Key Questions on the President's 2017 Higher Education Budget

America’s College Promise and Encouraging Business Partnerships: Perhaps the most talked-about element of Obama’s Higher Education budget is his request for $1.25 billion per year to make the first two years of college free at qualifying institutions. A repeat proposal, this would allow the federal government to partner with states in order to waive tuition at high-quality public institutions for at least two years of study. New this year, is an expansion of the plan, which would allow students to pay significantly reduced tuition for two years at minority-serving institutions. The budget proposal also includes an additional $800 million a year in bonus funds to incentivize schools to enroll and graduate higher shares of low-income students.

A more innovative policy approach  would provide $2.5 billion over five years for businesses partnerships with community colleges. The money comes in the form of  a one-time, $5,000 tax credit per student hired, for businesses that establish partnerships with community colleges and commit to hiring their graduates. Notably, similar partnerships are already taking shape in many fields, as businesses have a vested interest in ensuring that community college’s curricula reflect the skills students will need on the job. Presumably, businesses partaking in the president’s proposed program would work out detailed plans with partner colleges, helping to shape curricula and standards in ways that benefit both students and the company at hand. As such, it’s hard to predict the behavioral impacts such a policy might have on the business community’s relationship with higher education.

Reforming Tuition Tax Benefits: Speaking of tax credits, the budget proposal would significantly overhaul currently available tuition tax benefits, including the American Opportunity Tax Credit. The proposal would eliminate smaller tuition tax benefits, including the Lifetime Learning Credit and the student loan interest deduction for new borrowers, and make structural changes to AOTC which would make it available to more students. Those newly eligible for the AOTC would include fifth-year undergraduates, part-time students (who would receive a smaller credit), and increasing the refundable portion of the credit. 

While these reforms would significantly help eligible students, our recent paper on tuition tax credits indicates a large population would remain ineligible: 38 percent of undergraduate students cannot claim a tax benefit. The single largest reason for ineligibility is not having tuition  liability to offset, meaning that despite these changes, students who receive grants and scholarships to cover tuition would not be able to claim a tax benefit to help offset their living costs. These ineligible students are frequently low-income and often attend low tuition schools such as community colleges. While the president’s proposal may be a step in the right direction, allowing students to claim a tax credit for living expenses would better assist these students.

Modifying and increasing Pell Grants:  Another proposal that’s gotten significant media attention has been the reinstatement of a policy allowing students to claim a third Pell grant if they enroll in more than a full years worth of academic credits, commonly known as year-round Pell. While the administration axed the same program in 2011 due to exorbitant costs, research supports the notion that these costs were not the result of the additional grant eligibility, but rather climbing enrollments and increased need, and both factors were driven by the recession. In retrospect, it seems, cutting year round Pell was a mistake.

The president also proposed a $300 Pell bonus for students who enroll in at least 15 credit hours per semester (rather than the usual 12 for full-time status), and to eliminate restrictions on Pell eligibility for certain prisoners. The budget would also transfer Iraq and Afghanistan Service Grants into the Pell program, to prevent these grants from being subject to sequestration and enable recipients to receive the full grant award. Total spending for the Pell program in FY 2017 would include $30.1 billion for Pell funding. Most of these proposals would promote access and affordability for vulnerable student populations, by any measure an improvement over current policy. However, a vague reference to “strengthening academic progress requirements” for Pell recipients could spell trouble. Depending on how such requirements are structured, restrictions on Pell could limit access and ultimately hurt students. The Department should avoid enrollment or GPA-criteria for this purpose.

Modernizing Perkins loans: The budget proposes $8.5 billion in annual disbursements for a modernized and expanded “Perkins” loan program, which would be allocated among degree-granting institutions, and distributed by institutions to their students. In contrast to the current program, the federal government would originate the loans, and the interest rates and other loan terms would be identical to those of the unsubsidized Stafford loan program.

This proposal would be great for the selected institutions, as it would help their students finance the costs of attendance. It would also reward high-performing institutions, since the program includes stipulations on enrollment and graduation of low-income students, net price, and loan repayment. In this way, awarding additional loan eligibility to certain institutions but not others provides a layer of consumer protection for students and taxpayers, since the loans wouldn’t be available at predatory, or otherwise low-quality schools. At the margins, the new pot of funding might lead some schools to make changes which would promote the administration's goals, ultimately leading them to better serve students. And because this proposal would replace the existing Perkins program, the new money would greatly increase both the number and diversity of the institutions that receive the funds, without penalizing existing Perkins participants.

From the student perspective, the new loans effectively mean that selected colleges would be able to raise unsubsidized loan limits for particular students, at their discretion. This would help students secure better loan terms than those available under other programs, such as Parent PLUS or private loans, or even the current Perkins loan system. However, new loans could also increase borrowing for students at a time when student loan debt is already higher than ever before. It also creates equity considerations, since the school retains some discretion in selecting students, a process which is likely to be highly unpredictable.

Reforming student loan repayment: The proposal also include significant repayment changes for new borrowers. While income-driven repayment pre-dates Obama, the use of these plans, which allow borrowers to adjust payments on the basis of their income, have been a centerpiece of the administration's higher education policies. But as my colleagues often note, high-debt borrowers, mainly graduate students receive the bulk of the benefits, and targeting the benefits to those who need them most -- mainly undergraduates -- would be a much better use of these funds.

The new budget proposal does just that. The plan would merge various repayment options available now, making paying back student loans much more straightforward for students. But it would also include certain taxpayer safeguards, such as setting payments as a percentage of combined income for married filers (even those who file separately). The plan would require 25 years of repayment for students with graduate education before they could qualify for loan forgiveness, limits public service loan forgiveness (PSLF). The estimated savings from these measures is $49 billion over ten years, underscoring criticisms that the current structure is prohibitively expensive, and goes far beyond what’s necessary to help truly struggling borrowers cope with their loan burden. Interestingly, the reforms also include a limitation for borrowers in IDR whose incomes increase substantially over time. Currently, borrowers in such a situation would have their payment limited to what they would pay under the 10-year standard repayment plan, but the budget proposal suggests doing away with these limits.

Data Funding in the President’s Budget: The President's final budget includes $0.5 million to fund K-12 and postsecondary “information hubs” which would build off of the success of the college scorecard, through integrating the various sources of federal data on education and making these resources more easily accessible and understandable. The current systems of federally-collected data presents many user-challenges, and can be difficult to locate, understand, and analyze, presenting significant barriers to better understanding the current state of education and answer key questions. The president’s proposal is a worthy endeavor, but that it’s important these improvements include the development of an API, which would enable the research community significantly easier access to these data sources, as well as provide software developers a key starting point for the development of consumer facing applications for use among students, educators, and policymakers alike.

The NCES budgets also includes 2.5 million for the development of a new study on college loan default and repayment. In 2017, this would allow for the development and field-testing of a survey instrument to better understand these phenomena. We think this information is vital, but have concerns regarding the lag in which such information would become available to the research community. This work could be complemented by improvements to quality in administrative systems, along with developing processes for access to the data among independent researchers. These improvements would allow more immediate access to information on student loan default and repayment at the institution and state-level, as well as disaggregates of the information according to student demographics or other factors of interest. As a whole, the President’s budget may have already peaked, with Congressional leadership declining to so much as hold a hearing. But since many of these ideas are likely to return, leaders of both parties should think critically about the impact these policies shifts might hold. "