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Obama plan links college aid with affordability

An overhaul would tie colleges’ eligibility for campus-based aid programs to the institutions’ success in improving value and affordability for students.
Image: President Barack Obama
President Barack Obama speaks to students at the University of Michigan in Ann Arbor, Mich. Obama spoke about college afoordability to the crowd of more than 3000 students, saying that he is pressuring Congress for new initiatives.Bill Pugliano / Getty Images
/ Source: The New York Times

President Obama is proposing a financial aid overhaul that for the first time would tie colleges’ eligibility for campus-based aid programs — Perkins loans, work-study jobs and supplemental grants for low-income students — to the institutions’ success in improving affordability and value for students, administration officials said.

Under the plan, which the president outlined on Friday morning in a speech at the University of Michigan, the amount available for Perkins loans would grow to $8 billion, from the current $1 billion. The president also wants to create a $1 billion grant competition, along the lines of the Race for the Top program for elementary and secondary education, to reward states that take action to keep college costs down, and a separate $55 million competition for individual colleges to increase their value and efficiency.

The administration also wants to give families clearer information about costs and quality, by requiring colleges and universities to offer a “shopping sheet” that makes it easier to compare financial aid packages and — for the first time — compiling post-graduate earning and employment information to give students a better sense of what awaits them.

These proposed changes would all require Congressional approval.

With student-loan debt now outpacing credit-card debt — and becoming a rallying point in the Occupy movement — the administration has for some time promised to address the issue, knowing its potency with voters in an election year. The president met privately with a group of college presidents in December, and has been collecting examples of colleges that have kept their costs from spiraling upward.

In his State of the Union address Tuesday night, Mr. Obama turned up the heat, alluding to the plan without fleshing out details.

“Let me put colleges and universities on notice:  If you can’t stop tuition from going up, the funding you get from taxpayers will go down,” he said.

Even without specifics, that raised hackles in higher-education circles.

“When we hear things like a shift in federal aid, it causes our antennas to go straight up,” said Molly Corbett Broad, president of the American Council on Education. “Anything that smacks of price controls is of great concern on many levels, especially at a time when states are cutting their budgets — and if the effect of this is to limit tuition, what else would you call it but price controls?”

Ms. Broad said that she and university presidents across the nation shared the president’s commitment to affordable higher education, but that it was not so easy to keep tuition down at a time when institutions must also absorb state budget cuts, increase enrollment and bolster financial aid for the growing number of families who need it.

The administration officials who spoke about the proposals did so on the condition of anonymity, and on the condition that details not be shared until publication.

They stressed that expanding the pool of money for Perkins loans would not require new tax dollars, since those loans are repaid with interest. And even without new money, they said, it would be possible to change the formulas under which colleges receive funds for work-study jobs and Supplemental Education Opportunity Grants — at nearly $1 billion, the second largest federal grant program for low-income students, after Pell grants.

While Pell grants and Stafford loans are larger programs than the ones the administration wants to change, they are federally administered and can be used by students at any college. In contrast, the campus-based programs the administration is proposing to change are administered by individual schools, whose financial aid offices have substantial discretion. About 1,700 colleges and universities now offer Perkins loans, a number that would increase to more than 4,000 in the new proposal.

While administration officials said the Perkins changes would have no impact on the federal budget, other parts of the plan — like doubling the number of work-study jobs, and keeping the interest rate on subsidized Stafford loans at the current 3.4 percent — would be expensive.

The officials said the current financial aid system rewards colleges for longevity in the program, and provides perverse incentives for keeping college costs high. Under their new proposal, they said, colleges would instead be rewarded for lower net tuition prices; restrained tuition growth; enrolling and graduating low-income students; and providing education and training that help graduates get jobs and repay their loans.

Some education experts, however, worry that by tying aid to costs, changes like those proposed might instead lead to lower-quality college education, with larger class sizes and greater use of adjuncts. Furthermore, they worry that public institutions suffering the most from declines in state support — and therefore under the most pressure to raise tuition — could be further hurt by losing access to some federal aid.

As with the original Race to the Top grants, in which the Obama administration used federal money to leverage its education agenda, the White House hopes to use the new college competition to spur systemic state reform that would reduce costs and encourage college completion. To win money, officials said, states would have to maintain their funding levels for higher education and align their entry and exit standards with secondary education and community colleges to help promote graduation on time.

The competition for individual institutions would reward colleges or nonprofit organizations that boost productivity through such approaches as course redesign that exploits new technology; early-college preparation that reduces the need for remedial work; and competency-based approaches to college credit that replace the traditional model of rewarding hours spent in class.

This article has been revised to reflect the following correction:

Correction: January 27, 2012

An earlier version of this article misstated the current interest rate on subsidized Stafford loans. It is 3.4 percent, not 3.8.

This article, headlined "," first appeared in The New York Times.