[Senate Hearing 106-515]
[From the U.S. Government Publishing Office]
S. Hrg. 106-515
RISING COST OF COLLEGE TUITION AND THE EFFECTIVENESS OF GOVERNMENT
FINANCIAL AID
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HEARINGS
BEFORE THE
COMMITTEE ON
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
FEBRUARY 9 AND 10, 2000
__________
Printed for the use of the Committee on Governmental Affairs
U.S. GOVERNMENT PRINTING OFFICE
63-465 cc WASHINGTON : 2000
_______________________________________________________________________
For sale by the Superintendent of Documents, Congressional Sales Office
U.S. Government Printing Office, Washington, DC 20402
COMMITTEE ON GOVERNMENTAL AFFAIRS
FRED THOMPSON, Tennessee, Chairman
WILLIAM V. ROTH, Jr., Delaware JOSEPH I. LIEBERMAN, Connecticut
TED STEVENS, Alaska CARL LEVIN, Michigan
SUSAN M. COLLINS, Maine DANIEL K. AKAKA, Hawaii
GEORGE V. VOINOVICH, Ohio RICHARD J. DURBIN, Illinois
PETE V. DOMENICI, New Mexico ROBERT G. TORRICELLI, New Jersey
THAD COCHRAN, Mississippi MAX CLELAND, Georgia
ARLEN SPECTER, Pennsylvania JOHN EDWARDS, North Carolina
JUDD GREGG, New Hampshire
Hannah S. Sistare, Staff Director and Counsel
Robert J. Shea, Counsel
Joyce A. Rechtschaffen, Minority Staff Director and Counsel
Kenneth R. Boley, Minority Counsel
Susan E. Propper, Minority Counsel
Darla D. Cassell, Administrative Clerk
C O N T E N T S
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Opening statements:
Page
Senator Thompson............................................. 1,55
Senator Lieberman............................................ 2,56
Senator Collins.............................................. 5
Senator Levin................................................ 6
Senator Voinovich............................................ 7
Senator Akaka................................................ 8,75
Senator Durbin............................................... 20
WITNESSES
Wednesday, February 9, 2000
Jamie Pueschel, United States Student Association................ 11
Claire L. Gaudiani, Ph.D., President, Connecticut College........ 21
William E. Troutt, Ph.D., President, Rhodes College, and
Chairman, National Commission on the Cost of Higher Education.. 26
David W. Breneman, Ph.D., Dean, Curry School of Education,
University of Virginia......................................... 27
Caroline M. Hoxby, Ph.D., Associate Professor of Economics,
Harvard University............................................. 31
William F. Massy, Ph.D., President, Jackson Hole Higher Education
Group, Inc..................................................... 35
Thursday, February 10, 2000
Lawrence E. Gladieux, Executive Director for Policy Analysis, The
College Board.................................................. 58
Michael S. McPherson, Ph.D., Professor of Economics and
President, Macalester College.................................. 62
Patricia Somers, Ph.D., Associate Professor of Higher Education,
University of Missouri......................................... 78
Jerry S. Davis, Ed.D., Vice President for Research, USA Group
Foundation..................................................... 83
Mark Kantrowitz, Publisher, FinAid Page, L.L.C................... 86
Alphabetical List of Witnesses
Breneman, David W., Ph.D.:
Testimony.................................................... 27
Prepared statement with an attachment........................ 110
Davis, Jerry S., Ed.D.:
Testimony.................................................... 83
Prepared statement with attachments.......................... 260
Gaudiani, Claire L., Ph.D.:
Testimony.................................................... 21
Prepared statement........................................... 100
Gladieux, Lawrence E.:
Testimony.................................................... 58
Prepared statement with attachments.......................... 138
Hoxby, Caroline M., Ph.D.:
Testimony.................................................... 31
Prepared statement........................................... 120
Kantrowitz, Mark:
Testimony.................................................... 86
Prepared statement........................................... 274
Massy, William F., Ph.D.:
Testimony.................................................... 35
Prepared statement with supplement........................... 129
McPherson, Michael S., Ph.D.:
Testimony.................................................... 62
Prepared statement by Dr. Michael McPherson and Dr. Morton
Schapiro with an attachment................................ 159
Pueschel, Jamie:
Testimony.................................................... 11
Prepared statement........................................... 95
Somers, Patricia, Ph.D.:
Testimony.................................................... 78
Prepared statement by Dr. Patricia Somers and Dr. James Cofer 215
Troutt, William E., Ph.D.:
Testimony.................................................... 26
Prepared statement........................................... 103
Appendix
Additional prepared statements for the record from:
U.S. Department of Education................................. 276
University of Illinois with attachments...................... 290
California Community Colleges................................ 297
Massachusetts Institute of Technology........................ 299
University of Hawaii......................................... 307
Letter from Edward O. Blews, Jr., President, Association of
Independent Colleges and Universities of Michigan, dated Feb.
8, 2000........................................................ 309
Chart entitled ``Figure 6. Inflation-Adjusted Changes in Tuition,
Family Income, and Student Aid, 1988-89 to 1998-99 and 1980-81
to 1998-99''................................................... 310
Chart entitled ``Percent Share of Grants vs. Loans, 1980-81 to
1998-99''...................................................... 311
Questions submitted for the record by Senator Akaka and responses
from:
Claire L. Gaudiani, Ph.D..................................... 312
David W. Breneman, Ph.D...................................... 314
William F. Massy, Ph.D....................................... 315
Jerry S. Davis, Ed.D......................................... 316
RISING COST OF COLLEGE TUITION AND THE EFFECTIVENESS OF GOVERNMENT
FINANCIAL AID
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WEDNESDAY, FEBRUARY 9, 2000
U.S. Senate,
Committee on Governmental Affairs,
Washington, DC.
The Committee met, pursuant to notice, at 10:11 a.m., in
room SD-628, Dirksen Senate Office Building, Hon. Fred
Thompson, Chairman of the Committee, presiding.
Present: Senators Thompson, Collins, Voinovich, Lieberman,
Levin, Akaka, and Durbin.
OPENING STATEMENT OF CHAIRMAN THOMPSON
Chairman Thompson. Let us come to order, please. Thank you
all for being here today. I want to give special thanks to
Senator Lieberman, whose idea it originally was to have this
hearing, and the more I have gotten into it, the more important
I think that it is.
We are meeting to discuss an issue that is important to
every family in America, the cost of college tuition. The
problem of rising tuition is known to many of us, but it is
worth restating for the record. From 1990 through 1996, average
tuition for a full-time resident undergraduate student rose
43.8 percent, but during the same time, the Consumer Price
Index rose only 15.4 percent and median household income rose a
mere 13.8 percent.
In a recent report, the College Board wrote, ``Since 1980,
college prices have been rising at twice and sometimes three
times the CPI. Over the 10-year period ending in the year 2000,
average public 4-year tuition and fees rose 51 percent compared
to 34 percent for private 4-year colleges. Since 1981, both
public and private 4-year college tuitions increased on an
average of more than 110 percent over inflation. Private
college tuition rose most sharply in the early and mid-1980's,
while public tuition increased the most in the late 1980's and
early 1990's.'' That is the end of their statement.
I think we will learn today that certainly it is not
uniform across the board, that tuition has actually dropped for
many colleges and institutes, but, of course, there are several
on the upper end that have risen astronomically, hence the
averages that we mention here.
The most puzzling thing about this problem, astronomically
rising tuition, is that no one seems to have a handle on why
this is occurring. The Congress, in its infinite wisdom, set up
a commission to analyze the problem and made recommendations
about how to address it, but even with the able leadership of
William Troutt, the commission could not figure out the
totality of the problem, either.
In its final report, the commission wrote that, ``Academic
institutions have made little effort, either on campus or off,
to make themselves more transparent to explain their finances.
As a result, there is no readily available information about
college costs and prices, nor is there a common national
reporting standard for either.''
The commission recognized the irony and apologized that it
``found itself in the discomforting position of acknowledging
that the Nation's academic institutions--justly renowned for
their ability to analyze practically every other major economic
activity in the United States--have not devoted similar
analytical attention to their own internal financial
structures.'' Apparently, colleges and universities themselves
do not have a good understanding of why tuition rates are
rising in many cases so rapidly.
As this Committee has found with government agencies, you
have to know the nature of the problem before you can work to
solve it. The Federal Government makes available to students
over $41 billion every year in the form of grants and
guaranteed loans. As the role of this Committee is to study the
efficiency, economy, and effectiveness of the government's
programs, it is incumbent on us to take a serious look at the
effect of this government spending on tuition rates.
But there are innumerable other factors that make up the
cost and price of a college education--administrative costs,
faculty salaries, technology, Federal regulation, endowment,
State appropriations, and many, many more. This is clearly a
case where not one single factor works in a vacuum to affect
the costs and price of a college education. Just as not one
single factor affects the cost and price of a college
education, there is not one single answer to the problem, but
hopefully by focusing on it here today, we can at least have a
much better understanding than we do now.
Colleges and universities must work to control their own
costs. Public officials must ensure that public aid programs
work to the public good, and we must all work together to
ensure that purveyors of fraud do not take advantage of
students and their families.
Again, this is an important issue worthy of the Committee's
attention and I want to thank Senator Lieberman, as I said, for
suggesting this inquiry. We have some distinguished witnesses
here to help us explore the myriad issues relating to this
topic and I look forward to their testimony.
Senator Lieberman.
OPENING STATEMENT OF SENATOR LIEBERMAN
Senator Lieberman. Thanks, Mr. Chairman. Good morning.
Thanks so much for your responsiveness to our suggestion that
this was a topic that was important for us and this Committee
to get into. Our staffs have worked very well and very hard
together, as you and I have, and I do believe that we have a
couple of days of substantive and important hearings ahead of
us.
As you indicated, the high price of a college education is
a matter of deep and growing concern for America's families.
The numbers I have are 20-year numbers, but they mirror what
you indicated. Over the past 20 years, tuition has more than
doubled at both public and private colleges, rising, as you
said, well above the rate of inflation. Yet subsidies to
schools in the form of State appropriations or aid to students
and their families have failed to keep pace with those
increases.
I have tuition increases at slightly over 110 percent over
the last 2 decades. Aid is up 68 percent, and as we will find
out here, importantly, more of the aid now than then is in
loans as opposed to grants. And the median family income has
increased 22 percent over the last 2 decades. Those numbers
give a snapshot. I suppose one can overreact to them, but they
show what is the bottom line here, which is that tuition has
been rising, not only more than the rate of inflation, but more
than the increase in median family income, and aid to fill that
gap has not been rising proportionately.
Parents are painfully familiar with these developments. I
must tell you that everywhere I go in Connecticut, this seems
to be just about the number one topic of concern. Families are
anxious about how they and their kids are going to afford
college. Last October, there was a poll in the Washington Post
that reflected this nationally, and I must say, based on the
anecdotal evidence that I have had in Connecticut, I did not
find it surprising. Sixty-three percent of Americans with
school-age kids said they worry a great deal about college
costs.
Maybe even more striking, a report by the American Council
on Education found that 71 percent of the American people
believe that a 4-year college education is not affordable for
most Americans. The interesting fact is, as we will hear during
the hearing, that, in fact, most people are somehow managing to
afford it, although taking on great burdens. But the fact that
71 percent think it is not affordable is corrosive.
Sixty-five percent on this American Council on Education
poll list the cost of college education as a top concern,
ranking it among their concerns ahead of violent crimes against
children, children's health care, and even the quality of
public schools. So that gives us some measure of public anxiety
about this issue.
Now, I think the anxiety is a reflection of the importance
that we have always attached to higher education in this
country and that parents attach today. They are willing to
shoulder just about any burden to give their children the help
they need, but they fear that the burden is increasing to back-
breaking proportions and that their children will be priced out
of higher education and thereby kept from realizing their own
personal American dreams.
The stress on individual students is only part of the
story. There is also, of course, a powerful connection between
our Nation's ability to provide higher education and our
ability to maintain healthy economic growth. Growth in our time
is dependent on innovation, the kind of innovation that comes
from educated people. We also hear constantly from employers
about America's shortage of skilled workers to help us compete
globally.
So if college becomes a luxury that an increasing
percentage of our population cannot afford, it will not only be
bad for those who cannot afford it and expand the economic
divide between higher education haves and have-nots, it will
come to stunt our economic growth and our national well-being.
Today, we have an extraordinary group of witnesses, and
tomorrow, as well, who we are going to ask some important
questions, I think, that are important to America's families
and to America's future.
The bottom line is, why is college tuition so high? Schools
tell us that they are providing an expensive and valuable
product, an education that will mean thousands of dollars more
in future earning power for graduates. But, of course, many
parents are concerned that schools may not be using their
tuition dollars as efficiently as they should be, that perhaps
they are paying more for a college education than is really
necessary. We are going to look at the component parts of
tuition here, those costs incurred by institutions in providing
an education and ask whether colleges and universities are
doing everything they can to hold down their costs.
From the student's perspective, the amount of aid he or she
receives is, of course, as important as the sticker price of
tuition. So we are going to look at the subsidies for higher
education and ask whether aid to students and to schools is
adequate.
Before public universities, for instance, set tuition,
State appropriations are enormously important offsets against
those public school costs. It is important to remember that
over three-fourths of undergraduates in our country go to
public colleges and universities, so State and public
appropriations are critically important to the cost of
education.
Many private schools can use their endowments to offset
costs and lower tuition. So we are going to ask how many can
afford to do that and are they doing it.
And, of course, in addition, there are scores of Federal,
State, and private grant and loan programs that assist students
in tuition. Are they adequate to the task? Are they adequate to
the need and the national interest in allowing every one of our
children able to go to college to do so?
We are also going to look into the growing and
controversial use of something called merit aid, also referred
to as tuition discounting, which can dramatically affect the
price tag of a student's education. College applicants and
their families should know that when a school gives a sticker
price for tuition, apparently that may just be the beginning of
a negotiation. Asking for a better price is an increasingly
utilized and successful tactic, even for students who do not
qualify for need-based programs, and what are the implications
of that?
We are going to try to assess the impact of education loan
debt on students and this increasing proportion of school aid
that is made up in loans as opposed to grants. Students are
finding themselves obviously carrying a tremendous debt burden.
What effect does that have on their education and on their life
choices afterward?
And finally, Mr. Chairman, I know we have worked with our
staffs to try here to expose what might be called merchants of
scholarship fraud. You can always count on somebody to try to
take advantage of people's anxieties and needs. Apparently,
scholarship fraud amounts to over $100 million annually that is
taken without cause from vulnerable students and parents. The
most common scams include a required up-front fee in exchange
for guaranteed success in locating a scholarship. Also, there
are sales pitches that are disguised as free financial aid
seminars. Of course, families are already stressed out over
exorbitant tuition fees and we hope that through these hearings
we can make them aware of the illegal schemers who lay in wait
for them.
So, Mr. Chairman, again, I thank you. I hope that we can
learn from these hearings whether our Nation is on track in
providing access to all of our children to higher education and
whether government is doing everything it can to ensure college
affordability, whether the colleges and universities themselves
are doing everything they can, and if not, what can we all do
together to guarantee full access to higher education.
I want to extend, finally, a special personal welcome to
Dr. Claire Gaudiani, President of Connecticut College in New
London, Connecticut. Today, we are going to hear from a great
educator, a great success story in her own right as a person
who was a student through scholarship aid, and, may I say, a
wonderful citizen leader in Eastern Connecticut.
So I thank you again, Mr. Chairman, for convening these
hearings and I look forward to 2 very constructive days of
testimony.
Chairman Thompson. Thank you very much. Senator Collins.
OPENING STATEMENT OF SENATOR COLLINS
Senator Collins. Thank you very much, Mr. Chairman. I want
to commend you and Senator Lieberman for your leadership in
convening this morning's hearing to examine the effectiveness
of Federal financial aid and its relationship to the rising
costs of higher education. Having worked at a college in Maine
prior to my election to the Senate, I have a special interest
in this issue and I remember well the discussions that we would
have on where and how we should set the tuition rates for the
upcoming year.
It is becoming more evident every day that some form of
higher education is needed to participate fully in the economy
of the future. More and more jobs require some sort of higher
education, and indeed, even in traditional industries and
manufacturing where a high school degree used to be adequate,
things are changing.
I visited two paper mills in Maine over the recess and
talked with the managers, who told me that no longer will they
hire someone with only a high school degree. Instead, they are
now requiring at the paper mills in Maine a minimum of 2 years
of higher education, either at a technical college or at the
university. This is a considerable change.
In addition, college graduates make, on average, $17,000
more annually than do high school graduates. Thus, increasing
educational opportunities is key to narrowing the widening gap
in this country among income groups. It is for these reasons
that I have consistently fought for an expansion of Federal
financial aid programs, including Pell grants, student loans,
and the new LEAP program.
Nevertheless, as we do increase Federal aid, it is
extremely important that we continue to assess the
effectiveness of these efforts to improve access to higher
education, particularly for our low- and middle-income
students. Ideally, our goal should be that every qualified
student should be able to attend college without facing
insurmountable financial barriers.
I have been concerned for some time that Congressional
efforts to increase student aid may have been undermined by
continuing tuition increases that are far above the level of
inflation and far exceed the growth in family income. Senator
Lieberman gave some statistics over the last 20 years, but even
if you look at more recent years, you find that there still is
a disparity between the increases in inflation versus tuition
rates. For example, from 1990 through 1996, the average tuition
rose by almost 44 percent compared with an increase of just a
bit over 15 percent in the Consumer Price Index and about a 14
percent increase in the median household income.
My concern is that we appear to be pouring more money into
the system only to have it mopped up by tuition increases, and
if, in fact, that is the case, then we are not achieving our
goal of expanding access.
I am hopeful that these hearings will shed further light on
this concern for, at the very least, the increased availability
of Federal financial aid has made it easier for colleges to
raise tuition without running into signs of consumer
resistance. The suggestion that I have heard that Federal
assistance is not a factor in tuition increases is, according
to a report by the Council for Aid to Education, ``akin to
arguing that the ready availability of home mortgages has no
impact on the price of housing.''
At the heart of these hearings are significant policy
questions that I look forward to hearing addressed by our
witnesses today. It has always been the objective of aid
programs to broaden access and increase opportunity for
students, but the question before us is has that objective been
stymied by unrestrained tuition increases? How can we
appropriately encourage colleges and universities and technical
schools to hold down their charges without resorting to
inappropriate controls and interference?
These are the difficult questions that I hope our panelists
will discuss today. I look forward to hearing their testimony,
and again, I want to commend both the Chairman and the Ranking
Minority Member for initiating this very important
investigation.
Thank you, Mr. Chairman.
Chairman Thompson. Thank you very much.
Senator Levin, do you have a comment.
OPENING STATEMENT OF SENATOR LEVIN
Senator Levin. Thank you very much, Mr. Chairman. Let me
congratulate and commend both you and Senator Lieberman for
your initiative in calling this hearing this morning.
Access to higher education has been the principal reason
for America's economic strength and for the persistence of our
democratic values. It is essential. Access to higher education
is absolutely essential to economic opportunity for more and
more Americans.
It seems to me that one of our goals in this Congress and
in future Congresses has got to be what other Congresses before
us have achieved, which is extending higher education
opportunity to more and more Americans. Financial aid is the
key that unlocks the doors to our colleges and our universities
for millions of Americans, and the fact that tuition costs have
gone up increases the importance of financial aid programs and
the need to broaden the availability of those programs to more
and more people.
As you pointed out, Mr. Chairman, in your opening comments,
there is a great variety of experiences between the States and
within our States as to tuition cost increases. There is not
one uniform tuition cost increase that applies across the
board. We have had some real success in my home State of
Michigan, both in some of our public universities and in our
independent colleges and universities with keeping tuition
costs down, and I would like, Mr. Chairman, if I might, to ask
that a portion of a letter from the President of our
Independent Colleges and Universities of Michigan, Edward
Blews, be inserted in the record at this time which describes
the success of our independent colleges in keeping tuition
rates and increases down.\1\
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\1\ The letter from Mr. Blews appears in the Appendix on page 309.
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Chairman Thompson. It will be made a part of the record.
Senator Levin. Thank you very much. One of the former
presidents of one of those independent colleges, David
Breneman, is one of the witnesses today. He is now at the
University of Virginia, but we miss him very much in Michigan,
and Kalamazoo remembers you very fondly, indeed. I cannot stay
for your testimony, but I wanted to give you a special welcome
here this morning.
Thank you, Mr. Chairman.
Chairman Thompson. Thank you. Senator Voinovich.
OPENING STATEMENT OF SENATOR VOINOVICH
Senator Voinovich. Thank you, Mr. Chairman. I am pleased
that you and Senator Lieberman are holding these hearings on a
very important issue of the rising cost of college tuition and
the effectiveness of government financial aid.
I believe that a quality education is the foundation of
success for our Nation's young people. In an increasingly
complex and technologically advanced world, higher education is
more valuable than ever before. However, that value often comes
at a formidable price. As tuition costs for most schools
continue to outpace inflation by significant margins, the
financial cost to families and the debt burden for students
makes affording college a struggle for many.
I recall a civics professor in high school who said that he
defined a democracy as an equal opportunity to become unequal,
and access to a quality, affordable education is one way that
we give people an equal opportunity to become unequal.
In my own case, I cannot but think of my dad, who was a
first generation American, but for a Kroger scholarship to
Carnegie Tech would not have had a chance for higher education.
My own family, I think as many here, benefitted from
scholarships. My daughter who went out to Stanford on a 2-year
graduate program, benefitted. And my oldest son, it took him 6
years to pay off his debts because he decided to go to a
private law school. So I think a lot of us sitting here
understand having three kids in college at the same time, the
burden that is there.
On the other hand, I am glad that Senator Lieberman
mentioned that our public colleges are about 75 percent of the
action. One of the things that I did as Governor, and I am only
mentioning this today because I think it does prove that if you
set your mind to trying to work harder and smarter and do more
with less, there is a lot that can be achieved. What we did was
set up a thing called Managing the Future and got some of the
best people in the State together. Tier one was how we do a
better job with our education system in the State, better
coordination between the universities and leveraging their
efficiencies. The second thing we did was to ask each
university to do their own operations improvement task force.
Were there things that they could do to bring down their costs?
I cannot help but think of Cleveland State University. In 1
year, the private sector people went to work and saved that
university $8.5 million a year because they put private sector
spectacles on to look at how that place could be better
operated.
As a result of going forward with that, we now have a
program called Securing the Future of Education, and since
1993, our universities have saved over $212 million, a savings
that has been passed on to Ohio students through more
reasonable tuition increases. This year, Ohio is going to spend
$2.4 billion towards lowering the overall cost of higher
education through financial aid, institutional support, and
Ohio's Access Challenge Program.
It is interesting to note, Mr. Chairman, that tuition in
Ohio has fallen from a 5.1 percent increase in tuition in 1994-
95 to 4.8 percent in 1998-99, and this is going to be the first
year that for our 2-year colleges, the tuition is going to be
less than it was last year because of our Access Challenge
Program.
The point I am making is that as we look at these programs
to see how we can do a better job of helping the young people
in this country achieve this opportunity for their future, I
think we also should talk about ways that we can do a better
job of keeping the cost down. I think that I can tell you that
when we started with this program, I caught a lot of you know
what from a lot of the universities. But as time went on, many
of the presidents came and said to me, ``I am glad, Governor,
that you did go forward with this program, that we thought we
were doing everything that we could, but you know what, we were
not.''
Chairman Thompson. Thank you very much. Senator Akaka.
OPENING STATEMENT OF SENATOR AKAKA
Senator Akaka. Thank you very much, Mr. Chairman. I, too,
want to add my appreciation for you and Senator Lieberman's
calling of this hearing on the rising costs of college tuition
and the effectiveness of government financial aid. Thank you
for providing this opportunity to talk about an issue that
affects the lives of millions of students and families each
year, the affordability of a college education.
As a former teacher, vice principal, and principal, and
also as a grandparent of 14 grandchildren, I have been involved
in many sides of this issue. I tell you, even as a grandparent,
you become part of the process here and help to pay for the
costs.
Right now, many high school students, seniors, are going
through the exciting task of finishing up applications to the
colleges of their choice. They are also rushing to file a
FAFSA, or the Free Application for Federal Student Aid and to
meet financial and aid deadlines imposed by colleges and
universities, scholarships, loan programs, or the programs
aiming to help them finance their way to a college degree.
I have a long statement, Mr. Chairman, but I ask that my
full statement be included in the record. I want to make one
final point before I conclude.
Many colleges and universities have worked diligently to
ensure that the unique needs of minority students have been
met. However, additional needs remain in minority communities,
particularly in areas of high poverty in inner cities, rural
areas, and certain island areas over which the United States
maintains jurisdiction. Furthermore, tremendous variation in
need exists within minority communities.
In order to assess true need by race, we must strive to
look at the data relevant to these communities disagregated in
addition to as a whole. For instance, among Asian Americans and
Pacific Islanders, the aggregated group may be doing well in
terms of financial access to college. However, when separating
the East Asian Americans, such as Chinese and Japanese,
compared to Southeast Asian Americans, such as Vietnamese and
Laotians, and Pacific Islander Americans, such as Chamorros and
Samoans, East Asian Americans are doing better than other
groups.
I do not believe there is enough being said on the subject
and I urge our panelists to take this issue back to their
organizations, discuss it, and start coming out with applicable
data on this.
Mr. Chairman and Senator Lieberman, I thank you again for
creating this opportunity to discuss a most important issue. I
look forward to hearing the testimony that will be presented
today. Thank you very much.
Chairman Thompson. Thank you very much. Your statement will
be made part of the record. And thanks for reminding me that I
am still just a novice in the grandparenting business.
[The prepared statement of Senator Akaka follows:]
PREPARED STATEMENT OF SENATOR AKAKA
Thank you, Mr. Chairman and Senator Lieberman for providing an
opportunity to talk about an issue that affects the lives of millions
of students and families each year: The affordability of a college
education. As a former teacher, vice principal, and principal, and also
as a grandparent of 14 grandchildren, I have been involved in many
sides of this issue.
Right now, many high school seniors are going through the exciting
task of finishing up applications to the colleges of their choice. They
are also rushing to file the FAFSA--Free Application for Federal
Student Aid--and to meet financial aid deadlines imposed by colleges
and universities, scholarships, loan programs, or other programs aiming
to help them finance their way to a college degree.
Should these students receive Federal aid, the door to a college
degree is opened. However, things are not completely rosy on the other
side. A study released by the American Council on Education in
November, 1999, states that regardless of race, economic status, or
gender, most college students attend school part time and work long
hours while enrolled. This jeopardizes their chances to complete a
degree. The trend of rising costs for tuition, books and other
associated expenses contributes negatively to this, because students'
anxiety increases with rising costs. Many feel that they must work even
more to cover the growing tab for their college degree, which further
jeopardizes their attainment of that degree.
Despite rising college costs, there is no question that a college
degree makes a difference in an individual's earning potential.
According to the U.S. Census Bureau, the average earnings of college
graduates have risen over the last two decades, while wages for those
with only a high school diploma or less have dropped.
Between 1978 and 1998, average yearly wages for those without a
high school diploma dropped from nearly $20,000 to nearly $16,000, and
wages for high school graduates went down by roughly $1,000 to about
$24,000. In contrast, those with bachelors' degrees were making an
average of $44,740 in 1998, compared to about $39,000 in 1978. Clearly,
the importance of a postsecondary degree cannot be understated. What we
must continue to do is help individuals finance their college education
and overcome rising costs.
I am pleased that the Fiscal Year 2000 omnibus spending package
included modest increases for Federal student financial aid programs.
The increase in maximum Pell Grant award from $3,125 to $3,300 was
needed. In addition, increases were approved in Supplemental
Educational Opportunity Grants, Federal Work-Study, Leveraging
Education Assistance Partnerships, and TRIO programs. I look forward to
hearing about further funding needs in these Federal programs and their
impact on college affordability.
Many students in Hawaii rely heavily on these Federal programs, and
they will probably need them even more in the coming years. The
University of Hawaii is currently considering a 5-year tuition increase
proposal for many reasons, including: Budget cuts in recent years, low
tuition compared with other schools, decreasing enrollments, and
Hawaii's poor economy, as reported in the Honolulu Star-Bulletin,
February 5, 2000. Unfortunately, this could reduce enrollments even
further, particularly of those who may be considering moving from
community college to the university level.
The University of Hawaii is not alone in considering tuition hikes.
Therefore, even with increased funding for Federal financial aid
programs in FY 2000, we have a lot to make up for. Education is often
put on the back-burner when it comes to funding priorities. Instead, it
should be a top priority because it is an investment in the future of
this country. At this time, I would like to insert into the record a
statement from University of Hawaii President Kenneth Mortimer.\1\
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\1\ The statement referred to appears in the Appendix on page 307.
