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Report Brief

Reauthorizing the Higher Education Act: Issues and Options

PURPOSE

The goal of this report is to contribute in three ways to the quality and success of the Higher Education Act (HEA) reauthorization. First, the report provides information about the HEA, its programs, and American higher education in general. Second, it offers some historical context for understanding the origins and purposes of the programs created by the HEA. Third, and perhaps most important, it suggests an agenda of major policy issues for the HEA reauthorization and options for dealing with these issues.

KEY POINTS FROM THE REPORT

Basic Realities of American Higher Education

• Fifteen million students are enrolled in higher education.
• 48% of undergraduate students are "dependent" on their parents.
• All graduate students are, by legislative definition, "independent" of parental support.
• 75% of undergraduate students are "nontraditional," meaning that they have one or more of the following characteristics: not a high school graduate; did not enroll in an institution of higher education directly after high school; are attending part-time; are working full-time; or are financially independent, married, or have dependents.
• 25% of undergraduate students are "traditional," students, meaning that they enrolled in an institution of higher education directly after high school; are attending full-time; are working part-time or not at all; and are financially dependent and unmarried without dependents.
• 10% of undergraduate students are "typical" students, i.e., they have all the characteristics of traditional students and also attend a four-year college, and reside on campus.
• 76% of students attend public institutions of higher education.
• 60% of first-year undergraduate students attend either a community college (52%) or a proprietary school (8%).
• 9% of first-year undergraduate students report having a disability, most commonly a learning disability.
• Nearly 40% of all students receive financial aid from one or more of the federal programs.
• During their undergraduate years more than 60% of students attend more than one institution of higher education.
• If current trends continue the nation will face a deficit of approximately 12 million workers with at least some college education by 2020.
• More than 40% of faculty at nonprofit institutions of higher education are part-time employees.

Academic Barriers to Higher Education

• Inadequate academic preparation is one of the significant barriers to access to higher education. The principal federal efforts to improve the academic performance of K-12 students are contained in the Elementary and Secondary Act of 1965, the 2001 reauthorization of which is titled the No Child Left Behind Act. The HEA includes several programs aimed at helping students overcome academic barriers to postsecondary access.
• The main thrust of the HEA, with respect to overcoming academic barriers to access to higher education, is found in the programs in Title II that focus on improving teacher training and the quality of the teaching workforce.
• Research has shown a strong link between teachers' knowledge and skills, and students' academic gains. Given the powerful effect that qualified teachers have on student achievement, the teacher workforce has the potential to exert a strong influence on reducing the current achievement gaps. The No Child Left Behind Act calls for a highly qualified teacher to be in every K-12 classroom by the 2005-06 academic year.
• Shortages in certain subject areas, such as mathematics and science, are particularly critical. Teachers trained to educate students with disabilities and LEP students, two very rapidly growing groups, are also in especially short supply.

