Background

Numerous studies show that greater access to higher education is the “great equalizer.” Graduates from two and four-year institutions have more employment opportunities with higher earning potential. The Bureau of Labor Statistics (BLS) estimates that a college graduate earns on average $21,580 more than high school graduate annually.

Due to the current debt levels and budget constraints, many Americans find it increasingly difficult to set aside savings (and even more are vulnerable to having bad credit), a condition which will continue to have negative ramifications post-graduation. As the cost of tuition has risen at five times the rate of the median household income since 1995, students and families have taken on increased debt. The amount students owe has escalated tremendously over the past several years, with Americans now owing $1 trillion in student debt, more than what all households owe on their credit cards. Moreover, 14.65 million people under the age of 30 owe student loans totaling almost $295 billion.

Federal Response

Photo is courtesy of Cash the Checks BlogDuring much of April, President Obama along with his Republican challenger, former Massachusetts Governor Mitt Romney, urged Congress to ensure interest rates would not double in July 2012, as mandated under current law. Obama and Romney have stated the increased interest rate would add financial burdens on students, putting a college education further beyond the reach of many children from low- and middle-income families.

Many House Republicans initially opposed extending the interest rate cut, but later backed the extension. As a result of Republican support, Congress froze the interest rate on subsidized Stafford loans, which was set to double to 6.8% starting July 1, 2012. Senate Republicans, however, blocked consideration of the bill. While both sides want to pass the legislation, Republicans are unwilling to accept the Senate Democrats’ proposal. Should the legislation clear the Senate, it will help an estimated seven million college students save nearly $6 billion in additional borrowing costs.

Both chambers are working to offset the $6 billion cost of extending the 3.4% interest rate. The House Republicans’ proposal would pay for the interest rate subsidy by eliminating the Prevention and Public Health Fund, a component of the Affordable Care Act, which has helped families identify and prevent chronic diseases. House Democrats have proposed ending tax subsidies for oil and gas companies.

In addition to recent talks in the House, President Obama has outlined a comprehensive plan to reduce college tuition costs, emphasizing shared responsibilities between the federal government, states, colleges, and universities to promote access and affordability in higher education. The president’s recommendations include reforming student aid by incentivizing and supporting those institutions that keep tuition affordable, provide good value, and serve underrepresented populations. Additionally, the Administration’s Race to the Top: College Affordability and Completion Plan will reward states that produce systemic changes in their higher education policies and practices, while curbing tuition increases.

State Action

Photo courtesy of SavingCollege.comPresident Obama has emphasized the need to collaborate with states, colleges, and universities on affordable higher education. States and universities are at a crossroads with the current tuition-debt nexus, and will have to begin playing a more active role in confronting tuition rate hikes. With state budgets stretched thin, several states have nonetheless addressed the issues of funding, budget constraints, and financial aid with a linkage between economic development and higher education.

FLORIDA

Summary The Florida Prepaid College Board has six Prepaid Plan choices that offer families the ability to prepay the cost of college tuition and required fees. A family can lock in prices for Florida's public universities and community colleges. When families pay a set amount in advance, their state tuition costs will be covered, no matter how much the institutions later charge.

Goals The goal of the program is to fully cover what tuition will cost in 18 years, and to ensure students are not coming out of colleges and universities in debt.

• Guaranteed returns;
• Relatively risk free. Individuals can get a refund for any reason, although they will not receive interest; and
• Different options are available. Those who cannot afford a four-year university plan can buy a “2+2 year” Florida plan, which prepays tuition, registration fees and local fees for 60 lower division semester hours at a Florida College and for 60 semester credit hours at a state university. Another option is to buy a community college plan, which then can also be applied later toward university tuition. Click here for more information on the different plans.

• The plan is expensive. Families will have to pay more than double for today's college costs to fully cover tuition for a newborn. A family may end up buying future tuition close to future prices, and not saving money (or yielding a maximum return on investment relative to other investments) in the long run;
• No private college plans are available; and
• There is little flexibility. Prepaid plans can only be used for designated undergraduate college expenses. If a student receives a scholarship, a tuition plan cannot be used for food and books.

MICHIGAN

Summary Currently before the state legislature is the bill known as Michigan 2020, which would decrease the cost for Michigan residents to attend a public university in the state. High school graduates in Michigan, whether they attend a public, private, or home school, would be eligible for an annual grant for higher education costs. The maximum amount of the grant would be equal to the median tuition level (currently $9,575/year) for all of Michigan's public universities. Students could choose to attend any of Michigan's community colleges or public universities and use that money toward the cost of tuition, books, and other eligible expenses. If the cost of tuition exceeds the amount of the grant, the student would be required to pay the difference. The bill would be funded by term limits on corporate tax credits and charging state sales tax to online retailers.

Goal Michigan 2020 would provide Michigan high school graduates–public, private or home-schooled - with the opportunity to have the cost of college education paid for in its entirety. The bill also aims to incentivize students to attend colleges in the state while preventing “brain drain.”

• Free in-state college tuition for every Michigan student; and
• The program can be funded without raising taxes.

• Some legislators suggest the focus should be on creating a robust economy rather than reducing tuition costs, because improving the economy can be more beneficial to students in the long run;
• The price tag might be too much for the state to bear while it works to help businesses create jobs; and
• Students who have not done their best academically in high school and then enter college unprepared or underprepared, are at great risk for not completing college. If the program experiences large numbers of college drop-outs, that could undermine public support for the program’s continuance.

MISSISSIPPI

Summary The State of Mississippi passed HB 875, which charges the Education Achievement Council (EAC) to research and develop a funding formula for higher education institutions. The formula will be based on how well institutions are meeting state productivity goals.

Goals The EAC shall accomplish the following:

• Establish the education achievement goals for the state;
• Develop and prescribe appropriate planning processes;
• Establish appropriate benchmarks to measure progress, including degrees awarded per one hundred (100) full-time equivalent (FTE) students calculated using completed 60 credit hours;
• Conduct the necessary studies and analysis; and
• Research and develop a new funding mechanism for public community colleges and state institutions of higher learning based upon productivity goals and accomplishments as well as enrollment, and submit a report thereon with necessary legislation to the Governor and the appropriate committees of the Legislature.

• While the EAC can only make recommendations to the Institutions of Higher Learning and the Mississippi Community College Board, the Council’s efforts have provoked a newfound conversation around postsecondary reforms and strategies.
• Through this effort, the EAC can bolster degree attainment using existing funds by increasing the efficiency and cost effectiveness of academic programs and administrative operations;
• The bill has allowed Mississippi to recognize the costs going into remedial courses. The state is now mounting an effort to advance a system-wide redesign of such courses; and
• The data tracking system has allowed the state to develop strategies that strengthen the capacity to manage costs at the state and system levels.

• Policies do not articulate how the system will benchmark program effectiveness or assess the condition of remedial education; and
• The absence of a formal accountability structure for developmental education hinders plans for comprehensive program improvement.

• College Board - serves the education community through research and advocacy on behalf of students, educators, schools, and colleges.
• Complete College America - works with states to increase the number of Americans with quality career certificates or college degrees, and to close attainment gaps for traditionally underrepresented populations.
• Institute for Higher Education Policy - develops innovative policy- and practice-oriented research to guide policymakers and education leaders who develop high-impact policies to address the nation’s most pressing education challenges.
• White House Fact Sheet - blueprint for keeping college affordable.