How Phase Four Should Address the Needs of Higher Education

As the coronavirus has swept the United States, its impact on higher education has been far-reaching. Colleges campuses have shuttered their physical doors across the country and moved to remote learning. Other colleges completely shut down, ending the semester early. Faculty and students are adjusting to offering and taking courses being offered online from their homes, rather than their classrooms. Many students have had to move out of their dorm rooms in the middle of the semester. And as the economy starts to experience the fallout from the virus and people lose their jobs, student borrowers are likely to experience increased anxiety about their student loan payments.

Congress took some serious steps to provide initial stop-gap relief from the coronavirus’s impacts, passing three packages of legislation. Phase Three of this legislation provided significant relief for workers and the economy, surpassing $2 trillion. A portion of this package addressed some of the needs of higher education, helping institutions, current students, and student borrowers. Specifically, Congress provided significant—if insufficient—funds to send to institutions to help cover costs associated with managing the coronavirus, including the technology costs of moving courses online. It also appropriated funds to use as emergency grants to students to cover expenses like living costs, health care, child care, and technology. Student borrowers were given a suspension of student loan payments—interest-free—through September 30th, 2020. (These non-payments count towards forgiveness programs like Public Service Loan Forgiveness and income-driven repayment if borrowers would have otherwise qualified.)

Now Congress is considering a Phase Four package to confront the continued effects of the coronavirus and the economic issues it will bring. While there are many issues they need to address, Congress should also take a second look at higher education, as there will certainly be continued problems to confront.

Congress should act to help student borrowers and both current and prospective higher education students, with policies that will provide real, immediate relief. Here are some things Congress should do to help student borrowers and students in the next coronavirus relief package.

Invest in Students Enrolling in the Fall

Phase Three of the coronavirus relief package focused on schools and students affected this semester (though funds can be used through next year). But there is likely a bigger crisis on the horizon for higher education. When state budgets become tighter, higher education is one of the first budget lines to be cut. States have competing expenses such as Medicaid, prisons, and pensions; and higher education is often the easiest to cut because the costs can be transferred to students and families. Students and families have little choice in the matter and luckily for colleges, the federal government will provide the loans students need to pay the bill.

We’ve seen this before. In the Great Recession, states were strapped for cash and higher education experienced serious cuts. Public institutions made up for the lost state appropriations with higher charges to students. Now, we’re looking at another recession, which will likely mean more tight budgets and possible cuts to higher education again, resulting in increased tuition for students and families. And in recessions, enrollment in higher education typically ticks up as more people are enrolling due to job losses and the need to up-skill to be competitive in the job market. But this is not the typical recession. It is possible there could be a short-term cratering of enrollment due to the move to online instruction or other problems related to the coronavirus. Or we might still ultimately see a rise in enrollment, as some may enroll who otherwise would not have. If that’s the case, budgets will be stretched even further as costs and enrollment increase, and students will find college increasingly unaffordable.

That’s especially problematic given that higher education was unaffordable for too many even before the coronavirus hit. It’s time for a long-term solution that gives colleges the support they need and keeps school affordable, especially for low- and middle-income students. Congress should help states maintain their existing funding for higher education and continue to stabilize college budgets by creating a new state-federal partnership for higher education.

A state-federal partnership grant program would help address one of the problems with the state stabilization funds for higher education authorized in the last recession. When the grant program ended, public colleges not only lost funding from the federal grants, states also substantially cut their higher education budgets. The stabilization funds required states to maintain a certain level of investment in higher education over the course of the grant. But when the grant expired many states ended up cutting the higher education budget more, wiping out the budget stability that had been created through the federal investment in the downturn.

This state-federal partnership grant should require states to at the very minimum 1) maintain investment in their higher education systems and 2) match the federal grant. But it should also have a safety valve for stressed state budgets. When unemployment in states reaches a certain level, the program should shift, continuing to provide federal dollars to states even if they cut higher education below the required levels. If the state maintains its financial commitment to higher education, they would receive even more federal investment.

Invest in Community Colleges

As the unemployment rate skyrockets and, eventually, we’re able to ease social distancing measures, many people will likely seek retraining to (re)connect with good-paying, high-quality jobs. That likely means an influx in enrollment at community colleges and—without increased investment—a strain on their resources and capacity. Historically, there have been few direct federal resources available to build the capacity of community colleges to carry out this critical aspect of their mission. In the last recession, the Trade Adjustment Assistance Community College and Career Training (TAACCCT) grant program was an important exception. This historic $2 billion investment from Congress aimed to build the capacity of colleges to meet the needs of adult learners seeking valuable postsecondary skills and credentials. In our research we found that TAACCCT participants were nearly twice (91 percent) as likely to complete a program or earn a credential as comparison students and almost 30 percent more likely to have positive labor market outcomes (employment or wage gain) than comparison students. To build on this success, Congress should include a large federal investment in the capacity of community colleges. The structure of that investment matters and we have created a research based proposal here.

Help Students Who Need the Most

Low- and moderate-income students will be most affected by rising higher education costs. The Pell Grant already doesn’t go as far as it used to in covering costs for these students. Just a few decades ago, the Pell Grant covered nearly 80 percent of the average costs of tuition, fees, room, and board at a public four-year institution. Today, it’s less than a third. Beyond funding to states, Congress should vastly increase its investment in the Pell Grant program and increase the maximum Pell Grant amount by 50 percent to ensure the students that rely on the grant will not be saddled with excessive debt or worse, dissuaded from enrolling in the first place.