Financial Barriers to Higher Education Access and Persistence

• Grants are a more effective means of encouraging students to enroll and persist in postsecondary education than other types of aid, such as loans and work. Grant aid directly reduces students' uncertainty and financial risk. Many low-income students do not have experience with borrowing or do not have confidence that they will be able to repay a loan.
• Most types of financial aid may enable access, but grants are particularly well suited to promoting other goals of financial aid, specifically, persistence for low-income students.
• There are three types of grants offered as a result of the HEA. They are, the Pell Grant (originally named the Basic Educational Opportunity Grant), the Supplemental Educational Opportunity Grant (SEOG, originally called the Educational Opportunity Grant, or EOG), and the Leveraging Educational Assistance Partnership (LEAP, first established as the State Student Incentive Grant program).
• The SEOG is provided as a supplement to the Pell Grant for undergraduate students and is dispensed through participating higher education institutions. Institutions must match the federal SEOG dollars they receive by at least one-third of the federal contribution.
• The goal of the LEAP program is to encourage states to continue expanding state grant and work-study programs with a focus on community service programs. States must match federal LEAP funds dollar for dollar, except if the contribution amount goes above $30 million then the match is a $2-to-$1 match.
• Loan programs offered under the HEA are the Federal Family Educational Loan Program (FFELP, originally the Guaranteed Student Loan Program), the Direct Loan Program, and the Federal Perkins Loan Program. In contrast to the HEA grant programs, students receive many more dollars in loan programs. Justification for continued loan programs include individual personal and public benefits received from attendance in higher education programs.
• Initially, the FFELP was provided as an alternative to tax-credit proposals and targeted the needs of middle-income students. Students who demonstrated need would receive subsidized loans (interest is paid while students are in school) and students who did not demonstrate need could receive unsubsidized loans (interests starts accruing immediately at the receipt of loan).
• The Direct Loan program was initiated as a demonstration program under the HEA in 1992, and in this program the federal government provides the loan capital to institutions. Direct Loans can offer graduated and income sensitive repayment options, whereas, the FFELP does not. Because of this option, Clinton (during his administration), proposed doing away with the FFELP loans, but the political compromise was to allow institutions to choose which programs their students would participate in. Therefore, institutions can participate in either one of or both the FFELP and the Direct Loan program
• The Perkins loan is the smallest of the HEA loan programs and originated under the National Defense Education Act in 1958 as the National Defense Student Loan, NDSL. Similar to the Direct Loan, capital for the Perkins Loan is supplied by the federal government. Perkins Loans are awarded on the discretion of the campus financial aid officers and are awarded solely on the basis of need.
• The report states that the goal of the loans offered under the HEA are no longer achieving their original purpose and are inadequate. Three reasons cited for this claim are:
  • Annual loan limits for first-year borrowers cover only a diminishing portion of higher education prices.
  • The level of unmet need has grown steadily in recent years and reached unprecedented levels.
  • There has been an immense growth in student borrowing from sources outside of the HEA programs.
• The report cites student credit card spending demographics to support the assertion that students are borrowing with a credit card to fund their higher education. Specifically, more than 80% of college students own credit cards and of this total 20% used them for tuition and fees and 57% for books and supplies. The report suggests that students may be using their credit cards because annual loan limits may not be meeting their cost of attendance needs, and/or more familiarity with credit cards than with the loan programs. Unfortunately, the credit card borrower rates are much less favorable than the rates under the HEA loan programs.
• The awarding of student financial aid through the HEA programs is based predominantly on the nation's tax laws since they set many of the determining requirements for eligibility of aid. When Congress reviews the HEA during the reauthorization process it also reviews current education specific tax laws and their interactions with federal financial aid policies.
• Between 1997 and 2001, Congress enacted several tax provisions that would help pay for a students' higher education cost of attendance by creating incentives to save for college, rules that help in applying payments for tuition, and tax treatments of student loans. Those tax provisions established by Congress are: HOPE and Lifetime Learning Tax Credits, Coverdell Education Savings Accounts, Above-the-Line Tuition Deduction, Tax-Free Employer-Provided Educational Benefits, Student Loan Interests Deduction, Section 529 Savings Plans, and Penalty Free IRA Withdrawals

The Federal Role in Accountability for Quality in Higher Education

• The DOE's role in quality assurance has expanded over the years, from a historic interest in program administration and financial integrity in the student aid programs, to an interest in broader questions of institutional performance and academic program quality.
• Currently, the DOE's role covers promoting market-based strategies, providing direct regulation of institutions and students, leveraging other nonfederal forms of quality control, and conducting research and collecting data. Specific responsibilities for each of these areas can be found in the following table.

