The Higher Education Act of 1965 (HEA) was signed into law on Nov. 8, 1965 to strengthen the educational resources of our colleges and universities and to provide financial assistance for students ...]]>

Nearly 50 years after the landmark legislation aimed to open higher education to all Americans, colleges and students face a new set of threats

The Higher Education Act of 1965 (HEA) was signed into law on Nov. 8, 1965 to strengthen the educational resources of our colleges and universities and to provide financial assistance for students in postsecondary education. During reauthorizations of the HEA, Congress makes changes to the legislation based on changing national and political priorities. But, it is important to remember that HEA was the response to deal with national problems of poverty and community development. It was President Lyndon Johnson’s own experience as a student and later as a teacher that was the underpinning of his work with Congress on HEA. As he wrote:

“I lived in a tiny room above Dr. Evans' garage. I lived there three years before the business manager knew I occupied those quarters and submitted me a bill. I shaved and I showered in a gymnasium that was down the road. I worked at a dozen different jobs, from sweeping the floors to selling real silk socks. Sometimes I wondered what the next day would bring that could exceed the hardship of the day before. But with all of that, I was one of the lucky ones—and I knew it even then … I shall never forget the faces of the boys and the girls in that little Welhausen Mexican School, and I remember even yet the pain of realizing and knowing then that college was closed to practically every one of those children because they were too poor. And I think it was then that I made up my mind that this nation could never rest while the door to knowledge remained closed to any American.”

Debt & earnings premium

A combination of federal and private student loans in addition to federal and institutional aid has helped many students participate in education beyond high school. Yet, the question of students losing the “earnings premium” (average income gains due to postsecondary credential) despite loan indebtedness is a real concern, particularly as it relates to climbing federal default rates (9%) and undergrads with monthly payments greater than 25% of monthly income. But, for the typical student who borrows to cover tuition and fees at a community college and earns an associate degree two years after high school graduation, total earnings net of loan repayment exceed the total earnings of high school graduates by age 33, after 13 years of work. The typical four-year college graduate makes up for time out of the labor force and for paying tuition by age 30.

Click on the chart to enlarge.

The Consumer Financial Protection Bureau (CFPB) and the U.S Department of Education completed research over the summer which recommended that the two work with Congress to identify the necessary resources to provide a comprehensive picture of student borrowing that is inclusive of both federal and private student loans. In light of staggering headlines about graduates with six-figure debt loads, it is interesting to note that the majority (63%) of students who have federal and private student loans have monthly student loan payments that are 5% or less of their income, and 80% have monthly loan payments that are 10% or less of their income. On the other end of the spectrum, among individuals who did not attain a degree or certificate and had student loan payments, 88% had monthly payments of 10% or less of their income.

Click on the table to enlarge.

While most had manageable debt loads, this isn’t saying there isn’t a student loan debt problem–there is. Federal student loans were built to serve a different purpose. Loans provided access when prices were unaffordable for the most basic entry point of higher education. Today, for some, student loans serve as financing mechanisms to afford a higher-priced institution when a lower-priced institution would be possible without the additional debt burden. More debt always means more risk of not achieving the earnings premium. Still, we know that the debt problem is not reflected solely in student loan payments as a percentage of income. It is also reflected in parents being over-leveraged in additional ways not considered by the CFPB study. Those financing mechanisms include using home equity, federal PLUS loans, credit-card borrowing and tapping emergency and retirement savings to pay for college.

Relief for the middle class to contend with risings costs was reflected in the comments made by President George H.W. Bush during the HEA Reauthorization of 1992, “This act that I’m signing today gives a hand up to lower-income students who need help the most. But it also reaches out into the middle-income families, the ones who skipped a vacation and drove the old clunker so that their kids could go to college.” Still, in just the past 10 years, average tuition as a percentage of median earnings increasing from 27% percent to 38%. According to the How America Pays for College survey, parents decreased the average amount used from dedicated college savings funds to pay for college by 32%, although they increased the average amount withdrawn from retirement account savings by 59%. Among the families that used parent income to contribute to the cost of college in the 2011-12 academic year, the average value of the contribution was 20% higher than that reported the prior year.

