Race and Debt

The College Board's Advocacy and Policy Center reports that "too many students are borrowing more than they are likely able to manage" and this is particularly true for black undergraduates. According to researchers, fully 27% of black BA recipients borrow more than $30,000 for college, compared to 16% of white BA recipients. The gap is especially large among independent students (those who are a bit older, are parents, or independent for other reasons)-- more than 1 in 3 black independent students who earn BA's graduate with high levels of debt, compared to less than 1 in 4 white independents.

This is a trend we need to know more about. There have been a few articles written about race differences in college financing patterns and receptivity to financial aid, but none have been especially adept at sorting out the underlying reasons for variation by race/ethnicity. Are the patterns attributable to factors which map onto race in this country (e.g. poverty, segregation, school quality, etc) or to factors more closely related to beliefs, expectations, values, etc?

I'm working on this question in the context of a study I co-direct in Wisconsin. The Wisconsin Scholars Longitudinal Study is exploring the impact of need-based financial aid on college outcomes. We've got very rich survey data from students' first two years of college, as we explore it we're beginning to learn a lot. For example, the data (from a sample of more than 2,000 Pell Grant recipients attending 2-year, 4-year, and technical colleges) indicate that black undergraduates are far more likely than white students to know who to contact in their financial aid office and to seek out help, yet at the same time they are less likely to feel comfortable doing so. They are twice as likely as white students to fill out the FAFSA without any help, and almost half as likely to get FAFSA assistance from a parent. In their first year of college alone, they are more than twice as likely to report receiving a private, non-federal loan.

As the College Board report concludes, too much college debt can contribute to future financial insecurity. Many of us hope that increasing rates of educational attainment among students from racial/ethnic minority backgrounds will perpetuate a virtuous cycle benefiting all families-- but those prospects will undoubtedly be diminished if debt takes its toll.

Image courtesy of John Fewings

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Whispered Policies

Friday's Chronicle reports on a new study that points out how difficult it can be to identify which colleges and universities have no-loans policies designed to enhance affordability. Author Laura Perna and her colleagues find that the majority of elite institutions with these policies fail to advertise them in ways that are accessible to low-income students and families-- effectively maintaining their status as "bastions of privilege." The researchers then go on to make several helpful suggestions about how colleges could change their tactics to increase awareness and uptake of their progressive efforts.

But they could've gone one step further and discussed the incentives colleges have to maintain the status quo-- that is, to continue making their current and former students and staff feel good with liberal actions, garnering attention in elite venues such as the New York Times, without fundamentally changing their overall enrollment demographics or costing too much money. Call me cynical, but as a sociologist it strikes me that this is exactly how power is effectively maintained in the face of pressure for socially responsible actions from powerful institutions.

According to another recent study by economists Waddell and Singell, of the just-over 384,000 Pell Grant recipients attending 4-year institutions in 2000, only 0.3% were enrolled at Ivy League institutions (which disproportionately possess these no-loan policies). Across elite private institutions, Pell recipients rarely amount to more than 1% of the entering class. In 2000, there were only 108 Pell recipients in the freshman class at Harvard, and just 50 at Princeton. These are tiny, tiny numbers. So if no-loans policies actually resulted in massive increases in applications from low-income students, we could see many consequences for those schools. For one, their institutional aid budgets would have to grow-- if low-income students managed to get past the admissions hurdle. Second, depending on how exactly admissions dealt with the increased applicant pool (e.g. whether a 'thumb' was placed on the scale so as to ensure a reasonable proportion were admitted-- an action recommended by Bill Bowen), graduation rates might be affected. Third, you'd see a larger, more visible contingent of people on campuses from different family backgrounds, affecting social dynamics. Many of these outcomes could be interpreted as both positive and negative, depending on your perspective.

Simply put, right now colleges with small numbers of low-income undergraduates can afford to adopt no-loans policies. Based on the two studies discussed here, this is likely because their policies are only weakly communicated to the groups who'd be affected (I hestitate to call these the "targeted audiences" however) and the effects on enrollment are small and subtle. For example, Waddell and Singell conclude that such policies do not increase the overall number of needy institutions at institutions but do have some effect in skewing the composition of that group toward somewhat lower-income students who've traveled longer distances to attend college. Since positive publicity generated by laudatory articles in the elite press may well generate enough new alumni donations to offset current costs, the whole thing may be close to a "wash" --under current circumstances. More effective publicity and outreach to families who do not read the mainstream liberal elite newspapers or visit websites like finaid.org to get their information about college, might change the game. Under those new conditions, I have to wonder-- would no-loans policies continue to be so popular in elite higher education?

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Pondering Perkins

Since 1958, the Federal Perkins Student Loan Program has been providing low-interest loans to needy students via campus-based revolving funds. More than 600,000 students (mostly undergraduates with family incomes under $30,000) receive a Perkins each year. The current Perkins differs from other federal loan programs, most notably the Stafford, because it is subsidized (the interest doesn't begin accruing until 9 months after graduation) and has a lower interest rate (5%, compared to the 6.8% Stafford).