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Finally, one aspect of this issue that I would be very interested
to hear more about are differences among and within minority groups,
particularly Asian Americans and Pacific Islanders. Many colleges and
universities have worked diligently to ensure that the unique needs of
minority students have been met. However, additional needs remain in
minority communities, particularly in areas of high poverty in inner
cities, rural areas, and certain island areas over which the U.S.
maintains jurisdiction. Furthermore, tremendous variation in need
exists within minority communities. In order to assess true need by
race, we must strive to look at the data relevant to these communities
disaggregated, in addition to as a whole.
For instance, among Asian Americans and Pacific Islanders, the
aggregated group may be doing well in terms of financial access to
college. However, when separating out East Asian Americans such as
Chinese and Japanese, compared to Southeast Asian Americans such as
Vietnamese and Laotians, and Pacific Islander Americans, such as
Chamorros and Samoans, East Asian Americans are doing better than the
other groups. I do not believe there is enough being said on this
subject, and I urge our panelists to take this issue back to their
organizations, discuss it, and start coming out with applicable data.
Mr. Chairman, and Senator Lieberman, thank you again for creating
this opportunity to discuss this most important issue. I look forward
to hearing the testimony that will be presented today.
Chairman Thompson. I would like to recognize our first
witness, Jamie Pueschel, Legislative Director for the United
States Student Association. Ms. Pueschel is a recent graduate
who will testify about the pressures put on students seeking
financial aid.
Thank you for being here with us today, Ms. Pueschel. Do
you have a statement for us?
TESTIMONY OF JAMIE PUESCHEL,\1\ UNITED STATES STUDENT
ASSOCIATION
Ms. Pueschel. Good morning, Mr. Chairman, Mr. Lieberman,
and distinguished Members of the Committee. On behalf of the
nearly 15 million students across the country, I thank the
Committee for holding hearings on this most important issue,
college costs.
---------------------------------------------------------------------------
\1\ The prepared statement of Ms. Pueschel appears in the Appendix
on page 95.
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As the country moves into a new millennium and a new
economy, it becomes increasingly important for the country to
invest in the education of our young people if we want to
continue to compete globally. Young people are feeling the
pressure to get a degree now more than ever so that they, too,
can participate in the booming economy. Every year, though,
achieving that college degree becomes more and more difficult
and more and more costly for students and their families.
Annually, tuitions rise and students take out more and more
loans to pay for college. Tuition and fees only comprise part
of the cost of going to college. Students have to pay for room
and board, not to mention books and supplies.
While graduating with a reasonable amount of debt is better
than not having a degree and the opportunities that come with
that degree, debt can affect the job a student takes, the place
he or she lives, and the assets that student may or may not
acquire. I am such a student.
I graduated from Claremont McKenna College in Claremont,
California, in May 1998. My parents are both teachers and
recently started a 7th through 12th grade Episcopal school in
Lawrence, Kansas. I have an older sister who graduated from
Tufts University and is a teacher in Boston and a younger
brother who just started his freshman year at the University of
Kansas.
I graduated with approximately $18,000 in Stafford loans
and $1,000 in Perkins debt. While I was in school, I worked 15
to 20 hours per week under the Federal work-study program to
pay for living expenses such as groceries and books. My parents
made just over $50,000 combined while I was in college. Just to
pay for my education, they took out more than $22,000 in PLUS
loans. They had taken more out to pay for my sister's
education.
I was lucky in that Claremont McKenna gave me between
$10,000 and $15,000 in institutional grants every year, without
which I would have accumulated even more debt or not been able
to attend. Even with the grant aid, however, I could not have
attended without these loans. Every month, I write a check for
$208.32 to Sallie Mae and a check for $40 to Claremont McKenna.
Nearly $250 of my monthly income is paid to student loans. I
make $25,000 a year as Legislative Director of the United
States Student Association, fighting to increase access to
higher education for all students.
In applying for jobs after graduation, the most important
factor was salary and/or help with loan repayment. While USSA
does not pay the highest salaries in Washington, it is livable
because of such loan repayment. Luckily, USSA as part of our
philosophy provides $150 a month in that repayment. I would not
have been able to take this job without that help.
Beyond just job choice, though, I have little ability to
save money and have no idea when I will be able to afford a
car, let alone buy a house. This level of debt has limited my
ability to fully participate in this economy through saving and
investing.
This enormous burden students take on affects decisions
this country must make, as well. Currently, this country is
discussing the problem of teacher shortages and teacher
quality. My family feels this problem acutely because my
parents and sister are all teachers. As a Nation, we provide no
incentives for our young people to go into teaching. Teacher
credentials require a fifth, if not sixth year of school,
therefore requiring the student to take on more debt, and then
pay them meager wages in increasingly poor schools. My sister
has an enormous amount of debt, has chosen to teach in low-
income schools, and received little or no support for that
decision. Business leaders are also complaining that they have
an unqualified workforce and they need assistance in developing
a qualified college graduated workforce.
My sister and I are merely representative of the education
debt accumulation problem in this country. There are millions
of students like me in this country and increasing numbers of
such graduates. But let me tell you why, in spite of my debt, I
am one of the lucky students. Not only did my parents go to
college, they are both educators. They know the importance of a
degree, but more important, they know how to get there. They
know about applying to schools and how to fill out the FAFSA
form. I understood taking on debt and paying it off. I knew
that if I needed help from my parents, I could count on it. I
went to a great high school that offered me a lot of support
and counseling in applying for college. That high school gave
me an education that prepared me for college. I am a
traditional student. I do not have to worry about children or
helping to support my family.
Students have always actively opposed tuition increases.
Just this year, students at the University of Wisconsin system
organized and passed a tuition freeze when they faced a
potential 10 percent tuition increase. Students at North
Carolina are fighting a tuition increase, as well. What is most
interesting now, though, is that in some States, they are
passing tuition freezes or cuts because the States are running
such large surpluses. California's Governor Gray Davis is
proposing a tuition freeze, and Republicans in the State are
proposing a 50 percent cut to tuition. Williams College in
Massachusetts recently decided to freeze tuition for the next
school year, as well.
The College Cost Commission showed us that in financially
difficult times, such as the late 1980's and early 1990's, when
tuition increases were highest, States were cutting back on
State support, thus increasing a family's percentage of income
going to college. Now that the Federal Government and the
States are seeing surpluses, tuition increases are low and,
hopefully, State aid contributions will increase.
It is crucial for the Federal Government's role to increase
and to work with the States to make colleges more affordable
for students. Both the States and Federal Government are
experiencing unprecedented surpluses. Such surpluses provide an
unprecedented opportunity for the Federal Government to make
some choices and increase funding for programs that will truly
help all students afford college and life after college.
I think everyone would agree that education is the best
investment our country can make in its young people and the
economic future of our country. It is certainly an important
investment for my brother, sister, and I. Unfortunately, we may
not be able to make any other investments for our future.
I thank you for allowing me to discuss with you my story of
going to college and what steps would be useful in helping
college students pay for school.
Chairman Thompson. Thank you very much, Ms. Pueschel. That
is very helpful testimony and it really gives us an insight
that we need in talking to real people and real experiences,
and you help us do that.
I think I just have one question for you, but I think it is
an important one, and that has to do with the attitude of young
people as they are coming out of school, such as yourself. You
have experience, not only your own experience, but you talk to
other young people, so you would be a good witness on that.
It seems to me that you have followed what is becoming a
traditional path, and I guess maybe has been traditional, in
that you have pieced together money from loans, your parents
have helped some, your college obviously has helped some, and
you wound up with a pretty substantial debt as you come out.
Everybody wants to get more for less, obviously, but the
question we all have to come away with is what is fair, what is
right. I think probably a lot of us, I know when I left
college, I had some debt, much, much lower than what young
people today have, obviously. Some of my kids did, too, and
most of us pieced together those various kinds of things. There
are more programs out there today than there used to be, but
there still were some in the old days.
Just the fact that we are getting more into debt even in
and of itself is not an indictment on the system. I just heard
yesterday, for example, that I think the consumer debt, the
average consumer debt in this country overall went up 7 to 8
percent just last year alone. We are all borrowing more. We are
all living more on credit cards. But we see the astronomical
rise in some cases of these tuition prices.
So balancing all that out, I am wondering, do American
students believe they are getting fair value for the price that
they pay for a college education? You are obviously getting
something very important. You are paying a big price for it. Do
you feel it is fair, and being as objective as you can, where
are the shortfalls here in terms of how young people coming out
of school today with some debt, but having a valuable
commodity, how do you feel about it and how do you think most
young people feel?
Ms. Pueschel. I think you raise a couple of really good
points. What is interesting now about a college education is
that we are almost required to have it so that we can compete
in this economy and get the jobs that are going to provide us a
home and provide for our families. I think that is a difference
from years ago, where you could get a job without a 4-year
degree, maybe a 2-year degree, and still provide for your
family. I think that that is not true anymore.
Chairman Thompson. A high school education meant more then
than it does now, that is for sure.
Ms. Pueschel. Absolutely. I think this chart \1\ alone
shows how little income has increased versus tuition, and I
think we all see a value in what we get. I mean, certainly, I
appreciate my education. I would not be here without it.
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\1\ Chart entitled ``Figure 6. Inflation-Adjusted Changes in
Tuition, Family Income, and Student Aid, 1988-89 to 1998-99 and 1980-81
to 1998-99,'' appears in the Appendix on page 310.
---------------------------------------------------------------------------
Is there a way to balance the price of tuition or the price
of college with affordability? I think so. I think that we as a
country need to look at how much we value college education and
decide what steps we are going to take to make it more
affordable for students. Students obviously are willing to take
on the debt and go to school because we have increasing numbers
of kids in college. Is that affecting our decisions afterwards?
I believe so. But I think that we can work together with----
Chairman Thompson. You mentioned in terms of being a
teacher or public service, from that standpoint, too----
Ms. Pueschel. Absolutely.
Chairman Thompson. In our Committee, we do a lot of work in
the area of government performance and efficiency and economy,
if that is not an oxymoron when it comes to the government, but
we are increasingly concerned, even those of us who consider
ourselves quite conservative as far as government is concerned,
that we are losing out on bright young people coming into
government to serve a little time--they do not have to spend
their life there--because we are becoming more and more
technologically dependent, for example. We talk about not only
the technology we use, but the threats to our Nation from cyber
terrorism and things of that nature. You really have to have
good bright young, not necessarily young, but most of them in
that area seem to be these days people coming in and spending
some time and helping us with regard to that, and you see what
they can do on the outside. So whether it is teachers,
government service, whatever, what you are saying is that there
are an awful lot of young people coming out with such a debt
burden that it is making it difficult for them to make those
choices.
Ms. Pueschel. It is scary to come out of college with so
much debt, especially for a low-income student. I was a middle-
class student. But coming from a low-income student's
background, growing up in an area where people do not take out
loans, that they do not ever own anything, and then looking at
your future, not knowing if you are going to have a job when
you graduate and looking at having to take out the maximum
allowed loans in subsidized every year, which is what I did.
Maxing out results in about $18,000 of Stafford loans.
It is really scary to look at graduating with a lot of debt
and not knowing what you are going to gain. Someone might say,
``Well, I will take this $6 an hour job or whatever because it
is keeping food on my table right now and that is safe,'' even
though the country would be much better off putting more of our
kids into college. And like Senator Akaka said, reaching into
our minority populations that go to college at the lowest
rates, helping them get into college and take the steps there.
But I think you are absolutely right. I mean, look at
Congressional staff salaries. We are not talking about a ton of
money here.
Chairman Thompson. Well, it seems pretty high to me.
[Laughter.]
Ms. Pueschel. I think I just made some friends.
Chairman Thompson. Some of them are making more than we
are. That is kind of a sensitive subject. [Laughter.]
Ms. Pueschel. They are certainly making more than I do. But
anyway, I think that you are right. I mean, you talk to some of
the business leaders, there are real complaints that they are
not having a qualified workforce to hire. If you are a techie
now, you are going to do OK, but for how long is that going to
last? I just think we need to make some concrete steps to make
sure that we maintain our economy.
Chairman Thompson. I get your point. I will just finish
with you along the lines of the original question I asked.
There was a Higher Education Nationwide Survey, out February 8
of this year, that said 73 percent of Americans believe that
securing a college education is very important in helping
someone to succeed. On the other hand, nearly half, 47 percent,
say that those in college are not getting good value for their
education. Almost half the people feel that they are not
getting good value. That is of concern, because ultimately,
that will produce bad things of various sorts if we do not at
least get more transparency in the system so that people
understand, if costs have to be high, that people understand
why they are high. We do not do that very well, and especially
to our young people coming out after running up all these
bills. Thank you very much.
Senator Lieberman.
Senator Lieberman. Thanks, Mr. Chairman. Thanks for your
testimony, Ms. Pueschel, which has been very helpful both in
terms of your personal story but also insofar as you're
representing the United States Student Association. I thank you
for that.
I think your personal story reminds us of the pressure, not
only on those who are lower-income, in finding a way to afford
college, but on those who are not, in conventional terms as we
understand it, poor as your folks, but nonetheless take on a
tremendous burden and that you take on a tremendous burden
financially, as well. I am struck by the fact that your Mom and
Dad together make around $50,000 and they took on a loan
indebtedness of $22,000 for your education. I may have missed
this. Did you at any point get a scholarship grant from your
college?
Ms. Pueschel. Yes. The money I got was in the form of a
grant.
Senator Lieberman. It was? OK, then that was in addition to
the loan indebtedness of the $18,000 that you took on and the
$1,000 or $2,000 additional that you mentioned.
That just points out, the Pell grant program, which is a
wonderful program, obviously does not reach a family like
yours, does it?
Ms. Pueschel. It helps--and it is supposed to help the
lowest-income students who most likely would not have gone to
college without it.
Senator Lieberman. I know it is a sliding scale. I notice
in some of the material I have that the average family income
of Pell grant recipients, that is, students who are dependent
on their parents for financial support in 1996-97 was $19,260.
So it is a great program, but it does not reach up to where you
are.
Just two quick questions, because I think the Chairman
asked you the questions that I had in mind, as well. One is,
does the Student Association have any particular proposals? I
mean, one of the things we are going to try to do here today
and tomorrow is to talk about why tuition is as high as it is,
how are the aid programs affecting it, etc. But does the
Association have any priority proposals as to what, for
instance, Congress might most effectively do to deal with this
problem?
Ms. Pueschel. I do not know if you actually want to ask me
that question for proposals. There are lots of things that we
would like to do.
Senator Lieberman. Just give me the brief form of the
answer.
Ms. Pueschel. I do not think anyone has come up with a
great answer on college costs. I think States have a great
opportunity now with public colleges to keep down their costs
or to freeze tuition, and I think the Congress has a great
opportunity to catch up as far as on our grant programs like
the Pell grant. The College Board also puts together wonderful
statistics on what percentage of college Pell grants make up.
Twenty years ago, for a public institution, it comprised 60 or
80 percent of tuition at a public 4-year college. Now, it is
down to 40 percent. So there are places that we can make leaps
and bounds in our funding to really make up for the differences
now that we do have a surplus.
Senator Lieberman. Let me just stop you. So, in other
words, one thing you are proposing is to expand the income
eligibility levels for Pell grants and the amounts of the
grants?
Ms. Pueschel. Well, whenever you increase the amount of the
grant for a Pell grant, because of the way it works on the
graph, the highest amount goes to the lowest-income people, and
whenever you increase it, it pushes into higher and higher
incomes. The minimum grant a family can receive is $400. There
are other programs, like SEOG, a matching program with
institutions that provides a ton of grant money, I think a
maximum of $4,000 now, to really low-income kids. The LEAP
program is a State grant matching program, as well as the
opportunity to do things like making Pell mandatory. That is a
pretty out-there thing to say right now, but we actually have
the money. We are spending it on----
Senator Lieberman. What would it mean to make it mandatory?
Ms. Pueschel. Take Pell out of discretionary funding and
make it an ``entitlement.'' And we could fund it at much higher
rates now. The President just proposed spending $30 billion on
tax incentives. Making the program mandatory and increasing it,
doubling it, would cost less than that.
Senator Lieberman. Would you prefer that as opposed to the
proposal that the President made for the money going to the
Pell grant program?
Ms. Pueschel. I think we always like to see money put into
grant programs as opposed to the tax incentives, because we
still have a large population that is not going to college that
would not without Pell and other need band grants. I am a
student that would have gone to college anyway. It is just
unfortunate, the debt I have to face afterwards.
Senator Lieberman. Thanks very much. Just one comment that
Senator Akaka's opening statement and your response to it
brings to mind, which is in terms of the special needs of
lower-income kids and either minority or first-generation
Americans, which is that if you look at the demographics, our
population of children in the decades ahead is going to become
increasingly, what we refer to now as minority populations, and
probably increasingly from lower-income families, so that our
ability as a Nation to continue to have the bright minds, the
innovators, will be increasingly affected by our ability to
make it possible for lower-income kids, minority kids, to get a
higher education. So the problem as we go along is probably
going to get more demanding because of that demographic change
that we see coming, that a greater proportion of the kids are
going to be from the families that are going to be most in
need. Thanks so much for your testimony.
Ms. Pueschel. Thank you.
Chairman Thompson. Thank you very much. Senator Collins.
Senator Collins. Thank you, Mr. Chairman.
Ms. Pueschel, I was very interested in your testimony and I
want to follow up on the questions that the Chairman and
Senator Lieberman asked you. You mentioned that you graduated
with some $18,000 in debt, and that was the experience that I
saw with students at Husson College, where I worked, as they
were graduating with this mountain of debt. And one of the
reasons, and I have asked for the chart \1\ to be put up, is
that the ratio of grants versus loans has changed dramatically
in the last 10 years. Where it used to be that Federal
assistance covered more of the cost through grants, now much
more of it is covered through loans. It is essentially reversed
of what it used to be.
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\1\ Chart entitled ``Percent Share of Grants vs. Loans, 1980-81 to
1998-99,'' appears in the Appendix on page 311.
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I found at Husson, where I worked, that some students got
so discouraged by the prospect of facing this mountain of debt
that they dropped out of school and went to work. Has that been
your experience in talking with students, that the changing
ratio and the prospect of being faced with 10's of thousands of
dollars of loan payments due after graduation discourages
people from remaining in school?
Ms. Pueschel. I think that is a huge problem right now.
There are a couple of reasons kids drop out, one being the
seemingly insurmountable amount of debt that they are going to
take on. One is that there is not much consistency in your aid
package from year to year. Annually, you take out more and more
loans. The way our maximum loan amounts you can take out work
is it is capped, I think, around $2,500 in your freshman year
and it increases to about $5,000 in your senior year. So every
year, you are taking out more and more debt. That is scary,
especially if you can go out and get a job and pay for things
right now. Meanwhile, you are going to leave school with debt
and not have a degree.
Some kids come from high schools that do not provide as
great an education as mine did and they get into a classroom
with 500 other kids in their freshman year math class and they
are not doing as well as some other kids and that is awful.
They do not see a point if they are taking on all this debt and
are not doing very well. Why should I stay in this? I can go
get a job, and subsist. But that is a problem, because you are
forcing kids to drop out without a degree but with debt.
Senator Collins. And as you have pointed out, that debt
load also discourages students from pursuing careers where they
might make a real contribution, say in teaching or in public
service, but because the salaries may be lower, they just feel
they cannot take on those careers.
I know my work-study student at Husson College was going
back to her hometown in northern Maine where income levels and
salaries are very low and she was faced with a debt load of
$18,000 that she was going to have to pay back. In fact, she
was the inspiration for my introducing a bill to allow the
interest on student loans to be deducted was her experience. I
think it raises a very important policy question for us as
Senators on where should we put the money. Should the money
that we appropriate go to tax credits or tax deductions? Should
it go into Pell grants? Should it go into student loans? What
is the right mix for making sure that we are doing as much as
possible to expand access? I think your point about the need to
expand Pell grants is very important in that regard.
My final point, I think you have raised a very important
issue about whether there is a bit of a bait and switch going
on at some colleges, where the colleges will provide more
institutional grant aid in the freshman year and then gradually
take some of that away and change it to loans for the
sophomore, junior, and senior year. I have heard that complaint
from many students, and I think that is something we need to
bring up with our college representatives, as well.
Ms. Pueschel. I agree. It is scary when you are getting
your loan package every year and it is different.
I am glad you brought up the student loan interest
deduction, because that is another area that we can really help
our graduates out. The President has put it in his budget a
second time. The Senate passed it last year with Ms. Snowe
making an amendment to change it into a tax credit.
I just got my little slips in the mail that told me how
much interest I paid last year, and I paid about $1,400 in
interest alone last year, and I can tell you, it would be
really helpful to have that back in a credit. Right now, I can
only deduct it for the first 60 months of payment, and for
those students who have the most amount of debt, that pay over
25 years, it would really help them out for the next 20 years
for them to be able to take that deduction.
Senator Collins. Thank you very much, Mr. Chairman.
Chairman Thompson. Thank you. Senator Akaka.
Senator Akaka. Thank you very much, Mr. Chairman.
I want to commend you for your many accomplishments in this
early age of your life. I believe that the struggle you and
your family endured in financing your college education and
that of your siblings is typical of the struggle of many
middle-class Americans, and I am pleased to note that you were
successful in your endeavors, but disheartened by the
substantial education debt that you occurred. Eighteen-thousand
is huge. I applaud your concern and recommendations for
increased aid for low-income students, and I agree
wholeheartedly with your recommendations to provide economic
relief across the economic spectrum.
I would like to thank Senator Lieberman for mentioning the
issue in my statement regarding minority students. I would like
to at a later time see anything that USSA might have produced
in relation to this issue, unless you have any comments at this
time on this.
Ms. Pueschel. We would be happy to share any of our
research with you. We have a largely minority population in our
membership and have our Campus Diversity Project, which
operates out of our office, which is continually working on the
issues of recruitment and retention of students of color,
especially from low-income backgrounds, and we would be happy
to share with you at any time what we work on. We work on
affirmative action and programs that are going to make sure
that students stay on campus, such as support services, but we
would be happy to share that with you at any time.
Senator Akaka. In a section of my statement that I
submitted for the record, I mention a study released by the
American Council on Education in November of last year. This
study said that regardless of race, economic status, or gender,
most college students attend school part-time and work long
hours while enrolled. This jeopardizes their chances to
complete, in some cases, a degree. What are your thoughts on
this, and maybe even touching on what reasons, other than the
need to pay for their education, convinces students that they
need to work while in school.
Ms. Pueschel. Federal work-study becomes part of your
package, as it was part of mine. Often, students, though, who
are non-traditional students, students who are first
generation, students with children, students going back after a
long time, veteran students will work outside of school, not in
the Federal work-study program, to make up for either their
family costs, helping to help out their families if they come
from a low-income background, paying for their own children,
just regular costs of school.
The important factor, I think, for all of us to recognize
is that the amount of money required to go to school far
exceeds tuition and fees. Room and board are issues, even if
you do not live on campus. Your books are extraordinarily
expensive.
But as a lot of people report, students are working at
extraordinarily high levels these days, often well over part-
time, and I think cost is part of that, a large part of that,
because families see no other way to afford it unless their
kids are working. It makes it harder for you to focus on your
studies. It makes it harder for you to take a full load and
graduate within 4 or 5 years and is extending the amount of
time that you--because of work and because of the extra time
spent in school--are going to be taking out more debt.
Senator Akaka. My last question for you, in thinking of all
of the experiences that you have had, what recommendation would
you now make to a high school student, a high school senior who
is looking at college, regarding their options or opportunities
for financial aid?
Ms. Pueschel. Well, I would talk to them about the
difference between going to a private school and a public
school. I am certainly feeling that now. I would talk to them
about the different options they have got as far as Pell
grants, SEOG, LEAP, any community scholarships they can
research, talk to their own financial aid officers, develop a
relationship with your financial aid officer and work on ways
that the institution can help you out to find some other
scholarships that will last you through the 4 years, not just
for the first or second year, so that you can maintain the same
level of grant aid over the 4 years.
Senator Akaka. Thank you very much for your response. Thank
you, Mr. Chairman.
Chairman Thompson. Senator Durbin.
OPENING STATEMENT OF SENATOR DURBIN
Senator Durbin. Thank you, Mr. Chairman, and thank you for
your testimony today, which I did not hear in person but I
read, and I thank you for being here.
It is interesting, we focus on the Federal scene, as we
must because that is our responsibility, but a little bit of
research that our office has done has shown that since 1980,
State revenues for higher education have decreased almost
$1,200 per student in constant dollars. Tuition revenues have
increased by over $900 per student during this period. So at
the same time as we are having more loans than grants, the Pell
grant is not keeping up with the increasing cost of tuition,
States are putting less money in higher education, forcing
institutions, public institutions, in particular, to raise
their tuition to make up the difference.
Another factor contributing to increased student borrowing
is that in the last 20 years, the relative value of the maximum
Pell grant has decreased by one half. In 1979-80, the maximum
Pell grant of $1,800 represented 47 percent of the total cost
to attend the University of Illinois. In 1999, the maximum Pell
grant of $3,125 represents only 23 percent of the estimated
cost of attending the university.
At the same time, I might add, that we are debating
increasing the minimum wage, which I think should be done and
should have been done a long time ago, a lot of students trying
to supplement their incomes are working in fast-food places and
whatever they can find and often making a minimum wage. When we
talk about the minimum wage, I think we overlook that, that
some students get by on it. I did it when I was in school. I
bet you did, too, those types of jobs.
Ms. Pueschel. Yes.
Senator Durbin. So I thank you for being here today and for
your testimony, and because I came in a few minutes late, I
will not delay the hearing any further. Thank you.
Chairman Thompson. Thank you very much.
Thank you very much. You have been very helpful to us.
Ms. Pueschel. Thank you.
Chairman Thompson. We appreciate your being here.
Our next panel consists of highly distinguished members of
the academic community. They will discuss how colleges and
universities manage costs and set tuition.
This panel will include Dr. William Troutt, President of
Rhodes College, Chairman of the National Commission on the Cost
of Higher Education; Dr. David Breneman, Dean of the Curry
School of Education at the University of Virginia; Professor
Caroline M. Hoxby of Harvard University; Dr. William Massy,
President of Jackson Hole Higher Education Group; and Dr.
Claire Gaudiani, President of Connecticut College.
Dr. Gaudiani, I understand you have a plane you have to
catch and you probably are going to have to leave here in about
15 minutes. If it is all right with everyone else, would you
give us the benefit of your statement first?
Senator Durbin. Mr. Chairman.
Chairman Thompson. Yes?
Senator Durbin. May I, just a moment, ask for consent to
enter into the record a statement from the University of
Illinois on this issue? \1\
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\1\ The prepared statement from the University of Illinois with
attachments appears in the Appendix on page 290.
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Chairman Thompson. It will be made part of the record.
Senator Durbin. Thank you.
TESTIMONY OF CLAIRE L. GAUDIANI, Ph.D.,\2\ PRESIDENT,
CONNECTICUT COLLEGE
Ms. Gaudiani. Thank you. Thank you very much, Mr. Chairman.
I appreciate the grace of my colleagues and you and Senator
Lieberman and the distinguished panel in permitting me to go
first. I am, in fact, going back to New York to be part of a
panel honoring and working on the work of Senator Fulbright.
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\2\ The prepared statement of Ms. Gaudiani appears in the Appendix
on page 100.
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I come to you probably looking--well, let us say,
hopefully, after 12 years, looking like a college president,
but actually being a scholarship student, the oldest of a
family of six, and benefitted from scholarships both as an
undergraduate at Connecticut College and then through the
National Defense Foreign Language grants support through my
Ph.D. My husband and I--also, my husband was a scholarship
student at Princeton and also did a Ph.D. under government
support, and both of us finished paying back our college and
university loans the year our children went into private high
school education.
Chairman Thompson. I had the very same experience.
Ms. Gaudiani. So when I look at indebtedness, I want us all
to be sure we know this is not a new trick. It is a persistent
problem and we need to address it vigorously.
But our Nation has been built on the American dream, which
is people who are able and are willing to work hard will have
opportunities to contribute their full giftedness to the
strength of this democracy and their own personal and their
family's advancement. I am going to speak to you today about
one major item I hope you will consider in the coming days and
in your work enabling more support to come to American citizens
who need to continue to benefit from financial aid.
I do not need to remind this distinguished panel that
probably the best money we have spent in this century was on
the GI Bill, which enabled a whole generation, including, for
many of us, our fathers' generation, to make the kind of
contributions that fueled the economic progress we have in
place right now.
The change in financial aid in the early 1960's that
addressed some of the issues that Senator Akaka brought forward
was another major realteration in financial aid which said aid
will be need-based. That is, we are going to make sure that any
citizen who needs aid will go to the institution that he or she
is able to get into and will not be forced to go to another
institution, perhaps of lesser rank, because the institution is
more expensive or because the student has received less
financial aid. I think that is a critical commitment for me as
a college president and primarily as a scholarship student to
bring before you.
