[The Montana Professor 23.1, Fall 2012 <http://mtprof.msun.edu>]

Student Loans and Access to Higher Education

George Dennison, PhD
Emeritus Professor of History, University of Montana-Missoula
Senior Fellow, O'Connor Center for the Rocky Mountain West

Some detected a new "bubble" as student loans exceeded credit card debt for the first time in 2010 (Ehrlich 2011; Kantrowitz 2011; Carey & Dillon 2009). Which applies (Baum 2006): "Drowning in Debt" or "Investing in the Future"?

How did we get where we are

Reliance on loans for access to higher education in the United States grew out of necessity rather than the preferences of policy makers, educators, students, or the public (Price 2004, Chapter 1; Hauptman 1995; Random History 2008; Federal Student Loan Programs—History 2011; Gladieux & Hauptman 1995, pp. 1-37). Historically, state governments have directly funded their public institutions (Archibald 2002, Chapter 2; Kane, pp. 1-54, esp. 20). Following relief initiatives during the Depression—essentially work-study support and some loans for students and funding for campus construction—sustained federal involvement began with the GI Bill of Rights to assist returning veterans after WW II, rewarding them specifically but also hedging against economic and related perturbations such as those caused by demobilization after WW I (GI Bill; Loss 2012, Chapter 3 & pp. 110-119; Archibald, p. 32; Gladieux 1995, pp. 1-2; Gladieux & Swail 1998, pp. 3-11, esp. 3-5). This bold, targeted policy initiated a trend that wrought a change in the financing of American higher education (Archibald, pp. 33-48; Price, pp. 32-33; Gladieux 1995; Kane, pp. 20-54).

As one scholar put it, "'the federal government...[incrementally stepped] in to fill a financial void created by the states' decreased ability and willingness to fund public colleges and universities...[shifting more and more of] the burden of paying for higher education...from the states to the federal government'" (Kiley 2011, quoting S. Baum). Christopher Loss described a more deliberate strategy through which "'higher education mediated relations between citizens and the state'" within a "'political culture fearful of big government.'" This new strategy made college going a "'national priority'" as the means to develop "'civically engaged, politically aware, and democratic'" citizens. (Golden 2012, quoting Loss) According to another scholar, the federal government acted because of a "deeply held belief" among most Americans in college as the means to get a "good job" and all that followed—"the American Dream." Whatever the motivation, the investment reaped huge returns. A 1988 Congressional study estimated that "GI Bill college attendees increased the nation's output of goods and services by $312 billion in current dollars" by 1987 (Greiner 2007; Price, p. 109; Gladieux & Hauptman, Chapter 1). As Loss argued, "the state and the university bet the future on higher education and the student-citizens it produced" (Loss, p. 93).

Howard Bowen (1972) articulated the rationale in Who Benefits from Higher Education—And Who Should Pay? As he put it, society at large rightly should pay most of the cost (80-85 percent) as the major beneficiary of an educated citizenry capable of sustaining democratic government, fundamentally competent to care for themselves, and armed with the creativity and skills to fuel innovation and economic growth. (Price, Chapter 1) Students and families co-pay for tuition and fees and most of the students' upkeep—i.e., room, board, and incidental expenses for books, supplies, etc.—and they also sacrifice the income that students otherwise earn if they enter the workforce immediately (Archibald, p. 214). In Bowen's analysis, the cost to governments falls well below the total associated costs, and the social benefits provide a good return on investment. His rationale won acceptance and persisted until late in the 1970s (Baum 1995; Gladieux 1995). Then, because of changes in society and political ideology, the means of supporting access shifted, as did the rationale. Since the individual student received the major benefits, the individual student should pay most of the costs, either immediately or deferred through loans (Archibald, Chapters 3-4; Kane, pp. 88-127; Dennison 2011; Gladieux & Hauptman, p. 83; Price pp. 1-2, 7-14, 107).

From the outset, people understood the wage premiums, productivity gains, and social stability associated with educational attainment (Hauptman 1995, esp. p. 12; Baum 1995, pp. 3-6; Loss, Chapter 1). That perception gained intensity as the wage premium of a college degree compared to a high school diploma increased, which in 2008 exceeded $21,900, fully 65 percent (Baum et al. 2010, pp. 4, 11; Kane, pp. 2-6). Federal and state policy to broaden access to higher education fostered the growth of the American middle class and the emergence of the modern production-consumption economy (Reich 2011; Friedman & Mendelbaum 2011; Potter 1954; Krugman 2009; Krugman 2009#2; Sachs 2011; Dennison). In addition, policy makers responded to the strategic challenges of the Cold War and the Soviet satellite in 1957 by applying the lessons of the GI Bill. Specifically, they initiated the National Defense Student Loan Program to support students in order to assure that the nation had the expertise needed to compete (National Defense Education Act; Loss, pp. 156-160; Gladieux 1995, p. 2). The success of these efforts led directly to broad federal funding for students in the Higher Education Act of 1965 and, subsequently, the federal grant and loan programs of today (Loss, pp. 172-178; Archibald, Chapters 2-4; Gladieux 1995, 2-6; Gladieux & Hauptman, Chapter 1; Federal Student Loan Programs—History).