Access to information

The recent strengthening of consumer protections under the CFBP and the Obama administration’s focus on college affordability tying federal campus aid to responsible campus tuition policies, has brought unprecedented access to information about campuses’ average indebtedness, graduation rates, net price and financial aid programs. The only problem is that students and their parents may not understand how to digest all this information and may not understand the personal implications for the statistics provided on sites like College Navigator and The College Affordability and Transparency Center. It also seems that the federal requirement for all schools to provide a net price calculator may not be achieving its desired outcome. According to Noel Levitz, 74% of students can’t find the Net Price Calculator never mind understand how to use it as part of a balanced college plan.

Resistance to correction

Institutions have more liabilities, higher debt service and increasing expense without the revenue or the cash reserves to back them up and are increasingly reliant upon tuition revenue. The lack of standard market forces means a resistance to correction. Bain & Co. presents a report in which it lauds the sector as a “cornerstone of our economic prosperity” and encourages it to meet the diverse needs of the U.S. student population, but condemns the “Robin Hood” pricing approach. The report also includes a tool to help readers understand which campuses are spending more than they can afford. The interactive graphic paints a bleak fiscal outlook, which includes several New England campuses.

Individual versus societal benefits

The often-cited “earn more than a million more dollars over a lifetime if you get a college degree” was effective in helping teens to correlate additional education to the personal financial benefits during the ‘80s and ’90s. However, today’s public policy (as reflected in state funding of higher education) and public discourse seems to focus only on the increase in personal income that, on average, results from higher education, rather than on the greater societal benefits–low unemployment, increased tax payments, health, civic engagement, low reliance on public assistance programs. A plethora of research documents the relationship between educational attainment and the economic strength of the New England states and our nation. Yet public policy has not reflected this reality. Declining state investment has been absorbed by the federal taxpayers and families. Again, President Johnson:

“I want to make it dear once and for all, here and now, so that all that can see can witness and all who can hear can hear, that the federal government—as long as I am president—intends to be a partner and not a boss in meeting our responsibilities to all the people. The federal government has neither the wish nor the power to dictate education. We can point the way. We can offer help. We can contribute to providing the necessary and needed tools. But the final decision, the last responsibility, the ultimate control, must, and will, always rest with the local communities.”

Among those states increasing aid, there is an upward trend in awarding grants based on academic merit without consideration of need. Yet, the intent of HEA was that funding higher education for low-income students would be a shared responsibility with states.

Click on the chart to enlarge.

The percentage of state grant dollars for undergraduate students distributed without regard to students’ financial circumstances increased from 9% in 1986 to 29% in 2011. The College Board’s Rethinking Student Aid study group of 2008 described that “the most important purpose for student aid is to expand participation of qualified low-income students in higher education.” Yet, states are increasing the percentage of non-need-based programs and the proportion of tuition and fees covered by the maximum Pell Grant has declined in the past 10 years. The Pell Grant covered 98% of average public four-year tuition and fees in 2002-03, but only 64% in 2012-13. And, of course, in New England, where the average public tuition and fees are among the nation’s highest, Pell covers an even smaller portion. Quietly, changes in the federal student aid program for 2012-13 reduced the income threshold for an automatic zero expected family contribution (EFC) from $30,000 to $23,000, thereby reducing eligibility for Pell for the some of our most vulnerable students. The Rethinking Student Aid study group recommends indexing the maximum Pell Grant to the Consumer Price Index (CPI). According to the group, “Since the poverty level is also indexed to the CPI, this practice will allow the Pell eligibility amounts to maintain their real, inflation-adjusted levels over time.”

From the gymnasium at Southwest Texas State College, his alma mater, President Johnson remarked on his valuation of a college education which recognizes the greater benefits:

“And in my judgment, this nation can never make a wiser or a more profitable investment anywhere … We will reap the rewards of their wiser citizenship and their greater productivity for decades to come … Here the seeds were planted from which grew my firm conviction that for the individual, education is the path to achievement and fulfillment; for the nation, it is a path to a society that is not only free but civilized; and for the world, it is the path to peace—for it is education that places reason over force.”

As we consider college costs, student aid and increasing access for New Englanders to achieve education beyond high school, we might just find that looking back to the intent of HEA provides insight about what we can do to improve the student aid system going forward.

Tara Payne is vice president of College Planning & Community Engagement at the NHHEAF Network Organizations.