What I am concerned about is that in the financial
pressures that colleges and universities have faced, which my
colleagues in economics will share with you, in the pressures
we faced in the last decade, there has come to be an alteration
in the way financial aid, institutional financial aid, is being
used in some campuses, and I want to bring this to your
attention not because I am unhappy with my colleagues who face,
like I do at Connecticut College, the tremendous pressures on
our budgets to produce a very stronger faculty.
If faculty salaries drop, of course, we have young people
who go into other jobs, and you have all seen what happened to
young lawyers' salaries recently. Well, I can tell you that did
not happen to America's faculty salaries in the last couple of
months. But if we are going to have the best and the brightest
in the classroom, we have to have faculty salaries at a
significantly strong level.
The same thing with the price of technology. Colleges like
mine have to have nuclear magnetic resonating spectrometers. We
have to have very expensive infrastructure, that is,
technological infrastructure, in order to provide the quality
of education that will fuel America's wealth in the next and
coming generations, and that has to be available for all
students. But I am going to leave to my colleagues more fit
than I the job of explaining our cost structure, and also I
very much appreciate Senator Voinovich's concerns.
Chairman Thompson. You are going to opt out on that
question?
Ms. Gaudiani. No, I just know when I have masters and
mistresses of knowledge in the room. But we have, for instance,
at Connecticut College gone through a cost restructuring
program about every 3 years to keep taking costs out and
assuring that we are spending our money in the absolute best
places. The board has made a commitment to raising tuition
within a point to a point-and-a-half of inflation and try to
respect the ratios that you have seen up here.
But the problem that I want a moment to bring before you is
that over the last, let us say, 15 years, there has been an
alteration in the way institutions' scholarship aid has been
offered, and it is increasingly moving toward, at many
institutions--not all, of course--merit aid, and that sounds
wonderful. Let us reward merit. Unfortunately, it is not really
merit aid at a significant and rising number of institutions,
and let me just run a little scenario.
Imagine that I am a college president looking at my board
of trustees and I need to fill beds and I need to make the
bottom line work. A consultant comes to me and says, let me
help you out. You know that $30,000 scholarship to cover full
tuition and room and board and fees and books that you would be
prepared to give to a student who comes from a low, very low-
income, first-generation family, let me show you how to use
that aid.
Instead of giving that scholarship to one student who will
take up that aid, $30,000 a year, 4 years in a row, let me show
you some magic. We are going to give that scholarship to six
no-need students, students whose families may make $400,000 a
year, completely out of the need-based category, and each of
those students is going to get $5,000 of merit aid and we are
going to do a study using information readily available in the
public sector in credit studies and credit card studies and we
are going to tell you the price point sensitivity of those
families and you are going to leave no money on the table.
So those six students getting those $5,000 merit
scholarships are going to pay you the rest of the $25,000 in
tuition. So, my dear president, you are going to get a big
chunk of cash, $25,000 times six, $150,000 for that $30,000.
How does that grab you?
Now multiply that times four and tell your board that one
full-time scholarship divided like this not only fills six beds
and brings you $600,000 in 4 years, but it also brings you
families to whom you can go for annual fund gifts. They are
going to be grateful, happy, wealthy families, because you know
what? That student has not gotten a merit aid scholarship
anywhere else. Connecticut College would not give that student
a scholarship because Connecticut College and many of my sister
and brother institutions give the men and women who apply to
Connecticut College need-based aid.
I believe that this is a problem we have to look at in
higher education. It is making the scholarship money of an
institution operate as a business resource. We are tax-exempt
in higher education because we are supposed to be developing
social capital. We are supposed to be returning to this Nation
a higher set of opportunities in each citizen that can be
played out over a lifetime.
My brother's scholarship at Harvard has given the Nation a
cardiac thoracic surgeon of the first order who has done
research, who has done transplant surgery, and has spent a
career giving back to his country and has sent three daughters
to Harvard on his own nickel, one of whom is already in medical
school.
My sister who was on a scholarship at Bryn Mawr is a double
board certified endocrinologist with four children who are in
private school at her and her husband's expense, and she is
returning to this country the benefits of her scholarship. And
my brother who is a corporate executive, the same, only his
kids are 4 and 2 years old, so they have got a ways to go.
My point here is that it is important for us to look at
institutional financial aid as a national resource to build
social capital, not as a bottom-line business asset to create
the kind of resources that the institution can use for other
purposes.
So I would draw to your attention what I believe is a hotly
contested issue in higher education, and I realize I may not be
making some friends among my colleague institutions by bringing
this up, but I think it is important for us to call this by its
right name. It is not merit aid, because these students are not
more gifted than students who do not get this aid, who do not
receive these merit scholarships. They are students whose
families show in the credit reports available price point
sensitivity. That is, they are the kind of people who are
looking for discounts and will come to your institution if you
give them that aid, and they are people with money who will be
able to provide you with money going forward.
We need to use our institutional financial aid resources to
bring the best and the brightest from all across American
families to the best quality education that we can give them
access to, and for the most part, to be quite frank, they
should not be in mathematics courses as freshmen with 500 other
students.
High quality education is expensive. It is impossible to
get economies of scale when we are raising human beings, and we
could look to science and to our own biology. We do not give
birth to litters. We give birth to babies, mostly one at a
time, and they take about 20 years, if we are lucky, to get
them independent. Colleges and universities that are able to
afford class sizes that are manageable and educational
opportunities that permit teachers to really know students and
guide them, that is the quality of education that this Nation
deserves in the coming generation.
We need to reduce the debt burden. You have heard some good
ideas. You have some good ideas. I firmly support the expansion
of Pell and the SEOG grants, but I also want to suggest that we
look into debt forgiveness, not only the tax credits for
indebtedness, but actually debt forgiveness.
David and I, my husband and I, had debt forgiveness for
teaching. That was a big help in managing our loans and young
family. We could have debt forgiveness not only if people go
into certain professions at certain income levels, but also
debt forgiveness for civic engagement. It is very important for
the best educated citizens to be willing to participate, as I
am seeing in my own city of New London, in running for city
council and being members of planning and zoning commissions
and participating in the life of our democracy, and it might be
that we should look into some method of debt forgiveness for
citizens who have loans and who are willing to participate
actively in local government and other nonprofit opportunities
for civic engagement.
We have a country that was built on a dream, and it is our
responsibility to make sure that the dream can continue to be
maintained at all income levels and that our country as we move
forward will benefit from this great asset, which is America's
higher education.
That is the end of my formal testimony and I would be
pleased to take questions.
Chairman Thompson. Thank you. Thank you very much.
Senator Lieberman. Thanks, Mr. Chairman.
Ds. Gaudiani, if you are going to get that plane, I am
afraid you should go. I do not want to risk that. I just wanted
to thank you. Your testimony was stirring, as is your story,
and I appreciate it.
I guess, just boiling it down to a really quick question
targeted, what can we in government, if anything, or you in
higher education, do to counteract the problem of merit aid as
you have described it, which to me in some ways seems as if we
are making--we are asking colleges to be more like businesses,
but part of what you are describing is a situation where
colleges really are acting like businesses and making a
business, not an education, judgment about how to use their
aid.
Ms. Gaudiani. Well, I think we have to make a very
important distinction here, Senator Lieberman, and I am so
grateful for your leadership here and the leadership of Senator
Thompson, and Senators Collins, Akaka, and Durbin.
The critical issue you are asking is the critical issue we
are facing in higher education. We have got to act like
businesses in cost reduction and in cost management, and we
have tried to do this at Connecticut College. In fact, our
planning and management system is a case study at Harvard
School of Education that is taught every year and showing other
academic institutions how to do management and planning.
But we are not businesses. We are fundamentally not
businesses. If you go in to buy a car, no one asks you whether
or not you are willing to fill out an application so that the
car dealer can decide whether or not you really ought to be
driving a Lexus or a Taurus. We are not businesses. You apply
to get into colleges and you have to prove by what you have
done ahead of time that you are worthy to be there. And no one
comes to you and takes back your Lexus or your Taurus if they
decide they do not like your driving style. You get to keep the
car if you make your payments. That is not like higher
education.
So I believe we have created some of this problem in the
last 10 years in the way we have not faced up to the work that
the country wants higher education to engage. We need to be
told to manage our costs and to use the best wisdom, as Senator
Voinovich mentioned, of private enterprise to control costs and
to manage well. But we need to be told that our job is to
enhance social capital and that in order to do that, we should
not use our funds as a business resource but, in fact, as a
resource to develop America's human capital and to assure that
no student is left at home without that $30,000 scholarship
that that expensive student is going to cost the institution
because the money has been used more wisely from a financial
standpoint by the institution.
So I think we probably need a small study group of our
leaders in government and in higher education to look at this
in the context of the pressures on higher education to meet the
expectations of business and to see that the results of that,
in fact, are to leave young people on the sidewalk in some of
our lowest-income neighborhoods, and also our middle-income
neighborhoods, at our great peril as a Nation.
Senator Lieberman. Thanks so much. I appreciate your
twisting your schedule around to come, but it turns out that
you are a perfect, I think, complementing witness to Ms.
Pueschel in your story and the position you occupy. I just want
to say that I feel badly for your brother, the corporate
executive, because he is the only one at the table who cannot
be called doctor. [Laughter.]
Give him my regards.
Ms. Gaudiani. Thank you very much.
Senator Lieberman. Thanks. Have a safe trip.
Ms. Gaudiani. And thank you very much, distinguished panel.
Chairman Thompson. Thank you very much.
I will now call on Dr. William Troutt, President of Rhodes
College and Chairman of the National Commission on the Cost of
Higher Education. Dr. Troutt has a special place in my heart.
He was President of Bellmont College when two of my children
graduated from there, so we have been very proud of his
achievements and leadership. Dr. Troutt.
TESTIMONY OF WILLIAM E. TROUTT, Ph.D.,\1\ PRESIDENT, RHODES
COLLEGE, AND CHAIRMAN, NATIONAL COMMISSION ON THE COST OF
HIGHER EDUCATION
Mr. Troutt. Thank you, Mr. Chairman, for the opportunity to
be here before you and your distinguished colleagues this
morning. If I might, let me submit my written testimony for the
record----
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\1\ The prepared statement of Mr. Troutt appears in the Appendix on
page 103.
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Chairman Thompson. All prepared statements will be made a
part of the record, and feel free to summarize.
Mr. Troutt. I will use this time, then, if I might, to make
five points that I hope will provide some context for our
conversation today and hopefully connect with some of the
concerns you have already raised.
Point No. 1, college cost is one of those topics that grows
in complexity the more you talk about it. Chairman, it is not
unlike Tennessee goat meat. The more you chew on it, the bigger
it gets. [Laughter.]
Well, why is that? First of all, college finance works
differently. In the world of commerce, price equals cost plus,
hopefully, some profit. In the world of higher education, price
equals cost minus subsidy. We also do not have the best
vocabulary for talking about college costs. The distinction we
make about four different terms is very important: Price, the
tuition and fees we ask students to pay; cost, what
institutions spend to educate a student; subsidy, the
difference between price and cost; and net price, what students
pay after financial aid is subtracted.
At Rhodes College, it works something like this. Price is
about $18,500. The cost of educating that student is about
$32,000. The subsidy for every student is about $13,500. The
net price that three out of four students pay at Rhodes College
averages $9,000.
We also have a very diverse system of higher education that
adds to this complexity. American colleges and universities
vary in their missions, in their sources of subsidy, and in the
size of their subsidy. As you know, States vary greatly in
their ability to support higher education. Private college
endowments vary dramatically. We have 27 private institutions
in this country with an endowment of $1 billion or more. We
have over 1,500 private colleges and universities with an
average endowment of about $10 million. Subsidy and cost both
have a lot to do with price.
Point No. 2, a number of factors drive college cost. Some
are obvious and have been mentioned already today--people cost,
technology, facilities, financial aid--and some are not so
obvious--regulatory compliance and the expectations that
students and families bring to campus about everything from
support services to facilities.
Point No. 3, it is difficult to connect the availability of
Federal student aid with rising college prices. Our National
Commission on College Costs found that Federal grants did not
contribute to rising prices. But we could not find convincing
evidence that loan availability affected tuition increases.
More definitive research is needed. On a personal note, let me
say that in 18 years of building budgets for the administrators
and trustees, I never heard anyone propose raising tuition to
capture more Federal dollars.
Point No. 4, colleges and universities are taking steps to
control costs, as you have already heard this morning. Price
increases are moderating. This year's tuition increase for 4-
year private institutions is the lowest in 27 years. Academic
leaders are taking steps to manage costs.
At Bellmont, where I served as President for 17 years, we
were able to significantly cut class offerings without
sacrificing quality. We were able to reduce energy expenses. We
were able to reduce staff through a redesign of work processes.
At Rhodes, where I serve today, we have joined with 14
other leading liberal arts colleges across the South to share
resources and contain costs through innovations ranging from a
virtual electronic library to a virtual classics department,
from joint technology training for faculty and staff to jointly
sponsored study abroad programs. More can be done and must be
done, but campus leaders are taking public concerns about
rising college prices seriously. You have got our attention.
Point No. 5, much work remains to be done, not just in
containing costs, but in sharing information and building
knowledge. American families need to know more about college
prices and about the availability of aid.
Your hearing today is a reminder of how important this
issue is to American families and how essential it is for all
of us to work together to keep American higher education
affordable. Thank you for this opportunity to share today.
Chairman Thompson. Thank you very much.
I will now call on Dr. David Breneman, Dean of the Curry
School of Education of the University of Virginia. Dr.
Breneman.
TESTIMONY OF DAVID W. BRENEMAN, Ph.D.,\1\ DEAN, CURRY SCHOOL OF
EDUCATION, UNIVERSITY OF VIRGINIA
Mr. Breneman. Thank you, Mr. Chairman, Senator Lieberman,
and other Members of the Committee. I am going to enter this
through the standpoint of the media, because as I suspect my
colleagues have the same experience, I must get two or three
calls a week from a reporter who is going to write the
definitive story on college costs.
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\1\ The prepared statement of Mr. Breneman appears in the Appendix
on page 110.
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Now, as I reflect over those hundreds of conversations, I
have never had a reporter ask me about the soaring cost of
community college education, where 43 percent of our
undergraduates are enrolled. I rarely, actually, have them ask
me about the soaring cost of public universities, where 37
percent of our students are enrolled. What they wind up doing
is obsessing about the rising costs of about 40 or 50 colleges
in this country, mostly private, highly selective, and highly
prestigious. So they wind up really writing about what, in my
own view, is where their news editor's child wants to go, and
so the reporter is tilted toward a focus on this particular set
of schools.
Chairman Thompson. For the record, we do not associate
ourselves with any of those. [Laughter.]
Mr. Breneman. I think then they write stories like
Newsweek's famous $1,000-a-week story or the story in Time
Magazine about Penn and so on, and I think this creates a sense
of panic among parents, many of whose children will never have
any interest in going to such schools, but it filters down and
I think it helps create a perception that college is vastly
more expensive than the reality shows.
On the other hand, people act on their perceptions, and as
the polling data show, the most serious concern most people
express about higher education is exactly the subject of
today's hearing.
Now, in terms of a theory to determine the cost of college,
there are lots of them out there, but I have always been struck
by Howard Bowen's notion, the distinguished economist who was
President of Grinell and the University of Iowa, and after
studying this for some time, he came up with the revenue theory
of cost, namely that colleges raise all the money they can and
they spend it on good and useful things.
The point of this, if there is any truth to it, is that it
means there really is not an objective standard by which to say
how much a college should spend. It becomes a relative
standard, pure comparisons.
As you know, I am sure, Senator Collins, from working at a
college, every college has a set of peers and everything we do
is indexed relative to our peers. So we do not shoot at an
absolute cost figure, we shoot at a relative or a positional
cost figure, and things like the U.S. News and World Report
rankings just reapply this into a more significant competition.
Now, we are an institution or an enterprise marked by
multiple sources of revenue. I will not renumerate them for
you, but we all know what they are. Tuition is just one of
many. When one goes down, administrators seek to raise another
one. For example, in the early 1990's when the States were
cutting back sharply on their public appropriations, we turned
to tuition increases and private fundraising. The University of
Virginia in response to this undertook a massive capital
campaign that has just gone over $1 billion. We did this in
large part to replace the State money that was no longer there.
Now, the diversity of the revenue stream means that the
analogy to health care costs, which often gets invoked--
Secretary Bill Bennett did this for the first time some years
ago--is simply wrong because there is not a single dominant
third-party payer in the higher education system. There are a
lot of payers, no one of which is dominant.
My own sense, and I agree on this with the Cost Commission,
is that objective evidence shows that Federal grants do not
have one smidgen to do with tuition increases. It just does not
work that way. If you raise your tuition, the Pell grant does
not go up.
The case of loans is much more controversial and hotly
contested, and I, to be honest, have not seen a definitive
study on this. Federal loan programs are capped, but you have a
multitude of private loan programs and you have home equity
loans and a variety of other loan sources and it is hard for me
to believe, frankly, that somehow this has not played into some
aspect of tuition increases.
On the other hand, what do you do about that even if that
were true? I hardly believe it would be acknowledged by most
parents that taking away access to loan capital would be an
improvement. So it is a dilemma. How do you do something about
it, even if you could establish that case.
I will say that the much discussed tuition tax credit does
carry with it the incentive for tuition increases, potentially
in the public sector to make sure that the tuitions are high
enough to capture the full credit, if they are below it, and in
the private sector, schools have the opportunity to offset some
of their own institutional aid funds against the credits. So I
think you do run the risk of setting up an incentive program
for cost increases or price increases in those programs.
The next point, very briefly, is that I think you have to
do separate analyses for tuition setting in the public and the
private sectors. In the public, price is a political decision.
It is manipulated or influenced or set, even in some cases, by
governors and legislatures at the State level. As far as I can
see, I see no Federal role at all in getting into that thicket
other than to be aware of the incentives that your programs may
be putting out there, such as the tuition tax credits, that may
influence that State-level decision.
Governors, for example, right now, in response to tuition
increases in the early 1990's, a number of the States and a
number of the governors are intervening now to buy down those
tuition increases. Virginia just took a 20 percent reduction in
its in-State undergraduate tuition driven entirely by the
governor and legislature.
In the private sector, the market is the arbiter, and
again, with my colleague, I agree. The majority of private
colleges struggle to make ends meet and they are discounting
heavily. It is not unusual to find 40 to 50 percent of your
total gross tuition revenues being discounted in order to fill
the class. I do not see any role the Federal Government can
play in going in and trying to fool around with the pricing in
those schools. They are so close to the margin, frankly, a
number may indeed not survive the price wars of the next decade
or so. They are in real trouble.
That brings us back, alas, to these 50 or so extremely
wealthy institutions that have had their endowments expand by
incredible amounts in this utterly unpredicted bull market of
the last 10 or 15 years. This is the group of institutions that
fuels the media interest, rightly or wrongly, and I am not
attacking them, I am just saying, the fact of the matter is we
have a very strange and widely dispersed market now of higher
education, much more divided into wealthy and less-wealthy
institutions than we used to.
And you have to modify Bowen's revenue theory with regard
to those top groups because they do not raise all they can.
Their tuitions, in fact, are considerably lower than they could
charge with the applicant pools they have, so they restrain
themselves already on the price side, I think for political
reasons, and increasingly, they are saving a great deal of the
money they raise through transfers to endowment.
With the Williams College decision, which was mentioned
earlier, announced 3 or 4 weeks ago, Williams decided they were
going to freeze their tuition, and my view is that that is an
attempt by the administrators at Williams to send a signal to
their peers that politically--this is not an economic move,
this is a political move--signaling their peers that it is
time, for political reasons, to either freeze or hold down
tuition increases, to take the heat off.
Now, I have written about that and it is part of my
testimony. My sense is that their peer institutions will do
everything they can to marginalize and box Williams into a
corner, make them look stupid. If they do not follow their
lead, then the fact of the matter is, Williams will have to
raise their tuition again next year and this one-time incident
will be forgotten.
I think that would be a pity, because I think Williams is
trying to address a real issue here, but it is virtually
impossible for a single institution to single-handedly try to
alter this market. So in a way, it is a fool's errand, if you
will.
The one thought I did have, though, I do believe these
extremely wealthy institutions are in what one economist has
called a positional arms race, and I think they might like to
mitigate that. The antitrust case of 10 years ago has cast such
a chill over the environment, that these institutions do not
have the opportunity to even talk together about what might be
a rational response.
I guess if I have one idea on this subject for the
Committee, it might be to revisit the implications of that
antitrust act and think through whether there might be some way
that these institutions collectively could do something for the
public that individually they cannot do.
Finally, it seems to me the danger in the current situation
is that with all of the fears about the rising cost of college,
that financial aid funds are being, as Claire suggested,
diverted away from financially needy students through
government responses to the perceived crisis, be it tuition tax
credits, prepaid tuition plans, or tax-deferred savings. All of
the things that we keep coming up with the last few years have
the feature that they only benefit those that are already at a
significant wealth level. Low-income families essentially
cannot take any benefit from the programs.
But what I worry about in this, in an odd sort of way, is
that the failure we may be reckoning with here is that
political responses at the Federal and State level to this
crisis may actually in some ways make some aspects of the
problem worse. If I were testifying tomorrow, I would share the
suggestion of the representative, Ms. Pueschel, which was that
given the tax credits, which are entitlements, and guaranteed
loans are effectively entitlements--once you are eligible, you
get it--that I think in a time when we have a surplus, we ought
to make the Pell grants an entitlement, because I do worry that
the one program that specifically addresses the needs of the
very lowest income is put on an annual appropriations cycle
whereas the rest are not. Thank you very much.
Chairman Thompson. Thank you very much.
Professor Caroline M. Hoxby of Harvard University.
TESTIMONY OF CAROLINE M. HOXBY, Ph.D.,\1\ ASSOCIATE PROFESSOR
OF ECONOMICS, HARVARD UNIVERSITY
Ms. Hoxby. Good morning, Senator Thompson. Good morning,
Senator Lieberman, Senator Collins, Senator Akaka, and Senator
Durbin. I would like to thank the entire Committee for inviting
me to speak.
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\1\ The prepared statement of Ms. Hoxby appears in the Appendix on
page 120.
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There is widespread acceptance that education is an
important part of economic growth for the United States. We
know this because, first, the relationship between growth rates
and education suggests that for every additional year of
education that a population attains, a country grows about 1
percentage point faster per year.
Second, American industries that have fast-growing net
exports use a disproportionately high amount of educated labor.
Also, high-technology industries demand labor that is very
highly educated: Workers who have full mastery of advanced
college-level analytic skills. If the growth of high-technology
industries is not to be reigned in by rising wages, the United
States would need to nearly double its share of new workers who
have such an education by 2010. A doubling would mean an
increase from approximately 7 percent of workers to
approximately 14 percent of workers.
There are three forces that are primarily responsible for
the changes in college tuition that we have witnessed in the
past 30 years. First, there is skill-intensive technological
growth which has increased the demand for high-intensity
college education in the American labor market. By high
intensity, I refer to a college education in which students are
expected to master a large quantity of difficult material in
each year of college. In order to engage in getting a high-
intensity college education, a high school graduate must have a
very full mastery of high school-level material.
In a high-intensity college education, students are
typically required to interact with technologies, like
computers, in a sophisticated way. They are also required to
develop advanced analytic and communications skills. People who
have obtained such education are disproportionately in demand
in America's highest-growth industry. In fact, students who
have obtained such educations are nearly 400 percent
overrepresented in the ten highest-growth industries in the
United States.
The second force that has been responsible for changes in
college tuition is that prospective college students are much
more mobile and better informed now than they were 30 years
ago. They know much more about their own college preparation
relative to the national pool of high school graduates. It is
also much easier for them to learn about colleges.
As a result, colleges now face a more competitive market
than ever before as students compare colleges with similar
offerings and are sensitive to tuition differences among them.
More than ever before, students avoid colleges that charge
tuition that is higher than those of other colleges with
similar offerings. Also, colleges have had to become more
specialized.
Third, international trade and technological innovation
have really decreased the demand for unskilled labor in the
United States. As a result, even a high school graduate who is
poorly prepared for college in the sense that he did not master
most high school-level material has an increased incentive to
get some amount of post-secondary education, even if that post-
secondary education begins with remedial courses.
The three forces I have just described have caused the
college sector to become much more diverse in order to
accommodate both poorly-prepared high school graduates who
might need remedial education and highly-prepared high school
graduates who want a high-intensity college education. Because
of this increased diversity, tuition is more diverse.
College tuition has risen, but it has not risen across the
board. In fact, since 1970, tuition has remained almost flat in
real dollars for fully 50 percent of the college places in the
United States. The first figure in my written statement shows
how college tuition has changed since 1970. Tuition has
declined 15 percent for the least-expensive 10 percent of
colleges in the United States. Tuition has held steady at the
20th percentile and median tuition has risen only very
modestly. Tuition has risen significantly only for the 20
percent of college places that are the most expensive.
Also, list tuition is somewhat misleading because the
colleges that have raised their tuition the most are the ones
that give the largest grants to students. The second figure in
my written statement shows how tuition paid for students has
changed since 1970. It shows that list tuition exaggerates the
tuition that students actually pay.
I will make a final note on tuition statistics because that
have been cited so much this morning. It is very important that
when we compute tuition statistics over time that we do not
weigh each college equally. Many statistics weigh a Williams
College (with a class of 400 students) the same as a University
of Illinois. Such statistics do not represent the true choices
that are open to students in the United States. They tend to
exaggerate the rate of tuition growth because they overweigh
the small colleges and the small colleges are the most
selective colleges in the United States.
Statistics that do weight by enrollment tend to weight by
4-year enrollment. That is also a mistake. If a college
graduates 100 percent of its incoming class, that college gets
weighted four times as heavily as a college that graduates 25
percent of its incoming class. Such statistics tend to
exaggerate tuition growth.
The least expensive 50 percent of colleges in the United
States, in other words, the colleges for which tuition has
remained steady or has risen only very modestly, are good
points of entry for students who are not very well prepared for
college or only moderately well prepared for college. Why is
this? Well, it makes sense for poorly prepared students to
enroll in less-expensive courses until they have the skill to
make use of the sophisticated and costly resources that are
available at more high-intensity colleges.
Tuition has risen in real terms for the most expensive 20
percent of college places. These are the colleges, however,
that have increasingly specialized in providing high-intensity
education. We have had testimony this morning that describes
how they have been providing students increasingly with
technology and faculty attention. Also, the faculty themselves
are increasingly expensive because they are in demand by the
same high-growth industries that are propelling students to
desire high-intensity educations. Thus, the costs of colleges
that specialize in high-intensity education have risen and
their tuition has risen accordingly.
This does not necessarily imply that their tuition is not
priced competitively. Indeed, this sector of the college market
is by far the most competitive, because the students have the
most ability to choose among colleges. They are the most
mobile, they are the most informed, and they are the most
sensitive to tuition differences.
Estimates suggest that the highest return to a dollar of
tuition is provided by American colleges that provide high-
intensity education, and these are also the colleges that are
the biggest draw for foreign students who have a choice of
going to college in their home country or going to college in
another host country, like England or Australia.
Much of the upset over rising college tuition is caused by
the fact that commentators focus almost exclusively on the
tuition charged for the most expensive 10 percent of college
places in the United States. While these colleges may be of
interest to them personally, analysis of college access
requires a comprehensive view.
To consider a different market, something like fabrics,
say, you can see how misleading it is to focus only on the
maximum price that is charged here. The same fabrics that were
available to our ancestors are available to us today at a
similar price or perhaps a lower price. But specialty fabrics
have been introduced that perform much better under extreme
conditions. Just think of the fabrics that are used for polar
expeditions. These specialty fabrics are more expensive because
they cost more to produce.
If one were to study fabric prices by looking at only the
most expensive fabrics every year, one would mistakenly
conclude that fabric is becoming far too expensive for the
manufacturing of fabric goods. Competition in the fabric market
keeps prices in line with costs, but it does not prevent high-
performance fabrics from being introduced at competitive
prices.
In order to see whether tuition has made college less
accessible, I analyzed two major data sets that are comparable
and nationally representative. They are produced by the United
States Department of Education. I compared 1972 and 1992 high
school graduates and the analysis is shown in the table in my
written statement.
Let us first consider a high school graduate who is highly
prepared for college but who comes from a family with very low
income, less than $20,000 a year. In 1972, a student like this
had a 6 percent probability of not going to college at all and
had a 33 percent probability of going to one of the most
expensive colleges in the United States. In 1992, the same
student had a zero percent probability of not going to college
at all and a 43 percent probability of going to one of the most
expensive colleges.
Clearly, access to college generally and access to
expensive colleges in particular increased for highly-prepared
students from very low-income families. In fact, the analysis
shows that access to college generally and access to expensive
colleges in particular increased substantially for highly-
prepared and medium-highly-prepared students from families of
all incomes.
Next, let us consider a high school graduate who has
medium-low preparation for college. Among such students, the
percentage who did not go to college fell sharply from 1972 to
1992. Most of the increase was at colleges that charged median
tuition. Thus, it is difficult to find evidence that
appropriate colleges are inaccessible to this key group of
students. This is the group of students who are likely to
succeed in college, but they are unlikely to want to pursue a
very intensive college education.
