Tuesday, February 23, 2010

Tuition Caps, Cost Cutting...Working with Less

Preliminary steps taken by two prestigious New England colleges in the past week may signal new trends in higher education. One week ago Middlebury College announced a plan, pending board approval, that would limit annual cost of attendance increases to one percentage point over the Consumer Price Index. This week Brandeis University released its proposed cuts to academic programs as part of ongoing efforts to address its financial issues. The timing of these announcements has interestingly coincided with the publication of a joint study by two non-profit policy organizations, Public Agenda and the National Center for Public Policy and Higher Education, regarding public disatisfaction with colleges. Roughly two-thirds of the survey participants said that federal stimulus money should be used by colleges to hold down tuition, even at the cost of program cutbacks. Middlebury and Brandeis are apparently ahead of the curve and taking that message to heart.

Middlebury’s announcement may not seem like much, especially with inflation at an historic low. But in fact, it is a big deal for a college to commit to a cap for an "indefinite" period when average annual cost increases at four-year colleges have exceeded 4 percent. Other schools have imposed one year tuition freezes, only to raise price more than the rate of inflation the following year. Middlebury’s move obviously won’t improve its bottom line, though if one believes that demand for a college education is not inelastic (in other words, an increase in price will negatively affect demand), then this action should certainly raise the school’s desirability. But that’s what makes this move so noteworthy: as one of the most selective colleges in the country, Middlebury has only seen applications increase in recent years, even while its tuition has risen.

Brandeis’ move is gutsy, though born out of necessity. Imagine the premier Jewish-sponsored university in the U.S. abandoning Hebrew as a major. However, if the proposed reorganization is adopted, there is probably truth to the school’s claim that the impact on undergraduate studies will be minimal. For example, many departments will be merged rather than completely eliminated and changes will be phased in so as not to disrupt the education of current students or impact those applying for the coming fall. The biggest losers will be graduate students, as university-sponsored PhD programs are cutback or terminated (a topic for another day: the fate of university funded doctoral programs). Hebrew may no longer be a major; however, students will still be able to study the language while majoring instead in Near Eastern and Judaic Studies. What Brandeis has done is likely to become more prevalent at colleges across the nation. Programs with few degree candidates will be cut if determined that they may no longer be justifiable.

What does this imply for trends in higher education going forward? Middlebury’s move may likely put pressure on its peer institutions to do the same. Yet many well-endowed colleges are feeling the pinch even without slowing tuition increases. The lost dollars will have to come from somewhere. Expect financial aid to take a hit. Williams’ move to end its no-loan policy opened the door for Dartmouth…others will no doubt follow. Middlebury, by the way, was not among the 40 or so universities that did away with loans in need-based aid back in 2007-2008.

Colleges have for the past two years examined all possible ways to cut costs, so Brandeis’ announcement is not that surprising. Staff layoffs, salary freezes, and varsity team eliminations have become more commonplace news. What makes Brandeis’ step so notable is where it has chosen to reduce expenses. I offer up advice I have shared in the past. Students should do their homework when researching colleges. If they have an interest in a highly specialized major that may have few degree candidates, inquire about the ‘safety’ of that program. If academic programs are eliminated, hopefully others will follow Brandeis’ example and phase them out over time so that current students are not impacted.

Are colleges finally getting the message that controlling costs and making education affordable, even at the expense of some programs, is among the top concerns of families with college age students? In the case of tuition caps, one school does not make a trend, but I will remain optimistic.

Friday, February 12, 2010

Making College Accessible - How You Can Help

I am going to totally change gears with this posting and pose a question (actually two): 1) Do you ever shop online, and 2) if I told you that your online purchases could benefit underserved high school students at no additional cost to you, would you be willing to help? I bet most of you would answer yes to both.

The New York Association for College Admission Counseling (NYSACAC) is a not-for-profit organization with a mission that includes promoting access and equity in post-secondary education, and developing and supporting the college counseling profession. As co-chair of the Development Committee of the NYSACAC Executive Board, I am involved in fundraising initiatives in support of this mission. NYSACAC has established an affiliation with Amazon.com that will allow members and non-members to support the association’s initiatives while shopping on-line. The link to Amazon is posted on the NYSACAC website (http://www.nysacac.org) and can be easily accessed on the “Donate” page. You can alternatively go directly to the “Donate” site by clicking on http://tinyurl.com/yk2nhdd. Every purchase made through NYSACAC will benefit underserved students by funding important programs that improve college accessibility. So please consider shopping through the NYSACAC website the next time you want to buy a book or make other purchases through Amazon. It involves one easy extra step that could lead to a disadvantaged child taking leaps and bounds.
Another way to support NYSACAC and its mission is to donate directly. One of the special programs that NYSACAC offers is Camp College, a three-day college experience for students who might otherwise not have adequate opportunities to learn about the college admission process. By accommodating 150-200 students each summer, this program gives disadvantaged youths a chance to experience life on a college campus while also meeting with high school counselors and college admission officers who educate them about the college process. Many people volunteer time and resources to this much needed program. However, the cost to send one student for a three-day session still runs about $160.
If your own son or daughter has access to good college planning resources, you understand the value of such guidance. Imagine how critical it becomes for a first generation, underserved student for whom going to college is never discussed at home, nor presented as an option. Would you consider helping a less fortunate student realize his or her college dream by making a donation to NYSACAC for the benefit of Camp College? For $160 you can sponsor a student, though contributions of any amount will truly make a difference. A donation at the sponsor level will pair you with a particular student, who will know that he or she is able to participate in Camp College thanks to your generosity. Donations for the benefit of Camp College can be made by going to the NYSACAC website, clicking on the “Donate” link and following the directions from there. Thank you for any support you can give.

Wednesday, February 10, 2010

Are "No Loan" Aid Policies a Thing of the Past?

