Higher Ed Watch

Happy Summer!

Ed Policy — Mon, 18 Aug 2008 16:36:00 -0400

Higher Ed Watch will be taking the next two weeks off to celebrate sunshine, summer break, and Congressional recess. See you September 2.

Higher Ed Roundup: Week of August 11 - August 15

Ed Policy — Fri, 15 Aug 2008 21:04:00 -0400

President Bush Quietly Signs Higher Education Act Into Law

No Need for Additional Loan Changes for Now, Congressional Research Service Says

Massachusetts Calls Off Plan To Rescue Lender

ACT Exam's Popularity Increases

President Bush Quietly Signs Higher Education Act Into Law

Without any comment or ceremony, President Bush signed into law on Thursday legislation to reauthorize the Higher Education Act for five years. The measure, which was approved by Congress with overwhelming bipartisan support late last month, has received a less-than-enthusiastic reception from the Bush administration. On the day the legislation won final approval, Education Secretary Margaret Spellings released a statement criticizing it for creating more than 60 "new, costly, and duplicative" programs. Spellings also complained that lawmakers were not tough enough on colleges. "While the legislation takes some positive steps forward, it fails to create the necessary reforms in accessibility and affordability, and it falls short on strengthening accountability," she said. "More work can -- and must -- be done to make achievement outcomes more transparent to students and families." Among other things, Spellings was reportedly peeved that the new law reduces the education secretary's power to regulate college accreditation.

No Need for Additional Loan Changes for Now, Congressional Research Service Says

The need for additional changes in federal student loan policy to deal with the credit crunch will depend on “how the current economic slowdown develops, and how financial markets react and evolve in the face of challenging economic conditions,” according to a recently released report by the Congressional Research Service. The report, “Economics of Guaranteed Student Loans,” surveyed the supply and demand functions of the student loan market and concluded that it was too early to determine whether difficulties faced by lenders and banks were endemic to the student loan market or an effect of global financial turmoil. As such, the report did not endorse any additional legislative changes, instead suggesting policymakers take a wait-and-see approach. Such a tactic also seems prudent given recent reports from states such as New Hampshire that students are still finding loans, overblown stories about the loan crunch notwithstanding.

Massachusetts Calls Off Plan To Rescue Lender

Officials in Massachusetts announced this week that they were abandoning a plan to try and bail out the state's nonprofit lender, the Massachusetts Education Finance Authority (MEFA), because they realized that there isn't a student loan crisis in the state after all. Last week, Gov. Deval Patrick (D) issued an eleventh-hour appeal to colleges and the state pensions agency to to come to the aid of MEFA , which stopped issuing federally backed loans on July 1, asking them to invest in an upcoming $425 million bond sale by the agency. The state, however, received no commitments from these parties. On Thursday, State Treasurer Timothy Cahill said that state officials had second thoughts after seeing a recent poll by the Association of Independent Colleges in Universities that found that 70 percent of schools in Massachusetts had 15 or fewer students still looking for a lender. "It seems like most of the students in the state of Massachusetts have gotten alternative funding sources," Cahill stated.

ACT Exam's Popularity Increases

Once a heavy underdog, the ACT is starting to overtake the SAT as the college admissions test of choice for many students. On Wednesday, ACT officials announced that 1.42 million high school seniors took the test this year, up 9 percent from last year, and 21 percent from 2004. Much of this increase was attributed to the growing number of states that now require all graduates to take the test as part of their state assessment regimen, including ones outside of the ACT's traditional base in the Midwest. Despite the increase in test takers, exam scores remained mostly steady.

EZ FAFSA: Read the Fine Print

Ed Policy — Thu, 14 Aug 2008 16:17:00 -0400

By Christina Satkowski and Stephen Burd

You can't always believe what you read in the papers. That old saying has gained new currency this year with all of the misleading and panicked news coverage of the student loan credit crunch. Unfortunately, the same can be said of recent reports about Congressional efforts to simplify the process of applying for financial aid.

At issue are news stories reporting on a provision in the recently-passed Higher Education Act reauthorization legislation that requires the U.S. Department to create a new "EZ FAFSA," a shorter version of the Free Application for Federal Student Aid (FAFSA) that tens of millions of students fill out each year to determine their aid eligibility. Recent articles in Congressional Quarterly, Education Week, The New York Times, and other publications leave the impression that the new bill streamlines the FAFSA -- from seven pages to two -- for all students.