Finally, let us consider a high school graduate who is very
poorly prepared for college. A typical student in this range
has SAT scores well below 300 and was at the bottom of his high
school class. Even among such students, the percentage who do
not go on to college fell between 1972 and 1992. For instance,
in 1972, 76 percent of students with very low preparation from
families with incomes between $20,000 and $35,000 did not go on
to college. In 1992, only 67 percent of such students did not
go on to college.
In short, the evidence suggests that college is not less
accessible to students now than it was 30 years ago; it is more
accessible. Moreover, it is hard to find evidence that students
are being forced to enroll in inexpensive colleges that are
inappropriate for their level of preparedness. In fact, most of
the students who are getting displaced from very expensive
colleges are students from high-income families who have low
college preparedness and they are being replaced by highly-
prepared students from low-income families.
Since most of the increase in tuition affects only the most
expensive colleges in the United States, perhaps it would be
advisable to intervene just at those colleges. There are some
difficulties here, however. First, these colleges are
increasingly accessible to highly-prepared students from low-
income backgrounds, largely because of the aid that they give
these students.
Second, they have been changing their educational services
most rapidly to keep up with the needs of high-technology
industries. While we cannot be sure that workers with high-
intensity education will be crucial to future economic growth
in the United States, such workers are certainly
disproportionately in demand in high-growth industries today.
Third, it is a basic tenet of economics that we need to
identify a market failure before we suggest intervention. Right
now, there is no critical mass of economists who have
identified market failures related to competition among
colleges.
How can we help students have more access to higher
education? One of the key developments of the past 7 years in
particular has been the replacement of some need-based aid with
merit aid. This has been caused, in part, by the antitrust case
which chilled the sense of consensus among colleges about the
importance of need-based aid. It has made it harder for any one
college president to step out and offer a lot of need-based
aid.
The educational savings plans that Congress passed,
commonly called education IRAs, are an important source of
college accessibility for two reasons. The first is that they
increase the funds that a family has when the child needs to go
to college. The second is that they make a child aware of the
fact that there is a fund being built up for his future, thus
making him think harder about preparing for college.
There are still too few students going to college in the
United States, especially from low-income and minority groups.
A lot of the problem is caused by the fact that many students
have low preparation for college. They need to recognize early
on that they have to invest in themselves in order to go on to
college. Better preparation is the single best way of
increasing access. If there were an education savings account
that could also benefit students whose parents were too poor to
save much, even poor students would realize that they needed to
invest in themselves in high school. They would know that, if
they did not, they would be sacrificing a potential fund for
going to college.
I would be glad to answer any questions you might have.
Chairman Thompson. Thank you very much.
Dr. William Massy, President of the Jackson Hole Higher
Education Group.
TESTIMONY OF WILLIAM F. MASSY, Ph.D.,\1\ PRESIDENT, JACKSON
HOLE HIGHER EDUCATION GROUP, INC.
Mr. Massy. Thank you very much. Thank you all. It is a
great pleasure to be here. I think it is very healthy that this
Committee is looking beyond the symptoms and how to mitigate
the symptoms, which certainly needs to be done, to get at the
underlying causes of the situation, that is what I want to
speak to this morning.
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\1\ The prepared statement of Mr. Massy appears in the Appendix on
page 129.
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I think the central question, one that the staff posed, is
whether the colleges and universities in the United States are
doing everything possible to maximize value for money. My
research with Andrea Wilger (who is here today) at the
federally-funded National Center for Post-Secondary Improvement
at Stanford University, indicates that the answer is no.
Cost increases could be held within tighter limits, we
believe, and while the quality of education in the United
States certainly remains good by traditional standards, it
could be significantly better. We believe that things need to
change internally, within institutions, before the problems we
are discussing this morning can be truly solved. My written
statement elaborates on these matters, but let me give a brief
summary here.
First of all, institutions and faculty do not know enough
about educational cost structures to make the kind of
intelligent trade-offs that are needed to contain costs, and
cultural factors make it difficult for them to act on the data
that they have.
Second, academic quality assurance and improvement
processes appear inadequate when compared to the processes that
U.S. business developed during the 1970's and 1980's.
Third, applications of technology are being used widely to
enhance quality in teaching and learning, but only a few
schools are working systematically to reduce costs by using
technology other than through the obvious method of distance
education.
And finally, in my view, markets can do more to discipline
price and quality, but their operation is limited by a lack of
data. I think there is a market failure because of data
limitations. Today's markets certainly are competitive, but
that does not necessarily mean they are competitive on the
right kinds of issues.
In short, I think that colleges and universities can learn
to contain costs while simultaneously improving the quality of
undergraduate education and maintaining research leadership.
However, the needed reforms will come a lot easier if markets
become more efficient and public accountability is improved, I
will offer a few suggestions about that in a minute.
Let me turn to the Committee's questions about tuition
growth for a moment. First of all, my personal prediction is
that the real sticker price of tuition at the majority of 4-
year colleges and universities will continue to grow, probably
at rates averaging as much as one or two points over inflation,
unless we can deal with the market imperfections I have been
talking about.
Now, Professor Hoxby's data included community colleges.
There is no reason why one should not look at those, but I am
talking about the 4-year sector.
These kinds of rates are consistent with the typical
``internal inflation rates'' in higher education. These rates
reflect the labor-intensive character of the enterprise. There
is a never-ending desire to fund new programs. There are
escalating regulatory burdens. There are continuing needs for
investment in facilities and technology, including information
technology, mass spectrometers and things like that. But they
also reflect an arms race of expenditures triggered by the
pursuit of prestige. A more efficient market would reign in the
arms race, discipline prices, and encourage better productivity
that could blunt the effects of these cost drivers.
Now, it is very important that we understand that tuition
depends as much or maybe even more on markets than it does on
cost. Put another way, cost tends to follow price rather than
the other way around. My colleague on the panel mentioned
Bowen's law, namely that universities will raise all the money
they can and spend all the money they raise. As a former chief
financial officer of Stanford University, I would only add that
it is the job of the CFO, and it is a tough job, to make sure
they do not spend more than the money they raise.
There is, in other words, a very powerful desire to spend.
That is not necessarily inappropriate. Spending comes naturally
from the principles that govern not-for-profit entities. Not-
for-profit entities seek to achieve results that are in the
public interest, and provided they are efficient (that is a big
question). Provided they are efficient, the more money they
get, the more money they can spend and the more good stuff they
can do.
Chairman Thompson. We are not unfamiliar with that concept.
Mr. Massy. Yes. I know. [Laughter.]
There is a question, by the way, about how much of the
money gets spent to benefit undergraduate education as opposed
to other institutional agendas, such as faculty research.
I do not think tuition will grow to levels where
enrollments drop off significantly. (This is another question
posed by the Committee staff.) Institutions will charge as much
as the market will bear, but no more. That is the good news.
The bad news is that this market limit may leave a lot of
students with very painful debt burdens, as we heard this
morning.
Institutions are learning to optimize use of financial aid
to compete for students. In fact, enrollment management has
become a very professionalized field. There are consultants.
There are models. I personally think this is both inevitable
and desirable. It provides a method of price competition. I
cannot imagine the Federal Government intervening to halt price
competition in this or any other open market situation.
Less-selective institutions, especially in the private
sector, already must discount heavily in order to survive. The
selective ones do it partly out of a sense of obligation and
partly in order to maintain the kind of student profile they
want. The market is very competitive, although as I said a
moment ago, it is not necessarily efficient.
The staff asked about the baby boom echo effect. It is hard
to predict, but my guess is that, if anything, it will raise
the sustainable tuition level. It will stimulate demand for a
while, and the more demand for a given supply, the more the
upward pressure on price.
One unfortunate result is that all of these effects taken
together produce a very chaotic market. The uncertainty causes
a lot of anxiety on the part of students and their parents
about whether and how much financial aid will be forthcoming. I
hope that, by providing better information about policies and
about practices, some of the anxiety could be mitigated.
The fundamental problem, though, is to improve what goes on
within the institution? I think there are two areas there that
require attention. First, we need to improve the state of the
art in what I am coming to call ``education quality work'' and
the second is in the area of cost management.
To give you an idea of what I am talking about, just
imagine--I do not want to overdo the analogy with industry, but
just imagine an automobile industry where people, by and large,
do not have a very precise knowledge of the relative advantage
of plastic or steel in certain applications and where they do
not know much at all about the relative cost. How easy would it
be for them to make the tradeoffs needed to make their product
efficient and effective? The answer is, ``not very easy.''
The above is something of an exaggeration as far as
colleges and universities are concerned, but it is, in my view,
not that much of an exaggeration. It is these two areas, the
understanding of quality and the understanding of cost, where
we need to put our attention.
Education quality work is the system of activities that
improves and assures educational quality. It focuses on
performance feedback and the organizational processes needed to
act on the feedback. Quality work should not be confused with
teaching and learning itself. It is a feedback and control
system. I must say that certain European and Pacific Rim
countries are ahead of the United States, significantly ahead,
in developing quality work and associated public
accountability.
I am glad to say, and I am sorry the Senator from Hawaii
had to leave, that the Western Association of Schools and
Colleges will soon decide whether to adopt the standards and
processes used in the United Kingdom, Hong Kong, and Sweden to
regional accreditation. The North Central Association is
considering the same sort of thing from the Baldridge National
Quality Award and ISO 9000 point of view. On the cost side, the
United States and the United Kingdom seem to be ahead of the
other countries, but the state of the art is not all that far
advanced.
To illustrate the sort of thing I have in mind, there is an
institution out in Missouri, Northwest Missouri State
University, that is starting to use Activity-Based Costing
(ABC) to tease apart the various components of instruction cost
so they can make better judgments about what is actually done
in and outside the classroom to stimulate learning--that is,
about cost in relation to quality. ABC, by the way, was
developed by business to get at the actual cost of identifiable
tasks. It is being adapted to academic work, just as the
quality principles are being adapted.
Among the advantages of ABC is that it allows one to
separate out the cost of unbudgeted research. This counts for a
significant part of the cost of so-called ``instruction'' for
most universities, and certainly the larger ones. ABC allows
one to separate unbudgeted research from instruction. Until we
do that, I think we are not going to have a good handle on the
cost of education.
I will skip over the details of technology, just to say
that there are some cases now--the Renssalaer Polytechnic
Institute's ``Studio'' courses, for example--where institutions
have reduced the cost of on-campus instruction while they have
demonstrably improved quality. We need a lot more of that.
People are getting interested in such technological change, for
example, in the professional associations. But technology
requires the same sort of attention to cost analysis and to
quality processes that every other element of education
requires.
In closing, let me offer some suggestions for the
government, for the regional accreditation agencies, and for
State higher education oversight bodies. These actions are
aimed at jump-starting quality work and improving cost
management. They also will provide better information for the
market in order to make the market more efficient.
First, I think that the regional accreditation agencies
should make quality work a key feature of accreditation. I
chaired the committee in Hong Kong that developed and installed
their system and I can tell you that it has worked very well.
It is receiving a good deal of attention around the world,
including from the Western Association of Colleges as I noted
earlier. While I certainly would not say that we have it
exactly right in Hong Kong, I think there are lessons to be
learned and I am glad that people here are beginning to pay
attention to it.
Second, I think that State higher education coordinating
boards could and should hold public institutions accountable
for quality work and more effective cost management. Why not?
One can rather easily judge whether or not an institution is
doing these things if one takes the trouble to develop
standards and go looking. While one cannot guarantee that
better quality work and better cost management, will produce
better results, it certainly is likely. Experience shows that,
in fact, this tends to occur.
Finally, what about the Federal Government? I think the
government could do a number of things to improve market
information and stimulate change. For example, the Department
of Education could produce in-depth studies of quality work,
activity-based costing, and associated accountability methods
as they are developing around the world and in the United
States, and then use the results to develop policy
recommendations, model guidelines, and so on. That is what the
R&D function in the Department is all about. I think the
Department would be a very appropriate vehicle for such work.
The Department also could encourage or seed the development
of pilot projects. You know the routine--that could have high
leverage. None of these actions would cost very much, certainly
not compared to Pell grants.
As a third action, the Department could fund discipline-
specific doctoral curriculum development in the areas of
quality work and cost management. As things are now, we
continue to train faculty in traditional disciplinary research
with no consideration at all of what quality and cost in
instruction are all about. How you go about getting quality?
How you cost it? How you optimize cost in relation to quality?
The development of curricula would cause these things to
propagate outward into the institutions themselves, simply
because more faculty (the teachers as well as the Ph.D.
students) would be familiar with them.
In the longer term, the government might ask colleges and
universities might be asked to provide the public with annual
self-reports on their education quality work, particularly in
the area of assessment. (I have material on assessment in my
written testimony.) Assessment is an essential element of
quality work. You cannot improve quality without getting
feedback, and while it is not possible in my view to develop a
top-down government-mandated assessment instrument, it is
entirely possible for any given department--for every
department in every institution--to develop value-added
assessment measures. The measures would be tailored to their
students, their situation, and their objectives. All
institutions ought to do that such assessments. The information
should be regularly collected by external agencies and made
public.
Finally, private enterprise could be encouraged to
summarize and disseminate the information. I think that, as the
methodology becomes proven, they would do this without much
encouragement.
By way of a footnote, I hope that Congress continues to
support the Baldridge Award for nonprofit entities. Thank you.
Chairman Thompson. Thank you very much.
Congress is attempting to move these various departments
and agencies toward measuring the results that they achieve,
instead of just measuring outputs, measuring outcomes----
Mr. Massy. Right.
Chairman Thompson [continuing]. And the Government
Performance and Results Act, we call it the Results Act, trying
to really make them determine what they are trying to do and
then measuring whether or not they are really actually doing
it.
Do I understand from you that we are making some progress
in terms of education in that regard, that it is being used
more and more, that it is available and not being used enough,
because we all--I think a lot of people would think that that
is not measurable. You cannot tell the quality of a teacher
from a gross objective standpoint, standing back away from it.
Then we hear things like that, actually, as tuition goes up,
sometimes the class size goes up, too. Good teachers are
teaching less, and publish or perish. Class time is actually
reduced and nobody pays any attention to that.
I would be interested in knowing that all these ratings you
see in these magazines about quality institutions, what goes
into that determination. My suspicion is, in large part, they
are endowments and how much money they are spending, at the
State level and then all of that.
So where are we, in summary form, where are we there? And
who needs to push that? That needs to be done at the State
level, I suppose, more than anything else. I have several
things there.
Mr. Massy. Well, that covers quite a lot, but let me
comment as best I can. First, the ratings that we all pay so
much attention to, or at least read so avidly, are heavily
weighted on inputs, size of endowment, size of expenditure,
size of library, and selectivity, which is a measure of market
power.
Chairman Thompson. What activity?
Mr. Massy. Selectivity: That is, admit to matriculate
ratios or some such thing. They are a measure of market power
which correlate with resource expenditure. This is kind of a
self-fulfilling----
Chairman Thompson. And they are easy to measure.
Mr. Massy. Right. They are easy to measure. However, I
think it is possible to measure the quality of the outcomes at
the grassroots, but this has to be an activity of faculty for
the benefit of the program of that faculty in that place. I
think our experience with imposing assessment from the outside
has not been as successful as we wish it had been. The reason
is that it is something imposed from the outside. The processes
inside the institution have not been transformed--have not been
reformed in ways that make this kind of information important
for the institution and for the academic department itself.
Chairman Thompson. They get no credit for it if they do it.
Mr. Massy. Well, that is true. Externally imposed
assessments are pretty gross measures and it is easy to
discount them. It is easy, frankly, to circumvent them. It is
easy to get around them.
Ms. Wilger and I have done 400 faculty interviews in all
kinds of 4-year institutions, and including in a number of
States where assessment is going on, and I can tell you, the
above message comes through loud and clear.
What I would like to see is a transformation of the kind
that business had to go through when foreign competition
started working us over. Faculty need to fundamentally change
how they view the production of quality. The biggest difficulty
is that most faculty, most of the time, consider that research
and scholarship is ``job one.'' You might be surprised that
this happens in many different kinds of 4-year institutions,
not just the research institutions.
In order to make progress, I think we have to shift that
attitude so that education quality work and cost management
become ``job one'' for many faculty. This means balancing and
finding new ways to do things--perhaps at lesser cost, but if
more cost, at least with the increases being justified in terms
of demonstrably greater quality. I think this has to become job
one for many faculty at most institutions most of the time.
I do not believe that to do that means decimating the
country's research base. We are not talking about that much of
a shift of effort. But unless that kind of shift occurs----
Chairman Thompson. But there is not going to be any real
motivation to move in the direction that you suggest unless
there is some measurement and they know that there is going to
be somebody looking at that.
Mr. Massy. Right. That is where we get to the public
accountability part that I mentioned. I think this has to be
jump-started. I think if we wait for it to arise spontaneously,
we may have a longer wait than we would like. So what I am
suggesting is the external agencies that have cognizance, the
State oversight boards for the publics institutions, and the
regional accreditation agencies for everybody, put this on the
agenda. You start by working it from an improvement standpoint.
That is, you go in and you work up standards and you talk with
institutions and so on. You do not start with accountability on
something that nobody knows how to do. You try to teach and
work together to develop. However, accountability always is
there.
We had an exemplary case in Hong Kong, where we are very
improvement oriented. However, one institution declined to work
on this, so we took away some of their money. It took about 3
months. Now they are working on it very hard and very
effectively, so ``yes.''
Chairman Thompson. It seems to work that way.
Mr. Massy. Yes.
Chairman Thompson. That is very fascinating. I hope we can
follow up with some of those ideas.
Let me move on to a couple of things in the time we have
left here. I noticed several interesting things here. Tuition
costs, affected by lots of different things. Nobody seems to
know. It kind of reminds me of what somebody said about a
political campaign one time. Ninety percent of it is wasted
activity, but nobody knows which 90 percent.
But a lot certainly seems to depend on State aid, and my
notes here indicate that from 1987 to 1994, State aid was down.
It has been up since 1994, but even when State aid was up and
when State aid was down, tuition kept going up under both
scenarios.
On the other hand, I am getting here today from at least, I
think, from Dr. Breneman and Professor Hoxby, that perhaps we
are not looking at this correctly. Professor, you mentioned,
for example, since 1970, tuition has remained almost flat in
real terms for half the colleges. Tuition has declined 15
percent for the 10 percent of colleges that are least
expensive. It has risen significantly only at the 20 percent
that are most expensive. So I realize that we are kind of
talking about how long is a piece of string here, but it is our
job to generalize as correctly as we can, realizing it is a
gross generalization sometimes.
But on the issue of whether or not, all things considered,
tuition is, in fact, too high, do you think that our concern
about the direction of things is misplaced? Am I reading you
correctly in your comments? What can you say about that? What
would you say to the American people, the average American
family? We all think most things are too high for sure, but we
see in the paper, some institutions are going up
astronomically. As the stock market goes up and the endowments
go up, the tuition goes up, too. Then we see some State
institutions--the University of Tennessee over the last 10
years, the tuition has increased in real terms, inflation-
adjusted terms, 36 percent, not nearly as high, as much as
twice CPI, I guess. Should we feel good about that or not?
Could you elaborate a little further on that, and
obviously, Dr. Troutt, your ideas, too, and mindful of the
fact, of course, you are educators and I do not know what
position that puts you in, to come in here and say that your
institutions are charging too much money, but be as objective
as you can about it.
Ms. Hoxby. One thing that we always have to keep in mind is
that our institutions are not representative of all the
institutions in America, so I think when we study this issue,
one of the first things we learn is to look outside our own
institutions.
I think it would be wrong to say that Congress should not
be concerned about college accessibility. The main reason that
colleges have become more accessibile to low-income families is
that Congress and State legislatures have been interested in
accessibility. It is mainly the plans that are now in effect
that have made things change over the past 30 years. So taking
accessibility off the radar screen would not be a good idea.
On the other hand, I think the extent of the crisis is
often overstated. There are a few things that I would focus on
if I were to talk to the typical American family about college
access. First, they need to go out and inform themselves about
the opportunities that they have. They should not focus on
whatever newspaper reporters focus on. They need to find out
what their local colleges charge, what their State university
charges, what need-based aid is available, what sort of
scholarships they could get. I think the whole experience would
be less frightening if families were more informed.
Chairman Thompson. I can see a real problem there. I
imagine that this has grown up into an industry, but I can see
the average family, in some locations, they see tuition going
up astronomically and they are told, do not worry about that.
There are 15 different things out here that you can piece
together. You can get a little here and a little there and
travel across town and call this guy and qualify and fill out
10,000 forms and you can piece it all together and get half of
that astronomical figure. So I can sympathize with that, too,
can you?
Ms. Hoxby. I think that one of the best things that has
happened very recently is that parents can increasingly go to,
say, the College Board website. They can plug in their own
income and their family characteristics and where their other
children are going to school. They get back a number that is a
realistic estimate of how much need-based aid they would be
offered by various types of institutions. Parents should not be
in the business of understanding financial and formulas. They
should be in the business of understanding what college would
cost them.
It is hard to know what to think about the most expensive
colleges in the United States. We are succeeding wonderfully in
this sector, in the sense that these colleges are widely
regarded as the best in the world. They are a very enviable
part of our education system. Yet, we do not really understand
exactly what is happening in them. We know that they are part
and parcel of our high-technology economy, but we do not
completely understand the relationship between them and
technological growth.
Given the fact that we do not understand the relationship,
I would not be tempted to intervene. Also, it is important to
keep in perspective that they are just not relevant to a lot of
families.
Chairman Thompson. If you have got to ask about it, you
cannot afford it. It comes to my mind that in all other aspects
of society, we have Cadillacs and Chevrolets and we recognize
some people can afford more than others. I think it is more the
average that most people are concerned about.
Dr. Breneman.
Mr. Breneman. In direct answer to your question, back in
the 1980's, when I was President of Kalamazoo College, I got
very concerned at a trend that was going on in the private
institutional world at that time, which was started, I think,
by trying to catch up with inflation. As you remember, in the
late 1970's, we were looking at double-digit inflation and some
colleges missed that and then started catching up, and then
they discovered, many of them, that the demand for their
services appeared to be virtually price insensitive, price
inelastic.
I mean, it did not seem to matter how much you charged,
within reason. People would still come. I think that was a new
observation. The earlier 1970's had been much devoted to worry
about the tuition gap between public and private, and there was
a lot of fear that the privates would be in dire straits vis-a-
vis the publics. But a subset of the privates discovered this
relative inelasticity, and then you introduced--so I was
watching my colleagues raising their prices----
Chairman Thompson. Excuse me, but it seemed to work
inversely--you are talking about competition--it is the more
you charge, the more prestigious you are.
Mr. Breneman. Well, in a way, because the more resources
you have got. And yes, so for an individual school to try to
buck this is really just to kick yourself in the foot, so we
are all trapped. I think the term positional arms race is a
very good one. If Williams has announced to the world that for
next year, they are fully capable of providing the quality of
education they perceive to be what they want to provide----
Chairman Thompson. You would think a lot more people would
want to go to Williams, but you are saying that is not
necessarily true.
Mr. Breneman. No. That is not going to have--can I read you
a little note that I got from a president of a small private
college in response to that? I think this summarizes the
problem very nicely. ``Three years ago,'' and the president
gave me allowance to mention the name, Sweetbriar College in
Virginia, but ``3 years ago, we held Sweetbriar's tuition,
fees, and room and board steady, no increase. We took this
action for two reasons, both market driven. First, we felt that
we needed to get Sweetbriar out of the most expensive position
it held among the Virginia women's colleges, although the
difference between our costs and those of our competitors was
only a few hundred dollars. Second, we hoped to get some
positive publicity from this action. The following year, we
increased less than 2 percent, which was below the general
norm. Indeed, for a 3-year period, our increases in tuition,
room, and board averaged less than 2 percent.''
``The result? We have moved to the middle of the pack in
terms of cost. We have had no response at all from anyone about
our efforts to keep tuition at a reasonable level. We have not
been able to detect any effect one way or the other on our
enrollment, and we have attracted no attention at all by our
actions. Happily, because we have a small student body and a
relatively high discount, our holding of tuition was fairly
painless. At this point, I have decided to go back to a
reasonable 3 percent or so increase each year. Sincerely, Betsy
Mulenfeld.''
Chairman Thompson. All right, let me read you one.
[Laughter.]
Ten years ago, in the middle of this huge growth in college
tuition, one of my staff received a letter from a private
college, which gave a very interesting, perhaps informative,
explanation for a sharp increase in tuition that year. The
president of this college wrote to parents that the increase in
tuition was necessary to keep up with the tuitions being
charged by the most academically competitive colleges. In other
words, to be considered in the same class with the most
academically competitive colleges, they had to charge as much.
So it is all turned on its head. To become more competitive,
its the more you charge, instead of the less.
Mr. Breneman. To the extent that there is an element of
disinformation in this market, and Caroline argues and I agree
with it, we have got a lot less of it than we used to have, but
to some degree, it is an odd issue because you buy it once in
your life and ultimately you really do not know what you are
buying until you experience it. So price can become a signal of
quality.
Chairman Thompson. Dr. Troutt.
Mr. Troutt. Mr. Chairman, I did not write that letter, as
you know. [Laughter.]
Chairman Thompson. It is not from Tennessee.
Mr. Troutt. If anything, the last 2\1/2\ hours, I hope,
have reinforced my initial point of the complexity of this
question you have before you.
I would like to call to your attention the five-part action
agenda that our National Commission offered 2 years ago as a
road map for dealing with this complex issue and to say that
you have heard today some progress on some of those fronts, and
yet we have not heard talk much about some of those agenda
items.
The first, of course, is to strengthen institutional cost
control, and you have heard anecdotally some wonderful stories
of responsible institutions working very hard and you have
heard some encouraging data about where price increases have
been going in recent years, and most recently, the lowest price
increase in private higher education in 27 years.
We have talked a little bit about the second agenda item,
which is to improve market information and public
accountability. I think we have much work yet to do there. We
know that, still, families that need to know the most about
college prices know the least. We know that families that need
aid the most know the least about how to access it.
A third action agenda item was to deregulate higher
education. We have not talked much about that this morning, but
that is a pressing item I would invite your further attention
to. As a president of a relatively small college, we send here
an awful lot of information, an incredible amount of
information, often information that is redundant.
Chairman Thompson. Can I ask, is it true that a college
with a class with experiments going on and so forth have the
same regulations pertaining to the chemicals that they use that
Dow Chemical Company would have?
Mr. Troutt. That is a very good illustration. We are very
concerned about the health and safety of our students, but our
laboratories are regulated--we may buy a gram, one gram of a
particular item, but we are regulated just as if we buy a
carload of it, and that is worthy of further study and thinking
about how we might deregulate higher education.
Chairman Thompson. So if government wants to help, they
could look at the harm and complexity that they are causing.
Mr. Troutt. Looking at the cost of regulation would be a
worthy topic. Gerhard Casper, the distinguished President of
Stanford University, testified before our Commission that out
of every additional tuition dollar, 12\1/2\ cents goes in some
way to regulatory compliance or reporting, which is a stunning
figure in terms of direct and indirect cost.
We also talked in our Commission about rethinking
accreditation. Some comments have been made about that today.
We also talked about enhancing and simplifying Federal student
aid just to reinforce one of your last points. We continue to
think everybody working together, campuses, the Federal
Government, policy makers at all levels, we can continue to
make progress on this very important issue to American
families.
Chairman Thompson. Your Commission set off, or turned the
corner, I think, on this debate, and I want to congratulate you
for your leadership on that. It is not one of those Commission
reports that somebody filed on the shelf somewhere and did not
think about anymore and I appreciate that.
Dr. Massy, I know you wanted to get in on this, but I have
taken up too much time. I am going to ask Senator Lieberman.
Senator Lieberman. Thanks, Mr. Chairman. I will certainly
give Dr. Massy a chance.
First, let me say, Dr. Troutt, you said the word, and our
staff prepared us for it, this is a complicated question. Even
as I listened to the four of you and Dr. Gaudiani before, there
are mixed feelings, I think, or mixed testimony here on the
baseline question that we are asking, whether tuition is higher
than it should be. That is one of the first questions we are
asking. I think, Dr. Massy, you would say yes and others would
say probably not, although maybe more cost efficiency could be
worked in.
But I am left skeptical because of the strange market in
which higher education operates and the notion that if there
was competition--first, I have come to understand better this
is a segmented market. At the top group of private and public
institutions, there is demand by the students for a supply of
the product. But in a lot of the other schools, which is the
majority, it probably goes the other way around, that the
higher education institutions are competing for the students,
and that has differing effects.
But the effect that Williams' decision to freeze would not
lead its competitors, at least in that subcategory--if you talk
to kids that are applying at Williams, a lot of them tend
also--I am going to reflect my Connecticut parochialism--to be
applying to Trinity, for instance, or Wesleyan, the smaller
group of fine liberal arts colleges.