First it was Williams earlier this month; now Dartmouth has announced that it is pulling back from its “no loan” policy for students who qualify for financial aid. Anyone who has been reading about college investment losses should not be surprised by this development. A couple of weeks ago a study on college endowments reported that these investment portfolios in the aggregate lost about $95 billion in value in the 2009 fiscal year (June 2008 to June 2009), contracting 23% on average. Since colleges such as Williams and Dartmouth rely on endowment earnings to fund a major portion of their operating budgets, these investment losses have significant ramifications.

Back in late 2007 and early 2008 about 40 highly selective and well endowed colleges instituted no loan or limited loan policies for their student aid programs. This trend took hold after Senator Charles Grassley, Republican from Iowa, suggested that colleges and universities be held to the same standards as foundations that must spend 5% of the value of their investments annually in order to maintain tax exempt status. Yet as colleges grapple with structural deficits, even after a series of budget cuts, the practicality of these policies is now being revisited.

With Williams and Dartmouth taking the first steps, it is just a matter of time before others follow suit, as none of these colleges has been spared the economic pain. Both schools have stated that the reinstitution of loans in financial aid packages is a necessary move in order to preserve educational programs. Each has emphasized, however, that the return to loans will not affect students who demonstrate the most significant need. Dartmouth, for example, has stated that it expects this to impact those students whose families earn above $75,000, for whom loans will comprise $2,500 to $5,500 of the financial aid package per academic year. With income under $100,000, loans will not exceed $2,500.

So what does this mean for financial aid, in general, at colleges across the country? Without a crystal ball, I can only make some educated guesses. Neither Williams nor Dartmouth has backed away from fully meeting demonstrated need, and I expect that maintaining this policy will be a priority. We will just begin to see a higher percentage of loans in the packaging. The selective schools that currently have no loan policies generally offer need-based aid only (no merit). That of course, will not change. But what about other colleges that use merit aid to attract students and shape a class? Many of these colleges do not have the hefty endowments that prompted the no loan policies in the first place. They rely heavily on tuition to meet their budgets and fund aid.

Given the importance of filling seats, I predict that merit aid as an enrollment management tool will continue for many colleges. In fact, schools that survive by maintaining enrollment numbers may find merit aid even more important. Offering some tuition discount, past experience has shown, attracts students who still bring in tuition dollars. These are the ones that also raise GPA and standardized test score averages.

But back to need-based aid...will we continue to see less generous financial aid packages? Pure economics would suggest so. Don't be surprised to see other highly selective colleges dial back their no loan policies, especially now that two of their prestigious peers have already taken the plunge.

Wednesday, February 3, 2010

Obama's Plan for Financing Higher Education

Last summer the Obama administration introduced the Student Aid and Fiscal Responsibility Act, or SAFRA, which would end bank origination of federally guaranteed student loans. If passed by the Senate (it has already been approved by the House of Representatives), all federally guaranteed student loans will be funded directly through the federal government. The administration claims that eliminating the bank based program will save the government $87 billion over ten years, primarily by ending the subsidies that banks receive through the Federal Family Education Loan Program (FFEL). President Obama has pledged to use the expected savings towards other education initiatives.

So who will benefit from this savings windfall? The primary beneficiaries are likely to be borrowers repaying their federal guaranteed student loans and Pell Grant recipients. At the State of the Union address a little more than a week ago, Obama announced his commitment to expand the recently created Income-Based Repayment Program which I discussed in a blog posting last June. The existing repayment program went into effect July 1, 2009 and currently caps monthly loan payments for federal student loan borrowers at 15% of discretionary income (the difference between adjusted gross income and 150% of the federal poverty level). After 25 years, any outstanding loan balance would be fully extinguished. Those employed in public service would be relieved of their debt obligations after 10 years.

Now President Obama proposes to reduce the maximum federal loan payment amount to 10% of income, with a 20 year debt forgiveness term. Roughly 36% of student loan borrowers have loan payments that exceed 10% of their income, versus 16% at the current 15% of discretionary income cap. There is a real benefit here to our sons and daughters who borrow under the federal Stafford student loan program. For recent graduates starting out with modest incomes, a cap on debt service can provide some tangible cash outflow relief and may mean the difference between affordability and potential default.

The other major beneficiary of education finance reform is likely to be the Pell Grant program, which comes as no surprise. The Obama Administration has been upfront about its desire to improve funding to this higher education aid program which benefits those students with the greatest financial need. Key features of Obama’s budget plan for Pell Grants are an increase in the maximum annual amount to $5,710 from the current $5,350 maximum with increases pegged to the CPI, and a proposal to convert this to an entitlement program. Such a move would guarantee available funding for Pell Grants and would remove the program from the uncertainties of the Congressional budget annual appropriation process.

The last, but not necessarily least of the Obama administration proposals is the extension of the American Opportunity Tax Credit which, as a modification to the Hope Tax Credit, was initially approved for 2009 and 2010 only. The maximum $2,500 per tax year can be used during the first four years of post secondary education (100% of the first $2,000 and 25% of the next $2,000 for qualified tuition and expenses, including textbooks). The tax credit is available to middle income families, though begins to phase out between $80,000 to $90,000 for single taxpayers and $160,000 to $180,000 for married couples.

All in all, it appears that higher education fared better in the president’s 2011 fiscal budget than many other programs that have experienced cutbacks in funding. In fact, the proposals, if approved, will provide some relief to a wider range of income groups. By increasing Pell Grants, extending the American Opportunity Tax Credit and lowering the income caps for federal loan repayments, the Obama education plan casts a fairly wide net. It should help, even if modestly, not only those most in need, but will also begin to address the economic challenges faced by middle income families and recent college graduates who must make student loan payments at the same time that they try to get established in the workforce.