Bloomberg News

Regulating U.S. Colleges for Student Debts Seen Winning Support

December 19, 2012

Senator Marco Rubio

Senator Marco Rubio, a Republican from Florida, is gearing up for a fight with U.S. colleges as he pushes a plan with a Democratic colleague that could steer students away from high-cost programs. Photographer: Andrew Harrer/Bloomberg

Marco Rubio, the son of a bartender and the first in his family to go to college, just finished repaying more than $125,000 in student-loan debt from the University of Florida and the University of Miami law school.

Now, Rubio, a Florida senator and a rising star in the Republican Party, is embracing a bipartisan bill that would force colleges to give students information about costs and career prospects.

After a decade of resistance from universities, Congress is poised to take on college prices amid a groundswell of anger about tuition outpacing inflation and family incomes, leaving borrowers with $1 trillion in debt. Politicians from both parties are seeking to compel colleges to tell students how much they could be expected to earn from their degrees, spell out fees and debt in plain English, reward schools that keep tuition affordable -- and punish those that don’t.

“We’re at the early stages of a transformation -- 10 years from now, higher education won’t look the same,” said Richard Vedder, an Ohio University economics professor who directs the Center for College Affordability and Productivity. “There are millions of people feeling the pain of student debt. When that number gets big enough, it starts to permeate the public consciousness.”

Lobbying Battle

The latest round of bipartisan bills -- unusual in a divided Congress -- will spark a lobbying battle with colleges, an industry with about $500 billion in annual revenue, 4 million employees and 20 million students. Higher education institutions spend about $100 million a year to influence politicians, according to the Center for Responsive Politics, a Washington- based group that tracks such outlays.

In 2003 and 2008, colleges beat back other cost-control measures, dismissing them as Soviet-style price controls and meddling with academic freedom and student privacy.

Politicians and the media are perpetuating “a collision of myths” about student loans, said David Warren, president of the Washington-based National Association of Independent Colleges and Universities, which represents 1,000 private institutions.

The average student graduates from a private college with about $30,000 in debt, a manageable amount given they can expect to earn a $44,000 salary, he said.

“Most students are coming out with indebtedness equal to the cost of the first car they buy,” said Warren, former president of Ohio Wesleyan University. He said there may be a legislative “rush to judgment” in trying to curb costs.

Crushing Debt

Still, there’s no question some students end up with crushing debt.

The child of a retail clerk and grocery-store manager, Toni Biggert said she didn’t understand financial aid, compound interest, or even that she could shop around for cheaper tuition. The result: Now wrapping up her master’s degree at the University of Toledo, she is struggling to repay more than $100,000 in federal and private student loans on her $36,000-a- year salary as a sixth-grade teacher.

“It’s very hard to know that I went about it the wrong way,” said Biggert, 28, who lives in Oak Harbor, Ohio, an hour southeast of Toledo. “I had no access to knowledge. I feel like I was so blind.’”

Citing privacy rules, the University of Toledo declined to discuss Biggert’s debt. Since she began college, the school has improved its counseling about loans, said Sherri Jiannuzzi, an assistant director for financial aid.

Student Shopping

With stories like Biggert’s in mind, President Barack Obama and members of Congress are expected to propose cost-control measures when lawmakers consider reauthorizing the main federal law governing higher education as soon as next year. Senators Al Franken, a Democrat from Minnesota and Charles Grassley, a Republican co-sponsor from Iowa, would require that colleges use a standard financial-aid award letter, so students can easily compare offers.

Currently, as Bloomberg News reported in April, some schools give students the impression that federal loans are scholarships -- a practice Warren acknowledges is “just this side of deceptive.” Colleges are objecting to the volume of disclosures that the bill would require.

In another proposal, Obama wants to use Perkins loans, a program for low-income families, as a lever for keeping tuitions affordable. The administration’s plan would increase Perkins to $8.5 billion annually from $1 billion.

Punishing Colleges

The government would then give more aid to colleges with moderate tuition increases and strong educational outcomes and yank funding from those with the highest. College groups say they can’t evaluate the plan without more details.

Obama is also proposing $1 billion in “Race to the Top” college grants, modeled after an elementary and high school program that pushed states to agree to the White House’s education agenda. Under the college version, states that pushed for affordability could win money.