The Sweetbriar example is a perfect one, and maybe it is
because it is Sweetbriar, it made me think of ice cream, you
know, stream of consciousness. But I remember, years ago--that
is the only way I can explain why I had this connection. Years
ago, I remember reading an article about the man who created
the Haagen-Dazs ice cream company. First off, he made up the
name Haagen-Dazs to sound Scandinavian. It does not mean
anything. Second, he put out ice cream, pretty good, but he
charged three times as much as anybody else was charging. I am
choosing numbers here. I will probably get sued or at least
criticized by Haagen-Dazs now, but I do not remember the exact
thing, and everybody went out and bought it. So there is a
certain way in which, not that higher education is ice cream,
but it makes you wonder about the market.
So here in the role that we have here, asking the
questions, let me start simply by asking whether there is
anything Congress can do to encourage schools who are not to
make cost containment a higher priority.
Mr. Breneman. I have not had time to think about that, but
it seems to me that if that became the clear focus, I can
imagine some kind of reward system, some kind of program that
you could incentivize the doing of that precise act. The
Williams case is interesting----
Senator Lieberman. I am sorry. In other words, perhaps some
sort of reward system in terms of Federal aid to schools if
they are showing----
Mr. Breneman. Yes, something where--see, the problem, what
was being expressed in the Sweetbriar case, they were trying to
be a ``good citizen.''
Senator Lieberman. Right.
Mr. Breneman. They were doing their job. All they did is
lost ground. I mean, all that Williams is likely to do is lose
ground.
Senator Lieberman. Right.
Mr. Breneman. All the smart money in this business who
looked at the Williams study thinks they are nuts, I mean, that
this was the dumbest thing they have ever done. They are going
to lose a step on the rest of the competition. So the schools
are locked into a situation where they just cannot win in this
situation. They do the right thing, if you will, of holding the
line on price and you get beat up by your colleagues and
everybody thinks you are a stupid manager, and the next year,
you have got to join the crowd again. So something has got to
break that cycle, and right now, there is nothing in the system
that directly breaks it.
Senator Lieberman. I invite you to think about that.
Mr. Breneman. Yes. Let me think about that.
Senator Lieberman. I welcome your thoughts. I mean, the
Baldridge-type award is one way to recognize and incentivize
good management, as we do in the private sector.
Mr. Troutt. Senator, we in our accreditation visit at
Belmont used the Baldridge criteria.
Senator Lieberman. You did? Good.
Mr. Troutt. It was very, very helpful. You are seeing in
the Southern Association of Colleges and Schools more
encouragement to use alternative self-studies which does the
kind of gap analysis and helpful things that you see in a
Baldridge criteria.
Senator Lieberman. Dr. Massy.
Mr. Massy. Yes. I reinforce that. I would just add that the
Baldridge Award is, of course, great. It provides incentives,
it provides leadership, and so forth. But what is needed is an
on-going program where every institution is doing this stuff
all the time. In particular, they should be developing
assessment information that measures the quality of the
student, if you will, at input (matriculation) and the quality
on output (at graduation or exit). That is, value added, if you
will.
The big problem is the market: In one sense, it is very
simple. The market really has no valid information available to
it about the quality of the value added.
Senator Lieberman. And by quality of the value added, you
mean----
Mr. Massy. I mean----
Senator Lieberman. Just as you would have a general idea, I
do not know, if you buy a PC, for instance----
Mr. Massy. You have a pretty good idea. You can look at
speeds. You can look at hard disk size. You can look at
reliability. The problem we have in higher education (again I
must oversimplify) is that you get wonderful institutions, like
my own and Caroline's, that take in absolutely terrific
students that come out absolutely terrific. We may do more, but
at least, we observe the Hippocratic oath. We do no harm while
they are there.
Senator Lieberman. Right.
Mr. Massy. Imagine a market where we had better value added
measures on a regular basis. They would be generated by the
institutions but audited appropriately for accuracy. Now people
would not feel as trapped by prestige. They would not have to
use the price or the amount of assets as surrogates for
quality. I think this would produce a healthy effect. I think,
in the long run, this is the only way we are really going to
solve our problems.
I think what we are seeing now in the for-profit sector,
the University of Phoenix and similar kinds of entities, is, in
fact, they are beginning to generate such measures. They are
learning to do it, and that competition is getting people's
attention.
Senator Lieberman. And that helps the consumers.
Mr. Massy. Precisely.
Senator Lieberman. It gives them more information.
Therefore, it makes them more intelligent.
Mr. Massy. They can make better trade-offs, better
judgments. That, in turn, puts the competition on the right
kind of basis, rather than what I think now is a rather
imperfect market.
Senator Lieberman. Dr. Troutt, I know in the National
Commission--I was going to ask you this question, but what Dr.
Massy said leads to it--I am going to quote from the report,
``Institutions of higher education even to most people in the
academy are financially opaque. Academic institutions have made
little effort, either on campus or off, to make themselves more
transparent to explain their finances.''
So I wanted to ask you to just talk a little bit about
whether greater transparency would have the effect of
increasing efficiency and cost containment.
Mr. Troutt. It certainly has that potential. I do want to
commend the National Association of College and University
Business Officers. They, in fact, have a very important project
underway right now to see if we cannot begin to address this
transparency issue in a much more forthright way.
Some of the problems relate to common definitions among
institutions. Some of the complexity comes, obviously, with the
most complex institutions. At research universities, where do
you allocate certain costs? It makes it very difficult. But
certainly, I think, as we become more transparent, first of
all, it helps policy makers in terms of important questions
about where is that money going? Is it truly going to
undergraduate education or is it going somewhere else?
I think as we make progress on the transparency issue, it
will both help policy makers, but also help people making
judgments about what kind of resources are there for my son or
daughter's undergraduate education, and I know that is, as we
learned in our Commission hearings, a real concern for American
people.
Senator Lieberman. It strikes me that what we are saying
here is that it is possible, if we had a real assessment of
value added and quality institutions, that some of the
institutions that now are competing for students might actually
turn out to parents and students to be a better buy.
Mr. Massy. A better deal, yes.
Senator Lieberman. And it might drive the market in that
way. Now, it is not easy to come up with a system like that,
but it is a very interesting idea.
Professor Hoxby.
Ms. Hoxby. I wanted to point out that if outcomes at the
end of college were regularly measured, it would be relatively
easy for U.S. News and World Report, for Peterson's and
Barron's, and all of the other college guides to incorporate
them.
The nice thing about incorporating outcomes is that even if
the best, most transparent accounting data is available to
parents, parents will never figure out how the money is
allocated at different colleges.
Senator Lieberman. Right.
Ms. Hoxby. But they will be able to say, look, this college
took in students who had SAT scores or ACT scores like this and
they turned out students who had scores like that. That is
something that is not hard for parents to understand. They
already understand this for K-12 education. Outcomes are the
single most important piece of information that could be
provided to make this market more efficient.
I do not agree that parents are not price sensitive. The
National Post-Secondary Student Aid Survey, which the
Department of Education sponsors and samples about 60,000
undergraduates each year, shows that parents are quite price
sensitive. They will not favor schools that raise their price
and offer the same offerings.
Senator Lieberman. That is a good point. Just one or two
more questions. One of the questions we are asking ourselves is
how does what we do affect the cost of higher education
tuition, and you have said that the studies seem to suggest
pretty clearly that increasing grants to students does not lead
higher education institutions to increase tuition. But it is
not that clear in regard to loans, and I am just puzzled as to
why. I know you, Dr. Troutt and Dr. Breneman, both said this,
and just help me understand why the question is not so clearly
answered with regard to loans.
Mr. Troutt. We simply do not have the data. We have not had
the kind of analysis that looks at particular undergraduate
populations, what price increase has happened and what loan
increase happened. That data is just not available. In the 6
months that we had to do our work on the National Commission on
the Cost of Higher Education, we received a number of papers.
Most of those papers tended to be more bound by theory or
speculation or even anecdote, but we were not able to come up
with any hard data to address that question.
I do think, Senator, it would be useful to think about
charging and funding a study, perhaps by the national Center
for Education Statistics, to take the time to go back and do
those kind of calculations. It would be very helpful to you as
policy makers. The Commission's point was just, this is such a
serious policy matter, to act without good information would
not be an appropriate thing to do.
Senator Lieberman. That is a very good idea. We have heard
a couple of you refer to the antitrust case and the possibility
of granting an antitrust exemption through Congress to higher
education institutions. For what purpose would that be? In
other words, so much of what we are saying today reminds me of
things we are doing in other areas. The idea of more
information for consumers is part of what we are trying to do
in health care today to drive up quality, to have the various
managed care plans produce information about what they are
offering so that consumers, if I am going to get my childhood
immunization and breast cancer screenings covered for the same
price, I am going to go here as opposed to there.
The analogy here with this one is the entertainment
industry has said to us when we appealed to them about self-
policing content that they are driven by competition, and so if
some of their competitors go low in content, they have got to
go, and then they say, we cannot get together to set standards
because the Justice Department will file an antitrust action
against us. That is pretty easy to decide how to focus that.
Now, what would we enable higher education institutions to
do if we gave an antitrust exemption?
Mr. Breneman. My take on it, and I do not know if my
colleagues share this, is that the antitrust case started out
looking at two questions, which were what are driving up prices
and are colleges in any way colluding on wage pools, and 2
years later, they wound up with the one definitive action being
something that originally they were not interested in very much
at all, they just happened to throw it in as a last-minute
thought, and that was to do away with a thing called the
overlap group, which, in fact, was a very public and open, I
mean, it was not a secret that this happened.
A group of the top highly-competitive institutions whose
financial aid officers met to go over financial circumstances
of individual applicants who had applied to several of their
schools to agree upon a common expected family contribution,
and then they agreed to that and they did not engage in bidding
wars with each other over these students. They said all of us
have an adequate pool and we will take the money out of the
competition.
Now, the Justice Department apparently felt that parents
have a right to shop their kids, if you will, and go after
merit aid, and so that, which is, I think, a debatable premise.
I think the outcome of eliminating overlap was a mistake, and I
guess my answer would be that I would like to see some effort
at eliminating this kind of bidding war introduced at that
level.
Senator Lieberman. Professor.
Ms. Hoxby. The antitrust case made it very hard for
colleges to coordinate the idea of neediness. That is, they
could not agree on how needy a student was. The consequence of
this was the following. Let us say that Yale thought that a
student needed $2,000 and Princeton thought that the student
needed $2,500.
Under the old regime, they would just agree on how needy
the student was. In the new regime, they cannot agree on how to
calculate need so that a student who has a small aid difference
between schools, begins a sort of bidding war. He ends up
getting an amount of aid that is not based on his need but is
based instead on his merit, because the way that a student wins
the bidding war is to have high SAT scores and a very good high
school record. The antitrust case has broken down the consensus
that aid is for need, not for merit. It is easy to twist a
need-based formula into a merit-based formula.
The antitrust case did not just affect elite institutions.
Their culture need-based aid spread throughout the entire
college community and college presidents felt strongly about
it.
It is hard to have the same culture when college presidents
cannot say to one another, ``I care about need.'' They are
afraid that they would be breaking the antitrust rules.
Senator Lieberman. Dr. Massy.
Mr. Massy. I think if there were to be an exemption, it
should be a very narrow one.
Senator Lieberman. How would you narrow it?
Mr. Massy. I can imagine discussions, for example, on the
formulas for need, but I would not extend that to looking at
individual cases and I would be very clear that getting
together to discuss merit aid is not appropriate. I think merit
aid is a legitimate form of composition. I realize it is
controversial, but I think such price competition is an
appropriate, and in the long term, a healthy kind of thing.
Getting together to settle on a need formula could be helpful
to families who are trying to predict their need-based awards,
but aid merit would represent another card that an institution
could play or not.
I think it also would be helpful for institutions to get
together and talk about what kinds of market information about
value added would be most appropriate. It may well be that is
OK now under the antitrust laws. I do not know, but a
clarification certainly would be helpful. Again, they should
not discuss what an individual institution should report, but
if we got common formats, common approaches, I think it would
be helpful.
Senator Lieberman. I thank all of you. It is complicated. I
mean, it does seem to me that the data are fascinating, and
Professor Hoxby, you referred to some. We will get into this
tomorrow with Mr. Gladieux of the College Board who is coming
in. But it does show that over the last 15 years or so, that
there have been increases in attendance at higher education at
each quartile of income, including the lowest, probably for
various reasons.
But my impression is that that is being achieved at a very
high cost in terms of indebtedness and stress, and that if it
keeps going in that direction, at some point, particularly with
the boom in the demographics that I talked about before, the
future, which certainly says that more and more of the children
in our country are going to be lower-income, perhaps first-
generation American, and, therefore, they are going to really
need help to get to higher education, and, therefore, we ought
to do everything we can both to create incentives to cost
containment and to increase aid in the most effective way.
We are talking about cost effectiveness here on both sides
of this discussion. I mean, nobody here that I have heard of,
anyway, or met in Congress wants to, at the extreme, impose
price controls on higher education, but the question is, and I
think you have given us some interesting testimony and ideas,
how can we incentivize? How can we create a system where there
is some more competition that does create cost containment, and
then what can we best do to provide the most effective forms of
subsidy to students to help more and more of them to be able to
afford education?
Tomorrow, we are going to focus part of the hearing on the
aid question, but I thank you very much. You represent
extraordinary experience and you have been very responsive and
helpful to our questions. Thank you.
Chairman Thompson. Thank you. Thank you very much. Just
another couple of minutes, if you do not mind. There is so much
that we are not going to have time to go over. I wish we did.
In listening today, I hear a lot about merit regardless of
income levels, and need regardless of merit. The person I
really feel sorry for is the low-income person who has achieved
a lot and who is a good student. It looks to me like we need to
double up on those kinds of people.
The real policy question I think that we, in Congress, are
going to have to ultimately be faced with is what is the role,
in the future of this country, what is the role of the Federal
Government. One can make a case that things are changing
because of the global economy, because of the increased
competition, because our success in the global economy depends
upon our productivity and our productivity depends upon our
growing technological capability and growth, and that, in turn,
is going to depend on a well-educated workforce.
It has almost become a matter of national security for the
future. You see what is going on out there and the new
challenges that are facing this country out there. If that is
the case, then perhaps a case could be made for some kind of
new entitlement somewhere along the line. The suggestion has
been made, Pell grants. Maybe the Federal Government should get
more involved under that scenario.
However, on the other hand, if you are going to do that,
where do you stop? What do you subsidize? How far do you go? Is
it just going to be the poorer students? Is it just going to be
secondary education? How far can we go? How much progress can
we make if we increasingly have the problems we are having in
our grade schools and our high schools not producing? We have
turned the three R's into the six R's now with the remedial
reading, 'riting, and 'rithmetic.
Those are the policy questions I think that we are going to
have to decide up here, which kind of pours into my question, I
guess, and that is in looking at what we do for kids, which is
our main involvement here right now, young people primarily and
the aid and so forth, I am interested in whether or not we have
got it balanced right. We have got all these different kinds of
programs and loans and tax incentives and then the colleges and
universities themselves have all of this.
In one sense, it seems to me like we are not doing enough
for the lower-income students. Some of these tax credits--first
of all, you have to have an income to get the benefit of the
tax credit, and some of them only apply to the $100,000 range,
the new credit, up to $100,000 or $120,000. Although more money
is coming in, it has really stabilized or going down a little
maybe per student, I think.
On the other hand, I can see the middle-income parent
saying it is just like the tax code. People at the lower end do
not pay any taxes, people at the other end get all the tax
breaks and the middle class is stuck. So the middle class is
where you need it because there is so much help for the lower
end.
So I would be very interested in, as concisely as you can,
in giving us your own kind of assessment as to whether or not
we are getting the mix right or as close as we can in terms of
the kinds of aid and help to the kinds of students, and also
for me, it looks like we ought to incorporate need and merit
when we look at this thing. There is no reason why a middle-
class student who has tried hard and excelled ought to be
disadvantaged from a lower-income student who is a mediocre
student. I would appreciate any comments anybody has.
Mr. Breneman. Well, I will make a quick remark. I really
appreciated your introducing K-12 discussion, because once
again, we have done here what we do in this country so often,
which is to treat this system as if it were a set of non-
interacting horizontal slabs, and, of course, all of this aid
for low-income students assumed proper preparation for those
students. I think one of the debates about remediation are
drawing to the fore are the obvious fact that we have real
problems.
Have you ever thought how weird it is that we say in one
breath that our higher education system is the envy of the
world and our K-12 system is in shambles? Now, that is
completely nuts to have those two things in your head at one
time. It is one system.
I guess if there is anything I would do in all of this is I
would think real hard about the coming teacher shortage and how
we are going to get high-quality people into the classroom. One
thing I think may make it make sense for people to be
supporting more low-income students is if those students are
better prepared.
With regard to your specific question, however, let me just
say I worry right now that we are tilting too far to the middle
and upper income and that we are losing our interest in access,
so I guess if you ask me for a balance, I would be tilting
back. I think the Federal role is the one place where there is
an interest in the low income clearly articulated and I would
hate to see that lost.
Chairman Thompson. Dr. Hoxby.
Mr. Hoxby. I agree with everything that Professor Breneman
has just said about the importance of thinking through K-12
education. I think that the Federal Government can kill two
birds with one stone if it uses access to higher education as a
way to give good incentives to students in K-12 education,
especially students who really think that they have no future
in higher education in the United States.
Low-income students, minority students, students who come
from first-generation families where no one has gone through
the American higher educational system before do not really
believe that college is for them. They do not understand that a
Pell grant might be available to them when they reach the age
of 18 or 19. Therefore, by the time they reach that age, many
of them are so poorly prepared that the biggest barrier for
them is not money; it is the fact that they have bad study
skills. They face a tremendous uphill battle to make it through
the first year of college. A student cannot stay on a Pell
grant if he needs 2 years of remedial education.
Thus, I was serious about education IRAs. I think that
there is something about knowing, when you are an 8th grader,
that there is money being put away for your college education.
There is something about knowing that you will lose the money
for college if you do not do well in school. If students
prepare up through the 12th grade, then when the money is given
to them, it is most effective.
Students from upper-middle income families know that their
parents are saving for their college education. Part of the
conversation between parents and students in high school is,
``We have been saving for your college. This has been a
struggle for us.''
That same conversation does not occur in a low-income
family that cannot afford to save at all and that cannot afford
to take advantage, say, of the education IRAs. One can think
about saving on behalf of poor students who are doing well in
school, with a phase out for families who can save for
themselves.
Chairman Thompson. Yes?
Mr. Massy. I would just add, Chairman, that for me, a
combination of need and merit is the way to go. I have not
studied the data enough to know whether the present mix is
right or not. However, the principle clearly has to include
equity and access, and I am sure it always will. But it also
needs to include incentives for hard and intelligent work,
wherever the student starts in the process. A properly designed
merit component, normalized for differences in background that
are not the fault of the student, would be a very helpful
thing.
Mr. Troutt. Mr. Chairman, I think we would all like to
think more about that thoughtful question, but just to come
back and say that we, I think, also should celebrate the
success of the programs that you are currently funding. As
those are continued and enhanced and more people know about
those programs, it will continue, I think, to support higher
education and support this country in a very powerful way.
Chairman Thompson. Thank you very much. And another thing
we need to keep in mind, too, is that it is not absolutely
essential that everybody go to college. I grew up in a little
town in the middle of Tennessee and some of the most successful
classmates I had did not go to college. They started little
construction companies after working construction and little
businesses that their dad maybe worked at or something and they
had their own business and all of that. In the future, along
with all the high-tech stuff, not everybody is going to be
either making or using computer chips and it is going to be
more and more difficult to find mechanics and people who know
how to read blueprints and plumbers and construction people.
Obviously, the more education you got, the more it would
help you in any of these jobs, clearly. But as we think about
what to do in spending money, there are probably a lot of young
people in college that should not be there, and there are going
to be a lot of good ones out there that just choose not to do
that. I do not think we ought to be taxing them too much for
kids who go to college, especially the ones who are just kind
of there and not really achieving. So that is another thing we
have got to enter into the equation as we consider this.
Senator Lieberman, do you have anything further?
Senator Lieberman. I do not. It has been a very full and
productive morning. Thank you, Mr. Chairman, and the witnesses.
Chairman Thompson. Thank you very much.
I would like to include in the record a statement from the
Department of Education.\1\
---------------------------------------------------------------------------
\1\ The prepared statement of the Department of Education appears
in the Appendix on page 276.
---------------------------------------------------------------------------
I would also like to include a statement on this subject
from the University of Illinois.\2\
---------------------------------------------------------------------------
\2\ The prepared statement of the University of Illinois with
attachments appears in the Appendix on page 290.
---------------------------------------------------------------------------
This hearing has been extremely productive. We really
appreciate your help. Thank you.
The record will remain open for 1 week after the close of
this hearing. We are in recess.
[Whereupon, at 1:14 p.m., the Committee was adjourned.]
RISING COST OF COLLEGE TUITION AND THE EFFECTIVENESS OF GOVERNMENT
FINANCIAL AID
----------
THURSDAY, FEBRUARY 10, 2000
U.S. Senate,
Committee on Governmental Affairs,
Washington, DC.
The Committee met, pursuant to notice, at 10:05 a.m., in
room SD-342, Dirksen Senate Office Building, Hon. Fred
Thompson, Chairman of the Committee, presiding.
Present: Senators Thompson, Collins, Lieberman, and Akaka.
OPENING STATEMENT OF CHAIRMAN THOMPSON
Chairman Thompson. Good morning. Let us come to order,
please. We are convening the second day of the hearings on the
cost of higher education.
Yesterday, we heard from witnesses who testified that the
finances of colleges and universities are not as transparent as
they should be. We also discussed the many issues that
institutions of higher learning have to navigate when coming up
with enough funding to educate our Nation's children.
Today, we continue to look at the issues surrounding the
high cost of college tuition and the effect of aid programs on
the availability of higher education. One might think that it
ought to be easy to come up with what goes into the price of a
product, but if we are learning anything, it is that it is not
that simple. There are so many drivers of cost and price and so
little attention is given to how those complexities interact
that we cannot really get hold of what makes college tuition
rise so rapidly. To add to the confusion, there was some
disagreement among the panelists yesterday as to whether rising
tuition is even a problem.
As policy makers, it is difficult to craft the right
solutions to a problem no one understands. That is the value of
these hearings, and I am encouraged by the work of the National
Commission on the Cost of Higher Education and the National
Association of College and University Business Officers,
organizations that are helping us unravel some of the mysteries
of college and university financing.
Much like the Federal Government, it seems that colleges
and universities rank themselves as much by the level of the
outputs, how big their endowments are, how many books are in
their libraries, how hard it is to get in. In the Federal
Government, we are trying to get agencies to focus not so much
on what goes into a program but what results come out of those
programs. It seems colleges and universities could benefit from
the same philosophy. Only then could we determine whether
students were getting the value for the price they pay in
tuition.
One of the many drivers of the cost of college education is
financial aid. We are devoting much of the second day of
hearings to the status and effectiveness of grants and loans.
We will hear from witnesses who have a perspective on the
changing financial aid policies of the Federal Government and
look forward to hearing more about just what effect grants and
loans have on the availability of higher education.
Another important part of today's discussion will be about
fraud. Students in the position of trying to finance a college
education are easy prey, and we will hear some about the
outfits that take advantage of these students. More
importantly, we will learn what parents and students should do
when confronted with fraudulent enterprises.
All of the issues surrounding the pricing of college
tuition are worthy of this Committee's attention. We have not
solved the problem, but perhaps we have shed some light and
asked the right questions so we are further along the road to
understanding more about this issue. Certainly, education in
this country, whether it be at the college or university level
or the K-12 level is not primarily a Federal responsibility,
and I do not think anyone is suggesting that we take it over.
But clearly, even if we are just looking at the aid and
loan policies, there is Federal involvement and we need to
understand what we are doing right and what we are doing wrong
to contribute to the problems that we have been talking about.
So, hopefully, we will make some progress along those lines.
Senator Lieberman.
OPENING STATEMENT OF SENATOR LIEBERMAN
Senator Lieberman. Thanks, Mr. Chairman. I, too, thought
that yesterday's hearing was an important beginning. We had a
range of witnesses from differing perspectives, so I cannot say
that we had total unanimity, but my own conclusion listening to
the baseline question of is tuition too high, could colleges
and universities by and large do more to achieve cost
containment is, yes, they could, and that tuition is too high,
not at every school, not in every part of the market, but the
very fact that the numbers show that the rate of increase in
the cost of higher education has gone up so much more rapidly
than either the increases in inflation or, in addition, or
particularly, in median family income tells us that we have got
a problem here.
Some of the anecdotal evidence that was presented
yesterday, certainly in some parts of the market, the most
competitive parts of the market, where students are actually
competing for admission to particular schools, not schools
competing for students to come to them, it is clear that the
market, as one of our witnesses yesterday said in the
magnificent understatement of economists, ``The market is
imperfect.''
When you have the case of Williams College now freezing its
tuition based on increases in the value of its endowment, in a
competitive market, one would presume that that would benefit,
that reduction in cost would benefit Williams, but our
witnesses yesterday were all of a mind that it would not of
itself help the school attract the students that it
particularly wanted.
A letter was read about Sweetbriar, which actually had
lowered its price, or froze its price at one point and found
that, contrary to what might be expected, it was losing
applicant interest because there was a kind of luxury mentality
that if it costs less, it must not be as good as the schools
that cost more. So all of that combined to give me the
impression that there is more that the higher education
institutions could do and more we can do to incentivize them to
hold down or contain the cost of the very valuable service that
they are providing.
At different times yesterday, we inevitably rolled over
into the subject of aid, and there was an interesting exchange
about, for instance, the question the Chairman raises, whether
Federal grants actually have the effect, as many worry, of
raising tuition. The witnesses yesterday generally indicated
that the studies that have been done show that increases in
Federal grants, scholarship grants, do not raise the cost of
tuition, but that there is not similar research done on the
effect of loans, not that there is evidence that loans do
increase, but it remains a question.
And there was a fair amount of testimony about the various
kinds of aid that one might prefer and would we be better to
increase the funding to the Pell grant program, for instance,
to benefit the neediest as opposed to having tax credits or
loan programs that benefit those that are in need but not the
neediest.
Those are some of the questions that I hope in this second
panel, or third, if we count Ms. Pueschel as the first, with
the two of you who are experts on questions relating to aid,
that we will be able to form some judgments, not only about the
impact of aid on the cost of education, both in the general
sense that we talked about but in the sense that obviously the
sticker price, if you can call it that, of a college education
is only the beginning, then the net cost is the key and that is
achieved after aid and loan packages and the rest are fed in.
And then we want to take your counsel as to what we could
do, accepting the premise that just came out from all the
testimony yesterday, not only that the access to higher
education is fundamental to the basic American dream of upward
mobility, it has worked for generation after generation of new
Americans, but that it is increasingly critical to our overall
economy, not just to the realization of the American dream, and
that in the years ahead, the demographics tell us that the
student population that will be growing will be increasingly
poor and minority, so that need for aid to make higher
education achievable, accessible, will grow more intense.
The question then becomes, what can we do, since as Senator
Thompson said absolutely correctly, we are already entangled,
if you will, involved. What can we do in the Federal Government
to not only sustain the individual American dreams by children
growing up, but that we can thereby sustain the extraordinary
economic growth that we have had which, in so many fundamental
ways, has been conditioned on the education of our people.
So these are detailed questions, but they have big results,
and I think, Mr. Chairman, we have got some real experts to
hear today and I thank them for being here and I thank you for
convening this second day of these hearings.
Chairman Thompson. Thank you.
As our panel will look at the effect of various aid
programs on the availability of college education, we will hear
from Lawrence Gladieux, Executive Director for Policy Analysis
at the College Board, and Michael S. McPherson, President of
Macalester College and coauthor of the book, ``The Student Aid
Game.''
Mr. Gladieux, do you care to make an opening statement?
TESTIMONY OF LAWRENCE E. GLADIEUX,\1\ EXECUTIVE DIRECTOR FOR
POLICY ANALYSIS, THE COLLEGE BOARD
Mr. Gladieux. Thank you very much, Mr. Chairman and Senator
Lieberman. I appreciate the opportunity to testify. I did sit
in on yesterday's hearing and I thought it was an excellent
discussion. It is a hard act to follow. At the end of that very
full discussion, I said, what is left to say, but I am really
glad to join the discussion today.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Gladieux with attachments appears
in the Appendix on page 138.
---------------------------------------------------------------------------
I have submitted my written statement. I will summarize it.
It is in three parts.
In the first part I review indicators on the extent of
progress made in broadening college opportunities over recent
decades, and we have made progress. Access to some form of
post-secondary education and training has been growing steadily
overall and for just about every economic and racial and social
group. But very large gaps persist in who benefits from higher
education in America. Opportunity for it is not spread evenly
across our society.
