Senators and Representatives Examine Financing Higher Education, Income Share Agreements
By Stephen Payne, Policy & Federal Relations Staff
In a hearing yesterday titled “Financing Higher Education: Exploring Current Challenges and Potential Alternatives,” higher education experts and members of Congress engaged in a productive conversation about paying for college while ensuring certain consumer protections. The hearing was called by the Joint Economic Committee, a committee made up of members from both the House of Representatives and the Senate that examines economic policy.
The attending members of Congress heard from a witness panel consisting of Mitch Daniels, the president of Purdue University; Andrew Kelly, director of the Center for Higher Education Reform at the American Enterprise Institute; and Rohit Chopra, the former student loan ombudsman at the Consumer Financial Protection Bureau who now works at the Center for American Progress.
In his opening statement, Sen. Coats (R-IN) who chairs the committee laid the groundwork for his perspective on financing the nation’s colleges and universities, saying “Most of us–if not all of us–would agree the current framework is not ideal.”
The ranking member of the committee, Rep. Maloney (D-NY) agreed, but acknowledged the impact of other factors in the equation, including the recession’s impact on family savings and waning state support. “Rapidly growing student loan debt is a significant challenge facing our country,” she said. “Cuts in state funding for higher education force public universities to charge more.”
Furthermore, both the chairman and ranking member expressed interest in the potential of income share agreements, though Maloney noted, “Rather than look to the private sector to magically solve the student debt problem, we should strengthen public support for higher education.”
“We see [income share agreements], not as a panacea, but as an important addition or replacement to the portfolio for PLUS and most private loans,” said Daniels in his testimony. “You want debt-free education? Here it is,” he argued.
Kelly identified four “design flaws” in the federal student aid programs, including the incentive for “colleges and universities to collect as much aid as they can,” the lack of consumer information, no underwriting of student borrowing, and suspect quality assurance practices. He recommended capping PLUS loan borrowing, collecting and releasing program-level earnings data, instituting “skin-in-the-game” policies, and incentivizing more private financing to “inject more market discipline into higher education.”
Chopra explained his desire for “common sense ‘rules of the road’ to promote fair competition that protect consumers and honest business.” These solutions include better consumer disclosures, more accurate credit reporting, and avoiding “gimmicky” income-driven repayment plans.
Several important topics were raised in the question and answer session. Sen. Peters (D-MI) questioned the panel about his concern over the increase in adjunct instructors while tuition also increases. “Where is the money for tuition increases going if it’s not going to help our students and faculty in the classroom?” he posed to the panel. Daniels pointed to the increased spending on facilities and amenities and the race to appear more prestigious by having a high sticker price as potential explanations.
Daniels responded “zero or close to zero” to Sen. Lee’s (R-UT) question about how much it would cost to provide increased consumer information for students and families. Chopra interjected that entrance counseling is important, but exit counseling and counseling once in repayment may be more beneficial.
Sen. Cassidy (R-LA) pointed out that disadvantaged students may be the least likely to succeed in income share agreements, as private financers may be less inclined to invest in those students. Daniels stated he wasn’t sure what implications there would be as the program has not yet been implemented. Next, Cassidy asked Kelly about potential flaws in skin in the game proposals. Kelly argued that coupling a risk-sharing system with a bonus for graduating Pell Grant students may address some of those concerns.
Sen. Casey (D-PA) closed the hearing by advocating for the expiring Perkins Loan Program in his questioning, which Sen. Alexander (R-TN) would go on to block later in the afternoon. He asked Daniels about the value of that program, but Daniels instead said a “one grant, one loan” may be simpler for students. Daniels did acknowledge that the Perkins model could be a strong basis for new or streamlined loan programs moving forward.
Publication Date: 10/1/2015
Darla A | 10/1/2015 6:5:54 PM
I am really amazed that no one is talking about the soaring administrative costs... no wonder so many adjuncts are living in poverty.
“Where is the money for tuition increases going if it’s not going to help our students and faculty in the classroom?” he posed to the panel. Daniels pointed to the increased spending on facilities and amenities and the race to appear more prestigious by having a high sticker price as potential explanations.
http://www.seattlemag.com/article/adjuncts-struggle-balance-dreams-teaching-low-wages
Robert P | 10/1/2015 12:44:48 PM
I agree with Heather. There is now so much information that consumers are overwhelmed with it. How many congressmen read and understood the consumer booklet that came with their dishwasher, refrigerator or stove? How many READ their mortgage agreements and didn't just sign where the escrow agent told them to sign? How many read the credit disclosure that comes once a year from their credit card companies. Disclosure is not an effective fix-all for this.
Heather B | 10/1/2015 11:40:22 AM
I am really amazed at the talk of MORE consumer information. Do those testifying not understand of the required consumer information now?
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