But Congress should be careful not to expand Pell Grants to the unaccredited, unchecked, extremely short-term programs that some are pushing. Evidence around short-term programs that exist today is mixed. More than 400 short-term programs already eligible for Pell Grants have median salaries below the federal poverty line for graduates of the programs. The majority of programs have median salaries below the average high school graduate. There is no evidence that even shorter programs will provide better results for students. Students, particularly low-income students, seek higher education for the chance at economic security and sending them to programs that offer little opportunity won’t do that.

And while the urgency of a recession might make some desperate to try almost anything to help, it’s important to remember who did best in the last recession—bachelor’s degree graduates. According to a Brookings Institute study of Bureau of Labor Statistics data, all of the net new jobs created since the recession went to college graduates. From 2008 to 2013, millions of Americans without a college degree lost jobs that never came back. Expanding Pell to these very, very short programs would do little to help students secure a well-paying job and would put the Pell program at risk by expending precious Pell dollars during a recession.

Help Student Borrowers

In the CARES Act, Congress provided a six-month, interest-free hiatus from student loan payments. However, Congress left out those federal loan borrowers whose loans are held by commercial lenders and borrowers of federal Perkins loans — a significant oversight. Congress should correct that mistake and ensure that all federal student loan borrowers receive equal relief in this crisis.

The CARES Act’s student loan provisions will provide help to many student borrowers as they navigate this stressful time, but it likely won’t be enough, especially for some borrowers. Borrowers’ most immediate need will be continued relief on their family budgets — which means extending emergency forbearances until the economy has improved and unemployment rates have stabilized.

But we also need to think about how to help student loan borrowers after these emergency forbearances expire. The federal student loan system already has a number of protections in place; one of the most helpful is income-driven repayment (IDR), allowing student borrowers to limit their payment to a percentage of their discretionary income and extend their repayment window beyond the standard 10-year repayment plan. And if a balance remains after that window—either 20 or 25 years depending on the IDR plan and if they borrowed for graduate school—that debt is forgiven. This works great for struggling borrowers who enroll in IDR, but not so much for those who don’t know to sign up.

Congress can and should do more to help borrowers in an uncertain economy access IDR. At the end of this student loan suspension, we need to make sure those borrowers still struggling have the help they need. The first step Congress should take is to adopt legislation like the SIMPLE Act so that as borrowers exit their forbearances, there’s a safety net to catch them. In short, for borrowers who fall behind on their payments—something we’ve seen happen with past disaster-related forbearances—the Education Department would automatically enroll them in income-driven repayment — and automatically recertify their incomes so they stay enrolled.

Congress should also consider ways to make IDR more accommodating of low-income borrowers. One common complaint of IDR is that students can be in repayment for years but their balance has grown rather than gone down, thanks to lower payments that go only to interest at first. If borrowers change repayment plans, that interest capitalizes, so the unpaid interest becomes part of the principal balance a borrower has to repay. This can feel psychologically like an ever-deepening hole. And for some borrowers, this can mean paying much more over time than they otherwise would have, even if they receive forgiveness. Ending interest capitalization might provide important relief for borrowers, especially for borrowers in a recession who might wind up seeking lower-cost plans or accessing forbearances at higher rates.

Additionally, lawmakers could help low-income borrowers pay less by increasing the exemption of their income below a certain level. Specifically, IDR borrowers’ student loan payments are calculated based on their Adjusted Gross Income (AGI) minus 150% of the federal poverty level—$12,760 for an individual and larger based on family size. Raising that threshold to 200% of the federal poverty line ($25,520 for a household of one) would ensure they can keep more of their income to provide for basic needs and backfill household budgeting holes left by the recession. This is a more targeted way to reduce student loan payments, especially for lower-income borrowers. To help those struggling the most, Congress could set auto-zero payments for IDR borrowers who notify the Department that they are accessing a means-tested safety net program, such as SNAP. If a borrower has proved to the government elsewhere that they are struggling, they shouldn’t have to prove it twice.

Finally, Congress should fix a major flaw and end the taxability of student loan forgiveness under IDR. A surprise bill at tax-time—especially for borrowers whose incomes were consistently low enough through repayment to receive forgiveness—can create big problems for a borrower.

Protect Students When Schools Close

Over the past several years, hundreds of schools across the country have closed—often abruptly—interrupting students’ education. With a possible recession looming, schools experiencing increased costs and lost revenue, and uncertain enrollment for the upcoming semesters, more colleges are likely to fold, leaving students in the lurch. It’s more pressing than ever that Congress take steps to protect students from these closures in these tumultuous times by establishing new requirements around teach-out plans and agreements that can provide students with another pathway to complete their educational programs, creating incentives for orderly closures rather than precipitous ones, and providing students affected by closures with automatic discharges on their loans rather than requiring them to apply for the discharge.

Provide Transparency Around Online Education

As institutions shift instruction online, it’s also a critical time to assess how students are faring and how colleges are adapting. Better information about which schools have gone online and which are closed for the semester, which students are new to distance education and how many have dropped out, and (over the longer-term) how borrowers cope with the expiration of automatic loan forbearances this fall will be essential to understanding how higher education is changing. And it will provide especially important data points on what those changes mean to low-income students and students who need more academic support from their colleges.

Conclusion

The United States is facing an unprecedented crisis and Congress has a panoply of issues to address to provide stability to the economy and American families. Students and families don’t need the added stress of unaffordable higher education or overly burdensome student loan payments. Investing in students and borrowers today will pay off in the long run as students graduate into better job opportunities and borrowers are able to weather the crisis. And Congress must also take steps to prepare for the worst, protecting students from sudden college closures and monitoring the impact of moving students to online education overnight.

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