Higher Education Funding: Federal Policy on Student Loans and Debt Relief BOSTON BAR ASSOCIATION OCTOBER 3, 2018 LAURA W. PERNA LPERNA@UPENN.EDU @LAURAPERNA1 “Student loan debt is now the second highest consumer debt category – behind only mortgage debt – and higher than both credit cards and auto loans.” Forbes, June 13, 2018 Average Debt of College Graduates Who Borrow is Increasing Source: Cheng, D., & Gonzalez, V (2018). Student debt and the class of 2017. The Institute for College Access & Success. How did we get to this level of reliance on loans? More than 30% of All Aid Dollars to Undergraduates are in the Form of Federal Loans (Excludes nonfederal loans) 60% 50% 40% 30% 20% Federal Loans Institutional Grants Pell Grants Education Tax Credits Federal Grants other than Pell State Grants Private & employer grants 10% 0% Source: College Board (2017). Trends in Student Aid. Washington, DC: Author. Most Federal Financial Aid to Undergraduates is Now in the Form of Federal Loans 80% 70% 60% 50% 40% 30% Federal Loans Pell Grants Education Tax Credits Federal Grants other than Pell 20% 10% 0% Source: College Board (2017). Trends in Student Aid. Washington, DC: Author. History of Federal Student Financial Aid: Selected Events Year Program 1944 GI Bill (Servicemen’s Readjustment Act) 1958 National Defense Student Loan Program (precursor to Perkins Loan) 1964 Economic Opportunity Act (work study; Head Start; Upward Bound) 1965 Higher Education Act (HEA) Educational Opportunity Grant (EOG) Guaranteed Student Loan Program (renamed Stafford Loan) 1972 Reauthorization of HEA EOG split into Supplemental Educational Opportunity Grant (SEOG) and Basic Educational Opportunity Grant (now Pell Source: http://www.finaid.org/educators/history.phtml Grant) State Student Incentive Grant Program (renamed LEAP) Timeline of Federal Student Financial Aid (continued) Year Program 1980 Reauthorization of HEA 1986 Reauthorization of HEA Financial need required for GSL interest subsidy Supplemental Loan to Students (SLS) for grad, prof, independent stu. PLUS loans restricted to parent borrowers FFEL consolidation loans 1992 Reauthorization of HEA FAFSA Direct Lending pilot Source: http://www.finaid.org/educators/history.phtml Unsubsidized Stafford Timeline of Federal Student Financial Aid (continued) Year Program 2005 Higher Education Reconciliation Act of 2005 Graduate and professional students can borrow PLUS Loans SMART Grants (< 10% Pell Grant recipients) 2005 Section 220 of Bankruptcy Abuse Prevention & Consumer Protection Act Exception to discharge for “qualified education loans” 2007 College Cost Reduction and Access Act Cut payments to lenders and guarantee agencies; cut interest rates on subsidized Stafford loans for UGs; added income-based repayment, PSLF Source: http://www.finaid.org/educators/history.phtml Timeline of Federal Student Financial Aid (continued) Year Program 2008 Reauthorization of HEA Reporting requirements for education lenders 2010 Health Care and Education Reconciliation Act FFELP eliminated; all new loans made through Direct Loan program 2013 HEA due to expire; extended ???? Reauthorization of HEA?? Source: http://www.finaid.org/educators/history.phtml Students Receive Federal and NonFederal Loans Source: College Board (2017). Trends in Student Aid. Washington, DC: Author. Why Has the Use of Loans Increased? The Number of Individuals Enrolling in College Has Generally Increased Over Time Total Undergraduate Fall Enrollment in Degree-Granting Institutions: 1975 to 201 Source: Cahalan, M., Perna, L.W., Yamashita, M., Wright, J., & Santillan, S. (2018, May). Indicators of higher education equity in the United States: An historic trend report. Washington, DC: Pell Institute of the Council for Opportunity in Education and the Alliance for Higher Education and Democracy. http://pellinstitute.org/indicators/ Most Undergraduates Attend Public Colleges and Universities Percentage distribution of undergraduate fall enrollment in degree-granting instituti By institution control and level: 1975 to 2015 Source: Cahalan, M., Perna, L.W., Yamashita, M., Wright, J., & Santillan, S. (2018, May). Indicators of higher education equity in the United States: An historic trend report. Washington, DC: Pell Institute of the Council for Opportunity in Education and the Alliance for Higher Education and Democracy. http://pellinstitute.org/indicators/ State Funding Per FTE is Lower than Pre-Recession Source: Laderman, S., & Carlson, A. (2018). State Higher Education Finance: FY17. Boulder, CO: State Higher Education Executive