The President's Higher Education Proposals

Aug 23, 2013 | Other Spending

As part of an ongoing series of economic speeches entitled A Better Bargain for the Middle Class, President Obama spoke yesterday at the University of Buffalo on higher education, with additional speeches today at Binghamton University and Lackawanna College. Like his previous speeches on housing, the President laid out a series of policies to make higher education more affordable, some of which were included in his 2014 budget, others that are new.

Recent passage of the student loan bill created a permanent solution for student loan rates; by linking them to Treasury rates, they will remain low temporarily until the economy has recovered without adding to the deficit (the bill saved a modest $715 million over ten years, with greater long-term savings in theory). With this budget issue resolved the President has turned to proposing measures that could help foster competition, tie federal funds to performance for students and colleges, and reduce the burden of student debt.

Pay for Performance Measures: Many of these proposals are new, and the budgetary impact is unclear. The President proposes developing a college rating system based on "access, affordability, and outcome" and tying federal financial aid to those rankings. In particular, the White House suggests offering a bonus to colleges with greater numbers of Pell graduates. By itself, the proposal would increase the deficit, but offsets could be found in other areas, such as reducing payments to low Pell Grant schools. Low performing schools would also be required to disburse Pell Grant funding over the course of the semester, instead of in a lump sum, to prevent funding to go to those who drop out. Individual accountability would be enforced by requiring completion of a certain number of class or other progress measure before receiving next semester's Pell Grant. Included in this section is a request for an additional $1 billion in Race to the Top funding for state-based higher education reforms, also proposed in his FY 2014 budget.

Promote Innovation and Competition: Many of these measures will not have a budgetary impact, including greater use of online and "hybrid" courses, incorporating technology, recognizing dual-enrollment and other policies.

Student Debt Proposals: The President's main proposal, also included in his FY2014 budget, would expand Pay-As-You-Earn (PAYE) to all borrowers. PAYE modified income-based repayment plans by limiting federal loan payments to 10 percent of a borrower's income, with a maximum of 20 years of repayment. Currently, those who took out loans before 2008 or have not borrowed since 2011 are not eligible for PAYE, and the proposal would expand the program at a cost of $4 billion over ten years. The New America Foundation's Education Policy Project has previously argued that the IBR changes may be giving a windfall to some wealthier borrowers and suggests a number of reforms that could better target resources.

Unfortunately, missing from the speech and supporting resources was any discussion of the nearly $50 billion funding shortfall that the Pell Grant program faces over the next ten years. The President's Budget allocated $12 billion in mandatory funding to supplement discretionary spending. The Bipartisan Path Forward and the New America Foundation's Education Policy Program also have addressed Pell Grant funding without increasing the deficit by finding other education savings. In order to maintain this program, the funding gap must be addressed.