But that's not the case. While the legislation introduces an EZ FAFSA, it makes it available to only those students whose family income is low enough that they already qualify for an expedited review of their finances when applying for federal financial aid. As a result, most aid applicants will still be stuck with the longer form.

Under the new law, students who will be eligible to use the EZ FAFSA include those whose families earn earn less than $50,000 a year and either are not required to file the long version of the 1040 federal income tax return or receive certain federal means-tested benefits such as welfare payments or food stamps. The federal government doesn't take into consideration the assets of families of students who meet these criteria.

Some student aid experts -- including our colleagues at the Institute for College Access and Success -- have questioned whether the new, shorter form will even make the process of applying for aid that much easier for the students it's supposed to serve. The EZ FAFSA is designed to eliminate questions that don't apply to the lowest income students, primarily ones about family assets. But first these students have to figure out if they qualify to use the short form, and the only way to do that is to answer certain difficult and error-prone questions that make the regular FAFSA form so challenging. In the end, having to determine which FAFSA form to use could lead to more complexity and confusion for low-income students, not less.[Disclosure: Higher Ed Watch is supported in part by the Institute for College Access & Success, with funds provided by the Pew Charitable Trusts.]

So how did so many reporters get the story wrong? It appears that they lifted verbatim from a press release that Senate Democrats issued shortly after legislation gained final approval from Congress. Touting the bill's most significant achievements, the release proudly declares that it "replaces the complex, 7-page Free Application for Federal Student Aid (FAFSA) with a 2-page 'EZ-FAFSA.'" Only lower down in the text does it add that the new form is "for-low income students."

An innocent mistake? Doubtful. It appears that the bill's sponsors were all too eager to make it sound like the measure was more far-reaching than it is. Take, for example, comments that Sen. Barbara Mikulski (D-Md.) made to The New York Times the day after the bill passed. Mikulski, who played a pivotal role in ushering the legislation through Congress, was already speaking about the longer FAFSA in the past tense. "Though it was only a seven-page form, you had to hire a financial services outfit to do it," she stated.

Because the reauthorization legislation doesn't actually include a lot of tangible benefits for students (besides a year-round Pell Grant), politicians may have had more incentive than usual to overstate their accomplishments. In a way the lawmakers are a victim of their own success. Last year, they pushed through Congress a major expansion of federal financial aid as part of the College Cost Reduction and Access Act. Without having much else to offer in terms of student aid funds, they had to find other things to boast about.

It's also understandable that journalists would be confused. The reauthorization bill is 1,158 pages of dense legislative language. Operating on very tight deadlines, it's tempting for reporters to take at face value what they are fed.

But this case shows the pitfalls of that approach. In a year when there is so much misinformation being spread about the availability of student loans, it seems particularly cruel to raise students' expectations falsely. Because the truth is, for most students, the FAFSA will remain as cumbersome as it has always been, standing as one more hurdle on the application-paved road to higher education.

Guest Post: A Better Solution for Campus-Based Aid

Ed Policy — Wed, 13 Aug 2008 15:18:00 -0400

By Rupert Wilkinson

The Bush administration has repeatedly called for simplifying the federal student aid system by eliminating two of the main "campus-based" aid programs, which provide colleges with federal funds for needy students that they allocate themselves. Under the administration's plan, funds from the Supplemental Educational Opportunity Grant and Perkins Loan programs would be transferred into expanded Pell grants, the government's main source of grant aid for low-income students.

A better solution would be to restructure the campus-based aid programs so that they do a better job of leveraging college support for students who are promising but disadvantaged.

In America's decentralized higher education system, the ultimate responsibility for meeting (or not meeting) student financial need lies with the college itself. Outside an elite band of well-endowed institutions, most four-year colleges do not meet all need -- because they are either unable or unwilling to use their own grant aid to fill the gap between the cost of attendance and the family resources and financial aid (including federal loans and a reasonable amount of College Work-Study employment) that students are able to cobble together. Estimating that gap is tricky, but it is the widest for poor students -- probably well over 20% of what they need.

Expanding the Pell Grant program won't close the gap because unfortunately, each added Pell dollar does not necessarily produce an extra dollar for Pell recipients. Many four-year colleges use Pell grants as budget relief, diverting their own aid to middle- and even upper-income students. In fact, at some less selective private colleges, rich students actually get bigger institutional aid awards (in the form of "merit" aid) than poor ones. Of course, this isn't true at smaller state colleges that don't offer student aid of their own. But a study of state universities by Michael J. Rizzo and Ronald G. Ehrenberg has found that the these institutions tend to cancel out the value of increased Pell grants by raising their prices.