Officers. State Funding for Higher Education Varies Across States Source: Laderman, S., & Carlson, A. (2018). State Higher Education Finance: FY17. Boulder, CO: State Higher Education Executive Officers. Tuition and Fees are Rising 3 Average Publi5hed Tuition and Fees in 2:31? Dnllars by Sectnr. WELT-BB tn SENT-18 $31341} Hul'pruH 2 Sac-gun SEDDJD l'l ?5:150 .E '5 r? 13 . Fuurr'i'ear Ham 3 510mm :l n. H.140 .1 - 351?] $2.350 51,551] 37-33 32-93 "av-9.3 02-03 UT-EE- 13 13-15 ?g PennAl?l BAD source: C0?ege Board (2017). Trends in College Pricing 2015. Tuition and Fees are Only Part of the Cost AND Cost of Attendance Varies by Sector Source: College Board (2017). Trends in College Pricing 2015. Grants are Offered by Federal and State Governments, Colleges and Universities, and Other Sources Source: College Board (2017). Trends in Student Aid. Washington, DC: Author. About a Third of Undergraduates Now Receive Federal Pell Grants Source: College Board (2017). Trends in Student Aid. Washington, DC: Author. Purchasing Power of Pell Grants has Declined Source: College Board (2017). Trends in Student Aid. Washington, DC: Author. Financial Aid is Often Insufficient to Meet Demonstrated Financial Need Unmet Financial Need of Dependent Full-Time Undergraduates by Parents’ Family Income Quartile: 1990 to 2012 (constant 2012 dollars) Source: Cahalan, M., Perna, L.W., Yamashita, M., Ruiz, R., & Franklin, K. (2017). Indicators of Higher Education Equity in the United States. Washington, DC: The Pell Institute and Penn AHEAD. Many College Students Work For Pay While Enrolled Source: NCES (2016). Condition of Education 2016. Washington, DC: Author. Some Students Who Are Eligible for Financial Aid Do Not Apply English Espa?ol Sea-tiwl'i'sgi 1-: FAFSA Need money for college? Complete the {Free Application for Federal Student Aid) form to apply for ?nancial aid for collegeI career school. or graduate school. NEW TO RETURNING . . . . - Make a correction the FAFSA form IB qUIck. and most . Add a school I View your Student Aid Raped (EAR) importantly. it's FREE. Get started today. START HERE LOG-IN Emphasis on Private vs. Public Benefits of Higher Education Salaries Increase with Educational Attainment Source: Carnevale, A., Smith, N., & Strohl, J. (2010). Help wanted. Washington, DC: Georgetown Center for Workforce and the Economy. What are the Challenges of a Higher Education System that Relies on Loans? Many Borrowers Repay Their Loans, But Not All Source: College Board (2017). Trends in Student Aid 2017. Default Rates are Higher for Students Who Do Not Complete Their Programs Two-Year Default Rates by Sector and Completion Status (Borrowers who Entered Repayment in 2011-12) Source: College Board (2017). Trends in Student Aid 2015. Graduation Rates at Many 4-Year Institutions are Low Graduation Rates from First-Institution Attended for First-Time, FullTime Bachelor’s Degree-Seeking Students, 2010 Entering Cohort 66% 60% 59% 53% 41% 36% 26% 19% Total Public 4-Year Instn 4-year Private NFP 4-Year Instn For-profit 4-Year Instns 6-year Source: National Center for Education Statistics (2018). Digest of Education Statistics 2017. Washington, DC: Author. Graduation Rates Increase as Institutional Selectivity Increases 6-Year Graduation Rates from First-Institution Attended for First-Time, Full-Time Bachelor’s Degree-Seeking Students, 2010 Entering Cohort 66% 59% 48%51% 62% 56% 61%63% 74% 68% 91% 81% 37% 31% Public 4-Year Instn Private NFP 4-Year Instn Source: National Center for Education Statistics (2018). Digest of Education Statistics 2017. Washington, DC: Author. Default Rates Decline as Institutional Selectivity Increases Five-Year Federal Student Loan Default Rates by Institution Type, Borrowers Entering Payment in 1978-79 to 2008-09 Source: College Board (2017). Trends in Student Aid 2017. Borrowing Rates are Higher at ForProfit Institutions Than Public and Private NFP Institutions Percentage of graduating bachelor’s degree-seeking seniors who borrowed: 1993 to 2012 Source: Cahalan, M., Perna, L.W., Yamashita, M., Ruiz, R., & Franklin, K. (2017). Indicators of Higher Education Equity in the United States. Washington, DC: The Pell Institute and Penn AHEAD. Some Borrowers Who Complete Degrees Have Low Earnings (Creating Repayment Challenges) Source: Ma, J., Pender, M., & Welch, M. (2016). Education Pays. Washington, DC: College Board. How do the Implications of Loans Vary Across Groups? Persisting Gaps in College Outcomes by Family Income Postsecondary Enrollment Rates of Recent High School Graduates by Family Income, 1985 to 2015 Source: Ma, J., Pender, M., & Welch, M. (2016). Education Pays. Washington, DC: College Board. Average Cumulative Debt is Higher Among Pell Grant Recipients than non-Pell Average debt of graduating bachelor’s degree-seeking seniors: Recipients 1993 to 2012 (2012 dollars) Source: Cahalan, M., Perna, L.W., Yamashita, M., Ruiz, R., & Franklin, K. (2017). Indicators of Higher Education Equity in the United States. Washington, DC: The Pell Institute and Penn AHEAD. Average Cumulative Loan Debt is Higher Among Black Undergraduates Average debt of undergraduates age 18 to 24 in their fourth year, who ever received loans: 1990, 2000, and 2012 (2016 dollars) Source: Cahalan, M., Perna, L.W., Yamashita, M., Wright, J., & Santillan, S. (2018, May). Indicators of higher education equity in the United States: An historic trend report. Washington, DC: Pell Institute of the Council for Opportunity in Education and the Alliance for Higher Education and Democracy. http://pellinstitute.org/indicators/ Average Annual Loan is Higher for Graduate Students than Undergraduates Source: College Board (2017). Trends in Student Aid. Washington, DC: Author. Rate of Borrowing is Higher Among Graduate Students in Professional Programs Percentage of Graduate Students Receiving Loans, 2015-16 72% 69% 44% 44% 40% 42% 40% 10% 31% 27% 6% Any loan 26% 6% Direct unsubsidized loan 21% 3% Direct PLUS loans Source: Radwin, D. et al. (2018). 2015-16 NPSAS: First Look. Washington, DC: National Center for Education Statistics. What Changes in Federal Student Loan Policy can we Expect? Potential Federal Policy Changes: Reauthorization of Higher Education Act • • • • • • • • • • FAFSA simplification Consolidation of federal grants Consolidation of federal student loans Consolidation of repayment options Student aid disbursement Institutional risk-sharing Replace cohort default rate with program repayment rate Eliminate Strengthening Institutions Program Repeal gainful employment regulations and 90-10 rule Revise borrower defense to repayment Characteristics of Existing Income-Driven Repayment Plans Source: https://ticas.org/sites/default/files/pub_files/exis ting_idr_options.pdf Distribution of Outstanding Federal Loan Dollars and Recipients by Repayment Plan Source: College Board (2017). Trends in Student Aid. Washington, DC: Author. Potential Consolidation of Repayment Options • If one income-driven repayment: – Percent cap on discretionary income for monthly payments? – Years of repayment until forgiveness? – Minimum monthly payment required? • Eliminate Public Sector Loan Forgiveness Program? – Forgives federal loans for borrower who: • works in nonprofit/public sector • Has made 120 on-time monthly payments – Introduced 2007; relatively few borrowers have received benefits Potential Changes in Gainful Employment Regulations • Current requirements – Ratio of debt to earnings • Department of Education proposed rule (8/4/2018) – Rescind Gainful Employment regulations – Update College Scorecard to provide program-level outcomes – Changes could become effective on July 1, 2019 • Issues – Validity and reliability of reported data – Institutional burden – Protection of consumers from bad actors Source: Fredman, J. (2018). NASFAA urges ED to reconsider Gainful Employment rules. NASFAA. Potential Changes in Borrower Defense to Repayment Loan Forgiveness • • • Introduced November 2016 after collapse of Corinthian Colleges Inc. to take effect in 2017 Department of Education (ED) delayed implementation Legal action against the delay in processing borrower defense claims – Sept 2018: DC federal judge ruled delay: “arbitrary and capricious” • ED proposed changes that would: – Require borrowers to: • Be in default before making claim for discharge; • Demonstrate financial harm caused by college misrepresentation – Allow colleges to: • Offer teach-out plan; if offered and not accepted, student can’t file claim • ED expects final rule by July 1, 2019 Other Potential Changes? Thi IS Photo by Unknown Authori IS licensed under CC BY- SA “Free-College” / “Debt-Free College” State needbased aid programs Four-year institution programs State meritbased aid programs Communi ty College Programs Placebased scholarshi ps Universal eligibility programs Source: Derived from Perna, L.W., & Leigh, E. (2018). Understanding the promise: A typology of state and local college promise programs. Educational Researcher, 47, 155-180. Contact Information: — Laura W. Perna James S. Riepe Professor University of Pennsylvania Alliance for Higher Education and Democracy lperna@upenn.edu @lauraperna1