There seemed some disagreement in yesterday's discussion,
yesterday's panel, on whether we have an access problem any
longer. I think it is clear that we do, and I will use just one
indicator, but I think it is representative. Figure 3 that is
attached to my statement traces a broad index of post-secondary
participation based on census data for 18- to 24-year-olds, and
what it shows is that all groups have gotten increased access.
All groups show gains. But low-income young people attend
college at much lower rates than those with high incomes, and
participation gaps are about as wide, maybe even wider than
they were in 1970.
Also, opportunity is not just a matter of access. It is a
matter of equal choice. Here, it appears that there is an
increasing stratification of higher education enrollments at
different levels of the system by family income. Mike McPherson
and his colleague, Morty Schapiro, have done research on that.
But the real bottom line is who actually completes a degree.
Overall access has soared during this past quarter-century, but
the proportion of college students completing degrees has
remained essentially flat and gaps remain very wide when you
look at completion rates among different groups.
The most recent longitudinal studies from the Department of
Education tell us that of high school seniors who enter post-
secondary education, 40 percent of high-income students receive
a bachelor's degree within 5 years, while only 6 percent of
low-income students receive a bachelor's degree within 5 years.
Clearly, getting students in the door is not good enough. In
fact, my real----
Chairman Thompson. Are these of students who start college?
Mr. Gladieux. Who start college, yes, and this is back in
1989, they did a beginning post-secondary study, and 5 years
later, in 1994, that was the result, 40 percent versus 6
percent. And similarly, there are gaps between whites and
blacks and Hispanic students, considerable gaps.
Getting students in the door is not good enough, and my
greatest concern is that some of the students who do not
persist may be left worse off. They have borrowed to finance
their studies, which is increasingly the case for low-income
students, particularly, and they do not complete. They leave
college without a credential and a debt to repay.
The second part of my testimony asks why do these gaps
remain so wide, and part of the explanation is affordability,
the focus of this hearing. I will not retread the ground that
was gone over pretty well yesterday. Figure 6 attached to my
testimony summarizes the trends. Adjusted for inflation,
tuition has more than doubled at both public and private
institutions since 1980, while family income has only risen 22
percent over this 20-year period. And aid has gone up, but it
has not kept up with the rise in tuition.
The median family income does not tell the whole story of
the 1980's and 1990's. We all know that income disparities have
grown during this period. So when you look at another chart
(Figure 7) attached to my testimony, it shows the cost of
attendance as a share of income for low, middle, and high, and
the greatest burden, the increasing burden is on low-income
students, and even if you factor in student aid awards, the
greatest burden is on the low- and moderate-income students.
Also, it is important, and this was gone over yesterday,
that aid that students are receiving is increasingly in the
form of borrowing. Student aid has drifted from a grant-based
to a loan-based system, and low-income students, students most
at risk, actually have the highest rate of borrowing. That is
reflected in Figure 10 attached to my testimony. It is the
students in the lowest-income group who are borrowing in the
greatest numbers, and they are borrowing the largest amounts on
average.
So part of the explanation for the gaps is affordability,
which is the primary focus here. But it is not the only
explanation. There are deeper roots of unequal opportunity and
I think we need to keep in mind, and this was brought out, I
think, at the very end of your discussion yesterday, the issue
of academic preparation and student readiness for higher
education. Making college affordable is critical, but we have
also got to address these other challenges. There are a lot of
other things that need to begin earlier in the lives of young
people and in their schooling.
I will not dwell on this complementary set of issues and
challenges, but I do think it is important to keep in mind, as
I think Dave Breneman said yesterday, that American education
is all one system. We clearly need broad K-12 reforms and
improvement. In my view, we also need much greater investment
in direct outreach and intervention programs that make a
difference in the lives of young, disadvantaged kids, early in
their schooling. We need the wholesale school reforms. We also
need the retail, one kid at a time, ``I Have a Dream'' kinds of
efforts. These programs are very labor intensive, but we need
to invest more. We need to step them up to a much larger scale.
The third and last part of my testimony, and you touched on
this, Senator Lieberman, in your opening comments, includes
policy recommendations to address the needs of the coming tidal
wave of students. The Census Bureau projects that there will be
5 million more 18- to 24-year-olds in the year 2010 than there
were in 1995, an increase of more than 20 percent. The country
is already experiencing this expansion in the potential pool of
high school graduates and college students, but this new cohort
will look considerably different from previous generations of
college students.
The age cohort that we will see over the next 10 to 15
years will be more ethnically diverse than the general
population and the fastest growth will come from groups in our
society that at least until now have been poorer than the
general population, more likely to drop out of school, less
likely to enroll in college prep courses, less likely to
graduate from high school, less likely to enroll in college,
and least likely to persist to completion of a baccalaureate
degree. So we are looking at a huge challenge ahead of us.
To sustain or increase current levels of college or post-
secondary participation is going to require aggressive public
policy, both to strengthen the readiness of students to
undertake college-level work and to assure that low- and
moderate-income students have the financial resources to pay
for it when they get to that point.
Now to my recommendations. First, keep the Federal focus on
helping those with the greatest need. The Federal Government
has exerted enormous leadership in helping to level the playing
field in higher education, begining with the GI Bill of 1944,
the Higher Education Act of 1965, the Pell grants, etc. But
recent policy shifts, and I think this was brought out in
yesterday's hearing--the Justice Department antitrust action of
the early 1990's, the tuition tax breaks enacted 3 years ago--
run counter to need-based policy. In fact, I thought the drift
of testimony yesterday was that the whole system these days is
tilting toward cost relief for the middle and upper-middle
class. The Feds, the States, the institutions are all leaning
that way. The Federal Government, in my view, should reassert
its leadership in fostering need-based aid.
Second, restore the purchasing power of Pell grants. The
single most important thing I think the Congress could do is to
restore the promise that Pell grants once represented. Back in
the 1970's, it was at its peak in real value, in buying power.
In fact, the very last chart in my testimony is a simple bar
graph titled ``Returning Buying Power to the Pell Grant.'' The
first bar, the lowest bar, is where we are right now, with a
$3,125 maximum Pell. Where we need to be is $4,300, to make it
have the buying power it did back in the late 1970's based on
the Consumer Price Index.
Based on costs of attendance as they have changed during
this period, where we need to be is $7,000 to match the average
cost of a public higher education institution, and $8,000-plus
is where we would need to be for a private 4-year college. I
recognize that these numbers are way out of bounds of the
incremental framework of current appropriations----
Senator Lieberman. What is the standard there? In other
words, to be where we were when the Pell grants started, you
mean?
Mr. Gladieux. Yes. In the early years, the 1970's, I think
it had more drawing power. The Pell Grant was a beacon and it
was coming at a time when institutions were aggressively
recruiting the most disadvantaged students. State scholarship
programs were focusing on these same students.
Now, I realize these numbers are way out of bounds, but
this is where I think we need to be if we want to restore the
Pell grant to what it once was. And, by the way, the more we
invest in the Pell grant program, the more we help not only the
neediest students, because they get a larger grant, but we
bring in students in the moderate-income range. We bring in
more students who are just outside the range of eligibility.
Yesterday's student representative from the United States
Student Association said she came from a middle-class family.
Her parents were both educators. They had $50,000 in income.
She got an institutional grant. She did not get a Pell grant.
The fact is that she is just above the eligibility line for a
minimum Pell grant, which is $400. If we increase the funding
for Pell, we will bring students like Jamie into the range.
Third, make the Pell grant an entitlement program, and I am
glad several people broke the ice on this yesterday. I am not
the first in this hearing to utter the dread word of
entitlement. But we have essentially new upper middle-class
entitlements through the tax code and the Pell grant relies on
annual appropriations. In fairness, and in anticipation of the
coming tidal wave of students, I think we need to have a Pell
grant entitlement.
By the way, you could provide a low-income entitlement
through the tax law by making the tuition tax credits
refundable, but that is not a very effective mechanism for
people who are really struggling to meet tuition bills and make
ends meet because the relief does not come at the time the
tuition bill is due. It comes in a year-end tax refund. So I
just do not think the tax code is a very effective vehicle for
closing these gaps.
Fourth, establish a college savings or lifetime learning
trust for low-income children. Some form of this idea was
kicked around in the Taxpayer Relief Act discussions 3 years
ago, as I remember, and there were several Senate sponsors, I
do not remember who, but the idea was the Federal Government
would set up a $500 trust account for each low-income child and
it would be pooled in an investment fund. Corporations, private
donors, States could chip in, too. It was an attempt to balance
the education IRAs and other savings incentives that were being
put into the law at that time.
The proposal died, but I say, let us take another look. The
college savings industry is booming. You have got substantial
Federal and State tax incentives. Savings are so important to
people feeling that they have a stake in our society and in our
economy and in their own future, but not everybody has money to
put aside. Without going into particulars but to put it simply,
shouldn't we find a way to extend the wonders of compound
interest to all our citizens?
Fifth, in the same vein of getting to kids and students
early, we need to expand pre-collegiate outreach, intervention,
counseling, and mentoring programs. The Federal Government
needs to step up and invest a lot more in this. I give
wholehearted credit to the Clinton Administration for its
proposals in the budget for the TRIO programs and the GEAR UP
program along this line.
Finally, let us focus on students' success, not just
access. Again, public policy has done a pretty good job of
boosting access over these several decades, but getting
students in the door is not good enough. We need greater
attention and incentives focused on student persistence, and
again, I support a Clinton administration proposal included in
this week's budget for college completion challenge grants to
institutions.
So I am not a fan of the administration's tuition tax
proposals, but I do support these latter initiatives, I think
they are right on target, and I thank you, Mr. Chairman.
Chairman Thompson. Thank you very much. Dr. McPherson.
TESTIMONY OF MICHAEL S. McPHERSON, Ph.D.,\1\ PROFESSOR OF
ECONOMICS AND PRESIDENT, MACALESTER COLLEGE
Mr. McPherson. Thank you, Mr. Chairman and Senator
Lieberman, and thank you for operating such a, as I understand
it, as I was not able to be here, but such a thoughtful and
wide-ranging hearing.
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\1\ The prepared statement of Dr. McPherson and Dr. Morton Schapiro
appears in the Appendix on page 159.
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My remarks this morning and my written testimony are on
behalf of myself and my longtime co-author, Morty Schapiro. Our
remarks are based on our work as economists to study higher
education and are not meant to represent the views of the
institutions that we work for.
I will say that I know hearings thrive on controversy, but
there is nothing in what Larry Gladieux said that I would be
inclined to disagree with.
Senator Lieberman. I do want to apologize to you, Dr.
McPherson. Yesterday, the circuits in my brain switched and I
referred to something I had read and I said that you were from
the College Board. I know that was a terrible assault on your
reputation and I---- [Laughter.]
Mr. McPherson. Well, I am a trustee of the College Board.
Senator Lieberman. Oh, OK. So I was only half confused.
Mr. McPherson. So I am sure that is what you had in mind.
Senator Lieberman. It must have been. [Laughter.]
Mr. McPherson. In my brief remarks here, I want to really
pick up on Larry's emphasis on viewing the system as a whole, a
system that involves contributions from certainly the Federal
Government and also State Governments, which, in fact, are
larger players than the Federal Government in providing finance
for higher education, and the colleges and universities
themselves. The concern I would like to focus on is the loss of
a sense of common purpose, which I think at one time did much
more to shape our efforts in the finance of higher education.
For more than 30 years, the U.S. system for financing
undergraduate education has been based on the principle that
colleges and universities, together with the Federal and State
Governments, should help financially needy students to pay for
their education. Increasingly now, though, we see institutions,
colleges and universities, using financial aid to recruit the
most desirable students and to help their bottom lines, and we
see government shifting resources from lower-income students to
the children of middle-class taxpayers, who have more political
clout even if they have less need.
Those changes, in our view, threaten the educational
prospects of our neediest young people, particularly in the
face of the kind of demographic developments that Senator
Lieberman and Mr. Gladieux talked about, and they threaten the
health and the stability of U.S. higher education in general.
To focus on history for a moment, the present system of
meeting families' need for financial aid had its origins in an
enrollment slump back in the mid-1950's, a slump that followed
the influx of Korean war veterans who were supported by the GI
Bill. With enrollments declining, a number of prestigious
colleges and universities found themselves slipping into
bidding wars for attractive students, just as is happening
today.
In 1954, driven by the desire to stem the flow of dollars
to competitive offers of student aid, as well as by a
commitment to increase access to higher education, a group of
institutions formed the College Scholarship Service as part of
the College Board. The goal of that organization was to develop
a uniform and objective way of assessing financial need. The
assumption was that, ideally, institutional and governmental
programs would combine to meet that need.
Although colleges and government agencies and individual
students have had lively disagreements over those many years
about how to measure a family's ability to pay for higher
education, the underlying consensus among everyone involved has
been that trying to meet financial need is the right thing to
do, and that essentially creates a partnership between
colleges, States, and the Federal Government. That consensus
and that sense of partnership is now breaking down.
The Federal tuition tax credits introduced in 1998 were
aimed clearly at the middle class and even the upper middle
class, and they cost the government more money every year than
the entire need-based Pell grant program. Many States seem more
interested these days in merit scholarships and in tax-exempt
prepaid tuition plans than in grants for citizens with lower
incomes. And colleges and universities themselves increasingly
are turning their back on the principle of meeting financial
need as they adopt programs such as merit aid that are aimed
mainly at more affluent students.
In the past few years, indeed, our most prestigious
universities have been leapfrogging each other as they modify
their aid systems to lure the students that they want. Even
Harvard University, which last time I checked had no difficulty
recruiting a class, Harvard characterized its need-based aid
program as, ``competitively supportive,'' and invited
applicants to seek a response from Harvard to offers of aid
from other leading institutions. It is no wonder that families,
feeling that the aid system can be and often is manipulated by
colleges, are less and less inclined themselves to play by its
official rules.
The resulting free-for-all, with institutions competing for
students and students trying to play one institution off
against another, tends to divert financial support from very
needy families toward middle- and upper-income students, and
these trends are reinforced by the trends in governmental
support that I described earlier. It is increasingly clear in
our view that, unchecked, this trend will lead to growing
stratification in U.S. higher education and increasing
inequality of income and opportunity in society at large.
How can we reverse the trend? We need to undertake, in our
view, a national effort to restore the commitment of colleges
and of governments to the principle of meeting students'
financial need.
We would offer two specific recommendations for Congress to
consider. First, we would urge that Congress find a way to
affirm that colleges can enter into agreements to apply common
standards in assessing need and awarding aid without running
afoul of the antitrust laws. The antitrust investigation of the
early 1990's, when the Ivy League institutions were
investigated, has had a chilling effect on forms of cooperation
among colleges that, in our view, are socially desirable.
Second, we would urge the Federal Government to create a
supplemental student aid program that would provide extra funds
to students whose colleges adhere to need-based principles in
awarding student aid. This, we feel, is an intelligent way to
incentivize colleges and universities to do the right thing. It
would also, in our view, help to move the balance of
expenditures on student aid and support for students in the
direction of helping the needier.
The real question in our view is whether the United States
possesses the will to pursue such a course. The principle of
equal access to higher education which Americans continue to
espouse and which has served the country well over the past 30
years is increasingly honored only in principle while being
abandoned in practice. The fate of future generations of young
people depends on our reversing that trend.
That is my basic statement. I would like to add, if I may,
one other thought, perhaps particularly appropriate to the
Governmental Affairs Committee. There is a lot of uncertainty
and a lot of controversy about exactly what impact loans and
grants and tax preferences have on student behavior. There is a
lot of money at stake and there are a lot of important
educational decisions at stake in determining what these
effects are, and I would endorse a proposal from Tom Kane, who
is a professor at Harvard University, that the Federal
Government invest in some experiments analogous to the negative
income tax experiments that were conducted 20 years ago or
more, experiments that would be aimed at measuring in a
scientific way the impact of these kinds of investments. For an
investment which would be a small fraction of what we spend
every year on these programs, we could learn a great deal about
what effect they really have. Thank you very much.
Chairman Thompson. Thank you very much.
That is an interesting suggestion and it really plays into
something that I have been concerned about for a long time.
That is, we get into controversies whether you are talking
about how to handle juvenile crime or what to do about
education, issues of federalism. You know, 7 percent of
education spending is Federal, 7 percent only, so we are the
tail that is trying to wag the dog, you might way.
Mr. McPherson. Right.
Chairman Thompson. But one thing that we do better than
anybody else at the Federal level is research, and again,
whether you are talking about juvenile crime, something that I
have worked on over the years, or education, there is an awful
lot we do not know. It is not like we have the right solutions
to all these problems and we just need to tell people to
implement them, because we really do not know what works
oftentimes and what effect what we are doing has.
So we really need to put more into research, and Mr.
Gladieux, you mentioned the same thing. I think at the Federal
level, you do not get into a lot of those federalism issues.
What should the Federal Government be doing? What should the
State be doing? We could be a clearinghouse of research into
these things, a clearinghouse for States and local communities
as to who is doing what and what results are they having, not
to mention the effect it would have on our own programs.
On another point, on the issue of access, it raises a real
question for me because I wonder about our underlying
assumptions. I'm going to play kind of devil's advocate for a
minute, but I am wondering, are we assuming, when we talk about
the access problem and we see that the completion rates are
flat when the student enrollment is up, that not all people are
going to school that we think might ought to be going to
school. That there is an underlying question there as to who
should be going to college. That is a societal question that we
cannot answer, but we cannot totally ignore it, either, I
guess, as we look at this.
I am wondering if the philosophy that we are headed toward,
toward kind of a total access, is going to wind up stratifying
things more and more. We see now that, more and more--some
studies were done recently in one large high school, one large
community where the high school students, half of them could
not pass a standardized merit test if it were given and they
were required to pass a certain test to get out of school.
We see the demographics are catching up with us. We know
about what it is doing in the elderly segments of our society,
with Social Security and Medicare. It is happening, the same
thing, again, with juvenile crime. We have a bunch of kids in a
problem age group that are coming along. We have a bunch of
kids that are coming along now from maybe poorer backgrounds
into the college system.
So how do we look at that? If we do not base it, if we
continue to stigmatize kids who do not go to college, who
choose to become mechanics or carpenters or something like that
and we do not place the emphasis on the underlying problems
that get these kids in the problems to start with and we do not
really reach out and try to get the poor kids who show some
capability and some potential and not try to get all the rest
of them into school, we are going to bring down the quality of
our college and university education. The real good students
are going to even more elite institutions at even higher prices
and we are going to have a small, extremely elite college-
university system and broad-based education with broad access
to everybody, dragging everybody down. The decent students, the
good students working hard will be brought down by a situation
like that.
So I question whether or not when we look at the access
problem that we ought to look at it just strictly from a
standpoint of who is going to college who we think maybe ought
not to be going. Does any of that resonate with you? It kind of
goes against the grain, I guess. It seems to me that not only
are we going to need a computer-literate society, more and
more, we are going to need people who know how to do things,
how to do things with their hands as well as other skills.
There is always going to be room for that, too. If we continue
to push everybody toward college and universities, it is not
going to be good for anybody. And, of course, as I say, the
rich and the extremely bright are always going to have
someplace to go, but it is going to stratify things worse than
they are. Does that make any sense at all?
Mr. McPherson. I have two observations. I think it is a
very important issue. The first observation I would make is
that, as an educator, I think it is a misfortune that,
increasingly, the only path to a good life and a rewarding life
in our society is seen to be a path that goes through college.
It would be a much healthier society, in my view, if young
people really felt they had a choice of ways to build a good
life, and not all of those ways ought to require that they get
a college diploma. I think it would bring a better attitude
toward students when they are in college if they felt like they
had chosen that.
The reality is that if you look at income statistics, if
you look at occupational results and so on, things look pretty
bad for folks who only have a high school degree, and it seems
to me that part of the solution to that should be national
investments, not necessarily Federal Government investments,
but national investment in secondary vocational training and
post-secondary vocational training, which would allow people to
become equipped to become mechanics and do other kinds of
preparation which are not necessarily collegiate preparation.
But at the other end, Senator, in some of the work that
Morty Schapiro and I did, we reviewed a governmental study
which looked at the probability of people going to college
based on both their family income and their academic abilities
as measured by tests in high school, and among the top third of
students in terms of test-taking performance, the highest
income group had 19 chances out of 20 of attending college. The
lowest-income group, and this is among high-performing high
school students, the lowest-income group had three chances out
of four of attending college. Now, three chances out of four is
better than it used to be, but it still means that 25 percent
of low-income students who clearly have the ability to benefit
from college do not get there. So I think we have problems to
work on still at both ends of the problem you described.
Chairman Thompson. Yes, and that is really the point. The
distinction should be made with regard to the low-income
students who show some potential. Of course, some really have a
tough time in even showing that potential. I guess you could do
a certain kind of a test and so forth. Grades might not even be
the total determining factor, based on their family situation
and all, but there must be some liberal ways of determining who
has that ability. I guess I am beginning to sound like the
English system or something. I am not suggesting that. And then
concentrating on those low-income kids who show the ability or
the potentiality of succeeding and wanting to go.
Mr. Gladieux. Mr. Chairman.
Chairman Thompson. Yes?
Mr. Gladieux. I think in these discussions, there is
sometimes an issue of terminology. We talk about college and
going to college and we all have different things in mind, but
it is just the way we refer to this process that we are talking
about here.
But what we are really talking about is a very broad range
of post-secondary opportunities for education and training, and
I personally do not believe that everybody should go to
college. I do not believe that is----
Chairman Thompson. Perhaps vocational, as Dr. McPherson
said.
Mr. Gladieux. Yes. And I think where the market is
generating and State systems are setting up an increasingly
rich range of sub-baccalaureate degree opportunities that are
very important to drive our economy and to sustain the promise
of opportunity in our----
Chairman Thompson. In other words, there is hardly any role
in society that some post-high school training of some kind
would not clearly benefit. That is certainly true.
Mr. Gladieux. Yes. I am talking about completion rates.
Bill Gates is a college dropout. But in the main----
Chairman Thompson. And you do not have to expect them to
get a 4-year degree from some liberal arts college or
something.
Mr. Gladieux. In the main, our economy and our labor market
is driven by credentials. So I think this is the message, that
we want to keep the options open to everybody for some form of
post-secondary education or training.
Chairman Thompson. If somebody knows how to fix something
or do something, I know a lot of employees who do not care if
you went to the 3rd grade, and I am not suggesting that this is
the wave of the future. This is just reality. In the little
community I grew up in, there is a place and will continue to
be a place that will grow as everybody else moves into other
things, people that know how to fix things and do things and
show up for work on time and things like that will have a
place.
Mr. Gladieux. Some people do very well without formal
training, but again, the range of what is being offered out
there, is being generated by the market, is just astounding,
the certificate training as well as the degree programs.
Chairman Thompson. Thank you. Senator Lieberman.
Senator Lieberman. Thank you, Mr. Chairman, an interesting
exchange. That brings up the first matter I wanted to bring up,
which is getting a handle on the effect of the increasing cost
of higher education on different income groups. It takes a
little bit of work.
I was surprised, and one of the witnesses yesterday, I
think, dwelled on this somewhat, that if you look at the last
couple of decades, the participation rates for 18- to 24-year-
old high school graduates has increased at every quartile of
income, 11 percent for the bottom quartile, 15 percent on up,
10 percent at the highest level, and I found that surprising
and, I guess, counter-intuitive, because I figured as the cost
went up that it seemed unlikely that there would have been a
comparable increase in the number of poorer kids going to
school, and maybe I should ask you to comment on that.
I want to come on to other questions, some of which you
have already testified to, but is that a reflection? You have
said that it is still true that there are a smaller percentage
of lower-income kids attending college, and as the most recent
exchange indicated, and your research, Dr. McPherson, is very
compelling there, that though it is three out of four, still,
that is a lot lower than 19 out of 20, so there is still a gap.
But why is it over the last 2 decades that the number of
poorer kids in college has gone up about as much as the number
of better-off kids?
Mr. Gladieux. Again, the gaps remain very wide when you
look at all the dimensions of opportunity, access, choice, and
completion. But it is true. The demand for higher education in
our society is reflected on those charts that show all the
lines growing up in every group, racial or by income.
Senator Lieberman. So does that show also that some of the
aid programs, like the Pell grants, have worked to enable the
lower-income kids to go to college, or does it show that there
is just such a demand that they are willing to do anything, as
middle-income families are, to make sure their kids go to
college?
Mr. Gladieux. I think the aid programs have worked, but we
have got a long way to go.
Senator Lieberman. Yes. Dr. McPherson.
Mr. McPherson. I think the comparisons here we are talking
about are comparisons of 1972 to 1992, and that means it is
pre--the major Federal investments in student aid and post--
those investments. It would be great to have 1972, 1980, and
1992 so that you could get more of a profile of what has
happened during that time.
But I would underscore that while there has clearly been
progress, and it is also clear that, as you put it so well,
Senator, the economic rewards to attending college are so high
that people will work very hard to solve that problem and
figure out a way to do it.
But despite those good things, in our work, for example, we
looked at the attendance rates immediately out of high school
for white kids, African Americans, and Latino/Latina children,
and in the middle 1970's, whites attended in greater numbers,
but the differences in attendance rates were something like 3
or 4 percentage points among those three groups. Now, every
group has increased its attendance rate, but the differences
are quite a bit bigger.
Senator Lieberman. The gaps.
Mr. McPherson. They are more like 5 to 10 percentage
points, and I think what that reflects is that----
Chairman Thompson. Like national income figures.
Senator Lieberman. There is probably a connection.
Mr. McPherson. There is a persistent problem.
Senator Lieberman. That is important. I mean, I think that
makes the point very compellingly.
Mr. Gladieux, those numbers you gave, however, about the
completion rate of college in 4 years are stunning. That was
only 6 percent of lower-income kids finish college in 4 years,
whereas----
Mr. Gladieux. In this study, they began in 1989. Five years
later, they took another look and they went back to the same
students and that was the gap in percentage that completed a
bachelor's degree.
Senator Lieberman. I do not want to push you into too much
detail, but how are lower-income kids defined in that study? Is
it bottom quartile or poverty rates?
Mr. Gladieux. Yes, I think that is bottom quartile.
Senator Lieberman. Do you know how many of them, of the
students in the lower-income group, actually ultimately
finished 4 years?
Mr. Gladieux. Well, there is some data, and there are
additional follow-ups. The gaps remain pretty wide. Five years
after high school graduation, students are 22 and 23 years old.
If you go out to age 30, some intermittent students come back
and complete their degrees, but the gaps remain very wide.
Senator Lieberman. Yes. I am about to ask a question, what
was it, that F. Scott Fitzgerald-Ernest Hemingway dialogue
about the rich are just like the rest of us except they have
more money. I mean, I am about to ask you, why is it that there
is this remarkable discrepancy, 40 percent completion in 4
years, 6 percent, among the poorest? Is it just plain income,
or is it something more?
Mr. Gladieux. As I said, I think it is this issue of
affordability, and there have been a lot of adverse trends,
tuition, family income, and the aid policies. I think that has
played a part. But it is also the underlying gaps in prior
preparation. I mentioned that larger challenge of student
readiness for higher education. Obviously, we cannot read that
out of our calculus here in anything we are talking about. If
we are focused on closing these gaps----
Senator Lieberman. As you said today and was said
yesterday, it is more than aid, college aid alone. It is also
our ability as a society to prepare kids in poorer families in
elementary and secondary school.
Mr. Gladieux. Right, though these two things, these two
challenges interact.
Senator Lieberman. Sure.
Mr. Gladieux. I suggested a savings initiative, and there
have been tremendous new incentives, Federal and State tax
incentives for college saving. Those do not reach down into the
low end of the economic scale, but it does send a message and
you can help to motivate young students early in their
schooling if we make a promise, if we say that the financing is
going to be there, and the same with Pell grants, and that is
why I put that on the table, the Pell grant entitlement.
Senator Lieberman. I assume, again, just briefly, that if
the demographics of the future are as we expect, as experts
project, which is that a greater and greater proportion of
children growing up in the country will come from ethnically
diverse lower-income families, then the gaps that we have
identified here, both in access and in completion of college in
4 years, are going to get greater and greater.
Mr. Gladieux. That is what I see, and the College Board has
also commissioned a study that the Rand Corporation did for us,
providing very detailed estimates of projections in the year
2015, the students who are going to be coming online then and
what their characteristics are. It says the same thing.
Senator Lieberman. Yes.
Mr. Gladieux. It is a huge challenge.
Mr. McPherson. If I could add to that point, one of the
things we know from research is that two of the main
determinants of somebody's likelihood of going to college are
their parents' income and their parents' educational
attainment. What I wish we could do is create a kind of a movie
which would let us see where we are going over the next 20
years. If we allow these gaps in educational attainment to
persist for another generation, those will then be perpetuated
because those now young people who did not get to college will
have children who are less likely to go to college.