Today’s global economy requires a highly skilled labor force that is prepared to compete on the world stage. Studies from the U.S. Chamber of Commerce, the U.S. Census Bureau, the Brookings Institution and the Conference Board have all identified building ...]]>

While other states are experiencing difficult budget decisions, only New Hampshire has completely de-funded student aid

Today’s global economy requires a highly skilled labor force that is prepared to compete on the world stage. Studies from the U.S. Chamber of Commerce, the U.S. Census Bureau, the Brookings Institution and the Conference Board have all identified building and maintaining a highly skilled workforce as a national and local imperative. If we are truly concerned about our economic future, then ensuring access to higher education opportunities for all our citizens should be the No. 1 priority for state policymakers.

With the demographic changes rapidly taking place in New Hampshire, the future of our state’s economy is integrally tied to the future education of our residents. New Hampshire has long enjoyed the benefits of a highly educated populace, ranking third highest in residents holding associate degrees and ninth in those holding bachelor's degrees. However, when you look a little deeper, you quickly discover that the Granite State ranks near the bottom (46^th) in native population holding bachelor’s degrees. This indicates that many of our high school graduates who leave the state for postsecondary education never return. Additionally, the Carsey Institute at the University of New Hampshire reports we are at a 50-year low in the in-migration of residents to our state. If this trend continues. New Hampshire may well lose its economic edge.

Postsecondary education can produce millions in lifetime earnings

In 2011, the U.S. Census Bureau produced an analysis of estimated earnings over the course of an individual’s working life. The analysis revealed two important factors across all demographic categories: “higher earnings are both the result of higher likelihoods of full-time employment and the higher levels of education required for that employment.” This study demonstrates “a clear and well-defined relationship between education and earnings and that this relationship perseveres, even after considering a collection of other personal and geographic characteristics.”

New Hampshire state data bear this out. According to an outlook report prepared by the New Hampshire Center for Public Policy Studies for the New England Economic Partnership, “persons with lower levels of educational attainment claim a larger share of the unemployed (relative to their representative size in the overall population). [Conversely] … the higher the level of education attainment, the lower the unemployment rate for that group.”

Thus, it’s no wonder New Hampshire’s unemployment rates are lower than the national average, with so many of our residents holding postsecondary degrees.

New Hampshire will face skills gap

According to studies by the widely respected Georgetown University Center on Education and the Workforce, 64% of jobs in New Hampshire will require some postsecondary education by 2018. Numerically, these 486,000 jobs will span management and professional, education, STEM and healthcare fields. The key question is will we have the educated residents to fill these positions?

I regularly hear from business leaders already concerned about the skills gap of the current workforce. In an August 2012 article from the Laconia Daily Sun, Gary Groleau, corporate manager of labor relations and corporate development at New Hampshire Ball Bearing Inc., was quoted concerning the lack of capacity to train people for new work. "Without the infrastructure to educate and train people for these jobs," Groleau said, "the competitive advantage of the region and its manufacturers erodes very quickly. And this problem is not going to solve itself."

Another concern is both our rapidly aging population and the declining enrollment numbers in our state’s K-12 schools. In 2025 it is projected that New Hampshire will have a skills gap of 50,841 degrees. To bridge the current and looming workforce gap, New Hampshire must work to achieve higher levels of resident degree completion.

Direct student financial aid matters

General fund support for higher education is a wise and necessary investment. State support toward higher education is critical to our state’s economic and cultural future. Unfortunately, many New Hampshire students are being disadvantaged by the unprecedented lack of direct state financial support for their education. The situation for students will likely worsen, as federal Pell Grant funding for FY2014 will face a $5.7 billion shortfall. Low student aid leads directly to high debt, with New Hampshire students now ranking first in the nation for student loan debt at over $32,000 on average.

Most experts agree that need-based grant aid is most effective in ensuring that students can access higher education. Given the importance of higher education to our economic security, it is useful to explore how New Hampshire’s support of students in their postsecondary education compares with other New England states.

In 2011, the Legislature eliminated all student aid from the New Hampshire state budget. While other states are experiencing difficult budget decisions, no other state has completely de-funded student aid.

I believe it imperative that New Hampshire restore General Fund grant aid to the state budget for our neediest students.