Instead, what are needed are new federal "student-program" grants to colleges aimed at encouraging them to give more of their own money to low-income students, while recognizing that these students need more than financial aid to help them persist. Colleges would be required to spend a certain proportion of the money they receive on financial aid for low-income students. The rest of the money could then be spent on academic back-up and support services for these students. The academic programs should be especially relevant to disadvantaged students but need not be confined to ‘remedial' tutoring. They could include, for example, courses in writing and argument that could benefit other students as well.

Funding for these grants would be allocated to colleges based on two criteria: the number of low-income students enrolled and the institutions' own effort to support them. Allocations, at least for four-year institutions, might be weighted according to the proportion of a college's total budget spent on institutional aid to Pell Grant recipients.

The new grants would not dry up college aid to middle-income students (who are also the main beneficiaries of federal tuition tax credits). In modern market conditions, affecting public as well as private colleges, the incentive to use some aid to buy advantaged, high-scoring students is not easily dislodged. And many colleges, especially under-enrolled private ones, would continue using aid as a form of price discounting to get more students, needy or not. The new grants, however, would create a counterveiling incentive for colleges to seek more economic diversity.

The grants would have something in common with existing state programs such as New Jersey and New York's "opportunity" grants, given to colleges for supporting disadvantaged students with financial aid and academic back-up. The "student-program" grants would also fit in well with the new College Access Challenge Grant program, which provides federal matching grants to states for aid and outreach to "underserved populations." Congress created the program last year as part of the College Cost Reduction and Access Act.

The whole idea of matching grants -- giving money to other players in return for their own contribution -- is an old tradition in America. With the exception of the GI Bill, almost all federal student aid until the 1970s was campus-based and involved matching grants. One problem with federal matching grants is how to ensure that the federal funds bring in new, added money that would not have been contributed anyway. On this and other grounds, the new student-program grants could do a better job than the current SEOG program.

To suggest replacing SEOG with this new grant program is to enter a potential bear pit, reopening past acrimony between defenders of the campus-based aid programs and their critics. But that is true of any proposal to terminate or radically revise a federal student aid program. One reason why federal aid programs have proliferated over the years is that each has acquired its own impassioned constituency with supporters in Congress. That makes it easier to add a new program than axe an old one.

SEOG consists solely of financial aid; there is no subsidy to the college for academic programs (the original Pell grant legislation actually provided for that but it was deleted). The supplemental grants are supposed to go to students with "exceptional financial need" and colleges have to give recipients one dollar for every three that they get from the government. But this contribution can include state student aid and outside scholarships obtained by students from private donors. More importantly, as Higher Ed Watch noted yesterday, the grants are allocated to colleges on historical and biased formulas that tend to give the most aid per student to elite institutions (private and public) that have relatively few low-income students.

The future demographics of higher education -- involving many more lower-income students -- require a new and better targeted campus-based grant program. Not just more money for Pell Grants.

Rupert Wilkinson is the author of Aiding Students, Buying Students: Financial Aid in America (Vanderbilt University Press, 2005), a wide-ranging history of student aid in America, including recommendations for making the programs more equitable. His views are his own and do not necessarily reflect those of the New America Foundation.

Targeting Campus-Based Aid

Stephen Burd — Tue, 12 Aug 2008 18:34:00 -0400

Now that Congress has completed work on legislation to reauthorize the Higher Education Act, momentum is growing among student-aid experts and some policymakers for a fundamental redesign of the federal student aid system. A key question they are asking is whether the federal campus-based student-aid programs are still needed.

The campus-based programs -- College Work-Study, Perkins Loans, and Supplemental Educational Opportunity Grants -- are intended to supplement Pell Grants for low-income students and to provide aid for students who just miss the cutoff for the grants. Unlike Pell Grants, which are awarded directly to students, campus-based aid is distributed to colleges, which add their own dollars to the programs and then give the money to students.

By requiring colleges to provide matching funds, these programs have long played an important role in enticing colleges to spend their own money to help support low- and moderate-income students. The programs, however, are no longer serving the neediest students well. The formula the government uses to distribute the aid overwhelmingly benefits elite private colleges and public flagship universities, even though low-income students predominantly attend community colleges, state colleges, and trade schools.