The U.S. Department of Education's Role in Quality Assurance of Higher Education

Protection and Promotion of Market Strategies	Direct Regulation of Standards or Terms of Eligibility	Leveraging other Processes for Quality Assurance	Data Collection and Research
Giving market power to student-consumers through financial aid	Financial standards for institutions in the student aid programs	Regulation of accreditation	Common definition of terms
Providing consumer information to students and employers	Administrative standards for institutions in the aid programs	Requirements for state licensure	IPEDS
Ensuring consumer choice among diverse types of institutions	Student eligibility for aid programs	Facilitation of linkages between K-12 and higher education	Raising of policy issues through research via PEDAR and other studies
Facilitating transfer of credit without mandating terms of transfer	Program eligibility for aid	Performance standards for teacher education	Facilitation of state and institutional accountability systems through public reports using comparable measure
Mandating public information such as through Student Right to Know provisions

ADDITIONAL COMMENTS/OPTIONS FOR CHANGE

• The report offers possible suggestions for restructuring the Pell Grant, SEOG, and LEAP grant.
• With respect to the Pell Grant, the report reviews the pros and cons of front-loading the grant. The idea of front-loading involves increasing the amount of the Pell Grant award a student would receive in the first few years. Proponents of front-loading believe it will reduce the number of loans students would have to take during this time, subsequently, increasing persistence rates for low-income students. Further, proponents of front-loading suggest that after two years of successful persistence in college, low-income students might feel more confident in taking out loans and procuring debt. Critics of the front-loading recommendation believe that because more students drop out in the earlier years of college, the increased grant awards could possibly be wasted and/or encourage students to attend shorter degree granting programs.
• An option presented for restructuring the SEOG is to change the allocation formula, which some critics say is outdated. Other possibilities for restructuring the grants are to change the nature of the relationships that exists between federal, state, and institutions of higher education, such as, rewards for enhancing LEAP, matching state funds to specifically supplement the Pell Grant, and reward programs for states that focus more in meeting the needs of low-income students, and overall changing of the Pell Grant structure with a formula grant that awards funds to the state to then distribute to the more needy students.
• One of the options for changes to the HEA loan programs was to increase the loan limits, particularly, for first year students and as a result decrease the need to rely on other borrowing options (e.g., credit cards) with less favorable loan rates.
• The report also suggests some options for making loan repayments less burdensome. A few of the options recommended include, increase grant assistance, controlling the rate of increase in higher education prices, decreasing interest rates on loans, making it easier for others to repay loans (e.g., employers), and restructuring deferment of repayment options.
• The report reviews several recommendations for policy interventions in rising college costs. One recommendation is to impose direct federal regulations on costs or prices. Advocates of this option believe this would allow the federal government to mandate increases in various university costs such as faculty salaries. Critics of this option believe that these controls would not work for the following reasons:
  • The increased involvement of federal government will cause conflict between the federal and state roles.
  • The controls will not work because of the complexity of pricing decisions and the large number of factors involved.
  • Potential effects on access and institutional quality may be detrimental by limiting the number of spaces for enrollment at institutions.
  • Potential effects on students' choices of institutions.
• Included in the DOE's quality assurance goals for the HEA reauthorization are, the improvement of the quality of postsecondary education, greater emphasis on achieving results, improved student achievement, and ensuring accountability for taxpayer funds. Overall, this suggests an increased agenda for greater accountability for institutions. One recommendation was to direct regulation of institutional and student eligibility for financial aid by linking eligibility to measures of retention, graduation, and time-to-degree surrogates. The report states that this would cause a fundamental shift in the role of the DOE from one that was predominantly focused on access to one that bases funding on institutional performance. Critics of this option believe that this would benefit institutions that have more selective admissions policies. Other recommendations suggested are:
  • Leveraging standards through accreditation.
  • Differentiating standards for accountability between public, private nonprofit, and proprietary sectors.
  • Leveraging market strategies to enhance accountability by increasing public information about student learning.
  • Increasing quality through expanded competition in higher education. (e.g., restrictions of distance learning could be removed).
  • Setting federal standards for quality by removing accreditation from the triad and defining degree standards in the statute.

REFERENCE

Wolanin, T. R. (2003, March). Reauthorizing the higher education act: Issues and options. Washington, DC: The Institute for Higher Education Policy.

Submitted by R.M. Johnson, May 2004. This is a report summary and excerpts are quoted directly from the text.