Obama Plan Would Tie Campus-Based Aid to College Affordability

The Obama administration wants Congress to pass legislation that would increase or limit the allocation of federal campus-based aid based on institutions' ability to provide affordable education.


“The bottom line is that an economy built to last requires that we do everything we can to bring down the cost of college,” Obama said in a speech Friday at the University of Michigan in Ann Arbor. “If you can’t stop tuition from going up, then the funding you get from taxpayers every year will go down.”

Because specific details about the plan haven't been released, some in the higher education community have questions and concerns about the President’s proposal to tie aid to college costs. Some argue that the plan could ultimately penalize students, but the administration has made it clear that this isn't their goal and are looking for ways to avoid this scenario. Others argue institutions shouldn't be held responsible for cost increasing factors - lack of state funding and increases in operational costs - that are out of their control. In his speeches, Obama urged institutions to find innovative ways to reduce their expenditures and keep tuition rates affordable.

Whether this proposal gains traction in Congress remains to be seen, but a short statement from Republican leaders of the House Education and the Workforce Committee indicates some interest mixed with resistance to increased federal oversight.

“We need responsible solutions that will serve the students of today and tomorrow without increasing the federal role in our nation’s education system,” Committee Chairman John Kline (R-Minn.) said in a statement. “The president has proposed a number of interesting ideas that deserve a careful review."

Subcommittee on Higher Education and Workforce Training Chairwoman Virginia Foxx (R-NC) said any discussion about the cost of higher education must include the role played by federal regulations.

“In November, I chaired a hearing that examined not only the solutions some institutions are adopting to bring down costs, but also discussed the consequences of unnecessary regulations. Onerous regulations come with a price and that price is often paid by students,” Foxx said. “As we take a look at the president’s proposal, we hope he will give serious consideration to Republican efforts to rein in the regulatory burden facing higher education.”

The White House provided more details Friday on the college affordability plan that Obama outlined in his State of the Union address earlier in the week. Obama’s proposals, most of which require Congressional action, will focus on three broad areas:

  • Shared responsibility on college affordability
  • State incentive programs
  • Empowering students to be better consumers 

White House officials have noted that that these proposals mark a starting point for conversation with the higher education community, particularly on developing items such as the metrics for a revised campus-based allocation formula that would include “quality and affordability” outcomes.

Shared Responsibility on College Affordability

The President’s plan to tie federal aid allocations to an institution’s ability to keep tuition costs down would be enacted through campus-based aid programs. The goal is to revise the campus-based allocation formula to be directly connected to “quality and affordability" outcomes. 

“The campus-based aid that the federal government provides to colleges through Supplemental Educational Opportunity Grants (SEOG), Perkins Loans, and Work Study is distributed under an antiquated formula that rewards colleges for longevity in the program and provides no incentive to keep tuition costs low,” according to a White House statement.

Schools that fail to meet yet-to-be-defined metrics could see a reduction in campus-based aid allocations. The White House has not finalized the metrics it would use to determine campus-based aid allocations.

The plan would increase funding for campus-based aid to $10 billion annually, with $8 billion going to a revised Perkins Loan program, up from the current $1 billion. The revised Perkins would likely look much like the Obama’s previously proposed plan to make it an unsubsidized Stafford Loan add-on. Federal Work Study (FWS) jobs would be roughly doubled, but Federal Supplemental Education Opportunity Grants (FSEOG) would likely remain relatively level funded.  

A New State Incentive Program

The President also proposed a new competitive grant program, comparable to the K-12 Race to the Top program, to reward states that fund and reform higher education to reduce costs for students. According to the White House, the program would provide $1 billion annually to states that create programs that: 

  • Revamp the structure of state financing for higher education.
  • Align entry and exit standards with K-12 education and colleges to facilitate on-time completion.
  • Maintain adequate levels of funding for higher education in order to address important long-term causes of cost growth at the public institutions that serve two-thirds of four-year college students.

These states would have to agree to federal policies and then put up some of their own money to compete for a portion of the grant.

Empowering Students to be Better Consumers 

The White House is also proposing to create a “College Scorecard,” similar to the College Navigator. The scorecard would be a one-page profile of each school, providing specific metrics like earnings information, default rates, repayment rates and employment rates. This would be applicable to all Title IV degree granting institutions. 

In addition,  the Consumer Financial Protection Bureau (CFPB) has been working to develop a consumer "shopping sheet" to help students compare college costs and student aid packages. Administration officials said they believe Congressional action we be required to implement this plan.

Other Calls to Congress 

The Obama administration has also proposed that Congress act to:

  • Prevent subsidized Stafford loan interest rates from doubling in July 2012. Rep. Joe Courtney (D-CT) has since introduced legislation to keep the loan interest rate at 3.4 percent indefinitely. The bill currently faces a doubtful future as there are no proposed offsets to maintain the 3.4 percent interest rate, nor are there any Republican supporters.
  • Double the number of Federal Work Study jobs available to students over the next five years.
  • Prevent the American Opportunity Tax Credit from expiring in 2012 and make the education tax benefit permanent.



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