As the higher education community looks ahead to President Obama’s second term, it is instructive to look back at his first, which from the perspective of colleges and universities was notable for four important changes in federal higher education policy.
First, and most notably, federal support for student aid increased dramatically. More specifically, as the chart on the next page shows, total federal funding for Pell grants and student loans roughly doubled in the last four years. Pell funding went from $18 billion in 2008 to $36 billion in 2012. Over the same period, the number of recipients increased from 6 million per year to 9.6 million. Student loans (excluding parental loans) went from $68 billion to $112 billion and the number of loans issued increased from 14 million annually to 23 million. Indeed, in 2012, the number of federal student loans exceeded the number of students enrolled in higher education for the first time–23 million loans as compared to 21.5 million borrowers. Federal loans to parents grew at a similar rate.
Second, the Obama administration eliminated the bank-based student loan program, which was created in 1965, in favor of direct lending, established by the Clinton administration in 1993. The two programs had always been in serious competition and “peaceful coexistence” was an unknown concept. While there were numerous specific differences between the two programs, the bottom line for students and the government was pretty much the same: the federal government held most of the financial risk and student loan defaulters were followed to the end of the earth by the federal government in an effort to get the money back.
The huge potential savings from eliminating the bank-based program—roughly $60 billion over 10 years—gave the Obama administration all the incentive it needed to make federal direct loans the only federal student loan option. (Critics claimed that the savings were exaggerated but, under federal budgeting rules, the savings were there for the taking.) By 2009 banks had either left the federal student loan program entirely or were servicing loans under contract to the Department of Education. The transition to direct lending went very smoothly in terms of origination of loans, but there are increasing concerns that borrowers with multiple loans (that is, almost every student at a four-year institution who borrows) usually have to deal with multiple servicers to repay their loans, something that significantly complicates repayment.
Third, the Obama administration has fundamentally changed the goal of federal higher education policy. Ever since the Higher Education Act was created in the Johnson administration, the wisely shared goal has been to increase access to higher education for those who may otherwise have been excluded. Indeed, the word “access” assumed iconic status and was invoked almost like a religious incantation in any discussion of higher education policy.
But over the past four years, the Obama administration has changed the game. After noticing the United States had slipped behind other countries in postsecondary educational attainment, the administration began a concerted campaign to boost retention and graduation. In truth, of course, graduation, graduation rates and postsecondary attainment are all very different things and the unfortunate tendency to use them interchangeably is an ongoing source of confusion. In addition, our inability to accurately calculate graduation, success, or completion rates has meant that most discussions of these topics understate the number and percentage of students who complete their education. No matter, henceforth, student success—most likely defined in the easiest and most convenient way—has taken its place alongside access as an equally important benchmark for most federal policymakers.
Finally, over the past four years, the Department of Education sharply extended its regulatory reach. One of the most widely discussed results of the Obama administration’s first term is a sharp growth in regulation of postsecondary education institutions. And, for the first time, the regulations began to move into academic areas. The federal definition of credit hour, for example, means that the Department of Education has inserted itself into basic academic decision-making. Regulations dealing with “state authorization” and “gainful employment” have also proven extraordinarily complex and, to date, of little value.
The administration argued that the regulations were necessary to protect students from unscrupulous schools and to ensure that federal funds were spent on education and training of value. But by imposing regulations on all institutions regardless of their records, the administration created far more controversy than they expected. The House of Representatives voted overwhelmingly to rescind all three of these regulations—credit hour, state authorization, and gainful employment—and the courts have voided two of them. Despite the protests and controversy, the administration remains committed to reshaping higher education through federal regulation—several new sets of intrusive regulations were put on hold in 2012—lest they create more unwelcome controversy before the election. Most observers expect they will soon be released.
Terry W. Hartle is the senior vice president of ACE’s Division of Government and Public Affairs.