The Washington-based American Council on Education, which represents 1,800 college presidents, said it is concerned that this measure could damage colleges’ long history of autonomy.

“They want to centralize policy about academic programs in bureaucracies either in Washington or state houses,” said Terry Hartle, the organization’s senior vice president.

The Obama administration has also sought to crack down on career-training programs that leave students with poor job prospects. The regulations would have cut off funding for programs with the worst loan-repayment rates or the highest debt levels relative to their incomes. Colleges said the measures would restrict the access of poor and minority families to higher education.

For-Profit Colleges

For-profit colleges including Apollo Group (APOL:US) Inc.’s University of Phoenix, the largest chain, waged a lobbying campaign opposing the plan, spending at least $6.6 million in 2010 and sending 90,000 letters to the U.S. Education Department.

The administration delayed and then eased the rules. In July, the industry successfully blocked them in court.

Private colleges have long fought Washington’s cost-control efforts. In 2003, U.S. Representative Howard “Buck” McKeon, a California Republican, unsuccessfully proposed cutting off federal aid from colleges that increased tuition and fees by more than twice the rate of inflation over a three-year period - - a plan private colleges called price controls.

In 2006, a commission appointed by Margaret Spellings, education secretary under President George W. Bush, tried to institute an information system that collects student-level data on institutions’ graduation rates, price, employment and earnings. Colleges would have also been required to give students standardized tests to determine what they learned in their undergraduate years.

Colleges Balk

Private colleges balked. They said the data-system exposed students to potential invasions of privacy, and a single test couldn’t capture what students learn in a variety of liberal- arts programs.

“They don’t want any strings attached,” Spellings said in a telephone interview. “They want free money.”

To fight the commission’s recommendations, schools won help from lawmakers such as Lamar Alexander, a Republican Senator from Tennessee who is a former University of Tennessee president and U.S. Education Secretary. Legislators prohibited the government from instituting a student record-tracking system or requiring a standardized test.

Providing Data

Colleges say many institutions are now providing some of that information voluntarily. More than 800 private schools give data about cost and debt through the online University and College Accountability Network.

About 300 public colleges such as the University of North Carolina have adopted the “voluntary system of accountability,” which provides students with “college portraits” spelling out similar information and, in many cases, the results of a standardized learning assessment given in freshman and senior years.

A national database would be more effective, especially in providing employment and earnings information, said M. Peter McPherson, president of the Association of Public and Land-Grant Universities, which supported the recommendations of the Spellings commission.

A bill proposed by U.S. Senator Ron Wyden, an Oregon Democrat -- and co-sponsored by Florida’s Rubio -- would require that colleges disclose costs and debt and how much students can be expected to earn in the workforce. The legislation would establish state-based systems to link individual transcript data -- excluding information that would identify students -- to employment and earnings.

‘Spreadsheet Mentality’

Warren, president of the private colleges’ group, calls the measure part of a “spreadsheet mentality” that reduces the value of a college education merely to a student’s initial paycheck.

“It is so wrongheaded and contrary to the best interest of the country that you would link learning, clearly, fundamentally and finally to earnings two years out,” he said.

Rubio, 41, disagrees. With detailed cost and debt information as a young man, he might have gone to a cheaper public law school, rather than the private University of Miami, he said.

That way, he would have avoided the lion’s share of his $125,000 in student loans, with $1,400-a-month-payments that exceeded his mortgage. That burden made him give up his dream of being a prosecutor because the salary was too low.

Citing privacy rules, the University of Miami said it couldn’t discuss Rubio’s debt. Patricia D. White, its law school dean, said she has warned students in writing about her program’s cost and the difficult job market. In the 2010 and 2011 school years, she said, the law school froze tuition, currently $42,000.

Loans Paid

A featured speaker at the Republican National Convention, Rubio saw his finances improve recently because of royalties from a memoir, enabling him to pay off his loans 16 years after law school.

Students “should know how much they’re going to make and how much they’re going to owe, so they can take that into account,” Rubio said. “Had I had it in front of me, I may have decided differently.”

To contact the reporters on this story: John Hechinger in Boston at jhechinger@bloomberg.net; Janet Lorin in New York jlorin@bloomberg.net

To contact the editor responsible for this story: Lisa Wolfson at lwolfson@bloomberg.net


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