Fundamental changes are desperately needed in our higher education system. In 2004 student loan debt accounted for 12.3% of non-housing debt, according to the New York Fed. At the end of 2018 it was over 36.4% and will soon eclipse credit card and auto loan debt combined. But reforming the massive postsecondary education system, which took in over $564 billion in 2015-16 alone, is a Herculean undertaking.
A few weeks ago Ivanka Trump announced the White House’s Proposals To Reform The Higher Education Act, but the news was overshadowed by the tragic shootings in New Zealand and flooding in Nebraska. What coverage the proposals received focused on student loans being capped, but the proposals are more than simple loan restrictions. They are important because the proposals provide the first concrete information on education reform from the Trump administration since its campaign in 2016.
The relatively succinct five-page document includes proposals that would refocus higher education on student outcomes, namely jobs, and hold schools financially accountable for their students’ success- and failure. It follows-up on a number of campaign promises made by President Trump in 2015 and 2016 to reduce government student lending and the burden of debt to students.
Relevant comments start at 23:04.
The Proposals
- “Reorient the Accreditation Process to Focus on Student Outcomes” - Accreditation is supposed to give the public confidence that colleges meets the highest education standards, and is required for a school to qualify for federal aid. However, in 2016 the Accrediting Council for Independent Colleges and Schools continued to accredit Corinthian Colleges even after shady loan practices had been uncovered and right up until their bankruptcy, calling the entire system into question. The White House is looking to make accreditation more meaningful.
- “Increase Innovation in the Education Marketplace” - The language for this proposal is not clear, but it sounds like the White House wants to encourage schools to work more closely with the private sector to provide job-specific education.
- “Better Align Education to the Needs of Today’s Workforce” - The White House is proposing to improve access to apprenticeship programs and on-the-job training models, including wider access to Pell Grants for students looking at credential, certification, and licensing programs. It would also widen Federal Work Study programs to include more practical off-campus jobs.
- “Increase Institutional Accountability” - Schools accepting federal funds would have to share in the burden of unpaid student debt. How it would work is unclear, but the goal is clearly to improve job placement and push students towards careers with higher probability for loan repayment.
- “Accelerate Program Completion” - Graduating earlier means lower overall costs, but according to the National Center for Education Statistics only 60% of students complete a bachelor's degree with six years of attending. The White House is proposing additional adoption of “prior learning assessments,” which take into account prior work, military, and educational experience students may have gained before college and applying academic credit. This way someone with four years of military service could potentially graduate from college earlier, testing out of some required academic credits.
- “Support Historically Black Colleges and Universities” (HBCU’s) - The White House proposes that “Congress should make permanent the President’s Board of Advisors on HBCU’s and the Interagency Working Group responsible for improving the capacity of HBCU’s to continually improve the identity, visibility, distinctive capacity, and overall competitiveness of HBCUs.”
- “Encourage Responsible Borrowing” - The White house is proposing straight caps on Parent and Grad PLUS loans, limiting the amount that can be borrowed while simultaneously providing additional guidance and required counseling to borrowers.
- “Simplify Student Aid” - This would consolidate the five income-driven repayment plans into one, capped at 12.5% of discretionary income, extend student loan forgiveness, and allow the Dept. of Treasury to automatically provide tax data to the Dept. of Education.
- “Support Returning Citizens” - The White House is asking Congress to provide financial aid specific to prisoners eligible for release to improve employment rates.
- “Give Prospective Students More Meaningful and Useful Information about Schools and Programs” - Currently the data available to students through the Department of Education is at the institution level, such as tuition costs and graduation dates. The White House is looking for more granular data so students can better compare programs across schools.
The Problem With Proposals
These proposals are surprisingly compelling. They address some of the underlying causes that have led to increased student loan default rates. Namely, students not having a sufficient understanding of the consequences of the loans they are taking and their chosen field not having adequate repayment prospects. But the proposals are just that: Proposals.
Proposals from the White House don’t actually do anything by themselves. They signal the Legislative Branch that the Executive Branch is looking to move in a particular direction. In this case the Trump administration, knowing that there is bipartisan support for education financing reform, could use a legislative win besides the Tax Cuts & Jobs Act. Education financing reforms follows up on a number of campaign promises and allusions the Trump campaign made in 2016.
Education is also slated to be a hot button topic in the forthcoming election. This calls into question whether Congress might pursue true education reform when it may harm their respective candidates. However, smaller strides are still being made in current legislation.
529 Expansions
On April 2nd the House Ways & Means Committee unanimously approved new legislation titled, “Setting Every Community up for Retirement Enhancement, or SECURE Act.” The legislation has bipartisan backing and is expected to pass this year. While it primarily focuses on improving retirement options, a small section addresses college savings by expanding 529 education savings accounts to cover costs associated with registered apprenticeships, homeschooling, up to $10,000 of qualified student loan repayments (including those for siblings), and private elementary, secondary, or religious schools.
The modifications to 529 plans would address one of the primary complaints impacting 529 plans today: That they currently cannot be used to pay back student loans. Many families take the loans even though they have savings in a 529 account because they believe the amount may be insufficient to cover the cost of college. Students may change schools or drop out entirely, and be stuck with student loan payments and 529 savings, but are forced to pay tax on the 529 distributions in order to pay off the loans. Adding student loans as a qualified expense has been long overdue.
The remaining SECURE Act changes allow 529 plans to be used at more education institutions. The language will need to be updated, as it’s currently a little vague, but the use of 529 plans for apprenticeships is consistent with the direction of the White House proposals. “Private elementary, secondary, or religious schools” would indicate an expansion to the 2017 Tax Cuts & Jobs Act expansion allowing distributions to be used for up to $10,000 of tuition; but again, it’s not clear. More information will hopefully be forthcoming if not from the legislation itself, then later from IRS guidance.
