged in unfair recruiting practices to attract students. Not all for-profit colleges are bad eggs, but there are enough problems in this sector to justify removing them from the federal student-loan program.

Our politicians can cry crocodile tears about the suffering being experienced by student-loan debtors who are unable to pay back their loans, but those tears won’t be genuine until the federal government in both the Executive and Legislative branches take tangible action to provide relief for student-loan debtors and their parents—and the action they need to take is painfully obvious.

References

Lewin, Tamar.(2012, November 11).  Child's Education, but Parents' Crushing Loans. New York Times.