2015-16 California Budget: Getting the Greatest Returns on New Financial Aid Investments

Earlier today, California Governor Jerry Brown released his proposed budget for the 2015-16 fiscal year, and it includes some much-needed resources for higher education. For the state’s public universities it provides new funding, contingent upon UC and CSU keeping tuition flat, and it supplies community colleges with more funding, including $200 million to invest in student success. Within financial aid programs, the budget plan includes a boost to the Middle Class Scholarship program.

Adding the Governor’s proposal to the State Senate Democrats’ and the State Assembly Speaker’s plans, it is certain that 2015 is going to be an important year for higher education. It is now clear that college affordability is a universal priority, and that the Governor, Assembly, and Senate all want to do more to help low-income students pay for college. That is great news. What is also clear is that those parties disagree on the best way to do this.

Here is what we at TICAS see as the top two priorities for new financial aid investments:

1. Help more eligible students get Cal Grant awards. Less than one quarter of the lowest income students in California who apply for federal aid receive a Cal Grant. For students who don’t apply within a year of graduating high school, there are only 22,500 grants available, and there are hundreds of thousands of eligible applicants. This means that the odds of an eligible applicant getting a Cal Grant are lower than the odds of getting into an Ivy League school. The students turned away empty handed have an average family income less than $21,000 and a family size of three.

2. Increase the size of the Cal Grant B access award. Total college costs go beyond tuition and fees – textbooks, food, housing, and transportation are all necessary to be a successful student. The Cal Grant B access award provides needy students – many with family incomes several thousand dollars below the poverty level – with resources to pay for these crucial college costs. While important progress was made in 2014, the award still lags far behind where it should be. Adjusted for inflation, the original access award would today have a value of over $6,000, almost four times today’s maximum award of $1,648.

College isn’t easily affordable these days for many families, but for some, costs are an insurmountable barrier to getting to college and graduating. Research shows that college costs comprise the largest share of family income for the lowest income students, and low-income students are much more likely to graduate with debt than their higher income peers. Need-based financial aid – like the Cal Grant program – can help to bring higher education within reach for these families. Yet hundreds of thousands of the students least able to afford college do not receive state grants simply because there are not enough. And the stagnation of Cal Grant B access awards means that on average the lowest income Cal Grant recipients receive smaller grants than higher income recipients. These are critically important points that must remain front and center as the debate around higher education investments evolves. We look forward to working with the Governor and Legislature to shape a 2015-16 budget that strengthens college affordability for the students who need the help most.

- Debbie Cochrane and Laura Szabo-Kubitz

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Why “Free Community College” is a Wolf in Sheep’s Clothing

Update: Details of the White House plan are becoming available and make clear it differs significantly from the Tennessee Promise and other “free community college” plans. In particular, the White House proposal is not a “last-dollar” scholarship. Instead, it provides additional federal funding to states that make key reforms, including not charging tuition or fees at community colleges. It is aimed squarely at stopping state disinvestment in public colleges, which is crucial to making college more affordable. Also, unlike the Tennessee Promise, low-income students could benefit. These are clear improvements on the plans discussed in our blog posted earlier today. Still, making tuition free for all students regardless of their income is a missed opportunity to focus resources on the students who need aid the most. Consider California community colleges, with the lowest tuition in the nation and waivers for low-income students. The result? Federal student aid application rates, even among low-income students, have been notoriously low, and part-time enrollment rates sky-high. “Free tuition” is not a panacea.


Many are predicting that President Obama tomorrow will endorse Tennessee’s “free community college” plan. While the Tennessee Promise is well intentioned and more students than anticipated applied for it, many higher education experts have rightly criticized it and other “free community college” plans.

One of the major problems with the Tennessee plan (and others) is that the “promise” isn’t actually much of a promise at all. That’s because the “free” moniker only relates to tuition charges – charges which comprise just one-fifth of the actual costs of going to community college. The other costs of college, including textbooks, transportation, and living expenses, are far more substantial – and far more likely to prove a barrier to student success. Yet they’re left out of the deal.

