Jason Delisle: All Related Content

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Student Loans: Could Gop, White House Strike A Compromise On Interest Rates? | Yahoo! News

May 10, 2013

Given that Senator Warren's proposal would cost billions of dollars, it's not likely to figure into serious negotiations on the Hill, says Jason Delisle, director of the Federal Education Budget Project at the New America Foundation, a public-policy ...

Editorial: A Better Approach On Student Loans | New Haven Register

May 7, 2013

Jason Delisle, the New America Foundation's higher-education maven, points out that there's still a lot more Congress and the White House have to fix. They could save billions, for example, by unifying the various loan terms the government offers to ...

Department of Education Light on Details for Sequestration of TEACH Grants

May 6, 2013

Last week, the New America Foundation’s Education Policy Program published an issue brief on the recently completed (and two months late) fiscal year 2013 budget, with an early analysis of how the 2014 budget process is likely to affect education programs. One careful reader noticed that the explanation about sequestration failed to mention two lesser-known education programs: the TEACH Grants and Iraq-Afghanistan Service Grant programs.

The former provides tuition aid to prospective teachers, but it converts to a loan if the student fails to complete four years of teaching to high-needs students after graduation. The latter provides tuition aid to the children of military parents who died during military service after September 11. Both programs are affected by across-the-board spending cuts implemented last year.

Although sequestration was meant to apply uniformly to most education programs, slicing evenly program by program, there were some exceptions. Pell Grants, as we’ve reported, were exempt, and student loans were subject only to a fee increase to reduce costs. And it appears that cuts will be larger for TEACH Grant and the Iraq-Afghanistan Service Grant than for other programs.

How much larger will the cuts be?

Recall that in accordance with the Budget Control Act of 2011, the failure of an appointed “supercommittee” to find $1.5 trillion in deficit reduction over 10 years triggered the execution of across-the-board spending cuts in mid-fiscal year 2013. The final size of the cuts was 5.0 percent cut for education programs funded through appropriations, and 5.1 percent for those funded on the so-called mandatory side of the budget. (Both TEACH Grants and Iraq-Afghanistan Service Grants are considered mandatory funding.)

For the Iraq-Afghanistan Service Grant program, though, the reduction will be 10.0 percent. For the TEACH Grant, it will be 7.1 percent. Therefore, the maximum Iraq-Afghanistan Service Grant will drop from $5,645 (the program is meant to match the size of the maximum Pell Grant) to $5,081 next year. The maximum annual TEACH Grant drops from $4,000 to $3,716. Those reductions affect the first disbursement that occurs after March 1, 2013, which in most cases means the 2013-14 school year, and the reductions are effectively permanent, so they’ll remain at that lower level thereafter.

Why did sequestration impose larger reduction for these programs than for others? And why 10.0 percent for one and 7.1 percent for the other? The reasons remain unclear, and the U.S. Department of Education has not offered much explanation. Some media reports have suggested that the White House is working to limit the impact of sequestration by moving money around and restoring some funding under its budget authority – but thus far, there’s no word from the White House that such flexibility options were the case for these Department of Education programs. We’ll keep an eye out for a good explanation over the coming weeks and months.

And the confusion isn’t limited to these programs. The president’s fiscal year 2014 budget request, which usually includes spending levels for the prior two years, didn’t even incorporate final, post-sequester fiscal year 2013 spending into its budget tables, for the Department of Education or other agencies. So one thing is clear: The government still isn’t able to provide much evidence around sequestration’s implementation. In spite of anecdotal stories about children losing access to Head Start and special education and Title I services being cut across the country, there’s not yet a comprehensive understanding of how sequestration is affecting education programs.

For more on last year’s budget, check out our issue brief, Federal Education Budget Update: Fiscal Year 2013 Recap and Fiscal Year 2014 Early Analysis.

A Better Approach to Student Loans | The Washington Post

May 5, 2013

Jason Delisle, the New America Foundation's higher-education maven, points out that there's still a lot more Congress and the White House have to fix. They could save billions, for example, by unifying the various loan terms the government offers to ...