Of particular concern are the disparities among colleges participating in the SEOG program, which is meant to supplement Pell Grants for the most financially-needy students. Under the program, which received $758 million from Congress this year, colleges are required to award SEOG funds first to Pell Grant recipients who need more money to pay for school and then to other students who are deemed to have "exceptional need." Because they receive a disproportionately small share of funding, many community colleges are forced to ration SEOG funds -- and often run out of money before they are able to provide awards to all their students who are eligible for the maximum Pell Grant. In contrast, wealthier schools sometimes have to return excess SEOG funds to the government because they don't have enough students on their campuses who fit the "exceptional need" designation. [In 2003, a group representing 31 elite private colleges tried to persuade Congress to relax the rules so that they could use the money to provide awards to less needy students.]

The roots of these disparities date back over 40 years. In the campus-based aid programs' first couple of decades, the federal government set aside money for each state. Regional boards reviewed applications submitted by colleges for the funds and made decisions based on the students' financial need as reported by the schools. Over time, federal officials became concerned, however, that wealthier institutions were benefiting disproportionately because they tended to employ savvy aid administrators who were particularly skilled at grant writing.

To address these concerns, Carter administration officials called for a new method of allocating the funds. That plan, dating to the late 1970s, phased out institutional shares, or "base guarantees." The entire pool of money was to be awarded based solely on the financial need of the students attending the colleges

But this new method threatened high-priced private colleges and public flagships that were poised to lose significant sums. So lobbyists for these schools pushed Congress in 1980 to reverse the Carter administration's action and to guarantee that participating institutions would continue to receive the same proportion of aid money they had received since the start of the program.

The results of this law continue to be felt today. Because funds are distributed based largely on the formula set in 1980, a choice group of institutions, many of them wealthy and elite, benefit the most. An astounding two-thirds of funds appropriated each year for SEOG go to colleges that have dominated the programs for decades, leaving little money for the schools that enroll a much larger share of low-income students. This problem has been compounded in recent years, as the program's budget has stagnated.

For these reasons, the SEOG and Perkins Loan programs are attractive targets for those looking to redesign the federal student-aid system to make it more equitable.

Leading the charge are Bush administration officials in charge of the U.S. Department of Education. They have told college leaders that they hope to issue recommendations for overhauling the federal student aid programs before President Bush leaves office. Speaking last month at a Department summit on higher education, Sara Martinez Tucker, the under secretary of education, said that the recommendations would include proposals to eliminate the SEOG and Perkins Loan programs and use the money saved to increase spending on Pell Grants. According to Inside Higher Ed, she estimated that the savings derived from terminating these programs, as well as others, would be enough to raise the maximum Pell Grant, which is currently $4,731, by $370.

Also considering these issues is a group of higher-education researchers and student-aid experts, known as the Rethinking Student Aid Study Group, that has been meeting for about 18 months to develop recommendations for revamping the federal financial aid programs. The group, which was assembled by the College Board, plans to release a report in October outlining its proposals. It's unclear whether these analysts will back the Bush administration's proposal to eliminate the two campus-based aid programs, but it's widely assumed that the group will call for an overhaul of these programs.

At Higher Ed Watch, we certainly believe that the federal student aid programs need to be made more equitable. But we're not sure that the Bush Administration's plan is the best way to go. After all, a $370 increase in the maximum Pell Grant doesn't seem like a big enough bang for the buck.

Tomorrow, guest blogger Rupert Wilkinson, author of Aiding Students, Buying Students: Financial Aid in America, will offer an alternative proposal for revamping the campus-based aid programs that we believe is worthy of consideration. Stay tuned.

Higher Ed Roundup: Week of August 4 - August 8

Ed Policy — Fri, 08 Aug 2008 21:01:00 -0400

IG Faults Dept. of Ed's Management of Grant Programs

Shareholders Suffer Setback in University of Phoenix Lawsuit

Massachusetts Governor Asks Colleges to Help Save Lender

IG Faults Dept. of Ed's Management of Grant Programs

The U.S. Department of Education has not done enough to promote and oversee two relatively new federal grant programs that aim to reward low-income students who take academically-challenging courses, according to the Department's Inspector General. In an audit report released last Friday, the Inspector General said that the agency needs to do a better job of ensuring that colleges that are required to offer Academic Competitiveness Grants (ACG) and National SMART grants are doing so. According to federal law, all colleges that take part in the Pell Grant program are required to participate in the ACG and SMART grant programs, which Congress created in 2006 as part of the Higher Education Reconciliation Act. Some colleges have been reluctant to offer the programs, which they say the Department has made too difficult to administer. The IG report urged the Department to do more to verify claims by non-participating institutions that they are ineligible for the program and to penalize those that are willfully non-compliant. The grant programs, now entering their third year, have suffered from low uptake, as barely half of the grant money available for the 2006-07 school year was actually disbursed.