Further, the Tennessee plan (and others like it) is a “last-dollar” scholarship, meaning that it only helps students who don’t get enough from other grants to cover tuition. This is a critically important point because, given the relatively low income of community college students and the relatively low tuition charges at community colleges, it means that the students with the greatest need for financial aid will rarely benefit. Conversely, those with the least need are the most certain to benefit.

Free tuition plans are giant missed opportunities because they put resources where they are less needed when the need is so great in other areas. As shown in the table below, students in the lower income categories need far more financial support to bring college within reach. The vast majority of them (92% for the lowest income group) have “unmet need” even after accounting for available grants and what they can afford out-of-pocket. That’s true of just 9% of students in the highest income category: 91% of those students can already afford not just tuition, but their entire cost of attendance. Surely higher income students would appreciate additional resources, but do they need them? Not according to federal needs analysis, and the vast majority of these higher income students already enroll in college and are the most likely to graduate.

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In addition to providing resources where they are not needed or needed less, these free-tuition plans are also ticking time-bombs. They signal that tuition is all that matters and flat-out ignore the other costs of attendance that determine whether students can get to campus, whether they’re focused on the material or how to pay for their next meal while in class, and whether they have a place to sleep at night.

Currently, many community college students get help paying for these other costs in addition to tuition. As shown above, the lowest income students’ average grant aid exceeds the amount of the tuition they’re charged by quite a bit: their total grant aid comes to about three times (328%) their tuition charge. On average, students with incomes below the median get grants that cover full tuition, with some resources left to help pay non-tuition costs, including fees, books, transportation, food and housing; students with incomes above the median get grants that cover, on average, about one-third of tuition.

If we prioritize covering tuition costs, treating the other costs of attendance as less important, how long until the grants for lower income students – grants which currently exceed tuition – are cut? This isn’t a fantastical possibility. Limiting certain students’ Pell eligibility to tuition costs was an idea included in a federal appropriations bill not too long ago.

If resources were unlimited, there would be more merit to free tuition arguments. But resources are in fact so limited that the vast majority of low-income students – the students for whom financial aid will make the difference – aren’t getting what they need.

Free tuition proposals are politically popular, but regressive and inefficient. They are a lot like higher education tax benefits, where there is broad and bipartisan agreement that much better targeting is needed. Free tuition proposals don’t just fail to move us forward: they’re a step in the wrong direction. We should absolutely do more to encourage students to pursue higher education and make them aware of financial aid, but this is not the way to do it.

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Quick Take on ECMC/Corinthian Deal

Today, the Education Credit Management Corporation (ECMC), a nonprofit which has several nonprofit and for-profit subsidiaries, announced that it’s buying 56 campuses from for-profit Corinthian Colleges Inc. Here’s our quick take:

ECMC has no experience running a college, let alone one of this scale, and is instead known for ruthless and abusive student loan operations. The agreement provides virtually no relief to the Corinthian students who enrolled and took on debt based on false claims. And with so many other colleges offering lower priced, higher quality career education programs, it’s unclear why this agreement is in the interests of either students or taxpayers.

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CNBC: “Trillion dollar college debt crisis”

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Gainful Employment: For-Profit Colleges Win Big with Elimination of Program-Level CDRs

The final gainful employment rule released last week eliminated a key accountability measure for career education programs. As a result, many programs that would have failed the draft rule will now pass the final rule.  While some have argued that this change was made to benefit public institutions, it’s clear that for-profit colleges – and the University of Phoenix in particular – were the biggest winners.

The draft rule released in March measured career education program outcomes in two ways. First, the debt burdens of program graduates who received federal aid would be compared to their later earnings. Second, students’ ability to repay their loans – including both graduates and noncompleters – would be measured through a program-level cohort default rate, or pCDR. But the final rule uses only one measure: the debt to earnings ratio of program graduates, or DTE.

There are 682 programs that failed the draft rule’s pCDR test but pass the final rule (including those exempted because they have very few graduates). The vast majority of these programs – 89% – are at for-profit colleges, and for-profit college programs account for 97% of the now-passing programs’ defaulters. University of Phoenix programs alone account for 43% of the defaulters at programs that pass the final rule because the pCDR was eliminated.

