Our Biggest Disappointments (With Final Higher Ed Bill)

By Ben Miller, Stephen Burd, and Sara Mead

Yesterday, Higher Ed Watch highlighted our favorite provisions in the final version of legislation to reauthorize the Higher Education Act. With Congress poised to approve the bill today and send it to President Bush for his signature, we take a critical look at the parts of the legislation that fail to close loopholes, open new areas for potential exploitation, and weaken existing accountability frameworks.

• Easing Restrictions on Trade Schools
  

For-profit colleges’ lobbyists are exuberant about the reauthorization legislation. And who can blame them? Congress has gutted a key consumer protection provision that the career college lobbyists have been trying to kill since it was first introduced in 1992. The provision, which is known as the “90-10 rule,” was intended to crack down on unscrupulous trade schools. It requires proprietary institutions to receive at least 10 percent of their revenue from sources other than federal student aid in order to participate in the aid programs. Congress’ legislation would keep the requirement in place, but takes all the teeth out of it.

The bill substantially increases the sources of funds that proprietary institutions can count toward the 10 percent threshold, including institutional need- and merit-based scholarships and loans the schools make to their students. In addition, schools that violate the rule would no longer become automatically ineligible to participate in the federal student aid programs. Instead, they would now have to exceed the threshold for two consecutive years before being penalized. (The bill gives the Education Secretary the option of removing such institutions from the aid programs but does not actually require it.) The legislation would also temporarily exempt from the 90-10 calculations recent federal loan limit increases Congress approved as part of the Ensuring Continued Access to Student Loans Act. This means some federal student aid will not count toward the 10 percent cap.

We find it extremely troubling that lawmakers would consider weakening the government’s limited tools for protecting students and the integrity of the aid programs at a time when trade schools recruiting practices are coming under so much scrutiny from federal and state regulators.

• Taking the Truth Out of Tuition Calculations

The House of Representatives’ version of the higher education reauthorization contained a bipartisan provision called “Truth in Tuition,” which the New America Foundation has long favored. Designed to provide parents and students with a better idea of future charges, this provision would have required colleges to provide all incoming freshmen with a four-year schedule of expected tuition and fees. While schools could raise tuition from one year to the next, the schedule would help students prepare for the possibility of large cost hikes in future years. Unfortunately, instead of requiring colleges to help their students plan ahead, the bill requires the Department of Education to develop a multi-year tuition calculator, which bases its estimates solely on colleges’ past increases. In essence, the calculator takes the responsibility away from schools to provide earnest and thoughtful estimates of future fees, and replaces it with a tool of questionable predictive value. As a result, most students will likely remain in the dark about what lies ahead.

• Keeping a Veil on Institutional Aid Policies

Lobbyists for traditional colleges have fought vigorously Congressional efforts to shed more light on institutional financial aid practices, and it appears they have been victorious. The final bill requires colleges to report the average amount of grant aid they provide their students out of their own coffers. It doesn’t, however, require them to disaggregate the data by family income of student recipients, as the original House version of the bill did. While the legislation requires colleges to disclose the average net price (the sticker price minus all financial aid a student receives) charged to students, broken down by income, it directs colleges to include only students who have received federal financial aid in its calculations. As a result, colleges will not have to reveal the extent to which they provide non-need-based “merit” aid to students from affluent families.

The government, as we have previously said, has a right and responsibility to know whether colleges are helping or hindering public policy goals. Specifically, are they using federal student aid dollars to supplement their own institutional financial aid to insure that low-income students don’t have unmet financial need? Or are they using federal funds to replace institutional aid dollars they would have spent otherwise on needy students, and using that money to attract better, and often wealthier, students? Unfortunately, this bill won’t provide policymakers with those answers.

• Growing Guarantor Roles

Student loan guaranty agencies are no longer needed to serve their original purposes, so they are increasingly branching out into new roles to justify their existence. As we wrote recently, advocates for guarantors convinced lawmakers in 2006 to add language to a budget reconciliation bill that explicitly required the agencies to promote college access efforts. Now, in the reauthorization legislation, Congress goes a step further and involves guarantors in colleges’ efforts to promote better financial literacy. Under the bill, guaranty agencies would be required to develop materials for parents and students on “budgeting and financial management, including debt management and other aspects of financial literacy, such as the cost of using high interest loans to pay for postsecondary education.” These are certainly worthy goals, but do we really need guaranty agencies to do them? The agencies would be directed not only to engage in these activities, but they would also be allowed to count these efforts towards the default reduction activities they are required to carry out. Moreover, the legislation doesn’t include any mechanisms for measuring the effectiveness of the guarantors’ efforts.

We are also perplexed by a requirement in the legislation that guarantors be included in the pilot PLUS loan auction. Under the bill, winning lenders will receive a 99 percent guarantee against default by guaranty agencies — rather than from the Education Secretary, as the initial legislation mandated. The federal government is already responsible for the cost of defaults anyway, so why do we need to insert a middleman?

• Leaving States to Define “Low-Performing” Teacher Prep

While the reauthorization bill takes some positive steps to improve accountability for teacher preparation programs, it fails to accurately target “low-performing” prep programs. Like the 1998 Higher Education Amendments, the legislation does require states to identify “low-performing” teacher prep programs, which can then be subject to penalties. Unfortunately, this measure, like the 1998 law, leaves it solely to the states to define the criteria by which they will judge programs to be “low-performing.” As we’ve seen over the past decade, most states have set laughably low standards that hold few or no programs accountable. By not mandating any parameters for how states define and judge teacher prep programs, the legislation continues to let lousy programs off the hook.

• Ensuring that Default Rates Remain Toothless

The version of the reauthorization legislation that was approved by a key House committee last November contained a promising provision to increase the measurement window for student loan cohort default rates — a metric used to hold schools accountable if too many of their students don’t repay their loans. Unfortunately, by the time it got to the final bill, that provision was substantially weakened. Like the committee’s version, the final bill would include in the cohort default rate all students who don’t make payments on their loans within three years of leaving college, rather than two, as is in current law. That’s a good change. The bill, however, would also increase the default rate threshold at which sanctions kick in. Under the new law, a school would be penalized only if 30 percent of its former students defaulted on their loans within three years, instead of 25 percent, as is currently the case. While the longer window will more accurately capture defaults, the higher threshold will make it easier for schools to avoid sanction. The legislation further weakens the measurement by allowing schools to get out of sanctions due to “mitigating circumstances,” such as enrolling a substantial number of low-income students. In addition, the bill increases the minimum percentage of student borrowers a school must have to be subject to penalties. The net result of these actions is that Congress has made an accountability measure that was already pretty toothless even weaker.

Next week, Higher Ed Watch will take a closer look at other parts of the bill, including our views on provisions attempting to remove “pay for play” conflicts of interest from the student loan programs. Stay tuned.