Shareholders Suffer Setback in University of Phoenix Lawsuit

Shareholders in a lawsuit against the University of Phoenix, the largest for-profit university in the country suffered a major setback this week, when a federal judge in Arizona overturned a $280-million jury verdict against the Apollo Group, the university's parent company. In January, a federal jury found the company guilty of securities fraud for having withheld crucial information from investors. At issue was the failure of the trade school chain to disclose in its Security and Exchange Commission filings and in its conference calls with financial analysts the existence of a U.S. Department of Education review that blasted its student recruiting practices. That report, which found that the university had violated a federal law that bans colleges from compensating admissions officers on the basis of enrollments, became public only after the university reluctantly agreed to a $9.8-million settlement with the Department in which it denied any wrongdoing. In his ruling overturning the jury's action, Judge James Teilborg of the U.S. District Court of Arizona said that while Apollo Group "misled the market in many ways," evidence presented at the trial "was insufficient to support the jury's finding" that investors suffered significant harm as a result of the company's actions.

Massachusetts Governor Asks Colleges to Help Save Lender

Just in time for classes to start, Massachusetts governor Deval Patrick called upon the state's largest universities and state pensions program to help rescue the state's nonprofit lender, the Massachusetts Education Finance Authority (MEFA), after the loan provider stopped issuing federally backed loans on July 1. Gov. Patrick's proposal asks the state pensions fund, Harvard University, Boston University, the University of Massachusetts system, MIT, and other schools to invest in the upcoming $425 million bond sale by MEFA, which issued $110 million in federally backed student loans last year. Massachusetts state legislators have been pressuring Patrick to loosen up funds for MEFA after more than 40,000 students were left scrambling to find other lenders after the loan provider decided to stop lending.

National associations representing colleges and universities expressed reservations about establishing financial relationships between colleges and lenders in the wake of the high-profile 2007 investigations by New York State Attorney General Andrew Cuomo and ensuing student loan scandal. "It would be risky for a college to invest in a student-loan organization given the charges of conflict of interest that would surely follow," Terry Hartle, senior vice president for government and public affairs at the American Council on Education, told The Chronicle of Higher Education. A representative for Harvard University and the pensions fund said that they will consider the proposal.

Contract Out Student Loans

Jason Delisle — Thu, 07 Aug 2008 15:20:00 -0400

Recent developments in the financial markets have brought to light a major problem with the Federal Family Education Loan (FFEL) program, the main delivery system for federal student loans. Though the program relies on private lenders to make loans to students on the government's behalf, it does not include any commitment from lenders that they will follow through and make all (or any) of the loans to which students are entitled.

Congress, schools, and students are naturally concerned when private and non-profit lenders say they won't make loans anymore, due to credit market disruptions, and, to some extent, reductions in lender subsidies enacted over the last several years by both Republican and Democratic Congresses. Similarly, there is unease over lenders cherry picking colleges with profitable loan volume and bypassing others, leaving students to find another FFEL lender.

Oh Please Make Loans

In April, Congress passed the Ensuring Continued Access to Student Loans Act to prevent any disruptions in the availability of FFEL loans for the 2008-2009 school year. The measure does policy somersaults to provide more subsidies to lenders so they can make loans using funds from federal coffers (never mind the fact that lenders vehemently oppose the Treasury-financed Direct Loan program). Despite its efforts, Congress now can only hope these new subsidies will be sufficient to get lenders to lend, but it has no assurances.

Federal lawmakers are considering taking additional steps to prevent lenders from redlining schools. Sen. Christopher Dodd (D-Conn.) has introduced legislation (and the National Association of Student Financial Aid Administrators has endorsed it) that would bar lenders from refusing to provide federal loans to students based on the type of institution they attend.

Negotiate a Contract (and a Subsidy) To Lend

Unfortunately, these efforts are treatments for symptoms, but do not address the root problems in the FFEL program's design. As currently constructed, the FFEL program never secures a contract from lenders that commits them to make loans for an upcoming school year. Loan companies, however, would likely resist efforts for a lending requirement without some added incentive. The solution? Lenders should be allowed to set their own subsidy rate in exchange for signing a contract. This is how the federal government administers a number of programs. It establishes the benefits and services that a program will provide, and then asks private companies to submit bids on what they would charge to operate the program. The winning bidder (or bidders) then signs a contract to provide the service.

