In February 2009 President Obama addressed Congress with the challenge to improve the system of higher education so that by 2020 the United States would again have the highest proportion of college graduates in the world. A year later his agenda is taking shape.
While most discretionary government spending is being frozen in an attempt to attack the $1.4-trillion deficit the Obama administration is making an investment in education. On Feb. 1 President Obama unveiled his $3.8 trillion budget proposal to Congress a blueprint that allocated $77.8 billion to Department of Education spending increasing spending on education by 31 percent.
The proposed reforms coupled with the initiatives within the administration-supported Student Aid and Fiscal Responsibility Act of 2009 indicate that higher education is a top priority in the 2011 fiscal year.
The administration’s agenda includes promoting the stirring shift from private to federal lending. Many of the proposed programs including a $10000 tax credit for families and the expansions of the Pell Grant and income-based loan repayment program promise to make paying for college more manageable for students.
The proposed measures are generally popular with educational institutions and those funding higher education as these proposals if able to endure unmodified will effectively subsidize education.
With an economic system still out of order and mounting unemployment many align with the president’s idea of education— investment in human capital— as a way forward.
“One of the things we have to do is assure that people have the skill set necessary to compete in a very highly technical society said Ronald Johnson, director of financial aid at UCLA.
The only way we are going to stabilize our economy is by giving it some infusion of money. For that reason I think it is important we make this investment because it is going to come back three-fold. This is money that is going to come back with highly skilled individuals who are going to be productive who are going to pay taxes which is going to generate revenue for the economy.”
While making education more affordable and investing in the future seem universally appealing many are concerned with the true cost to taxpayers.
Among the most significant initiatives proposed is the expansion of the Pell Grant program aimed to benefit low-income students.
As part of the plan Obama asked Congress to make the Pell Grant an entitlement which would mean the program would receive a budget allocation each year to accommodate the number of students who apply.
Under the plan any eligible student would be guaranteed a full grant. About 9 million students will receive Pell Grants nationwide— a notable increase of 1 million. The maximum annual Pell Grant award would be increased from $5550 to $5710 in 2011. The administration predicts the grant would be increased to $6900 in 2019. The program would be expanded to $35 billion a 92 percent increase overall.
The Pell Grant increases will offset the cost of attendance for many Pepperdine students as approximately 19 percent of Pepperdine students are Pell Grant recipients according to Janet Lockhart director of financial assistance at Pepperdine.
Another important initiative in Obama’s proposal valuable for students at any income level is the concept of “debt forgiveness” in the expansion of the Income-Based Repayment (IBR) program. Enacted in 2007 the IBR currently allows eligible borrowers to pay back their student loans with a 15-percent cap on their discretionary income in a 25-year repayment period.
The latest proposal calls for the cap to be lowered to 10 percent and the repayment period to 20 years or 10 if the borrower were a public sector employee. After the repayment period the borrower’s debt would be waived.
“Whether you are low-income moderate or high-income you are probably still going to have to borrow Johnson said. This makes the income repayment plan that much more important as a means of providing flexibility for students not to end up as indentured servants to these high interest loan payments.”
“It does open the doors for some of our students to pursue lives and careers that aren’t driven purely by what their income is Shires said.
The president has also proposed putting an end to tax subsidies to banks providing student loans, and instead establishing a $10,000 family tax credit to put toward four years of college. Shires said this plan may benefit middle-income families.
Other important proposed higher education reforms include allocating funds to support the development of community colleges.
While the series of reforms composing Obama’s education proposal make impressive promises to struggling students, some are wary of the potential downsides and dangers of these proposals.
Shires warned of the unpredictability of the current proposals. He said it is likely the federal government will attach strings to these loans— for example; capping the amount of loans that are available— which could mean institutions like private universities would get left out in the cold.
His other concern is there are no cost-control provisions included in the initiatives, which means no incentive is provided for higher education institutions from keeping their costs down.
While it may be attractive in its raw form by the time this is done it’s likely that the government will have added a bunch of limitations and requirements Shires said. How those things are done completely changes the entire character of the program.”
The Student Aid and Fiscal Responsibility Act the vehicle by which many of the administration’s proposed education reforms would be carried out passed in the House in September 2009 and is now waiting to be voted on in the Senate. The Act would terminate the Federal Family Loan Education (FFLE) program in which private lenders make federally guaranteed student loans to borrowers and receive government subsidies.
FFLE would be replaced by the Federal Direct Student Loan Program (FDLP) in which the Department of Education acts as a direct lender providing funds for student loans. While the Act suggests this shift will save $87 billion over 10 years some specifically those who fear a large government disapprove of this restructuring of the student loan system. Shires sees the benefit of allowing the student lending business to remain in the private marketplace.
“In the private market you allow more innovation more creativity Shires said. You allow people to take risks on people. That’s both a blessing and a curse as we’ve seen in the real estate market. But education tends to be one of those areas with a higher payoff on those kinds of risky loans. Now that it is government standard the fear is that the federal government will start attaching strings to those loans and start trying to institute other parts of its social change agenda through the mechanism of those loans. I think that is very dangerous to universities— not just private universities but all universities.”
Pepperdine has decided to transition from FFLE program of private lending to the Direct Student Loan Program for the 2010 to 2011 academic year. This means that all Pepperdine students that plan to borrow Federal Stafford and PLUS loans for fall 2010 are required to complete a new Master Promissory Note (MPN). Lockhart says the benefits of the direct lending program include a reduced PLUS loan interest rate and one-stop shopping for Stafford and PLUS loans. She encourages students to read their e-mail and review their to-do list often— to stay up-to-date on important information regarding the new process. Pepperdine’s Office of Financial Assistance sees the switch as beneficial to student borrowers.
“There are currently no drawbacks to [direct lending] Lockhart wrote, in an e-mail.
The loan limits loan types and eligibility are the same as with FFELP.”
With private lenders leaving the market Ronald Johnson also sees the FDLP as the most stable option. UCLA has decided to transition to direct lending this year along with all other UC universities that have not yet made the switch.
Johnson predicts many other universities will like UCLA and Pepperdine begin to change over because the federal government will be a much more stable source than the lending institutions the federal government bailed out. Johnson would prefer not to take a gamble when it comes to student loans.
“Due to the instability of the [FELP] program it would make more sense to make sure that money was going to be spent as efficiently and effectively as possible in light of the shakiness of many of the lenders in the program and the insecurity as to whether or not they can be there for the long term Johnson said. It doesn’t really look like they can be based upon what has been happening in the last six months.”
Overall Lockhart sees the proposed education reforms as potentially beneficial for Pepperdine students.
“These are definitely steps in the right direction to provide access affordability and the completion of a college degree she said.