Federal Education Budget Update: Fiscal Year 2013 Recap and Fiscal Year 2014 Early Analysis

  • By
  • Jason Delisle,
  • Clare McCann,
  • New America Foundation
April 30, 2013

The New America Foundation’s Education Policy Program released an issue brief detailing the completion of the fiscal year 2013 appropriations process and the start of 2014 budgeting. The brief explores congressional budget actions over the past year and describes their effects on federal education programs.

Student Loan, Credit Card Debt Keeps Piling Up | The Baylor Lariat

April 26, 2013

The interest rates and fees are set high enough that the government makes money,” Federal Education Budget Project Director Jason Delisle said in a New York Times article published Feb. 27, “Putting a Number on Federal Education Spending.” The most ...

How Income-Based Repayment Can Cap, Reduce, or Eliminate Interest Rates on Student Loans

April 18, 2013

The president’s fiscal year 2014 budget request includes a proposal for setting interest rates on newly issued federal student loans. The fact that the president excluded a cap in his proposal (as did the New America Foundation) has rankled student aid advocates. We’ve argued that the new income-based repayment (IBR) program that became available last year for students who began borrowing after October 1, 2007 ensures that a borrower’s monthly loan payments are capped – which therefore makes it a more generous benefit than an interest rate cap.

Read the rest of this post on Ed Money Watch.

 

Time Running Short For Congress To Keep Student-Loan Rates From Doubling | National Journal

April 17, 2013

The White House “painted themselves into a corner” this year, said Jason Delisle, director of the Federal Education Budget Project at the New America Foundation, a public-policy think tank. The administration needed a plan to keep rates low without ...

Higher Education Lobby Changes Tune on Income-Based Repayment

April 17, 2013

In a hearing before the U.S. House Committee on Education and the Workforce this week, Terry Hartle of the American Council on Education (the higher education lobby) hinted that his association has had a major change of heart on income-based repayment for federal student loans. Or so it seems. 

At issue was a proposal by Rep. Tom Petri (R-WI) that would move the entire loan program to an income-based repayment system administered through employer payroll withholding. Borrowers would make payments at 15 percent of their discretionary income and there would be no loan forgiveness. Instead, total accrued interest would be capped at 50 percent of what a student borrows. Those terms are far less generous than the plan the Obama administration proposed in 2010 and enacted late last year, called Pay As You Earn or Income-Based Repayment. Under that plan, borrowers pay 10 percent of their incomes, 33 percent less per month than the Petri plan, and have their debt forgiven after 10 or 20 years.

Mr. Hartle told the Committee that the Petri proposal “could become an incentive to over-borrowing,” an outcome that he said, “no one wants.” If the Petri proposal more or less rolls back the Obama administration’s Pay As You Earn and Income-Based Repayment plans and replaces them with something that requires borrowers to pay more and for longer, one wonders what the American Council on Education’s position is on the Obama administration plan, which is in current law and available to nearly all new borrowers going forward.

Does Mr. Hartle believe the plan available now for recent borrowers encourages over-borrowing too? If so, that would be a new position for the American Council on Education.

When the president laid out the details of his Pay As You Earn plan in 2010, the American Council on Education rushed to send the White House a letter (available here). The Council’s letter expresses no concern about incentives for over-borrowing, despite the fact that the president’s program is far more likely to encourage over-borrowing (as outlined in this New America Foundation paper) than the Petri proposal because its terms are so much more generous for borrowers, mainly graduate students. The letter is a straight-up endorsement of the president’s proposal to “expand” benefits under Income-Based Repayment.

What explains the inconsistency in ACE’s “strong support” for the Obama administration’s plan and its cautionary warnings about over-borrowing under the Petri plan? (Maybe their position has evolved since they endorsed the Obama administration plan in 2010, and the group does in fact have concerns about it now.) It is unfortunate that the Committee didn’t think to ask Mr. Hartle to explain that glaring inconsistency.

Disclosure: The author worked for Rep. Petri from 2000 to 2005.

