Republicans on the House Committee on Education and the Workforce released the College Cost Reduction Act, which proposes a wide range of changes to higher education. Much is in the bill, but the most important changes revolve around transparency, financial aid reforms, deregulation, and accountability.

Transparency

The bill would make several changes to improve transparency, which would help students, parents, and policymakers make more informed choices.

One significant change is that the bill would mandate standardized financial aid award letters. Many colleges engage in borderline fraudulent practices like not distinguishing between grants and loans or not telling students the total cost of attending. The bill would put an end to this. The main danger here is a badly formed or applied standard, but this danger seems minimal so far.

In addition, the bill would mandate and expand on the Department of Education’s (ED) College Scorecard data collection and publications—another good change. College Scorecard has exposed lots of higher education to scrutiny, much of it unflattering, and this will safeguard against a future ED scrapping the initiative to protect colleges.

Another transparency change would be the requirement for many colleges to offer a price guarantee to students based on the duration of the program, such as a commitment to keep tuition steady for four years. I lean against this idea.

While I don’t like that colleges can entice students with deceptive practices like scholarships that only cover the first year, leaving the student to pay unexpectedly higher amounts in later years, I also don’t like things that interfere with market price mechanism. What happens when we have a reckless president whose policies lead to eight percent inflation? Colleges should have as much flexibility to respond to such shocks as possible and a government-induced pre-commitment on prices limits that.

Financial Aid Reform

The bill would dramatically revamp many aspects of financial aid.

One of the most important changes is that it would replace the Cost of Attendance (CoA) when determining aid eligibility with the Median Cost of College.

Under current law, each college sets its own cost of attendance, and federal financial aid then essentially tries to provide enough aid to reach that level—subject to program-specific caps like the $7,395 max for Pell grants. Instead of letting each college set its own target, the median cost of college would establish a uniform target by academic field and credential based on the median CoA for that type of program—e.g., a bachelor’s in nursing.

As I’ve noted previously—here for the full length study, here for a related op-ed—this would:

  • “Improve the financial aid application process by better protecting student and parent privacy as well as providing students with information about their aid eligibility earlier than the current system does;
  • Enhance the competitive landscape, which would improve accountability, encourage cost containment, and lower prices at some colleges;
  • Neutralize the Bennett hypothesis—increases in aid leading to higher tuition—by severing the link between an increase in tuition and an increase in aid eligibility;
  • Incentivize colleges to measure and improve quality.”

The bill would also make a few changes to grant programs.

First, it would provide extra Pell grant funding for juniors and seniors who are likely to graduate and are attending a program that will substantially increase their earnings. It would also replace the Federal Supplemental Education Opportunity Grant (FSEOG) and the Leveraging Education Assistance Program (LEAP) program with Promise grant:

The PROMISE Grant formula rewards colleges for strong earnings outcomes, low tuition, and enrolling and graduating low-income students. The maximum amount an IHE can receive under the PROMISE program each year is capped at $5,000 per federal student aid recipient.

I have mixed feelings about this.

FSEOG should be put to rest. While designed to provide a supplemental grant for low-income students, in reality it was a subsidy for colleges with large endowments because funding was allocated not based on the number of low-income students at each college, but rather based on historical allocations. While Promise is an improvement, I am generally skeptical of grants to institutions rather than students.

Loan limits would also receive a makeover. Parent PLUS and Grad PLUS loans would be eliminated, which is great news. Borrowing limits would be changed to $50,000 for undergraduates—currently $31,000 for dependent undergraduates and $57,500 for independent undergraduates—$100,000 for most graduate students, and $150,000 for graduate professional programs—currently unlimited under Grad PLUS. In isolation, you could argue these new limits are too high, but some accountability provisions—discussed shortly—help guard against this.

Repayment would also be improved. The bill would replace the plethora of current repayment programs with two options, a standard mortgage style 10-year repayment plan, and a new income driven repayment plan which would require borrowers to pay 10 percent of their income exceeding 150 percent of the poverty line. Any unpaid interest would be waived, and at least half of each payment would go towards paying down principal. A cap on total payments would be set at the amount paid under the 10-year standard plan.

The new plan is mostly an improvement. The income share—10 percent—and multiple of the poverty line—150 percent—are both moves in the right direction after decades of erosion. But there are a couple of changes I’d avoid if possible. For example, interest capitalization is characterized as a “predatory practice,” but especially in the context of the flexible repayment that income-driven plans provide, it is no such thing. Rather, interest capitalization is the price that students with low incomes pay for being able to defer payments until their income is higher. I don’t see how you can call interest capitalization predatory without calling interest in general predatory. The old ban on usury was not a good policy, and neither is banning interest capitalization.

Origination fees would also be eliminated under the bill. However, if we move to a competitive lending market with many private lenders—as we should—then origination fees should be on the table as one of the ways for lenders to compete rather than be banned outright.

The total amount repaid is also capped at the amount that would be paid under the 10-year plan. I don’t see why total repayment under the income-driven plan should be capped. Relative to the student who repays over 10 years, a student who pays over 20 years receives a real benefit—delayed repayment — and there is nothing wrong with having him pay more in interest for that benefit.

Deregulation

The regulatory environment would also be improved in two ways—deregulation, including the 90/10 rule and gainful employment, and limiting new regulations that increase costs such as the Biden administration’s new student loan repayment plan nor would the Secretary be able to require accreditors to consider additional requirements when acting as a gatekeeper for federal financial aid.

Accountability

Lastly, the bill would enhance accountability in higher education.

One way it will do so is by improving accreditation. Accreditors would not be allowed to require “any litmus tests, such as requiring adherence to diversity, equity, and inclusion standards, as a condition of accreditation.” It would also close the elastic loophole, preventing both accreditors and the ED Secretary from imposing any federal financial aid eligibility requirements other than the 10 that Congress has already mandated.

But the most exciting change—for policy analysts, anyway—is the new risk-sharing requirement for colleges. While the details are a bit complicated, the general idea is that when a college’s former students do not repay their loans, the college would be required to pay for them—essentially reimbursing the government for the money lost on the loan. The share of taxpayer losses that a college would need to reimburse would depend on several factors, with lower-cost and high-value-adding colleges—as measured by graduates’ earnings relative to what they paid in tuition—paying a lower share than high-cost and low-value-adding colleges. Preston Cooper has run the numbers on some of this, and I’ll be exploring these policies in these pages over the coming months as well.

Overall, the College Cost Reduction Act would be a dramatic improvement for higher education. The bill is getting rave reviews from right-of-center analysts such as Beth Akers, Michael Brickman, and Preston Cooper.  While I would make a few changes here and there if I could, if given a take-it-or leave-it choice, I would take it in a heartbeat.