Financial Aid Stakes High in November Election

This is Part I in a series on the presidential election's impact on the issues that Harvard lobbies on. Read Part II on research funding and Part III on immigration.

The federal government’s approach to higher education funding, particularly student financial aid, could change significantly with November’s presidential election, potentially altering the way millions of students think about and pay for college.

While Harvard undergraduates, who benefit from Harvard’s own robust financial aid program, rely less on federal aid than students elsewhere and usually graduate with less debt, the University has a vested interest in national student aid policies nonetheless. Harvard spends hundreds of thousands of dollars annually to lobby Congress, the White House, and the Department of Education on a variety of issues, and education funding often figures prominently in those conversations. According to public filings made with the House of Representatives and the Senate, the University’s efforts touched on Pell Grants, Perkins loans, Stafford loans, and other student aid issues in the first two quarters of 2012, in which Harvard spent $350,000 on lobbying overall.

“We believe that a large reason why the United States has been a pillar—really the leader internationally without argument in higher education” is the robustness of its financial aid, said Harvard Vice President for Public Affairs and Communications Kevin Casey, the University’s chief lobbyist. “We worry about the erosion of some of those supports for students.”

“It’s very important, we think, as a principle, that there’s enough support for students where they can make individual decisions to seek the kind of education that they’re capable of achieving,” Casey added. “Therefore we think it’s important for all students to feel they can afford to go wherever they can go.”

November’s presidential election could determine the future finances of aid programs that make those choices possible.

ONE PROBLEM, TWO PLANS FOR AID

Democratic President Barack Obama and Republican presidential nominee Mitt Romney have laid out two vastly different plans for how federal grant and loan programs would work in their respective administrations.

Obama, who worked during his first term to expand grant funding and nationalize the student loan market, has pledged to keep interest rates low and to further expand Pell Grant eligibility and other federal tax credits for students. In his own plan, Romney has said he would restrict Pell Grants to those who most need them, re-privatize the college loan market, and rely on market forces moderate the rising cost of college education.

The urgency of the debate over higher education aid bespeaks the ballooning of the student debt crisis, which for decades has been escalating alongside rising tuition costs. The president elected in November will face the largest student debt crisis in the country’s history: nearly two-thirds of college students and recent graduates owe a combined $1 trillion to creditors.

The candidates’ respective approaches to the student debt crisis highlight their divergent views on the role of the federal government more broadly.

Obama would increase funding for the Pell Grant program, which offers direct aid to the lowest-income students in the nation, and would raise the maximum amount awarded to individuals through the program. One of the country’s most popular aid sources, Pell Grants currently go to more than 9 million students. The president would also make permanent the American Opportunity tax credit which his administration created in 2009 and which is set to expire in January.

During his first term, the President instituted a “Pay As You Earn” policy for federal loans, capping monthly payments to 15 percent of an individual’s discretionary income. If re-elected, Obama has said, he would work to institute a policy forgiving all federal student loan debt after 20 years.

Romney’s education proposals, while less precise, lay out a vision for a leaner federal aid system more influenced by market forces. His education plan released in April, titled “A Chance For Every Child,” calls for the federal government to end the “expanding entitlement mentality” that has arisen around direct aid programs like Pell Grants.

“A Romney Administration will refocus Pell Grant dollars on the students that need them most and place the program on a responsible long-term path that avoids future funding cliffs and last-minute funding patches,” the plan reads.

Romney said he would re-introduce competition to the federal loan market by putting lending back into the private sector, which would undo the Obama administration’s efforts.

The plan says a Romney administration would “focus the Department on giving students and families with financial need the appropriate information about completion and persistence, loan repayment rates, future earnings, and other indicators to intelligently weigh the risks and benefits of the many options available to them, rather than limiting choices through punitive regulations.”

Whether or not Romney would cut federal spending on education across the board is uncertain. In the first presidential debate two weeks ago he pledged to preserve existing spending levels.

“I’m not going to cut education funding,” he said. “I don’t have any plan to cut education funding and—and grants that go to people going to college.”

But analyses of the Republican’s budget plan have shown Romney would cut education funding up to 20 percent. His running mate Paul D. Ryan’s own budget, which Romney has supported in the past, would let the American Opportunity tax credit expire and cap Pell Grant funding at its current level with an eye toward further cuts.

FOCUSED ON THE PRICE TAG

Both candidates have pledged to address the rising cost of college education, which they both pinpoint as the root of the student debt problem. During the 2011-12 school year, tuition and fees for four-year colleges were expected to average $8,240 for public schools and $28,500 for private schools, according to the College Board, a private national organization that represents more than 6,000 colleges and universities. In the past five years, tuition costs have grown 5.1 percent annually beyond the inflation rate.

In January, Obama proposed tying federal aid for Perkins loans and work-study subsidies to tuition in order to compel colleges to reign in costs if they hope to maintain federal subsidies. Though its sticker price ranks among the highest in the country, Harvard would not be subjected to funding cuts because its institutional financial aid program keeps what students pay low.

Similarly, Romney has said he would force universities to streamline costs. He said universities have had little incentive to make tuition more affordable with the influx of federal money under the Obama administration.

Also potentially in the balance are interest rates on federal Stafford loans. Congress voted in June to stop interest rates for the popular loans from doubling to 6.8 percent. Obama lowered the rate of the popular federal loans to 3.4 percent in 2009 and has pledged to keep it low if reelected. Ryan’s budget calls for the higher rate, and Romney’s statements on the question have been inconclusive.

TAKING A STANCE, NOT A CANDIDATE

Harvard’s financial aid program, which gives grant aid to 60 percent of the student body, relies less on federal loans than other public and private universities. Still, roughly 25 percent of students elect to take additional federal aid, usually in the form of loans.

“While we cannot speculate on the impact of the election on federal support for student aid, it is clear the country is facing some critical fiscal challenges and that federal support for student aid and research could be substantially impacted by the decisions made in coming months and years,” Faculty of Arts and Sciences spokesperson Jeff Neal wrote in a statement. “President [Drew G.] Faust, along with many of her colleagues, has worked hard in Washington to remind policymakers of the value of the federal partnership with universities in support of the next generation of leaders, innovators and new ideas to fuel the economy.”

Former University President Derek C. Bok said a university like Harvard must actively promote generous grant and loan policies for the good of colleges as a whole.

“All thinking people at Harvard ought to recognize that as far as higher education is concerned, it is quite important,” Bok said. “I hope that Harvard will always feel a certain special concern for higher education generally, whether its specific ox is being gored or not.”

—Staff writer Nicholas P. Fandos can be reached at nicholasfandos@college.harvard.edu.