Under such an arrangement for FFEL, Congress would no longer have to worry whether a subsidy rate it made up years ago will be sufficient to encourage lenders to make loans in future school years. Likewise, the government would reduce its risk of providing overly high subsidy payments that encourage more lender participation than is necessary to get loans to all students. And, as an added benefit, the contract would commit lenders to make loans to students at all schools. In short, lenders would make subsidy bids high enough to cover their costs and earn a profit, while competition between lenders to win the contract would guard against excessive federal payments to loan companies.

PLUS Loan Auction Uses Contracts

The PLUS loan auction program set for the 2009-2010 academic year is modeled on such an approach. Under the auction, the two lenders that submit the lowest subsidy rate bids to the Department of Education will enter into a contractual agreement with the federal government to make all PLUS loans within a given state. [More details on the auction are available here on our Federal Education Budget Project website.]

Certainly, the current form of the PLUS auction isn't perfect. It will restrict borrower choice to the two PLUS lenders that win the contract. This is indeed one of the tradeoffs for having a competitively set subsidy rate and a contractual obligation from lenders to make loans. Additionally, the cap on subsidy bids (currently set at 1.79 percentage points) probably needs to be modified to allow for robust bidding in a variety of market and financial conditions. Nevertheless, the auction framework does ensure more appropriate subsidy rates for lenders, and by establishing a contract between the lender and the government, the auction should lessen the chance that students and schools face disruptions in the availability of FFEL loans in the future.

Guest Post: GI Bill Battle Only Half Won

Ed Policy — Wed, 06 Aug 2008 19:21:00 -0400

By Jon Oberg

Congress deserves ample credit for approving a significant expansion in the GI Bill education benefits that veterans can use to pay for college. But as a veteran myself, I fear that the benefits are being oversold. Take a recent statement about the GI Bill made by a representative of the Iraq and Afghanistan Veterans of America: "It made going to school your full-time job. You worry about getting into school and you worry about getting as many degrees as you can but the government will worry about paying for it."

Fellow veterans: don't count on it. Although billions more will be spent annually in your name, you may not get as much help as you think. A lot of the money will disappear before you see it.

I used data from the most recent student aid databases (the 2004 National Postsecondary Student Aid Study) to see how veterans fared at four-year public and private colleges, as compared to other undergraduates. The results confirmed my suspicions that despite the government's help, most veterans have been stuck with large amounts of student loan debt and received little in the way of institutional financial aid (the country's largest source of grants) from the colleges themselves.

In short, many colleges have treated veterans as an afterthought. Some institutions have clearly used veterans' GI benefits to replace institutional aid dollar-for-dollar, and shifted the money they saved into merit aid for the kind of high-achieving students that improve their rankings. In such situations there has been no remedy for veterans, as the federal government has largely looked the other way. Many veterans have gotten the message and lowered their educational ambitions.

For the upcoming academic year, Congress has given current veterans' benefits a healthy boost, as a transition to implementing the new GI Bill. But this will not necessarily translate into less debt. I am not aware of any studies that show student debt going down at four-year colleges when spending on federal grants goes up. Other numbers - institutional prices, grants, discounts -- will change, but debt will remain high. That is the way the current "enrollment management" system, in fashion throughout much of higher education, works.

In 2009 and beyond, when the new GI Bill is completely in effect, full-time student veterans will have their tuition fully covered (within certain limits) and will receive a stipend for books and housing, the combination of which should minimize debt. But these generous benefits will be available only to those veterans who have earned full coverage and attend full time. Veterans who have less than 36 months of military service will see their tuition benefits proportionately reduced. Those who attend college only part-time will not receive housing benefits. As a result, a great number of veterans will again find themselves at the mercy of a financial aid system that is decidedly unfriendly to them.

Veterans and non-veterans alike look back fondly at the original World-War II GI Bill that increased higher education access for a whole generation of veterans, many at our nation's top public and private colleges. The influx of veterans also changed many institutions for the better. But that was before the establishment of the current financial aid system. The time has come to acknowledge that the system is not working, considering that Congress, since the Nixon administration, has tried to increase access for low-income students only to see the access gap continue to be as wide as ever.