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What the Final Gainful Employment Rule Means for Parasitic Programs

The release of the final gainful employment rule today is a step in the right direction, but the following examples of programs that meet the final standards make clear just how modest a step it is.

The draft rule released in March would have measured career education program outcomes in two ways. First, the debt burdens of program graduates who received federal aid would be compared to their later earnings. Second, students’ ability to repay their loans – including both graduates and noncompleters – would be measured through a program-level cohort default rate.

Based on the data released in conjunction with the draft rule, we identified 114 career education programs where more students default than graduate. In other words, these are programs where students receiving federal aid to attend these programs are more likely to find themselves unable to repay their debt than they are to complete the program. The particularly shocking part was that, under the draft rule, 20% of these programs passed the Department’s proposed tests, underscoring the need for the rule to be strengthened.

So, what does final rule, which eliminated the use of program-level cohort default rates, mean for those 114 programs that we called parasitic because of their consumption of resources to the detriment of students and taxpayers? It means that 15 more of them will pass the gainful employment tests (in addition to the 23 that passed the draft rule’s tests). Fully one-third (33%) of the 114 parasitic programs would now pass, giving schools no incentive to improve them.

Of the 15 newly passing programs, seven are at the University of Phoenix and include the following:

  • The associate’s degree in web page, digital/multimedia and information resources design, from which the almost 1,600 borrowers who entered repayment defaulted at a rate of 47%.
  • The associate’s degree in corrections and criminal justice, with a cohort default rate of 44% and where the number of defaulters exceeded the number of graduates by more than 3,000.
  • The associate’s degree in professional, technical, business, and scientific writing, where more than four times as many students default as graduate (316 students default vs. 70 students who complete).

For more information about the final gainful employment rule and what more should be done, see our statement here.

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The Middle Class Scholarship’s Embarrassment of Riches

Earlier this week, the Los Angeles Times reported that 73,000 state university students will receive Middle Class Scholarship awards in 2014-15, fewer than half of the 156,000 originally anticipated. The Middle Class Scholarship program was created last year to provide tuition discounts to students with family incomes between $80,000 and $150,000. When we asked California Student Aid Commission staff how much the 2014-15 awards add up to, they told us about $60 million.  That means that about $47 million of the budgeted $107 million for 2014-15 will go unused.

How about putting that money back into Cal Grants, which help students with family incomes up to $80,400 for a family of three (well above California’s median income)? Our analyses have documented that it’s the lowest income students who face the most severe college affordability challenges, and University of California data show that the lowest income students are most likely to graduate from UC with student loan debt.

Part of the problem is that there aren’t enough Cal Grants to go around. For hundreds of thousands of needy students – a group with an average income below $21,000 and a typical family size of three – winning a Cal Grant is even tougher than beating the odds in Vegas. That’s because students who apply for aid more than one year after high school graduation compete for just 22,500 awards authorized annually. In 2013-14, there were 16 eligible applicants for every available award. With $47 million more, the state could fund nearly 20,000 additional competitive grants to support the very students for whom college is least affordable.

When so many low-income students are being turned away, we should at least be redirecting unspent Middle Class Scholarship money to the Cal Grant program to support students who need help the most.

– Debbie Cochrane and Matthew La Rocque

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Why the link between CDRs and Pell Grants is good for students

When too many borrowers default on their student loans, colleges can lose eligibility for federal aid. Colleges with a cohort default rate (CDR) above 40% lose eligibility to offer federal loans, and colleges with three consecutive CDRs at or above 30% lose eligibility to offer both loans and federal Pell Grants.

While some question the wisdom of tying colleges’ eligibility for federal grants to the outcomes of students who borrow federal loans, the link between Pell Grants and CDRs is incredibly important. That’s because federal taxpayers invest tens of billions of dollars in Pell Grants, and CDRs are the primary means of assessing whether colleges are a good investment for federal aid. Colleges can already avoid sanctions through challenges and appeals when relatively few of their students borrow.