And if we picture what that society is going to look like
25 years from now, it is not one any of us will want to live
in. But it is so hard to come to grips with it because it is so
abstract, but we are building, I think, a divide which is going
to wind up being punishing to the entire society and not just
to the poor people, but to everybody.
Senator Lieberman. Let me ask a final question.
Incidentally, thanks to both of you for your recommendations,
which are, I think, very thoughtful and constructive, and
perhaps on another occasion we can go over them in a little
more detail with you.
But here is my question. I accept, based on the testimony
we have heard and the numbers that have been put before us,
that both today and in the future, the greatest need for
financial aid is, this sounds axiomatic, but is among those who
are poorer. But it is also true that people who are making a
little more money, the middle class and particularly what might
be called the lower-middle class, really are strapped to send
their kids to college.
The young lady who was in here yesterday, not needy, not
from a needy family, but $50,000, both parents teachers,
$50,000 family income, they took on $22,000 of debt to send her
to college and they have another student coming along for whom
presumably they will also take on debt.
So we cannot, and I know you are not asking this, we
certainly cannot turn our backs on them, either. I think what
we have got to do is figure out a balanced system, and maybe it
does in the best of all worlds include more fully funding the
Pell grants but keeping a kind of tuition credit or tax
deduction system for people in the middle class who are finding
it very hard.
I think I said yesterday in my opening statement, and it
really is true, I find that among the middle-class families in
Connecticut, the greatest single worry they have is how they
are going to afford to send their kids to college without going
into hock that will stay with them for the rest of their lives.
Maybe they do not worry about health care as much because most
of them are working in places where they get their health care.
I understand that. But it is a major worry.
So just talk to me a little bit about that and what the
ideal--I presume you are not suggesting that we turn our backs
on the middle-class families who also need help.
Mr. McPherson. I certainly do not mean to suggest that we
turn our backs on those folks, and I think from my point of
view, a family earning $50,000 a year with one or more children
in private colleges absolutely is a needy family.
I may differ somewhat with Larry in thinking about the
politics of these things. I think it would be desirable,
actually, for the Pell grant program to reach further into the
middle class, perhaps even beyond what happens simply by
driving the formula with more dollars. What I really worry
about, thinking about the future of Federal funding, and I am
an amateur political scientist, so forgive me for this, but
what I worry about is we have kind of created a system where
there are two buckets that Congress can fill. One bucket is
Pell grants, and the label on that is poor folks in the way it
is done now. The other bucket is tax credits, and the label on
that is middle class and up.
I just have a hunch that you folks will be more attracted
to filling bucket No. 2, and if we have some academically
perfect system where we say, well, Pell will take care of the
poor folks and tax credits will take care of the middle class,
I do not think the poor folks are going to win in that
competition.
So just as with Social Security, a lot of its strength has
clearly been that it reaches a broad range of Americans. I
think we need to think realistically about creating a set of
programs which you folks can go out and explain to your voters
which is responsive to these underlying social needs and which
reflects the reality that for a lot of people in the middle
range, it is a strain to finance college.
Senator Lieberman. It is a good argument. It is very
important that we talk about that. I mean, look at not only
Social Security but Medicare. Part of the reason why it enjoys
such support, and, of course, is in such financial difficulty
right now, is because it is a universal benefit program and it
has had results. People are living longer and living healthier.
Mr. Gladieux. If I can just address my colleague, I think
we are going to still have to work on where we disagree. I
think, if I understood you, I agree that we ought to expand the
Pell grant program and push it up as far as we can into the
moderate and middle-income ranges. So I think we agree on it.
Mr. McPherson. I tried to disagree with him.
Senator Lieberman. All right, nice try. Thank you both. We
are not going to get to ``Crossfire'' here, no matter how hard
we try. [Laughter.]
Mr. Gladieux. If I can just add, on the tax code, I know
time is short, but on the tax code, I do support expansion of
the interest deduction on student loans for student loan
repayment. I think that is a judicious use of the tax code, and
maybe we disagree on this, Mike. I do support the tax
incentives for savings. I think they go mostly to middle and
upper-middle class. But they support this whole savings
movement, which I think is, in general, very constructive. I
just do not support the big tax breaks for current tuition
bills because I do not think that is a very effective----
Chairman Thompson. The divide you talk about reminds some
of us what a lot of people are concerned about in society as a
whole, in terms of the gap between rich and poor. In this
country, I think it is very valid to point out that we are very
mobile. We move from one category to the next. You may be lower
1 day and then middle the next, and that is the beauty, and
perhaps that mitigates it somewhat.
On the world stage, though, it is really, a lot of people
think, becoming a problem, the haves and have nots, the
technological haves and have nots, and those are going to be
driven apart further. And while it is unfortunate and unfair,
in the United States, when you get to that level, you are
talking about ethnic conflict, countries that have nuclear
capabilities now, and all of that. So this is a microcosm of
what is going on in the world.
Mr. Gladieux. We talk about a digital divide in this
country. It is a digital chasm when you look across regions of
the world, third world and first world.
Chairman Thompson. Senator Collins.
Senator Collins. Thank you, Mr. Chairman.
Mr. McPherson, you mentioned that some 25 percent of low-
income students who have the capacity to go to college still do
not get there, and Mr. Gladieux, you mentioned in your
testimony that only about 6 percent of them finish it, a
statistic that I share Senator Lieberman's alarm about.
Prior to coming to the Senate, I worked at a private
college in Maine that primarily served low-income first-
generation students, and I would suggest to you that one reason
that 25 percent does not get there, even though they are
qualified, is not only that they come from families with no
experience with higher education, their aspirations are low,
and that is why, parenthetically, I would say I am such a
strong supporter of the TRIO programs. I think those are just
critical. But it is also that a lot of them are frightened of
the cost. They have sticker shock and they do not realize that
help is there.
So one of the things that I wanted to ask you to comment on
is, how can we do a better job of reaching those children who
come from families without any experience in higher education
who may even not want their children to go on to college, may
be threatened by that--I have seen that--and who look at the
cost of private schools, in particular, and think that is just
not for them. There is just no way they can experience that or
afford that.
And second, and related to that, I think one of the reasons
that only 6 percent finish, based on my direct experience, is
they start looking at that mountain of debt and they think,
there is no way I am going to be able to find a good enough job
to pay that off, or they just get so discouraged by it, and
they particularly get discouraged when the college changes the
ratio of grant aid to loans, which happens over and over again,
where the amount of grant aid provided by the institution
decreases the longer the student is there.
So I think that cost is still very much part of the
underlying problem for both of those alarming statistics. Dr.
McPherson.
Mr. McPherson. Yes. I think you have identified a really
major problem. If I can talk from personal experience, I am the
president of a college located in the city of St. Paul and my
son recently graduated from St. Paul Central High School, which
is a big public high school, and a number of his friends whom I
used to drive around were from families of moderate incomes and
their families are not willing to think about Macalester
College because they hear about the sticker price and say, oh,
well, that is hopeless. The fact is that two-thirds of our
students get aid from the institution, and probably half of
them get aid from governmental sources.
But it is so complicated that it is hard to get that
message across. I used to drive these folks around. I would
keep copies of our financial aid brochure in the car and I
would say, show this to your parents. This is really something
you can think about. I would think I would be a reasonably
credible source, but I could not get over on that. [Laughter.]
I think we have a lot of work to do on the college side of
making this system much more transparent, which was a word that
was used earlier. You asked, what can the Federal Government
do? I would recur to one of Larry's recommendations. The
original idea of the Pell grant was to make it obvious to
people that they could get a good chunk of support toward
paying for college, and it was unambiguous. If the Pell grant
were an entitlement, it would return to that original hope, and
it was originally designed to be an entitlement. I think that
would be a great statement for the young people of the country,
that that support is there.
Chairman Thompson. Mr. Gladieux.
Mr. Gladieux. I would just add that the data that we have
from the Department of Education tells us that young people in
the middle schools, 8th grade--at all income levels--tell us
that they expect to go to college. Expectations are very high.
It is just that the course-taking patterns of students from
different backgrounds and different school systems just are
so--they are not adequate to let those students meet their
expectations.
Senator Collins. It is high in the young grades. I always
ask that question.
Mr. Gladieux. Yes.
Senator Collins. It diminishes as the kids get older and
older and more attuned to the cost.
Mr. Gladieux. Right.
Senator Collins. I know we have a vote on, so I will just
quickly ask one more question. We had a witness yesterday who
said that no college ever says, let us raise tuition to draw in
more Federal aid, and I agree with that, but I will tell you
what does happen, and this is what happens. When discussing
tuition rates, what colleges figure is that truly poor students
are going to be taken care of by scholarships, by Federal aid.
The rich families can afford the increase in tuition. I would
suggest that it is the lower-middle class and the middle class
that really get squeezed. I think that those calculations very
much do go into the discussion of tuition rates and that we do
play a role, whether we want to or not, in student loans and
Pell grants, and I am intrigued by the idea of extending Pell
grants further into the middle class. I think there is a lot to
be said for that.
But the other issue which I want you to comment on is the
prestige of a high sticker price. When you look at your peer
colleges, there is a dynamic that goes on that if you are under
the average cost of the tuition, are you somehow sending a
signal that you are less worthy of their going there, and I
think that is a very perverse mechanism that occurs when
colleges set tuition rates. Dr. McPherson, could you expand on
that?
Mr. McPherson. Yes. I have some sympathy with both of your
points, but also some doubts about both of them. I think there
is a phenomenon which is by no means confined to higher
education of families judging the quality by the price. I think
Dave Breneman coined the term, the ``Chivas Regal effect'' for
that phenomenon. He asked, why does that happen? The answer is,
it is so darn hard to get meaningful information about how good
a college really is.
I think an area where the colleges need to do a lot of work
is, again, another form of transparency, as the Chairman began,
talking not only about our inputs, the big swimming pool, the
great ratio of teachers to students, but also about the results
and give families more information that can really help them
make judgments that are independent of price.
My point of view, when we think about our tuition decision
at Macalester, I am, frankly, not looking to be more expensive
than anybody else. I am looking at what I think we need to do
in order to deliver a program which will meet the standards
that we have set for ourselves, and in all honesty, it is an
expensive thing to do.
On the question of feeling like poor folks will be cared
for by Federal and State programs, there certainly is some
consideration of that kind, but the fact is that at a place
like Macalester College, a very low-income family will probably
get a grant on the order of $15,000 or more from the college to
assist in attending and the cost of education for a student at
Macalester is higher, actually, than the sticker price, so
there is an additional subsidy involved there.
So we certainly do not feel like these folks are getting a
free ride from our point of view. We do feel like it is a
fundamental commitment of the college to make it possible for
them to attend and we put up the resources that will make it
possible.
Senator Collins. And just so I am clear, I am very
sympathetic to the idea we need to do more to help our low-
income students have that opportunity.
Mr. McPherson. Right.
Senator Collins. I know we have a vote on, but Mr.
Gladieux, if you could just comment quickly, since I read on
your face some disagreement with what he said.
Mr. Gladieux. I thought Dave Breneman has put this very
well. There is price competition, but, as Dave says, higher
education finance is kind of cockeyed. I mean, it is price
competition in the----
Senator Collins. The other way.
Mr. Gladieux [continuing]. The other way.
Senator Collins. Thank you, Mr. Chairman.
Chairman Thompson. We do have a vote on. We will be in
recess for a very few minutes.
[Recess.]
Chairman Thompson. Let us come to order, please. Naturally,
it took a little longer than we anticipated, but thank you for
waiting on us. Senator Akaka.
OPENING STATEMENT OF SENATOR AKAKA
Senator Akaka. Thank you very much, Mr. Chairman. Again, I
want to tell you how much I appreciate this hearing that you
have put together and look forward to witnesses and also
questions.
I was particularly interested in the testimony of Mr.
Gladieux. You have indicated, Mr. Gladieux, that you are
concerned that rising tuition costs still outpace inflation and
fear that the income gap is widening. My question is, do you
believe that the administrative cost containment measures
recommended by the witnesses that we have heard here today will
adequately mitigate these increases?
Mr. Gladieux. I should turn to my colleague, the college
president, who is on the front lines of responsibility for cost
containment, but I am going to quote Dave Breneman again, who
quoted an economist, Howard Bowen, whose theory of higher
education finance was that you raise all the money that you can
and you spend all the money you can raise. That is basically
what colleges do. I mean, every college, I think, is a bundle
of ambitions for doing good things. I think colleges have gone
through various kinds of restructuring and I think they have
felt pressure from the business community to get with the
program and restructure and contain costs.
Have they done enough? I do not think--here I will weigh in
on the question of what is driving the tuition spiral--I do not
think that all of the pressures are on the cost side, the
underlying costs of providing the instruction. I guess this has
been said, it is ground that has been gone over, but it is also
a matter of the very high demand for the product. Everybody
knows that there are good returns for this investment and a lot
of demand. This is an imperfect market, post-secondary
education, but prices go up in part because they can, because
the demand is so high.
Senator Akaka. Dr. McPherson.
Mr. McPherson. One thing I would underline is from a public
policy point of view and from a concern about how these
tuitions are impacting on people's ability to go to college, it
is very important to remember that 80 percent of the students
go to public colleges and universities and that most of the
low-income and first-generation students begin in public
colleges and universities. It is also true that private
colleges, on the whole, put a lot of resources into providing
aid from their own resources for low-income students to try to
provide access.
If you look at what has gone on in prices in public higher
education, they have gone up pretty fast, and I think that has
produced access problems. But the main thing that has driven
those price increases is reductions in State funding for the
institutions, not increases in the cost of education. The cost
of education on the public side actually has gone up quite
slowly in the last decade. State appropriations have declined
in many States, and schools have made up part of the difference
with tuition increases.
To me, the big challenge and the big issue is, whatever
happens with tuition, are the schools, the States, and the
Federal Government focused on making sure that needy low-income
students are insulated from the impact, and that is, to my
mind, where the public policy focus needs to be.
Senator Akaka. Mr. Gladieux, I was glad to read about your
concern about unequal education by income and race. You
discussed here college participation and successes among these
type of students. You also mentioned financial aid is critical,
but not enough. I am really interested in this area as to why
we have this inequality. You pointed out that much of this
probably has come because they have not been properly prepared
for college and pointed to programs such as Upward Bound, TRIO,
and GEAR UP as programs that help that cause. You also
mentioned that complementary strategies are needed to equalize
college opportunities.
I know you have discussed this in here, but I just wanted
to further ask you whether you had anything else to say about
that complement of strategy.
Mr. Gladieux. Well, on the broad question of what are the
roots of unequal opportunity, of course, there are many--
tracking policies in schools, social conditions and society's
expectations of students. There are many, many things that play
into this.
Now, what to do about unequal levels of participation, as I
said, I think we need the wholesale effort to reform the
schools and lift performance of the schools and students, but
we also need, I think, these one-on-one, one kid at a time,
very intensive programs. At the Federal level you have the TRIO
programs, Upward Bound, Talent Search and support services, and
the new GEAR UP program that the administration proposed and
Congress enacted.
But there are programs in the private sector that are
proliferating across the country. In fact, we held a
conference, the College Board sponsored a conference, a
national summit on pre-college outreach 3 weeks ago and it
brought 500 people together. A lot of funders, a lot of
foundations were there and are ready to invest more in these
efforts.
We need to save more lives. We need to reach more kids
early, to widen their horizons and keep their options open, by
taking the right courses and staying on track. That is what the
I Have a Dream program is all about. I Have a Dream is just one
of the national programs now that does great work and is
expanding across the country.
Senator Akaka. I know you are proposing expanding pre-
collegiate outreach.
Mr. Gladieux. Right. It is very labor intensive. Mentoring
students one-on-one is expensive. We just need more of these
efforts.
Senator Akaka. Would you have a word on that, Dr.
McPherson?
Mr. McPherson. Well, I do. One of the barriers,
particularly for first-generation college students, is sheer
information, is just knowing how this whole process works, and
Senator Collins talked some about that before the break. Tom
Kane, who is a professor at Harvard University's Kennedy
School, is conducting, I think, a really interesting experiment
with support from the Mellon Foundation which--they picked some
school districts in the Boston area and, in a controlled
scientific sense, are providing one-on-one counseling with
trained counselors for a set of first-generation high school
students whose parents have not been to college in low-income
areas in Boston and they want to look to see if the college-
going results differ based simply on the application to one
group of students of a serious amount of information and
college counseling. I think that is a great example of actually
trying to go out and systematically learn what works.
Senator Akaka. Mr. Gladieux, in your testimony, you spoke
of students who leave college with no degree, who have no
skills and who may be unable to pay their debts. We heard from
a young lady yesterday. She finished college and received her
degree, but she is $18,000 in debt. What percentage of
students' loans are outstanding from students who do not
complete their bachelor's degree?
Mr. Gladieux. Frankly, I do not know, and I do not know
that we have such data. I know we do not have good research on
students who fall off the track, who do not make it. I think we
need some--Michael, do you have----
Mr. McPherson. I have nothing.
Mr. Gladieux. I do not know that any research is being
done. It really is not picked up in the longitudinal--well, it
should be picked up in the longitudinal studies of the
Department of Education. We should be able to glean something,
but I do not have the data for you.
But this is what worries me most, is the number of
students, and I guess I am just going on anecdotal evidence,
what I hear. This is the downside of this whole effort and
enterprise, students who are drawn into higher education and
borrow and end up with a debt. Now Bill Gates, he had some
skills and he did not need his degree. But for most folks who
are in this situation, I think there is a real social fallout--
it is a serious problem.
Senator Akaka. And I do worry, too. I worry about what this
might do to the default rate in the future. Thank you very much
for your responses, and thank you, Mr. Chairman.
Chairman Thompson. Thank you very much.
Gentlemen, thank you very much. That reminded me of another
figure that we have got here that I guess is relevant to this
discussion, and that is the default rate for loan programs in
fiscal year 2000 is estimated to be 15 percent, which is a lot
lower than it used to be. I am told by people who have been
around here a long time that this Committee had hearings many,
many years ago and it was astronomical, and it is slowing and
it should be.
But still, just for loans in 1 year, that is over $5
billion that taxpayers are paying. That is kids who pay their
loans back and go to work, and that is grandparents who already
got their kids through college, and that is the factory worker
who does not go to college. All these taxpayers are giving $5
billion a year to the cost, so that needs to be considered,
too, in terms of Federal cost, i.e., taxpayers' costs that we
are incurring in these loan programs. You can say a lot of
things about it. The kids are too poor, loans are too high,
society's standards are declining, or whatever, but that does
go into the Federal contribution.
If there is nothing else, thank you, gentlemen, very, very
much. This has been extremely helpful.
Mr. McPherson. Thank you, Senators.
Chairman Thompson. I appreciate it.
Our final panel will examine the growth in the use of debt
to finance a college education and the danger posed by
perpetrators of fraud who prey on students seeking money to pay
for college.
We will hear from Jerry S. Davis, Vice President of
Research at the USA Group Foundation; Mark Kantrowitz,
Publisher of FinAid.com, and Patricia Somers, Professor of
Higher Education at the University of Missouri in St. Louis.
Mr. Davis, would you care to make a statement?
Mr. Davis. Do we have to go in the order that you had
listed us?
Chairman Thompson. Not necessarily.
Mr. Davis. Dr. Somers wanted to go first.
Chairman Thompson. All right. That would be fine.
Mr. Davis. So I yield to Dr. Somers.
Chairman Thompson. Dr. Somers.
TESTIMONY OF PATRICIA SOMERS, Ph.D.,\1\ ASSOCIATE PROFESSOR OF
HIGHER EDUCATION, UNIVERSITY OF MISSOURI
Ms. Somers. Thank you, Mr. Davis. Good morning, Mr.
Chairman, Senator Lieberman, and Senator Akaka. I am delighted
to be here to talk about students and their debt load and how
it influences their lives.
---------------------------------------------------------------------------
\1\ The prepared statement of Ms. Somers and Mr. James Cofer
appears in the Appendix on page 215.
---------------------------------------------------------------------------
As you said, I am Pat Somers, Associate Professor of Higher
Education at the University of Missouri at St. Louis, and I am
going to be talking about a series of studies on student
persistence and debt load which I did collaboratively with Dr.
James Cofer, Vice President of the University of Missouri
system, who is also here with me today.
Collectively, we call these student debt load studies
``Mortgaging Their Future,'' and mortgaging their future is an
analogy that came through time and time again as we talked with
students. In my remarks, I will give a brief introduction, then
examine the three questions posed by the Committee, and end
with some policy suggestions. You have heard some of these
things before.
While I am a researcher who looks at the impact of student
aid, I have also had involvement in the financial aid system as
a recipient. As an undergraduate at Michigan State University,
I received Federal grants, loans, work-study money, and also
State grants. I received war orphans' benefits under the GI
Bill, and I was the first person in my family to graduate from
college. Half of my NDEA loans of $8,000 were forgiven because
I ended up in an educational institution and I taught.
Then my second experience with the financial aid system as
a participant came as a parent. In 1993, I found myself newly
widowed with my daughter, who is a poet, at a very expensive
private college. I ended up with $28,000 in PLUS loans on a
salary of $32,000, and I am probably the only parent in America
paying back the PLUS loans instead of foisting them on my
daughter. She ended up with $30,000 for undergraduate loans and
will amass at least $80,000 in student debt load by the time
she receives her Ph.D. in English literature.
Now, I did point out that she could be a poet and do, let
us say, massage therapy at the same time, and I offered to fund
her completely to go to massage therapy school, but she decided
she really wanted a Ph.D. in English instead, and we recognized
the impact of that decision. She also, after her father became
ill with cancer, had offered to drop out of the expensive
private college and go to the public school near home so she
could help us save money. We had over $100,000 in medical bills
in 3 months. But also, she could help take her father to
treatment.
Between my experiences with financial aid in the 1960's and
my daughter Susan's in the 1990's, there were some fundamental
shifts in student financial aid policy, which I will outline.
From its beginnings in the Higher Education Act of 1965,
there have been several key principles of Federal student
financial aid policy. These are, first, that the costs of
higher education are shared by the student, the parents, and
the taxpayer. The second is the Federal Government makes grants
available to low-income students so that they can afford
moderately-priced public institutions, which we call access to
post-secondary education, makes loans available to middle- and
upper-income students so they can afford higher-priced private
institutions, which we call choice in higher education
institutions, and provides aid to students without regard to
academic discipline or achievement as long as the student
maintains satisfactory academic progress.
A key change between when I was in college in the 1960's
and when my daughter was in college in the 1990's is that
students have assumed more of the cost of college primarily
through loans, while parents have decreasingly supported their
students in college. As I said before, I suspect that many of
the PLUS or parent loans are actually being paid by the
students after graduation.
The Higher Education Act of 1992 increased student
borrowing limits, and probably as a result, we are here today
talking about student debt load, college costs, and so forth.
With this change came renewed concern about the impact of debt
load on students, an anxiety that is supported by figures on
student borrowing. Fully one-third of all loans in the history
of the student loan program were extended in the fiscal years
1994 to 1996. Between 1989 and 1995-96, spending on student
loans doubled. In 1997, the Federal Government invested over
$40 billion in generally available student aid with fully
three-fourths of that devoted to student loans.
Let me now turn to the questions that the Committee has
posed me. First, to what extent does actual or potential debt
load influence student choices. The studies that Dr. Cofer and
I did were based on data from the National Center for
Educational Statistics gathered between 1987 and 1996, so we do
have an historical base there, and also student interviews that
we did with over 900 students around the country in 2-year, 4-
year, and graduate programs.
First of all, the decision to attend a post-secondary
institution. Studies have repeatedly shown that students and
their parents make decisions about college affordability long
before they have any information about it. This may happen as
early as the 6th grade. This is why programs such as GEAR UP
are so important. Remember, part of GEAR UP is the year 2000
scholars program that gives 8th grade students certificates
that tell them the kind of financial aid that they could
qualify for once they were ready for college.
While we found that some students were undeterred in their
educational plans because of the expected debt load, many
students chose institutions and majors based on cost. We call
this the 3 Ps of college choice: price, price, price. There are
two ways to look at price, total price of attending the
institution minus all aid, and the second, for those savvier
students, total price minus the gift aid, in other words, how
much do you get for free.
Three quotes are illustrative of how financial aid affects
these decisions. ``This university was the closest school, and
since I drive 45 minutes a day to get here, it was feasible.
However, this university does not offer a degree in theater. I
had to change my goals and major in public relations instead.''
Another student said, ``Cheap is important. I would have
considered getting a medical degree if the debt load was not so
tremendous.'' She chose a bachelor's degree in allied health
instead.
And finally, a student in a 2-year institution said she
chose that ``because of the location and the costs are low. I
was able to work and go to school at the same time.''
Students also reported a number of loan avoidance
behaviors. One student said, ``When I first started out, the
first 2 years, I tried as hard as I could not to take out a
loan. My husband was going to school and we are both trying to
make life better for our son, and after 2 years, I could not
afford it. It is embarrassing living poorly, and finally, I had
to take out loans. If that is what I have got to do to make
life easier for my son later, that is what I have got to do.''
One interesting side note is that some students charge
their educational expenses to credit cards rather than take out
student loans. It sounds like a really dumb idea. No, wrong.
Educational expenses charged on a credit card are dischargeable
in bankruptcy, while student loans generally are not. This puts
low-income students who may have bad credit experiences and do
not use credit cards at a disadvantage as compared to middle-
income students who do.
How does debt load influence which job to take after
graduation? One student said, ``Having student loans is very
stressful.'' As students approach graduation, the specter of
repayment looms large. They really focus in on which job is
going to pay them the most so that they can reduce their debt
load after graduation. They would in many cases prefer other
jobs that paid less that were a better fit.
How does it affect other life decisions? Student debt load
obviously influences financial decisions such as buying a
house, buying a car, and living expenses after graduation.
However, we also found that personal decisions, like marriage,
divorce, and having children, are influenced by debt. One
student said that he would not have married his wife had he
known that she had defaulted on $30,000 worth of student loans.
The second question is, are post-secondary student
persistence rates affected by debt load? We found that student
persistence in all types of institutions is influenced by
accumulated student debt load. Rather than being incremental,
the effect of debt is felt suddenly as debt is occurred. This
we call the threshold effect. That is, a student borrows, which
varies depending on need and other factors, in a lump sum at
the beginning of the semester. When the next semester rolls
around, the student has to again make a decision to persist
based in part on this new higher level of debt. Students view
threshold levels as intimidating, especially when they move
from one perceived level to another.
Further, in the short term, students are increasingly
willing to borrow for college and at an increasing rate. The
short-term borrowing to finance tuition appears to have
decreased the influence of rising tuition on the persistence
decision. This is an important point. Because there are more
grants and more loans available, tuition is not as much of an
influence as it was in 1987, for example, as it was in 1996.
However, the long-term effect of this short-term borrowing
decreases the likelihood of continued enrollment, and I do have
a couple of statistics which I will give you. These are all
1996 numbers from the National Center for Educational
Statistics, the National Post-Secondary Student Aid Study.
The 4-year students who have the lowest level of debt,
$3,000 or below, are 4.6 percentage points less likely to
persist from one semester to the next than students who do not
have debt. Between $3,000 and $6,000, it is minus-2.7
percentage points. Above $6,000, it is 5.3 percentage points.
For low-income students, this is particularly pronounced,
and that is the next issue that I am going to deal with. For
those low-income students who have the lowest level of debt,
$3,000 and below, are 13 percent less likely to persist than
students without loans. For those with medium-level debt,
$3,000 to $6,000, they are 8 percent less likely to persist.
And for those in the highest level, $6,000 and above, they are
17.7 percent less likely to persist from one semester to
another.
The 1992 reauthorization resulted in a significant shift in
Federal policy from a commitment to promote access through
need-based grants to a broader strategy of loans regardless of
family income or need. The findings from our study suggest that
the pendulum has swung too far. Middle-income students appear
to be adequately subsidized to enable them to attend the
college of their choice. The access and choice question is
essentially a public school and private school dichotomy.
Public schools offer low tuition and little institutional-based
aid. Low tuition implies that most of the aid at public schools
will go to low-income students, since middle- and high-income
students will have no need. Therefore, Federal student aid acts
to implement the low tuition strategy of public institutions
and promote access. Remember that 80 percent of the students
are in public institutions, 2-year and 4-year.
Private institutions, in general, spend a large portion of
their resources on student aid through discounting. Therefore,
Federal student aid federalizes some of the cost of student aid
that these institutions would incur in the natural course of
business.
In addition to the decreasing persistence rate among low-
income students, our studies seem to confirm that low-income
student participation in higher education was decreasing.
Further, low-income students and students of color tended to
attend 2-year colleges in larger numbers.
So what can be done? We have a number of suggestions for
changes in Federal policy. However, these must be implemented
with the recognition of the differential impact on low- and
middle-income students, the bucket one versus the bucket two
that we talked about before.
In general, programs that increase aid to the neediest
students during college and ease repayment after graduation
will help low-income students while tax breaks and repayment
reforms will assist middle-income students. I will just briefly
run through the suggestions.
