WASHINGTON | December 1, 2017
New Higher Education Reform Bill Will Help Low-Income Americans Go To College
By Ames Brown
Today, Rep. Virginia Foxx (R., N.C.), chairwoman of the House Education and Workforce Committee, will introduce a landmark proposal to overhaul the way the federal government funds and oversees higher education. Based on a draft summary of the legislation that I’ve had a chance to review, one thing stands out about the bill: its focus on helping low-income Americans gain a college education.
The economic value of reforming the Pell Grant program
One of the most important economic divisions in America is between those who have a college degree, and those who do not. According to the Bureau of Labor Statistics’ Current Population Survey, the median income of Americans who haven’t gone to college is $36,000, while that of those with a college degree is approximately $60,000: 67% higher.
While a four-year college degree isn’t for everyone, and isn’t needed for every job, college will always be a de facto requirement for higher-level professional work. And so it’s important to make sure that every American who wants to go to college can afford to do so.
The average cost of attending a public four-year college is $65,000, and $150,000 at a private one, according to the Department of Education. On average, tuition has grown 5% a year for the past ten years. That’s a rate far faster than that of consumer inflation.
There are three basic problems that lower- and middle-income Americans face when confronting the U.S. higher education system.
PROSPER simplifies the Free Application for Federal Student Aid (the FAFSA). It eliminates the requirement for online colleges to register in any state except those where they have physical locations. It invests in apprenticeship programs at community colleges. It provides prospective students with information on the average debt, average salaries and completion rates of colleges students and alumni. And it consolidates and reforms student loans, grants and tax credits.
Helping needy students complete their degrees on time
In this article, I’ll focus one key area of the PROSPER Act: reforming federal student aid for low-income Americans, which is largely run through the Pell Grant program.
The Pell Grant comprises around 55% of all need-based federal student aid in the U.S. During the 2016-17 academic year, 7.1 million students received a total of $26.6 billion in Pell Grants.
Pell Grants are intended to help lower-income people go to college. But in many ways the Pell Grant system leaves the poor behind.
The Grant's formula takes the Department of Education 38 single-spaced pages to explain. But despite all of that complexity—or, perhaps, because of it—the Pell formula actually makes it harder for low-income students to graduate on time, and harder to graduate in good financial health.
The Pell Grant formula only funds a students' course load up to what the Department of Education defines as full-time enrollment: 12 credits per semester.
But for a college student to graduate on-time, he or she typically needs to take 15 credits per semester. As a result, students in need who wish to graduate on time must forgo need-based aid.
The first is the one noted above: that the underlying cost of a four-year college degree is too expensive. The second is that federal student aid programs are badly structured, making it harder for aid recipients to complete their college coursework in a reasonable timeframe. The third is that we don’t create enough policy room for alternatives to a four-year brick-and-mortar college degree: low-cost vocational schools and online degrees.
The new Foxx bill—called The Promoting Real Opportunity, Success and Prosperity Through Education Reform (PROSPER) Act—proposes dozens of reforms, many of which would make significant progress toward these policy goals.
Students who want to graduate on time shouldn’t be hindered by Pell Grant rules. Some students might even wish to accelerate their studies and enter the workforce sooner. But this 12-credit per semester limit applies to all Pell recipients.
There are numerous other major drawbacks to the Pell Grant program, some of which I have written about previously:
- Bias against needier students. The Pell Grant formula is not restricted to students below specified income limits, but is instead restricted to students with income below a multiple of the current maximum grant amount per student. The effect of this is that when funding for the grant is increased by lawmakers, an increasing amount of need-based Pell funds are sent to wealthier and wealthier students.
- Bias toward costlier colleges. Many Pell Grant recipients are required to attend a sufficiently expensive collage to be eligible for a grant. The Pell Formula reduces many student's grant amount to zero if they spend below a certain amount on college.
- Disincentive to complete college on time. The Pell formula creates an incentive for not completing a degree on-time, because it only funds up to 12 credits.
- Bias against families with multiple children in college. The Pell formula does not account for when multiple family members are enrolled in college at the same time. The ability of a given family to pay for college is estimated as equal whether they have one or three children in college.
- Complexity. The Pell formula is overly complex, taking 38-pages of small type to explain. This makes it hard for students and parents to understand the basis for their grant amounts.
Helping students who are working their way through college
The kid who works his way through college carries on a classic, all-American tradition. But there is a growing amount of evidence that college students who spend significant amounts of time working on jobs unrelated to their schoolwork fail to ever graduate. A 2014 study by Richard Medellin at the University of Maryland using Department of Education data found that students were half as likely to ever complete their degrees if they were working more than 30 hours per week.
The Higher Education Act proposes additional Pell funding for students who take enough credits to "put them on track to graduate on time," thereby reducing the financial pressure on low-income students who are working their way through college. (The legislative summary I reviewed did not provide details of how this would work, but 15 credits per semester is commonly considered "on track.") The extra Pell funds may permit these students to work fewer hours at part-time jobs, or it may afford them extra hours of child-care, or additional gas money so they can complete assignments, or only take the part-time work they want.
Consolidating federal student aid programs
The PROSPER Act proposes to consolidate all federal college grant programs, including the Pell Grants, into one grant program. Because modifications to the Pell were discussed in the legislation summary I reviewed, I expect that other federal college grants will be incorporated in to the Pell.
The PROSPER Act's expansion of the Pell Grant program to support lower-income students who want to finish their degrees on-time is consistent with other major proposals in the Act that focus on creating a faster, less-costly means of obtaining postsecondary education and entering the workforce.
The Act allocates $183 million to community colleges to create apprenticeship programs of two years or less to prepare students for jobs in specific industries.
The Act makes it easier for students to study affordably, on their own time, in their own way, by removing regulatory obstacles to competency-based colleges, where students simply take one comprehensive course examination to earn a course credit. These test-based based colleges, such as Western Governors University, have comparably low prices and generally don't require books, homework, or attendance of classes.
The Act makes it cheaper and easier for online innovators in education to serve students wherever they are, for less money, by eliminating the requirement for online educators to register in states, except those where they have physical locations.
The PROSPER Act represents substantial reform and promise
Rep. Foxx’s will likely encounter criticism from those who support “free college” reforms, such as Bernie Sanders’ proposal to fully subsidize community college for students of all income levels. The PROSPER Act differs from such far-reaching subsidy proposals in two major ways: it focuses resources and programs on helping Americans with the greatest financial need; and it expands the choices for students who need financial aid, rather than steering them overwhelmingly towards community colleges.
Most importantly, the PROSPER Act takes steps to tackle the high underlying cost of higher education: the most important challenge for those who want to level the playing field between those with economic opportunity and those without.
Ames Brown is chairman and executive vice president of the Foundation for Research on Equal Opportunityand managing member of Capital Counsel Management LLC.
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