A Brookings Institution study, “Beyond Need and Merit: Strengthening State Grant Programs,” reminded legislators that state grant programs are one of the core policy levers available that have a demonstrated ability to “affect students” access to and success in college. These programs should be designed to use taxpayer dollars as effectively as possible to increase the educational opportunities and attainment level of state residents.

It’s time for New Hampshire to get back into the financial aid business. I urge business leaders and all citizens to encourage policymakers to re-dedicate state resources to higher education scholarships.

Lou D'Allesandro is a New Hampshire state senator and former chair of NEBHE.

Clarification: An earlier version of this piece contained a table that inappropriately juxtaposed data from state agencies and the National Association on State Student Grant & Aid Programs.

In the letter, SHEEO President Paul Lingenfelter asks the next presidential candidate to sustain federal investment in research and development (R&D) and provide necessary levels of federal need-based financial aid. ...]]>

The State Higher Education Executive Officers (SHEEO) group issued an open letter to President Barack Obama and Republican challenger Mitt Romney in Change Magazine’s September/October edition.

In the letter, SHEEO President Paul Lingenfelter asks the next presidential candidate to sustain federal investment in research and development (R&D) and provide necessary levels of federal need-based financial aid. The letter also emphasizes the collaboration necessary between federal and state governments to raise degree-attainment rates and support the nation’s civic and economic development.

For its part, New England universities performed 7.3% of the R&D from all sources across all U.S. universities in 2009 , capturing more than $4 billion in research funds. In New England, more than 70% of those R&D dollars comes from Washington, D.C., a much higher percentage than in other U.S. regions. While the region’s research universities have been overly reliant on federal research funds, they have been underfunded by the New England states.

 “Virtually all the basic research in the United States is done in public and private universities, supported principally with federal dollars,” wrote Lingenfelter. States, he noted, "have been stretched beyond their capacity to finance higher education enrollment growth, spiraling healthcare and pension costs, and increasing corrections expense. While we understand that federal resources are also limited, there is no other source to replace the federal role in research and development.”

In addition to supporting R&D, federal dollars support hundreds of thousands of New England students through student financial aid programs. Total state need-based grant aid in New England was equal to only 21% of total federal need-based Pell Grant aid disbursed to New England students.

Although state need-based grant aid pales compared with the total federal financial aid available to students, public higher education systems across the country have found other ways to minimize the cost to students and support degree completion.

For example, the University of Maine agreed to freeze tuition rates at current levels in exchange for state funding, as did the University of New Hampshire. Massachusetts is piloting a “completion incentive grant fund” that links need-based grant aid to students’ academic progress.

Between 2007 and 2010, the number of Pell Grant recipients increased 51% and the average Pell Grant award increased 46%. As in the case of R&D, the states cannot hope to replace federal student financial aid. As diminishing college affordability butts up against the call for higher degree-attainment levels, state and federal governments must work with higher education institutions to enhance postsecondary opportunities for students.

Since last October, Net Price Calculators (NPCs) have become a fact of life for American colleges ...]]>

No sooner has the Net Price Calculator wave crashed ashore, the next wave of college-choice transparency in the form of third-party data aggregators is threatening to engulf us. A Net Value Calculator can help us recapture the high ground.

Since last October, Net Price Calculators (NPCs) have become a fact of life for American colleges and universities.

Some are doing the bare minimum to comply with the federal mandate by adopting the generic, federal NPC template. Others have developed more robust, custom-designed NPC’s that are more accurate in the information they present, better explain the school’s financial aid policies and even serve as marketing portals with links to messages about the school’s positive features and overall value, thereby framing “net price” in a larger context.

Back in 2010, we at Maguire Associates predicted that the online NPC was just the next step in an inevitable progression leading to the emergence of college pricing data aggregators.

A paper titled The Second Wave of Consumer Transparency in Higher Education by my colleagues Sarah Parrott and Jessica McWade predicted: “The new transparency is being fueled by the mandate for net price calculators. By October 2011, all colleges and universities must post net price calculators on their websites. Not long after that, the web aggregators (think Kayak.com) will find a way to grab the net price information for direct comparisons between colleges and universities. This information aggregation has already occurred in most high-end consumer markets, such as housing, travel and automobiles; it should be no surprise that the same will happen in higher education. Some institutions will fare surprisingly well because their net price calculators will be sophisticated enough to incorporate all institutional grant aid in addition to state and federal sources of aid, thereby lowering the net price that families will see online. Other institutions won’t fare as well because their net price calculators will be more generic and won’t account for all sources of financial aid that can offset the cost of attendance.”

