Here's a summary of the legislation's provisions, which originate from Representative Foxx's committee in the House of Representatives. Because the Congressional Research Service estimates the legislation will save nearly $200 billion over the next decade, it is sure to get through in a Republican Congress eager to extend tax cuts elsewhere. The savings will come primarily from imposing financial penalties on schools whose graduates do not replay their loans; as the summary puts it, the law,
Requires institutions of higher education to make annual risk-sharing payments based on the non-
repayment balance of the student cohorts. Student cohorts are broken up into three types: completing,
undergraduate non-completing, and graduate non-completing.Sets the annual risk-sharing payment for a student cohort equal to a risk-sharing percentage multiplied by
the non-repayment loan balance for the cohort for the award year. The risk-sharing percentages vary
based on the type of student cohorts.
Other cost savings will come, in effect, from offering less financial aid, via this little trick:
*Makes changes to the main need analysis formula to replace cost of attendance with “median cost of
college of the program of study.” For example, the current formula, utilizing the student aid index (SAI),
in the Higher Education Act is (cost of attendance) – (SAI) – (other federal assistance) = need. The new
proposed formula in this bill would be (median cost of college of the program of study for such student) –
(SAI) – (other federal assistance) = need.
• Changes the definition of “cost of attendance” to focus on the program of study.
• Determines the median costs of college by looking at all programs across all institutions of higher
education that offer the program.
Since programs in the same subject offer very different faculty-student ratios and resources, this will push financial aid packages towards a number adequate for the median, not the best, offerings--and that, ultimately, may push the better programs to cut back their offerings if students go elsewhere.
As this analysis notes, the legislation will be a boon for "predatory colleges." It will also, potentially, direct more federal aid to low-cost schoools with strong (i.e., salary) outcomes for graduates. I haven't had a chance to review this carefully, so welcome comments from readers who have looked into this legislation more closely. The very detailed CRS analysis is here.