The Student Aid and Fiscal Responsibility Act (SAFRA) would change the Perkins in some notable ways, not all of which are clear improvements. The proposed changes are rather intricate, and as I've spent a fair bit of time puzzling over them lately I want to bring some of my nagging questions to this wider audience in an effort to gain some insights and answers. (In full disclosure, the financial aid officer at my university, Susan Fischer, is a vocal opponent of the changes. I have listened to her views, and considered why UW-Madison might resist the changes. Of course, what I'm writing here are my own thoughts, not hers.) Don't get me wrong-- I am generally very supportive of this piece of legislation, which I do think will expand college attainment and improve the American higher education system. I raise these issues in the hopes that tinkering with a few details might make it more effective.

As I understand it, the Obama Administration has several goals for changing the program: (1) increase efficiency via a move to direct lending, (2) expand access by substantially increasing the dollars allocated, and (3) create incentives to keep tuition (and private loan reliance) down by changing the allocation formula (right now the institutional 'fair share' is based partly on tuition costs, and this is thought to contribute to rising tuition).

In a nutshell, goal #2 would appear to be achieved via accomplishing goal #1-- moving to direct lending enables the investment in Perkins to grow from $1 to 6 billion. Goal #3 would appear to be achieved with a new formula that distributes money to campuses based partly on how much non-federal aid they provide, whether they charge below-average tuition and fees, and enrollment of Pell Grant recipients. But what worries me are some of the proposed accompanying changes and plausible unintended consequences. In particular:

(A) In the new version, Perkins becomes an unsubsidized loan, rather than a subsidized one. This would make the Perkins akin to the Stafford, albeit at a somewhat lower interest rate. This makes the program more expensive for students (anyone who thinks even $500 a year in additional interest doesn't matter to the decisions of poor kids just isn't paying attention), and therefore less attractive.How does this enhance access?

(B) In the new version, a match is required from colleges, which they are interpreting as "pay to play." If they do acquiesce, they'll likely draw that money out of need-based funds, or through raising tuition. This would seem to work at cross-purposes with the intentions of the allocation formula, and again, not increase access.

(C) The new allocation formula is likely to benefit private not-for-profit 4-year colleges the most (for more on why, see this cogent analysis by Education Sector).

(D) Most troubling, I am told that another big change is coming with the new Perkins (though I admit, I cannot find evidence of this change in the current legislative language-- I expect it's to come in the rule-making): Packaging rules will require that Perkins be packaged after the Stafford. In other words, financial aid officers must first offer (and students must accept) the unsubsidized Stafford at 6.8% interest, before offering the 5% Perkins. This strikes me as a substantial barrier, likely resulting in few students even getting to the Perkins. Everything we know about loan aversion among low-income populations, and the unwillingness of some of the lowest-cost colleges to even offer their students loans points in this direction. Again, how does this enhance access?

Are there other ways to achieve the same objectives? In particular, is it absolutely necessary to end the subsidy, and change the packaging rules? Could savings be achieved, instead, by ending those abysmal TEACH Grants and perhaps sacrificing GRAD Perkins as well? It might also make sense to keep the subsidy and end the 9-month grace period.

In summary, before we effectively end a mean-tested program offering low-interest loans, have we thought through every alternative and pondered every possible unintended consequence? I realize Perkins may feel like small potatoes in the context of this big bill, but with every penny mattering to our students in this recession, I think the proposed changes to the Perkins deserve closer attention.

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Speaking Of Colleges...

President Obama weighed in on the issue of college affordability and making universities more efficient on Friday, as reported by the New York Times's Caucus Blog ("Obama Chides Colleges To Curb Spiraling Tuition").

President Obama challenged college and university officials on Friday “to put affordability front and center as they chart a path forward.” The president’s not-so-subtle message was that America’s system of higher education should cut waste and inefficiency, just as he has urged America’s government to do, to counter spiraling tuition costs.

Mr. Obama also promised to keep battling to do away with a long-standing federal student-loan subsidy program that he said “lines the pockets of the banks” while costing American taxpayers billions of dollars a year that could otherwise go to direct student aid. His plan has run into serious opposition in Congress, with both Republicans and some Democrats concerned about its ramifications.

The president spoke after meeting with Stephanie Stevenson of Baltimore, a University of Maryland junior, and her mother, Yvonne Thomas. The university of Maryland, the president noted pointedly, has been able to freeze tuition by cutting energy costs and streamlining administrative functions, among other measures. He called on other places of higher learning to do the same.