 

How Income-Based Repayment Can Cap, Reduce, or Eliminate Interest Rates on Student Loans

April 15, 2013

The president’s fiscal year 2014 budget request includes a proposal for setting interest rates on newly issued federal student loans. Rates would be fixed for the life of the loan and set at a rate equal to the interest rate on 10-year Treasury notes, plus 2.93 percent for Unsubsidized Stafford loans, the most widely available federal student loan. (Subsidized Stafford loans would be set at the 10-year Treasury rate plus 0.93 percent, and PLUS loans for parents of undergraduates and for graduate students set at 10-year Treasury plus 3.93 percent.)  The rate would not be subject to a nominal cap. The approach is similar to one highlighted a year ago on this blog and again this year in the New America Foundation paper Rebalancing Resources and Incentives in Federal Student Aid.

The fact that the president excluded a cap in his proposal (as did the New America Foundation) has rankled student aid advocates (see here, here, and here). We’ve argued that the new income-based repayment (IBR) program that became available last year for students who began borrowing after October 1, 2007 ensures that a borrower’s monthly loan payments are capped – which therefore makes it a more generous benefit than an interest rate cap. Further, the program’s 10-year and 20-year loan forgiveness terms reduce, cap, or eliminate the interest that a borrower must actually pay, depending on the situation.

How does it do that? A borrower’s payments under IBR are based on his income, and the total time he is required to repay is limited through loan forgiveness, so there is a limit to how much he can ever pay on his loans -- and that limit can make the nominal interest rate on the loan or the amount borrowed irrelevant.

In a recent blog post, the Institute for College Access and Success (TICAS) offers an example in which a borrower pays more in total lifetime payments when the interest rate on the loan is higher. Is that inconsistent with the above statement? Not at all.

The borrower in the TICAS example has $20,000 in debt, has an Adjusted Gross Income of $30,000, and presumed household size of 1 (i.e. not married/married filing separately and no children claimed as dependents). Therefore, we can plot the interest rate cap that IBR would provide on her loans at various debt levels and based on whether she will have her debt forgiven after 10 or 20 years.

IBR Interest Rate Cap 2.png

The Income-Based Repayment plan reduces and ultimately caps the borrower’s interest rate at 12.8 percent. After that point, any unpaid interest or principal balance on the loan will be forgiven due to the maximum term of 20 years under IBR. And if the borrower had $30,000 in debt, IBR caps the interest rate at a very low 3.6 percent. At $50,000 in debt, her interest rate is capped at 0.0 percent – given her income she won’t pay even as much as her initial loan balance, so her interest rate is irrelevant. Why the big differences in interest rate caps? Again, her total payments on her loan have a limit based on her income and the 20-year term of the loan -- so more debt must translate into a lower interest rate cap and lower debt results in a higher interest rate cap.

Now suppose the borrower with $20,000 in debt in the TICAS example works for a non-profit, thereby qualifying for public service loan forgiveness after 10 years of payments. With PSLF, IBR caps her interest rate at 0.9 percent. At $25,000 in debt the interest rate is effectively capped at 0.0 percent. These figures are so much lower than under the 20-year forgiveness becuase the total payments this borrower could ever make are much lower, all because the loan term cannot exceed 10 years.

And if the borrower has a child to declare in her household size, all of the numbers cited above are lower because the program increases the allowable income exemption for each dependent child in calculating the monthly payment. But rather than write out more examples, the table above is instructive. The information in the table is for a borrower who matches the income profile of the borrower in the TICAS example. We use the New America Foundation IBR calculator for all calculations. 

As the table above demonstrates, IBR provides very valuable benefits by reducing, capping or eliminating interest rates on federal loans. (However, the perverse incentives to borrow more and the windfall benefits for high-income high-debt borrowers, mainly graduate students should be addressed.) No doubt, a nominal interest rate cap written into law can provide even greater benefits for borrowers in certain circumstances. But is a cap necessary given the benefits of IBR and would it be worth the extra costs? Probably not, and the Obama Administration agrees.

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