The Hard Truths of Reforming Federal Aid

April 15, 2013

Like the promise of a new academic year, there is always a certain amount of excitement around a pending reauthorization of the Higher Education Act. We are watching the development of several interesting proposals from the recipients of the Gates foundation's Reimagining Aid Design and Delivery grants—and from a diverse group of leaders from business, education, and government, who are coming together to create the American Dream 2.0 coalition.

But as two worn but never weary travelers on the higher-education-reform road, we would like to offer some perspective on the realities of policy and politics. Reauthorization is not for the faint of heart, nor is it a satisfying experience for those accustomed to winning on the merits of their arguments or the validity of the empirical evidence. Policy making is not an academic exercise. Even the best ideas will not result in the transformational change necessary if those delivering the message don't understand the unspoken rules of the road and the power of the status quo.

Ours is an unlikely pairing. We each served as the U.S. assistant secretary for postsecondary education, under different presidents of different political parties, and during different decades. But like both of our bosses, we share a common understanding of the value of education and a common sense of purpose around enabling more Americans to reap its benefits.

We also share the scars of reauthorization battles gone by, and despite the differences of our times and administrations, we agree that there are some fundamental truths of reauthorization that have not changed over time and that must be understood by those who hope to effect significant and positive change in the policies and programs authorized by the Higher Education Act.

The first truth is that good ideas are based on empirical evidence, but money drives decision making, and there isn't going to be more money. Pell eligibility formulas are in no way based on evidence of what works or what is best for students. In reality, the policy makers first decide how much money they can or want to spend on the program, and then, working backwards, budget experts poke and prod the eligibility formula until it spits out a number that aligns with the desired spending level.

That is also why the estimated family contribution, or EFC, makes no practical sense to students or families. The EFC isn't really a measure of what a family can afford but is instead a lever that determines how many people can participate in the federal student-aid program and how much money they will receive—all to add up to the preordained spending level. If you want to change the eligibility formula, be sure you know how much your solution will cost and be prepared with good ideas about where to find the money to support your plan.

Promoting ideas that are dependent upon more money is a fool's mission; if you hadn't noticed, the federal government wants to cut funds, not increase them. Ideas like cutting student-loan interest rates that are politically popular cost the government a great deal of money, and there is no evidence that a lower interest rate has any impact on student success (and many of the students who qualify for the lower-interest subsidized loans also borrow from the higher-interest subsidized-loan program anyway).

Along those lines, also remember this simple lesson: Every dollar that goes to the Pell Grant program is a dollar that does not go to the National Institutes of Health (both agencies are financed through the same federal appropriations bill). Research universities are far more dependent on research dollars than on Pell dollars given the small portion of Pell students they serve. And research universities skim more than 50 percent off the top of every research grant for the "indirect costs" of running the university. So if given the choice between Pell or NIH, where do you think politically powerful research universities will want Congress to direct their scarce dollars?

The second truth is that if a program or policy seems too good to be true, it probably is. Take income-based repayment, for example. Both of us support the idea of IBR, as it's called, primarily because most graduates make more money toward the end of their repayment period than they do at the beginning, which means that fixed payment levels front-load the repayment hardship to a time when the graduate is most vulnerable.

Yet the current IBR program is poorly designed and provides a disproportionate advantage to middle- and high-income students. We are concerned that in 20 years, many borrowers are going to be shocked to learn just how much IBR cost them (in compounding interest) and how little of their debt will be forgiven, if any. So before supporting a plan or program, we ask that advocates and politicians thoroughly think through it and understand what the lasting effects may be for students.

The final truth is that policy makers are still making policies to serve 18- to 24-year-old full-time students who attend residential colleges, despite the fact that these students are now a shrinking minority. That is likely because policy makers are significantly influenced by their own personal experiences, but also because the data available to them come largely from the Ipeds database, which tracks outcomes only for first-time, full-time students and then only if they stay at the first institution they attend, which many don't.

If we continue to collect data only on the privileged few, we are likely to continue making policies that provide further advantages to those students and ignore the rest, despite the fact that "the rest" constitute the majority of today's college population.

Both of us tried to convince Congress of the need to collect better data on all students, and we hope others will advocate for the same. But we do so knowing that institutions that benefit from the status quo will do everything in their power to defend their ability to hide the outcomes of their few high-risk students behind those of their many privileged students.

We hope that during this round of reauthorization, we can move past the incremental tweaks of the past that have continued to shift resources to middle- and upper-income students, and instead make the kinds of transformational changes that will serve the students who dominate higher education today and for whom the act was written.

David A. Longanecker was assistant secretary for postsecondary education under President Bill Clinton, and Diane Auer Jones held that post under President George W. Bush.