To be sure, not all veterans will have trouble finding quality colleges friendly to them. States may increasingly step up for veterans. Some private colleges may also reset their priorities to take part in the "Yellow Ribbon Program." Under that excellent provision in the new GI Bill, the Department of Veterans Affairs will match colleges' institutional aid awards dollar-for-dollar, creating a much-needed partnership between the federal government and colleges on behalf of veterans. But for every institution that bravely tries to break away from the loan-obsessed, merit-dominated hegemony of the current system, others have decided that they cannot, and will not, unilaterally disarm. I fear that many institutions will be looking at veterans as an easy mark, carrying a lot of federal cash to convert to their own priorities.

Congress could fix matters by making sure that the federal government and colleges start working together for the benefit of targeted populations, be they veterans or low-income students or both. It would not be the first time Congress has had to step in: lawmakers held hearings and changed the original GI Bill in 1952 to prevent benefit manipulation. I doubt this Congress will act, however, unless veterans fight an even tougher battle than the one that got the new GI Bill passed. In higher education, Congress and the executive branch find it easier to spend than to make programs work, and this new effort may only be the latest in a long list of casualties.

Jon Oberg served as a Navy officer in USS Rainier, USS Arlington, and at the Defense Communication Agency-Europe. He is a former higher education executive and state and U.S. Department of Education official. His views are his own and do not necessarily reflect those of the New America Foundation.

Congress Falls Short In Effort to Curb Sweetheart Deals

Stephen Burd — Tue, 05 Aug 2008 16:49:00 -0400

Last week, we identified our favorite and least favorite provisions in the mammoth Higher Education Act reauthorization legislation that Congress overwhelmingly approved on Thursday. Neither list, however, included sections of the bill that target the types of "pay for play" conflicts of interest in the student loan programs that Higher Ed Watch helped expose last year. That's because, frankly, we had mixed feelings about the provisions.

The legislation certainly takes some positive steps to safeguard students. It, for example, bars colleges from entering into revenue-sharing arrangements, in which colleges get a cut of each loan their students take out. Colleges are also forbidden from entering into "opportunity loan" deals with lenders -- arrangements in which loan companies waive or loosen credit requirements on private student loans in exchange for becoming the exclusive provider of Federal Family Education Loans (FFEL) on a campus.

The legislation also prohibits colleges from allowing lenders to staff their financial aid offices or to run the call centers that students depend upon to answer their questions about student aid. And it forbids schools from assigning first-time borrowers' federal loans to a particular lender through award packaging or other methods. This should put a stop to some colleges' particularly deceptive practice of providing pre-filled out master promissory notes to incoming students in order to shepherd them toward favored lenders.

In addition, the legislation requires colleges to include at least three unaffiliated lenders on their FFEL preferred lender lists, and two unaffiliated loan providers on their preferred lender lists for private loans. This provision will hopefully give students at least a modicum of choice in picking loan companies from which to borrow.

The bill's authors obviously made a good-faith effort to root out the worst abuses that are occurring. Unfortunately, they did not go far enough. The legislation leaves some extremely questionable practices in place and introduces significant new loopholes that lenders will undoubtedly try to exploit.

For example, the bill bans lenders from giving gifts to financial aid administrators that are worth more than a "de minimus amount." It continues, however, to allow loan providers to make philanthropic contributions to colleges, as long as the donations are not made in exchange for "any advantage related to education loans." While this exemption from the gift ban may seem reasonable, it puts federal regulators in the difficult position of having to assess lenders' motives in making gifts to schools.

In other words, the legislation continues to require the Department of Education to prove that there is a "quid pro quo relationship" between lenders' philanthropic contributions and the loans the schools' students obtain. This is not an easy standard of guilt to prove, and agency officials in recent years have been reluctant to pursue these types of cases without first being handed rock-solid evidence that wrongdoing has occurred.

We have previously argued for a full-fledged gift ban that would bar colleges from receiving any gifts or payments from lenders they recommend to their students or that make or hold a significant share of loans on their campuses. Colleges may not like the solution, but it seems a reasonable price to pay if they want to continue to be in the business of recommending lenders. And loan companies that wish to continue engaging in philanthropy can show their true altruistic spirit by contributing to schools where they don't have any business. Most importantly, establishing such a clear-cut standard would no longer allow the Department of Education to fall back on the claim that these cases are not worth pursuing because they are too hard to prove.