Here come the aggregators

Well, the future is here, and comparison shopping for college tuition has begun.

First of all, the federal government itself is already providing net price comparisons of schools at its College Affordability and Transparency Center.

And where the government goes, commercial vendors can’t be far behind. For example, the website eduLaunchpad.com describes itself as “the first college search engine which allows students and parents to actually see and compare thousands of colleges’ net prices side by side, rather than having to individually search out each school. Unlike searching on individual schools or other college search engines, eduLaunchpad can include the net price calculation directly in the student or parent’s search results. This new information is going to become the standard search criteria for all college searches.” Like other aggregators, eduLaunchpad is supported by advertising from colleges themselves.

This development sounds like something we should all be applauding, right? After all, NPCs were meant to create transparency in what had long been a very murky, frustrating process for prospective college students and their families. With the NPC, these consumers can now make better informed decisions. As noted in a recent New York Times editorial: “The purpose of the calculator is to let families know long before they apply whether a particular college is within reach financially. Grants at a college with a high sticker price may actually make it less costly than a college with a lower sticker price and less generous financial aid.”

But now third-party aggregators using a limited number of criteria are busily reducing every college to comparable bottom-line figures. For those institutions that have gone to the trouble and expense of custom designing NPCs in order to more fully reflect their financial aid opportunities, it may seem that all of their carefully constructed detail might go for naught. Such would indeed be the case if a potential applicant were to forego a visit to the college’s website-linked NPC based on what he or she had already learned from a less informative, but more convenient, aggregator site. (See Endnote.)

Ironically, the evolution of the NPC toward third-party aggregation could end up subverting a major goal of the whole exercise—namely, encouraging applicants to consider schools that they might have erroneously thought were too costly.

Net price is only one factor of many

Such an outcome would be particularly troubling if its effect were to dissuade applicants from learning more about what particular schools offer for the money they charge. The fact is, college applicants and their families are not concerned only with net price when they make their college- choice decisions. For the past three years, Maguire Associates in partnership with Fastweb has conducted a College Decision Impact Survey (CDIS) of over 20,000 high school seniors annually, in an attempt to better understand the factors that drive prospective students’ decision-making regarding the colleges to which they apply and ultimately choose to attend.

Again and again, our survey findings confirm that cost of attendance, while important, is only one of an array of factors that influence college choice. High school seniors continue to place the greatest importance on “Value of Education” as well as:

• Quality of major and students;
• Career-oriented coursework/majors and future employment opportunities;
• Total costs and the availability of merit- or need-based financial aid;
• Academic facilities;
• Campus atmosphere;
• Personal attention; and
• Preparation for graduate/professional school.

Students’ college priorities have remained stable despite any concerns about the economy. In fact, they appear to be willing, even in these difficult economic times, to pay more for higher education if it means they might obtain greater overall value for money. In response to the statement: “I am willing to assume debt, or deepen my financial commitment, for a higher quality education” a substantial majority scored 3 or higher on a scale of 1 Strongly Disagree to 5 Strongly Agree.

What we really need is not an NPC but an NVC

An important business concept is the notion of “net present value.” It allows you to decide among alternative investments that have different patterns of costs and revenues over time by calculating the net value today of their respective future streams of cash outflows and inflows.  In other words: What amount of money today, if invested at a particular rate of return, would be equivalent to that future stream of dollars?

In the world of higher education, the comparable question becomes: What would be the net present value of investing in College A vs. College B, when you take into account not only the net price of attendance over, say, four years, but also the stream of future earnings historically associated with graduating from each institution projected over one's working lifetime (net of debt service and repayment costs, of course).

The Obama administration recently announced an initiative in the spirit (if not the technical sophistication) of net present value called the “College Scorecard.” Linked to the NCES College Navigator website, the Scorecard, as currently conceived, would supplement net cost of attendance (captured by the NPC) with indicators of relative value such as completion rates, student loan debt and repayment rates, and earnings potential. Colleges will be asked to issue a financial “shopping sheet,” containing these data. Below is a link to a screenshot of the site where comments on the Scorecard are being solicited.