To avoid losing access to Pell Grants, the most common form of financial aid for community college students, many schools are examining what they can do to help students avoid default. However, other colleges are citing fears of such sanctions for their decision to stop offering federal loans altogether – even schools that are at very low risk of sanctions. Cutting off access to federal student loans in this way is a problem because it forces students who can’t otherwise afford to stay in school to turn to much riskier types of borrowing, or to reduce their odds of completion by cutting back on classes, working long hours, or dropping out altogether.

Concerns about CDR sanctions have led some to argue that colleges’ eligibility for federal grants should not be tied to an outcome measure for federal loans, and that delinking grants from CDR sanctions might stop colleges from pulling out of the federal loan program. But if the goal is to ensure students are well served and have access to federal loans when they need them, then the logic behind arguments to delink Pell and CDR sanctions falls short on multiple fronts.

  • It wrongly presumes that default rates are entirely out of colleges’ control. In reality, colleges have a number of tools to prevent defaults and keep CDRs within acceptable levels. Given the severe consequences for each individual student who defaults, it’s imperative that colleges use every tool in their toolbox to keep borrowers on track. But as the New York Times recently editorialized, “[W]hat is likely to persuade colleges to deploy these tools in the first place is the threat of losing federal aid if they do not.” Indeed, the threat of losing eligibility for Pell Grants is focusing colleges on what more than can do to keep their students out of default.
  • With no incentive for colleges to keep students out of default, they will invest less in default prevention. This is not a statement about the character of student services professionals at community colleges, but rather about the obstacles they will face when trying to convince college leaders how scarce (and decreasing) resources should be spent. And when loan defaults increase as a result, the college will lose eligibility to offer loans.  So while colleges may be less likely to pull out of the loan program proactively if Pell and CDR sanctions are delinked, they will be more likely to be forced out of the loan program based on their default rate. The threat of losing federal loan eligibility is not going to be enough of an incentive for colleges to focus on keeping defaults down if they’re already considering opting out of the loan program. The end results? First, more community college students in default, and then far more without any access to federal student loans.

The upshot: delinking Pell and CDR sanctions will not help students.  Most community college students do not borrow federal loans. But students who do need to borrow should have access to federal loans, and it’s entirely appropriate to hold colleges deemed worthy of taxpayer investment by the federal government accountable.

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Capitol Hill Briefing – Strategies to Prevent Student Default at Community Colleges: An Overview for Policymakers

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How a Strong Gainful Employment Rule Would Have Helped Corinthian Students

In May, we wrote about the 114 career education programs from which more students default than graduate (it’s actually even worse than that since they have more defaulters in one year than graduates over two years). With Corinthian Colleges now preparing to sell or close all of its campuses, it is worth noting that Corinthian runs 25 of the 114 programs with more defaulters than graduates.

These programs are shockingly bad. Everest College Phoenix Associates’ programs in Securities Services Administration and Management, and in Business, Management and Marketing both had more than three times as many defaulters as graduates. Everest University in Tampa has an Associate’s degree program in Computer and Information Sciences that also has three times as many defaulters as graduates.

An effective gainful employment regulation would help protect students and taxpayers from schools like Corinthian. By enforcing the law requiring career education programs to prepare students for gainful employment in a recognized occupation, a strong rule would hold programs to clear outcome standards and measure their performance against those standards regularly. It would force the worst performing programs to improve or lose eligibility for funding before burying countless students with debts that may haunt them for the rest of their lives.

We and more than 50 other organizations submitted written comments urging the Education Department to improve its draft gainful employment rule to better protect students and taxpayers, including by requiring schools to provide financial relief for students in programs that lose eligibility, limiting enrollment in poorly performing programs until they improve, and closing loopholes and raising standards. If a rule with the changes we called for had already been in effect, Corinthian would long ago have had to rapidly improve or close programs in a way that better protected students and taxpayers.

The final gainful employment rule will be too late to protect Corinthian students, but it is not too late to protect the millions of students enrolling in other schools’ career education programs and the taxpayers who subsidize them.

Click here for a sortable list of the 114 programs with more defaulters in one year than graduate over two years. To read the New York Times editorial on our May blog post, click here.

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