The reauthorization bill also restricts financial aid administrators from acting as consultants for loan companies. It does, however, allow other college officials to perform "paid or unpaid service on a board of directors of a lender, guarantor, or servicer of education loans." Making this distinction treats financial aid administrators as if they act in a vacuum, impervious to the influence of their superiors in deciding which lenders to recommend. This is certainly not the case. In fact, we have heard of plenty of cases in which college presidents and university chancellors have pressured aid officials to do business with lenders with whom they have ties.

Finally, the bill inexplicably weakens Department of Education restrictions that went into effect a month ago on the relationships between colleges and lenders. The Department's regulations prohibited colleges from allowing lenders to participate in the exit counseling sessions schools are required to conduct with college seniors. The legislation allows loan providers to continue to take part as long as college officials are in charge of the sessions and lenders don't use them to try and market their products and services. Similarly, while the Department banned aid administrators from serving on lender advisory boards, the bill allows them to continue to serve on these boards and be reimbursed by lenders for "reasonable expenses."

We are disappointed by the changes because we believe that the Department was on the right track. Bright-line standards are needed to help the agency ensure that financial aid administrators are fulfilling their core obligation to provide impartial advice to students. Without clear-cut prohibitions, federal officials will have great difficulty ensuring that lenders and colleges are complying with the law. For example, will they have to monitor individual exit counseling sessions to ensure that lenders are sticking to the rules? Or will they continue to take it on faith, as they have done for way too long?

So while the bill takes some positive steps to address the loan scandals, ultimately we believe it does not come close to achieving its goals. We hope that Congress will be willing to take more aggressive action if the sweetheart deals persist and students continue to be harmed by these practices.

Higher Ed Roundup: Week of July 28 - August 1

Ed Policy — Fri, 01 Aug 2008 17:33:00 -0400

Congress Finally Approves Higher Education Act

In a Reversal, McCain Announces Opposition to Affirmative Action

Report on State Financing for Higher Education Presents a Mixed View

Congress Finally Approves Higher Education Act

After five years of deliberations, Congress on Thursday gave final approval to legislation to reauthorize the Higher Education Act and sent it to President Bush for his signature. The mammoth bill received overwhelming bi-partisan support from both the House, which approved the measure by a vote of 380 to 49, and the Senate, which passed it by a vote of 83 to 8. The authors of the legislation hailed the measure, saying that it would help expand access, affordability, and accountability for colleges and loan providers. "For students and parents, who continue to face soaring college costs amidst rough economic times, these reforms could not come soon enough," Rep. George Miller (D-CA), chairman of the House Education and Labor Committee, stated. Reactions from advocates for students and colleges were more mixed. While groups like the National Association of Student Financial Aid Administrators and the Career College Association praised the bill for opening the doors of college wider for nontraditional students (by making Pell Grants available year-round, for example), other college groups complained that the measure imposes overly burdensome reporting requirements. For more coverage of the reauthorization legislation, check out our posts from earlier this week in which we identified our favorite and least favorite provisions.

In a Reversal, McCain Announces Opposition to Affirmative Action

Sen. John McCain, the presumptive Republican nominee, broke his silence on higher education policy last weekend when he endorsed a ballot measure in his home state of Arizona that would ban public colleges in the state from considering race and gender in admissions and hiring decisions. The Senator revealed his stance on the measure during an appearance on ABC's "This Week," saying, "I support it. I do not believe in quotas...I've always opposed quotas." However, his position represents a reversal from a decade ago when he opposed a similar Arizona ballot intitiative, calling efforts to end affirmative action "divisive." Meanwhile, speaking last weekend to a convention of minority journalists, the presumptive Democratic nominee Sen. Barack Obama said that he supports affirmative action as long as it doesn't impose quotas. But Obama added that affirmative action "is not going to be the long-term solution to the problems of race in America," as long as minority students continue to lag far behind in college preparedness.

Report on State Financing for Higher Education Presents a Mixed View

While the news in recent months has been of states scaling back their support for higher education, the latest report of "State Higher Education Finance" for FY 2007 shows that the last two years, at least, haven't been so bad. According ot the report, per pupil support from state and local funds increased by 3.9 percent between 2006 and 2007, to $6,773 (accounting for inflation and enrollment increases). Taking a longer view, the report found that between 2002 and 2007, only 15 of 50 states increased spending on education. educational appropriations. During this time, more and more college revenue came from tuition increases, as state and local support did not keep pace with inflation. The legislation that Congress approved this week to reauthorize the Higher Education Act includes a "maintenance of effort" provision that will withhold some federal funds from states that fail to maintain their levels of funding.