In light of our CDIS findings, however, a scorecard would only scratch the surface of what constitutes net value in the minds of most higher education consumers. For them, an ideal Net Value Calculator would gauge the net present value of an education not merely in terms of cash outflows and inflows but of a whole range of factors that we know students "value" but cannot readily quantify—things like quality of teaching, compatibility with fellow students, campus climate, potential for post-graduation professional networking, institutional reputation in the job market, grounding in critical thinking and communication skills, and so on.

It would be virtually impossible for any third-party aggregator to adequately quantify these intangible benefits for a particular college, much less do so in any kind of meaningfully comparable way for all colleges. U.S. News & World Report has tried, but even it cautions users not to rely exclusively on the rankings when choosing a college. Despite the many items it measures, the rankings cannot elucidate all the factors that might bear on such a decision.

So what should college leaders do?

In a world where aggregators will be “scraping” NPC information from every college, what should leaders of any one college do to make sure that these third parties don’t preempt their best prospects?

1.     Test each major aggregator site by entering sets of applicant characteristics that represent desirable student profiles to determine what that site would say about your bottom line versus those of other schools. See if, in fact, an inaccurate or unfair impression is being conveyed that might cause a user to forego visiting your own website.

2.     Armed with this insight, reexamine your NPC to ensure that it presents your institution’s financial aid policies as you would wish them to be understood by various types of students with differing financial needs, demographic characteristics and qualifications. Good NPCs factor in both need- and merit-based financial aid before presenting the bottom-line net cost.

3.     When you do get a prospective student or parent’s attention on your NPC site, design their experience so that they are exposed to what amounts to your NVC as well. Provide them with carefully constructed messages, links and “sticky” content that will engage their interest and encourage them to stay on your site to learn the school’s full value proposition. (Parents, in particular, will likely spend more time with your NPC than they will with your viewbook, so use those few extra minutes to introduce your institution’s value as well as its net price.)

Recognize that, as much as you might hope to “drain the swamp” of the aggregators, that’s not going to happen. Better to count on their proliferation and work with them to promote ever greater transparency and detail. Take the initiative in providing them with all of the information prospective candidates should use in deciding on which college to attend

This last point bears some elaboration. In all probability, further evolution toward third-party aggregation will continue in the direction of increased competition among them, as they try to outdo each other in serving the needs of prospective students and their families. We’ve seen this happen before. Over time, the various travel aggregator sites, in order to stay competitive, have expanded their user options to include preferences for particular kinds of meals, direct flights, seat locations, etc. In the same way, we can expect that these new college one-stop shopping sites will also incorporate other criteria of value to their users.

But this will take time to develop. Initially, we are more likely to witness a stripping away of detail in order to get to a least common denominator bottom line. And this will surely be a cause of consternation to those schools that suffer unfairly in simplistic comparisons. Take solace from the fact that the richer and more robust your NPC, the more you are likely over time to see your school’s  full value reflected in governmental scorecards and shopping sheets and on third-party websites.

Transparency is here

Transparency in college-choice decision making is with us. For good or ill, the first wave of transparency came when U.S. News & World Report aggregated information on paper and began publishing its rankings. The second wave arrived with the net price calculator mandate. The third wave will be the emergence of an increasing number of aggregation sites that allow users to prescreen multiple colleges without ever needing to visit their individual sites.

This third wave carries with it both dangers and opportunities. Early on, the aggregators will be limited in the amount of information they report about each institution—to the possible detriment of those schools whose NPCs have been designed to tell a more complex, nuanced story. Nevertheless, colleges should take the lead in helping aggregators to become ever more helpful to their users by providing greater levels of explanatory detail.

In the end, we can all hope that, with the encouragement of college leaders and higher education trade associations, the competitive dynamics we’ve witnessed in other domains will operate in higher education as well, leading the aggregators to enhance their reporting to more fully and fairly reflect the distinctive value propositions of America's colleges and universities.

Lawrence Butler is senior consultant at Maguire Associates Inc., a Concord, Mass.-based consulting firm.

Endnote

Not surprisingly, at least one commercial aggregator (eduLaunchpad referred to earlier) recognizes the opportunity to capitalize on the need that colleges have to stand out from aggregated net price data by offering to highlight and provide dedicated messaging for those colleges that are willing to pay a fee for a “premium listing.”  We are likely to see more of this Google-style form of advertising as the number of aggregators expands.