Photo: Aude Guerrucci-Pool/Getty Images

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Ideas Worth Exploring

You'll have to forgive me for not writing a nice post in complete sentences this morning, as I'm running/flying between Santa Monica and Nashville with hardly any time to spare. But since the policy conversations in Washington these days feel friendly to good ideas, I want to throw some out there -- and see what kind of support we can generate. I'm not claiming any of these are uniquely mine, just that I think they're worth researching further and potentially backing as policies. Here we go:

1. Tie loan forgiveness to college completion. Create incentives for students to choose a loan over long hours of work while in college, and give them a reason to be sure and finish a credential.

2. Forgive student loans as a way to stimulate the economy. Instead of sending people checks, let them keep the money they already have.

3. Do NOT tie need-based grant aid to college completion.

4. Start teacher induction/mentoring programs for junior professors. If we know new k-12 teachers need help getting started teaching kids, why would we think new assistant professors are prepared and able to teach 18-year-olds?

5. Make one during or post-college service option (e.g. for loan forgiveness) serving as a 'college coach' in a high-poverty high school.

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Read It Here First

Please don't confuse this blog with a breaking news operation. It's hard to be on top of everything amidst being parents, holding full-time jobs, and trying to follow the pennant races (Go Sox!). But sometimes, despite doing most of our blogging after the sun's gone down, we're way ahead of the curve.

Such was the case with the TEACH Grants. Sara was all over this issue back in April, prior to the U.S. Department of Education's release of regulations. I notice that Education Week picked up the story in the September 15, 2008 issue, six months later.

Now, Stephen Sawchuk is an excellent reporter (formerly with EdDaily), but my wife scooped you on this one, dude!!! Check out some of Stephen's blogging at Teacher Beat.

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Watch Out: TEACH grants are the new debt trap

The Teacher Education Assistance for College and Higher Education (TEACH) Grant Program was established by Congress under the College Cost Reduction and Access Act, to benefit current and prospective teachers. This new grant is available as of the 2008-09 school year. It provides $4,000 per year to students willing to commit (as recent high school graduates) to earning a degree in education and then going to teach full-time for 4 years in high-poverty schools in a specific subject area.

On the face of it this looks like a good program-- incentives for more individuals to become teachers, teach in low-income communities, financial assistance that does not have to be repaid, etc.

But beware: If a student does not fulfill the terms of the grant it is automatically converted into an unsubsidized loan, with interest accruing starting when the loan began.

One can easily imagine many ways a student could fail to fulfill the terms of the grant.
Here are but a few examples:

1. The 18 year old student might change her mind about becoming a teacher (all you have to do to be eligible is to "plan on completing coursework necessary to begin a career in teaching")

2. She might not be admitted to a school of education. This is easy to imagine at a school like UW-Madison, where our admissions occur only after a student begins college and are quite competitive.

3. She might not succeed in the program (you have to maintain a 3.25 GPA each semester)

4. She might not find an appropriate teaching job in her local area and thus be forced to move away from home, or even out-of-state. (There is a clause for this: "There are, however, graduate degree alternatives for teachers or retirees with experience in a teacher shortage area" but the options aren't spelled out)

5. Once she's teaching, she could be laid off (new teachers are especially vulnerable to this).

6. The school at which she's teaching might change in composition, such that it is no longer considered "high-poverty." (It seems the criteria will be based on % free lunch)

For these reasons and many more, the student's "grant" of up to $16K might suddenly become an unsubsidized loan amounting to far more with interest included (something along the lines of $40K over a 10 year period).

Yet to sign up for the program the student only signs a simple form-- since it's not a loan there is no promissory note clearly spelling out terms and conditions. This is thus not like a loan forgiveness program.

We should be very concerned about the potential impacts of this highly misleading program on uninformed students. We should be especially concerned because the U.S. Department of Education knows, and it explicit about knowing-- and expecting-- that fully 80% of those receiving the TEACH grant will fail to meet its requirements and therefore have their "grant" turned into an unsubsidized loan!

Here is the text from the federal regs:

"As discussed elsewhere in this preamble, program cost estimates reflect data on recent college graduates entering eligible teaching fields, adjusted for the percentage of students who graduate, maintain a 3.25 grade-point-average and take out a Federal loan. (In the absence of any need-based eligibility criteria, Federal borrowing was used as a proxy for unmet financial need.) Data from longitudinal studies were used to estimate the percentage of recipients who graduated from college, were highly qualified, and taught in high poverty schools for four out of the eight years following graduation. Based on this data, the Department assumed _*80 percent of recipients *_will eventually fail to fulfill their service requirements and have their grants converted into Federal Direct Unsubsidized Stafford Loans."

The Teacher Education Assistance for College and Higher Education (TEACH) Grant Program and Other Federal Student Aid Programs; Proposed Rule
[Federal Register: March 21, 2008 (Volume 73, Number 56)]


At this point, the legislation has been approved and the Secretary of Education is taking comments on the proposed federal regulations.

While grants are more attractive to students than loans, there is nothing more destructive than false promises. This needs to be retooled--quickly--into a loan forgiveness program.

Spread the word.

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