The first is to reform the packaging method that financial
aid directors use in putting together student aid packages. The
current floor of the package is the Pell grant. If that were
changed to State grants, particularly in States like Georgia
with their HOPE program, it would make more Pell money
available for the neediest students and would reduce
inflationary pressures on tuition.
The second is reform of the method for payment for income-
contingent student loans. You have to only think of having a
40-year mortgage versus having a 15-year mortgage, and that is
the difference in income-contingent loans.
The third thing is cafeteria payment plans. Allow those
with student loans to repay these through employer-offered
cafeteria payment plans and the employers could contribute
matching funds.
Tax-reduction plans, which many people have talked about
before me.
Loan forgiveness, which would tie forgiveness of all or
part of the student loan to working in a high-demand, low-
supply occupation.
Bankruptcy law changes, and here, I have done a lot of work
on the impact of student loan discharge in bankruptcy. I know
this was a big issue with the Bankruptcy Review Commission, and
in my study, between 1980 and 1997, out of the 437 published
cases in bankruptcy involving student loans, only 121 were
fully or partially discharged. That is 27.7 percent. That is
not nearly as much of a problem as we anticipated it was. So
there are two things to do with the bankruptcy law. One is
standardize the undue hardship definition and the second would
be to drop the special treatment of student loans in bankruptcy
proceedings.
The next is vocational training, which, Senator Thompson,
you have asked about several times. This would be to provide
additional training at public technical institutions and 2-year
colleges, have widely-available vocational training for
students so that they would not have to go to the more
expensive proprietary schools.
And the final thing is an educational HMO.
We talked to students all over the country about student
loans. We learned that most students, unlike the popular image
of a college student, were dedicated not only to achieving a
better education, but being better citizens with that
education. The majority were, however, concerned that no one
really cared about what they had to offer and no one really
wanted to assist them. Their frustration and anger was not uni-
directional. The institution, the Federal Government, financial
aid directors, credit card companies, and often professors and
family were subjects of their diatribes, and I am not going to
repeat their rude remarks here about Congress, but they are in
the written testimony.
What we did learn was that most thought the program is
poorly designed and not particularly student-friendly. They
perceived that all the talk about reform was only window
dressing. The proposals that they were aware of changed only
the delivery mechanism, not the root of the problem. Many
students were concerned not only about their particular
situation, but also what would be facing their brothers, their
sisters, their children.
The mortgage analogy kept repeating itself. The students
were terrified of mortgaging their future, of graduating into
debt, marrying into debt, raising children into debt, and dying
in debt. If these college students must mortgage their future,
then so, too, do we as a society mortgage our future. Thank
you.
Chairman Thompson. Thank you very much.
Your comments about your discussion with your daughter, the
poet, reminds me of a discussion I had with an old gentleman
down in Lawrenceberg, Tennessee, where I grew up. I told him I
was a philosophy major. He said, ``What does that pay, son?''
[Laughter.]
He had not seen a whole lot of philosophy shops around town
and it concerned him.
Senator Lieberman. What does he think about where you ended
up?
Chairman Thompson. I am afraid to ask. [Laughter.]
Who wants to go next? Mr. Davis.
TESTIMONY OF JERRY S. DAVIS, Ed.D.,\1\ VICE PRESIDENT FOR
RESEARCH, USA GROUP FOUNDATION
Mr. Davis. Maybe now we will have a panel that disagrees.
Good morning. My name is Jerry Davis. I am Vice President of
Research at USA Group Foundation in Indianapolis, Indiana. My
remarks today are based primarily on a monograph that the
Foundation will soon publish. It is entitled, ``College
Charges, Affordability, and Earnings Outcomes: An Analysis of
Some Long-Term Trends and Their Policy Implications.'' I have
been looking at affordability issues for almost a decade and
have been looking at access to student loan debt burdens for
almost 3 decades.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Davis with attachments appears in
the Appendix on page 260.
---------------------------------------------------------------------------
I want to talk today and summarize my presentation, which I
have given to the administrative clerk as testimony. I want to
do just three things. The first thing is to talk about a new
way of looking at rising prices in college, to talk about the
debt burden issues and those questions that were posed for me
in your letter, and then to direct your attention to some
important State-by-State differences in affordability that I
think have very strong implications for Federal policy.
College prices, as we have learned in previous days of
testimony, have risen faster than family incomes to pay them,
but the growth rate has slowed in recent years. In my
testimony, I note that I looked at a way of trying to figure
out what college prices mean and what college costs mean in
terms of the way people actually behave, and I determined that
the net cost of colleges in comparison to median family income
for people with college-age children absorb about 2 more days
of their annual earnings a year in 1997 than they did in 1990.
That is at 4-year public colleges. At 4-year private colleges,
net costs absorb about 4 more days of work.
So it takes a couple more days a year for parents to pay
the costs if they are at the median family income. College
prices have not risen much faster than the incomes of people at
upper-income levels, at the top quartile.
College prices have not risen faster than the additional
earnings students achieve by attending and graduating. I want
to emphasize, and graduating, since we can think of college as
an investment. If we think of that and we consider the
additional or marginal earnings of college graduates over high
school graduates as the payoff from the investment, it took
about the same number of months to recover college costs in
1997 as it did in 1990--I am sorry, as 1970. Over a 30-year
time period, basically, the recovery period or recovery time
has stayed about the same.
Even when you consider that many students have to borrow to
pay for college expenses, the number of months it takes
graduates to recover their expenses with higher earnings from
their degrees has not grown substantially in the past 3
decades. For example, if you borrowed at the typical borrowing
level in 1997, $12,000 for public graduates, $14,000 for
private graduates in 1997, it would have taken males 25 months
to recover their total costs for those loans at the public
institutions, females 30. In 1985, without loans, it would have
taken males 24 months; it would have taken females 33 months.
So even with the increased borrowing, the time to recover the
costs of education has stayed very stable.
Now, I am going to go on to another point. College prices
have risen faster than the additional earnings that students
receive if they fail to graduate. The costs of attendance are
especially higher for students who borrow and do not finish
college. But in spite of the increase in the penalty for
failure, more students continue to enroll in college, and this
is because the value of a college degree remains very high.
But there is only a slight increase in the proportion that
successfully earn undergraduate degrees. We talked earlier
about completion rates and the figure that we have from the
Department of Education study says that 46 percent of the
students have degrees, and that was an earlier study. I would
guess that from the statistics I have looked at, it is up a
little now because colleges have gotten a little better at
retention, but it is not up by much.
Let me give you just the starkness of the recovery times.
If a student goes for 2 years at a 4-year institution, a male
student in a public 4-year institution and borrows $5,000 and
drops out, it is going to take him 44 months of working to
recover his costs. A female is going to take 56 months. Now,
this is just net costs. If a male student attends a private
college and drops out, it is going to take him 92 months to
recover his costs and it is going to take females attending
private colleges 118 months to recover their costs of
education.
Now, there are significant State-by-State differences in
affordability of 4-year public colleges and I think these
differences are more the effect of State policy choices than
the effect of differences in family ability to pay for college.
Federal student financial aid policy does not consider State-
by-State differences in college affordability and it does
create inequities in the distribution of aid dollars among
students throughout the Nation. Costs at public institutions,
net costs range anywhere, the top 12 States, $6,100--I am
sorry. The lowest costs are $6,100. The highest are around
$8,800.
Between two States whose families have similar financial
characteristics in the ability to pay for college expenses, the
students in the State that has decided to charge higher
tuitions will receive more Federal student aid. This is because
most Federal student aid is need-based and the students in the
States with higher tuitions will have greater financial need.
These differences in affordability on a State-by-State
basis are not the function of the differences in family incomes
across States. They are more a function of policy decisions to
charge higher tuitions. Thus, State policies have major effects
on how Federal student aid is distributed and these effects are
largely ignored in Federal policy making. Is this what Congress
intended? I do not know.
Now, I want to turn to your questions about student loan
debt burden. Students and parents, as Dr. Somers has mentioned,
are very concerned about debt burden. So are the lenders. So
are the guarantors. We are probably second in terms of the
people in the United States that are most concerned about debt
burdens because the loan money is ours. Contrary to what many
people believe, when students default, it is not a game for us.
It is a very strong loss for us.
One of the things I wanted to mention is that when we talk
about mortgaging the future of our generation, we have to
remind ourselves that only about half of the 4-year public
college undergraduates actually borrow, and only about 60
percent of the 4-year private undergraduates actually borrow,
and about 6 percent of the public 2-year college students
actually borrow. So we are not talking about a huge proportion
of all students.
As far as the trends in student borrowing are concerned,
USA Group borrowers' average cumulative student loan debt
continued to rise in 1999. We have been studying debt burden
issues since the early 1980's. The growth rates in indebtedness
for 4-year college and community college undergraduates rose
after 2 years of decline, so that is a little discouraging. But
the annual growth rates for graduate students and for
proprietary school students have declined in each of the past 3
years.
In spite of the increased borrowing, the percentage of
borrowers who are delinquent in making payments has moved
downward since 1995. The economy has been good. It has boosted
salaries so debt repayment burdens have eased a bit. It appears
that repayment burdens continue to be manageable for most
borrowers.
Dr. Somers has told you about the difficulties many
students have had in repaying their loans, and I sympathize
with those difficulties. There are students in difficulty. But
one of the indications that we have of difficulty is that 90
percent of the students who are in repayment are still using
the standard 10-year repayment cycle and they are not taking
advantage of some of the debt relief plans that we have
available to them.
The research on borrowers in the early 1990's has shown
relatively few negative effects of borrowing on students'
decisions about careers, pursuing post-baccalaureate study, or
dropping out without a degree. I think that since borrowing has
increased, we can reasonably assume that the potential for
negative effects has also increased, and I think Dr. Somers has
mentioned that this potential has probably been realized.
We funded a study that is going to try to assess the
relative effects and to parcel out the effects of borrowing on
student behavior because all behavior is complex and the
motivations are complex. So we want to parcel out and see
exactly what happened in terms of the impact of the loans.
As a director of financial aid, I used to do exit
interviews. I had to interview all the youngsters that had
loans and were leaving, or trying to leave school, and I
discovered that there were lots of reasons that they left
besides financial aid. I also discovered that it was way easier
to get the student to stay than it was for me to go recruit
another one, because I was director of admissions at the same
time. The research we funded, I hope, will help us parcel out
the effects of debt.
I think for now, the safest thing that I would say about
borrowing to pay for college is that the effects of borrowing
are much more often positive than negative, and this is
especially true when borrowers complete their degree programs.
This summarizes my testimony. Thanks again for asking me to
be here.
Chairman Thompson. Thank you very much. Mr. Kantrowitz.
TESTIMONY OF MARK KANTROWITZ,\1\ PUBLISHER, FINAID PAGE, L.L.C.
Mr. Kantrowitz. Mr. Chairman, thank you for convening this
hearing on the rising cost of college tuition and the
effectiveness of government financial aid, and for inviting me
to testify before the Senate Governmental Affairs Committee
this afternoon. My name is Mark Kantrowitz and I am the
publisher of the FinAid and eduPASS websites, free resources
that exist to aid students in navigating the sea of financial
aid and to combat scholarship scams and financial aid schemes.
Both sites are associated with FastWeb, the Nation's leading
free scholarship search. Together, our sites had more than 2
million visitors last year. I am pleased to have the
opportunity to share my experiences with the Committee today.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Kantrowitz appears in the
Appendix on page 274.
---------------------------------------------------------------------------
Every year, several hundred thousand students and parents
are defrauded by scholarship scams. The victims of these scams
lose more than $100 million annually.
The most common types of scholarship scams include
scholarships for profit and guaranteed scholarship search
services. The first type charges an application fee for
scholarships that never materialize, or are less than
advertised, or disburses less money in scholarships than it has
received from application fees.
The second type charges a fee to match student information
against a scholarship database and guarantees that the student
will actually receive money. Few, in fact, do. Both types of
scams were targeted by the Federal Trade Commission's Project
ScholarScam, which was initiated in 1996.
Recently, a third type of scholarship scam has grown in
prominence. I call this the financial aid seminar scam. This
scam sends students a misleading letter inviting them and their
parents to a financial aid seminar or interview. To illustrate,
I would like to read an excerpt from a letter that was received
by my cat.
``We are pleased to inform you that Nash has been selected
by our College Review Board as one of the Pittsburgh area
students eligible to apply for grants, scholarships, negotiated
tuition discounts, and interest-free loans through our college
assistance program. We are committed to maximizing your
eligibility to receive financial assistance and to reducing or
even eliminating your family's expenses for Nash's college
education.''
``Your personal interview has been tentatively scheduled
for Saturday or Sunday, at which time you will receive your
free financial aid information packet. Our program is dedicated
to making higher education an affordable reality to all
families regardless of income. There is no cost for your
financial aid information packet or interview. Together, we can
make your dream of a college education an affordable reality.''
I attended this meeting and several other similar seminar
scams and discovered them to be nothing more than a high-
pressure sales pitch for financial aid services and products of
doubtful value. After a 45-minute fast-paced presentation
filled with incorrect and misleading information about
financial aid, each family was invited to stay for a personal
interview. The interview was actually a one-on-one attempt to
sign up the family for the company's services at a cost of
hundreds or thousands of dollars per year.
This type of scam is especially troubling because they
appear to target lower-income families and because they
aggressively discourage families from seeking advice from
recognized financial aid experts, such as college financial aid
personnel.
Scholarship scams are difficult to recognize because they
often mimic legitimate organizations. A good rule of thumb,
however, is if you have to pay money to get money, it is
probably a scam.
Foundations that award scholarships exist to give away
money, not get money. Most scholarship scams try to trick
students into giving them money with little or no benefit to
the student in return.
Other common signs of a scholarship scam include use of the
unclaimed aid myth, which falsely states that millions or
billions in aid went unclaimed last year and promises to get
the student their fair share. In fact, no financial aid goes
unclaimed. This is an extremely pernicious myth because it not
only defrauds consumers, but also suggests to private sector
benefactors that there is no need for them to create new
scholarships. After all, if it is going unclaimed, then there
is no need.
The second is bogus guarantees, which often include
restrictions that render them meaningless, such as requiring
the student to submit rejection letters or which include
Federal aid as part of the total. If Federal aid is part of the
total, of course they are going to get the unsubsidized
Stafford loan.
And third, false claims of government or nonprofit
affiliation or endorsement. One scam even created its own bogus
Better Business Bureau and gave itself a good, glowing
recommendation. Others misrepresent the nature of their
businesses by using an eagle and a formal seal as their logo
and words like ``National,'' ``Federal,'' and ``Foundation'' in
their names.
When a family encounters a fraudulent scholarship scheme,
they should report it to the State Attorney General and the
Federal Trade Commission. It is also helpful to report the scam
to college financial aid administrators and to the U.S.
Department of Education's Federal Student Aid Information
Center. Private consumer fraud organizations, however, are not
able to deal with the volume of inquiries. One such
organization reported that they were only able to answer 5
percent of their telephone calls on the subject.
Mr. Chairman, I once again thank you and the Committee for
taking an interest in the issue of scholarship scams, financial
aid fraud, and for inviting me to share my thoughts on this
matter. I would be happy to answer any questions you may have
on this or other topics.
Chairman Thompson. Thank you very much.
Mr. Kantrowitz, some of our folks received the same letter
your cat did, as a matter of fact, and I think we checked on it
and found out it was a West Virginia company. The State of West
Virginia was able to, in effect, put them out of business,
evidently. Are the States dealing with this effectively, do you
think? Are there specific criminal statutes pertaining to this,
or do they usually operate under the general fraud or consumer
protection statutes?
Mr. Kantrowitz. They usually operate under the false
advertising statutes in the State and the FTC Act. One problem
that they face is that the amounts per consumer tend to be
lower than in other types of fraud. In one case, the New York
Attorney General sued an organization and the judge found that
the organization had violated the law but questioned whether
each individual complaint, and they had close to 1,000
complaints from students, was a triable issue of fact, and the
cost of pursuing that would be greater than any potential
redress for consumers. So I do not know what the status of that
particular case is, but that is a big problem for the states
that pursue cases. Most successful cases have been pursued by
the Federal Trade Commission.
Chairman Thompson. I see. Thank you. On the issue of the
disparity between income levels of those who do not go to
college versus those who do, I think the most helpful
information there probably is the fact that the relationship
seems to have remained the same, basically, over a long period
of time.
I have always questioned that in a way, though, because it
assumes that someone who graduated from a 4-year college or
university, had he or she not gone to college, would make the
same amount as the average person who did not go to school. It
also assumes that the person who did not go to college or
dropped out of college, had he stayed in college, would have
wound up making the same amount as the average person who
stayed in college. I do not think that is necessarily true. I
think some people drop out of college because they realize they
are not college material. Some people do not go to college
because they are just not up to it.
So I think probably my own opinion is that gap
realistically probably is narrower than we sometimes think. Do
you have any big problem with that?
Mr. Davis. No. One of the things that I was using that
information to point out is the phrase in my testimony, the
penalty for failure. As college costs go up, the penalty for
failure to try and fail has gone up because we have shifted
more of the burden of paying for college onto the student
through loans. I think that we still have an open access
society. Our colleges do a great job of trying to do as much as
they can to get students into school. But I do not think that
they have done as much as they can do to get them through
school.
If you look at graduation rates over time, say a 30-year
time period, the graduation rates have increased hardly at all,
and so it may be a function that they are dipping further down
into the applicant pool, because two-thirds of high school
graduates go to college now.
But as far as your comparison of the spreads of income,
they are averages. I know there are exceptions to averages.
Averages are simply central tendencies, and so I do not have
any way of refuting or assessing your observation.
Chairman Thompson. Professor Hoxby yesterday pointed out
that one of the reasons why we have the higher dropout rate is
because we have such open access. That is good in many
respects. We concentrate sometimes on the students who we
openly let in who never should have been let in, perhaps, but
there is also a group of students, such as myself, who did not
exactly tear it up in high school, but somewhere along the
line, they got my attention, and once I got in, I did all
right. So we need to take into account those types of people,
too. A lot of people go into the army and come back and really
turn things around. So I think we have got to keep very open
access, but it is not necessarily bad that you have a winnowing
out process of those who belong there and those who do not.
Senator Lieberman.
Senator Lieberman. Thanks, Mr. Chairman. Thanks to this
panel of witnesses. I was tempted, Mr. Kantrowitz, to ask you
how your cat did on the College Boards. You do not have to
answer. [Laughter.]
I am interested, actually, in your websites. Could you tell
us a little more about that? You said you had a couple of
million hits last year?
Mr. Kantrowitz. Right. We have three websites. We have the
FinAid website, which is free information about student
financial aid. It acts as a comprehensive collection of
information and advice for helping students make the critical
decisions regarding financial aid.
We have eduPASS, which is a guide for international
students who wish to study in the United States. It provides
information about admissions and financial aid and cultural
differences in the United States.
And FastWeb is a free scholarship search. The students
provide information about their class rank, their GPA, their
academic interests, and are matched with awards for which they
are eligible. They then write to the sponsors and get
information and apply.
Senator Lieberman. So you have created these three sites?
Mr. Kantrowitz. The third site, I did not create. The first
two sites, I created.
Senator Lieberman. And this is your business or is this a--
--
Mr. Kantrowitz. This is a business.
Senator Lieberman. That is quite remarkable. Do people pay
a fee, or----
Mr. Kantrowitz. It is free to the students.
Senator Lieberman. It is free to the students, and like so
many businesses on the Internet, I presume there is
advertising.
Mr. Kantrowitz. There is advertising.
Senator Lieberman. Are you surprised at the number of hits
you have had?
Mr. Kantrowitz. We are always surprised at the number of
hits. It has been growing very steadily and we try to provide
new services to encourage even further growth. We find that the
better we serve the student population, the better we do. That
is a wonderful formula.
Senator Lieberman. Is this an active area? In other words,
are there other sites like this that are providing information
to parents and the college applicants?
Mr. Kantrowitz. There are many, many sites on the Internet
that provide information, some great quality, like the College
Board has a site, some of lesser quality. There are sites out
there that still mention the SLS and GSLs instead of the
Stafford.
Senator Lieberman. That is quite something. I wish you well
with that. There was a story in the Washington Post the other
day about somebody who has created a site on which students can
essentially put out a bid for a college, offer a price along
with their academic record and then see who matches it. Have
you heard of that?
Mr. Kantrowitz. Ecollegebid, yes.
Senator Lieberman. Yes.
Mr. Kantrowitz. I do not know how many colleges or students
are actually participating in that.
Senator Lieberman. If I remember, the article said that the
creator had only had nine or ten colleges that were signed up
at this point, so it is not much of an auction, but is that
something that is likely to grow, or are there limits to it?
Mr. Kantrowitz. I do not think that that kind of haggling
is necessarily going to grow. It is most beneficial for
students who maybe missed deadlines and are looking to go to
any college. I do not think you will see Harvard or other Ivy
League institutions joining in such an effort.
Senator Lieberman. We heard here yesterday particularly,
and a little bit today, about merit aid or discounting, but I
am curious as to why, if that is going on among colleges that
are not getting either as many applicants as they want or the
quality that they want, why that would not eventually be
something that would be done on the Internet.
Mr. Kantrowitz. I think in many cases the negotiation that
is going on, the bidding, it has more to do with what their
perceptions are of the costs of college than in any real change
in financial aid that they are receiving.
Senator Lieberman. Very interesting. Thanks.
Mr. Davis, I am going to read to you from your 1997
publication, ``College Affordability: A Closer Look at the
Crisis,'' where you write, ``Access to 4-year colleges for
lower and lower-middle income students has diminished since the
early 1980's. While the college affordability crisis is neither
uniform nor universal, if college costs continue to rise faster
than student ability to pay them from family or financial aid
resources, the crisis will become pervasive.''
But in your testimony today, you compared loan payback
periods from 1975 with those in 1997 and found them to be about
the same, so I want you to relate that paragraph from your book
and particularly whether, I ask the question rhetorically in
some way, whether you believe, therefore, that higher education
is really as affordable today as it was then and that there is
not the crisis that you thought might occur.
Mr. Davis. No. Higher education is not as affordable now as
it used to be. If you look at affordability in terms of paying
the costs from current income, student financial aid,
borrowing, and whatever resources are available to you to pay
it in present time. What has happened, though, is that the
payoff or the value of higher education has remained fairly
constant and has increased, I guess you could even say it has
increased in terms of finishing a degree.
So the payoff, the results of going to college are holding
up, and I think the results are what make it valuable to make
the sacrifice to go to college. But it is not as affordable as
it used to be, and it is especially not affordable for the
lowest-income families.
Senator Lieberman. Right. Dr. Somers, we looked at some
recent data that came out from the College Board in something
called ``Trends in College Pricing'' and I was really
interested there to see a comparison of the average annual
income of high school graduates as set against somebody who had
some college and then somebody who finished the 4 years, and
this goes back to that group we talked about in the last panel
and maybe in some ways goes to some of the questions that the
Chairman was asking before.
This is average annual income in 1997 for a high school
graduate, this was in inflation-adjusted dollars, was $23,608.
The average income of people with some college was only
$27,052, so it really was very little difference. And then a
college graduate, average income was close to $42,000. So it
leads me again to focus in on that group that starts it off,
does not finish it, as we have heard earlier,
disproportionately represented in, I suppose obviously, but
poorer minority communities. They not only end up with that
debt, do not go on to college, but are being forced to pay it
off with a much lower income.
It is an open-ended question to you, is what we might
specifically do, either by way of aid programs or other
supportive services, to try to rescue a higher proportion of
that group from dropping out early on.
Ms. Somers. There should be a place for everyone in post-
secondary education. It may not be at a 4-year institution. It
may not be at Harvard. It may not be at my 4-year school. It
may be at a 2-year school or a technical school.
I think the problem in the relatively small gap between
high school graduates and those with some college is those
students who went to a 4-year school and took maybe some very
general education courses for a year and then left. They may
have been better served if they had taken some of those general
education courses and then transferred to a 2-year institution
or a technical college.
Senator Lieberman. Yes, or they came out with some kind of
technical-vocational training.
Ms. Somers. Or they may have been students who went to very
high-ticket proprietary schools and ended up with lots of debt,
and for the little more they make than the high school
graduates, they are paying off $20,000 or $30,000 worth of
loans.
Senator Lieberman. Thanks. Your comments are well taken.
Thanks to the three of you for your very thoughtful testimony
and some helpful suggestions. Thanks, Mr. Chairman.
Chairman Thompson. Thank you very much.
There is one final thing. This is a little off the beaten
path of your subjects, but we have talked to others about this.
In terms of the aid, in terms of what the Federal Government is
doing, obviously the States, the loans, the schools themselves,
and I am particularly thinking about public schools, the tax
credits, and all of that, I think a lot of people are trying to
figure out just where is the biggest need and what should we be
doing.
Senator Collins was talking about a lot of colleges seem to
kind of assume the lower students will be taken care of because
of all this mix of things that they have available to them,
whether they are aware of it or not.
Assuming that everyone was aware of all of their
opportunities at every level, to what extent do we have the mix
right or wrong in terms of emphasis on lower Pew-type approach,
tax credits, ect.? Are we not concentrating enough on the lower
end, or is it the lower end or the middle income, as Senator
Collins suggested, that we need to emphasize? This is not
exactly maybe on point, but----
Ms. Somers. Philosophically, I think that the way we set up
the Federal financial aid program in the 1960's, the emphasis
was on access for low-income students. I think we have let them
down. I think that we have loaded them up with loans and the
grants are----
Chairman Thompson. We put more money into it, but the money
per student is actually going down a little, I guess.
Ms. Somers. That is right. So philosophically, we need to
put more money into those grants for the low-income students
and the lower-middle-income students. However, politically, the
middle class is really feeling the pinch if they are putting
one or two or three kids through college, whether it is a 4-
year private or public or a 2-year school, and politically,
there needs to be some assistance for the middle class, too.
Chairman Thompson. Mr. Davis, do you have any comments?
Mr. Davis. Yes. I think I would focus more grant aid on
students in the early years of post-secondary education,
especially at the 4-year level, at 4-year colleges. The other
thing I would try to do is develop policies that create
incentives to States to contain costs in their public
institutions, or at least to increase their financial aid. In
the 1970's when the Pell grant was developed and there was also
the State Student Incentive Grant program developed and those
were working quite well. The SSIG provided a very strong
incentive to States to increase their financial aid packages
and programs.
But the Pell grant program was funded at a very high rate,
a very rapid rate, and many of the States that had started
financial aid programs, they looked at it and said, well, the
Feds are going to do it with the Federal grants and why should
we jump in? And so two different programs that the Federal
Government was funding had two very different results and
actually countervailing results.
What I would love to see is a regeneration of the
partnership between the Federal Government, the States, and the
institutions in providing financial aid so that they supplement
and complement each other rather than operating as if there is
no conjunction between what each other does.
Now, I know you have the problem of federalism, and you
mentioned that, but there is one thing that you can do and----
Chairman Thompson. We can do all kinds of things with
money, though. I mean, we can provide inducements and carrots
and sticks. You cannot tell them what to do, but----
Mr. Davis. But you can strengthen that whole partnership,
because it is very interesting to me that if you look at 40
years of participation rates and you look at college-going by
States, by State levels, the States that had miserable
participation rates in 1960 have relatively miserable
participation rates in 1990.
Chairman Thompson. So you are suggesting we somehow tie
Pell grants to the level of State support?
Mr. Davis. You might. That is one way of doing it. I have
no idea what is the best way, but that is one--but I do know
that something needs to be done, because----
Senator Lieberman. Why do you not think about it and then
we invite a response that would encourage States more.
Mr. Davis. OK. Thank you.
Chairman Thompson. Thank you very much. I think these have
been 2 excellent days of hearings. I want to thank Senator
Lieberman again for suggesting these hearings. We have perhaps
no real definitive answers, but I think we understand the
situation much better. I know that I do, and it will help us in
our role in trying to contribute something to the solution of a
problem that affects so many people. Thank you very much.
Senator Lieberman. Thanks, Mr. Chairman. Let me just ask, I
have been putting this aside, I must have a mental block about
this for these 2 days. The U.S. Department of Education has
submitted written testimony and I would ask that it be printed
in the record.\1\
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\1\ The prepared statement of the U.S. Department of Education
appears in the Appendix on page 276.
---------------------------------------------------------------------------
Chairman Thompson. It will be made part of the record.
Senator Lieberman. I thank you for your leadership here. It
has been a very educational couple of days, no pun intended,
and at a quite reasonable cost, I would say, too. [Laughter.]
Chairman Thompson. That depends on what we do, does it not?
Senator Lieberman. Yes. But I look forward to working with
you and seeing if we cannot come up with some ideas from this
that can make the situation better. Thanks very much.
Chairman Thompson. Thank you very much.
The record will remain open for 1 week after the close of
this hearing. We are adjourned.
[Whereupon, at 12:49 p.m., the Committee was adjourned.]
A P P E N D I X
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