The Hill is Alive (Finally)

By Watson Scott SwailPresident & Senior Research Scholar, Educational Policy Institute

There was a potpourri of activity on Capitol Hill this week. From the passing of the College Cost Reduction Act (CCRA) of 2007 (and it seems like the Taxpayer Relief Act of 1997 was only yesterday…), to a firm stand by Ted Kennedy on loan agencies and the “inducement” scandal, this has been a busy week in my old stomping grounds in the District of Columbia.

This week I’d like to make comments on both of those issues, including the price controls embedded in the CCRA. Let’s start with the Bill itself.

Without a doubt, the current bill in the House does some good things, and after a total hiatus from higher education by the current administration and Congress since 2001, many higher education stakeholders are simply pleased that the term “higher education” is mentioned on Capitol Hill. More money for Pell, some creative new programs… all sounds good. But let’s take a more critical look at this with unbiased varnish.

The Pell Grant. Who can argue with a large increase in the Pell Grant? We’ve all been fighting for it for years, and it hasn’t moved since, 2003-04, and that was a whopping $50 increase (bagels AND cream cheese this week!). So, we’re glad to see the Pell Grant go up to $5,200 by 2010-12. But on one hand it isn’t near what it will need to be in five years. That’s not even enough now in most calculations, and inflation is likely to go higher rather than lower considering the US dollar in a global economy. Secondly, one must consider the reaction institutions of higher education will have regarding tuition setting. Economists will tell you that there is some truth to the tuition spiral noted by Art Hauptman over a decade ago. The trick is to find the balance and no one knows where that is. So it is good that the CCRA attempts to put some cost control into consideration.

Cost Control. The CCRA includes suggestive language that states if institutions raise their “sticker price,” that is, tuition and fee rate, more than double the increase of inflation during a three-year period, they would be required to report to the U.S. Department of Education. Sounds good to me with the exception that they are using the HEPI (Higher Education Price Index) as the yardstick, and that is a problem. The HEPI is an index to measure the increase of college “costs” each year (e.g., physical plant, salaries, etc.); it is not meant to be confused with college “prices,” but college costs. These typically go up higher than standard CPI measures because of the fast rising costs of salaries, benefits (including health care), and updating campus buildings, for instance. But for consumers, the HEPI is completely meaningless. Students and families pay real wages that are earned on the current economy, not higher education’s economy. So the increase should be tied to CPI, not the HEPI.

Student Loan Interest Rates. Cutting the interest on subsidized student loans sounds great, but it doesn’t do much good considering the cost of the program. There needs to be legislation in place to guarantee a reasonable interest rate to students (with the subsidized program, which is need-based, loan interest only begins to accrue six months after they have left or finished college; it is interest free during college), but providing them with an interest rate well below prime may not be a good idea. They already have had free interest during their college years. I’ve seen all the calculations about how much the interest rate makes a difference, but within the realm of public policy, there is a better use for taxpayer money than keeping this rate artificially low.

Income-Contingent Loans. The US has had an ICL for years, but only in name. It is a horrible system that doesn’t work very well. The CCRA plans to adjust the system which caps payments at a “manageable” rate and also eliminates the entire debt after 20 years of payment. This is good policy. If people are making a commitment to their repayment, at a pre-determined rate set by the Feds, then it should be removed at some time. These aren’t people trying to get out of paying their student loans; it is people who are paying as much as is reasonable over a long period of time. These aren’t doctors, but more like graduates who end up in social work or other professions that are important to society but do not have the same returns as other professions and careers. Good move.

Loan Limits. Loan limits have been a continual problem for the past, well, decade. Federal loan limits haven’t gone up since the late 1980s. Hard to believe, but true, because everyone (including student groups, which is really obnoxious) believed that raising the limits would be like overfeeding your goldfish…students would over commit and over spend. Well, newsflash…they are anyway, but mostly because college costs are way out of wack and students and families are sometimes forced to use credit cards and signature loans with higher interest rates to get by. So the House Bill raises the amount of money that working students can earn and also lifts the loan limits. It’s about time.

Loan Forgiveness Programs. I’ve never been a big fan of these policies. In the studies that I’ve read (which are few, I must admit, because they just don’t exist), many students who take advantage of these either buy their way out of them when they have completed their studies or do their time then leave. We see this mostly in the medical and nursing fields (loans to get these individuals to rural areas, for instance). For teaching, which is a targeted area under the House Bill, 50 percent of new teachers are gone within the first 5 years. That will be enough time for recipients to take advantage of the forgiveness program and then they’ll be on to other things. Just don’t think it’s a good use of funding. Better yet, let’s find a way to increase teacher salaries about 30 percent. That’s the incentive… and then they’ll be able to pay off their student loans. Leave forgiveness programs to the states. Not a federal issue that will make a dent in anything constructive.

Minority-Serving Institutions. And finally, the Bill tacked on a new program ($500 million over five years) for institutions that “serve large numbers of Hispanic, American Indian and other minority students.” I’m always for more money for institutions, and as my colleagues know, I’m a huge advocate for HSIs, HBCUs, and Tribal Colleges. But I’m not sold that this is a prudent measure. Most of these students are being served in PWIs (Predominantly White Institutions). I’m an advocate of affirmative action. But when does it stop? (yes, I’ll read your emails)

To end, I would like to comment briefly on a report released by Senator Kennedy yesterday regarding the student loan scandal. Yes, the one about “inducements” by loan agencies to institutions of higher education. According to, “the ‘Report on Marketing Practices in the Federal Family Education Loan Program’ goes so far as to suggest that colleges are regularly accepting inducements provided in violation of federal law.” The report goes on to suggest areas of inducement, some which are definitely beyond the line. But some inducements, as they are called, are borderline at best. If an agency wants to give publications for distribution to a college, and offers to print the college logo and personalize the brochure, is that an inducement? Apparently. if an agency wants to provide some professional development, at no charge to the institution, is that an inducement? Yes. We must establish where the line is, here. The humor in this is that Congress is taking such a hard look at this that it is freezing loan agencies from doing anything for their clients (yes, their clients). But they aren’t taking any look at the medical field. Do you know how many doctors go on all expense paid trips to the tropics or Las Vegas? And you thought Tom Delay going to Scotland was bad… Nothing compared to what the doctors get. I have friends who are constantly getting free items and “business trips” (trust me, there isn’t business going on at these events). So, until Congress starts looking at the medical and pharmaceutical industry, where much of the rise of medical costs can certainly be connected with “inducements,” then I think we need to be very mindful of how far Congress pushes the loan agencies.

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