Demand for access to higher education ultimately led to a shift in federal financing (Frase 1995). Initially, federal aid went primarily as direct grants to students, with loans as a percentage of total funds declining until around 1978 (Greiner, p. 9; Loss, pp. 225-226; Gladieux 1995, pp. 6-12; Archibald, Chapter 6; Gladieux & Hauptman, pp. 2-11; Price, p. 3). To avoid having the loans appear in the budget, the program involved private lenders with subsidies, interest charges, and default payments budgeted as they occurred (Federal Student Loan Programs—History; Gladieux & Hauptman, pp. 17-18). In 1972, Congress also created the Student Loan Marketing Association (Sallie Mae) as a government-sponsored enterprise with low-rate borrowing rights from the U.S. Treasury—similar to Fannie Mae and Freddie Mac for home mortgages—charged to purchase the guaranteed student loans from lenders, thus assuring adequate capital (Stoll, p. 1; Sallie Mae; Price, pp. 33-35). Unlike Fannie and Freddie, Sallie Mae ultimately became a fully private, publicly traded loan entity in 2004 and continued to originate and purchase student loans, especially those federally guaranteed (Stoll, pp. 5-6).

Derek Price, a vehement critic of loans to finance access, held that the creation of Sallie Mae introduced "a type of corporate welfare" because of the guarantee of capital for the market at the public expense (Price, p. 34). Students borrowed, the federal government provided subsidies and made good on all defaults, and the lenders reaped the benefits. In addition, each state designated a guaranty agency reimbursed by the federal government to implement the federal guarantee, service the loans, and pay the lender but also try to collect defaults on loans taken by students attending college within its boundaries. The federal government reimbursed the agencies for a percentage of default amounts dependent upon the default record in the agency, giving the agencies an incentive to collect the rest plus administrative costs (Stoll, pp. 13-17). As a result, the student loan market rapidly became robust. After 2000, Sallie Mae and other lenders and loan purchasers resold student loans to generate more capital, and the loans became fodder for the securitization machines developed by investment banks to issue "collateralized debt obligations" and other derivatives for a seemingly insatiable market (McLean & Nocera 2011).

During the '70s and '80s, political efforts of the Carter and Reagan administrations—first to extend access to middle-income groups and hold off tax credits and then to increase military spending, cut taxes, and reduce federal discretionary spending—required greater reliance on loans (Random History; Gladieux & Hauptman, pp. 18-25; Price, pp. 31-32). Christopher Loss argued that the student disturbances of the 1960s had shattered the public and policymakers' faith in the power of higher education to prepare engaged and productive citizens (Loss, pp. 214-222). In this new political context, the students receiving the wage premiums and other benefits had to pay the costs, immediately or by deferment through loans. The marketing arrangements proved quite successful, as more private lenders participated. Until 1991, the institutions sponsoring the loans had no authority to refuse them to enrolled students even on grounds of suspected inability to repay (Stoll 2005, pp. 4-5). Predictably, loans easily outpaced grants because of altered eligibility requirements, available capital, and increased loan limits (Greiner, p. 2; Gladieux 1995, pp. 6-12; American Council on Education 2005; Gertner, pp. 2-3; Choy).

Federal loans came in different forms, usually with a ten-year life, one with the federal government paying the interest for low-income students while enrolled; another without the in-school interest subsidy for virtually all students seeking a loan; and the Perkins loans administered by the participating institutions that required state or institutional matching funds. All guaranteed private loans received a federal subsidy above the relatively low interest rates and payment of defaulted amounts. Finally, the descriptor of eligible institutions changed from "higher education" to "postsecondary education," thus allowing training and vocational education institutions and community colleges to participate (Stoll, pp. 3-4).

Growing concern about the off-budget loan volume culminated in the adoption of the Federal Credit Reform Act of 1990 that required the budgeting of the "net present value" of the loans and the "full long-term expenses," e.g., estimated interest, defaults, and other costs. (Federal Student Loan Programs—History) Then, in 1992, the George H. W. Bush administration launched a pilot project for direct lending by the federal government, since private loans no longer offered any budgeting advantage. The following year, the Clinton administration called on institutions to move voluntarily into the direct lending program so as to reduce the federal subsidies to private lenders as a deficit reduction effort. However, in response to lobbying from the loan industry, Congress mandated the retention of both the subsidized and direct lending programs in 1998 (Stoll, p. 1). The modified program welcomed virtually all students, since institutions had authority to reject them only on documented evidence of inability to pay (Stoll, pp. 4-5). Most loan advocates assumed the wage premium assured the capability of borrowers to repay. As a result of these changes, the availability of federal grants and loans during the decade of the '90s shielded most borrowers, except those in public two-year colleges, even as tuition, fees, and other costs escalated rapidly (Choy 2004, esp. pp. 27, 30).

The decades-long push for tax credits to support access finally succeeded during the Clinton years. The Hope Scholarship and Lifetime Learning initiatives provided tax credits to families for some of the costs of higher education, largely in response to concern for those with incomes too high to qualify for Pell grants (Hauptman 1995, pp. 10-11; National Economic Council 2000; Loss, p. 226). A 2009 revision allows families owing no taxes to receive rebates for designated educational costs. As a result, between 2008 and 2011, the combined total of the credits and rebates went from $7 billion to $14.2 billion (College Board 2011, p. 3; Kane, pp. 22, 40-50; Baum & McPherson 28 October 2011). While increasingly significant, the tax credits and rebates clearly assist the students and families only after they have already incurred and paid the costs, and a disproportionate share of the benefits flows to families with relatively high incomes (Hauptman 1995, pp. 10-11; Baum et al., pp. 15-17; Hauptman 2011; Archibald, pp. 10-11, 63-66; New America Foundation, Key Questions, p. 3; Loss, p. 226).

With loans as the major support for access to higher education, critics of mortgaging the future questioned the approach. In addition, rising costs, increasing defaults, concern about educational quality, burgeoning enrollments, rapidly escalating tuition, the disparate impact on student borrowers based on income level, and demands for reduction of the federal deficit generated a number of reform proposals. A conference in 1993—one of several—brought together 150 educators, economists, and financial aid experts to critique the existing program (Gladieux & Hauptman, Chapter 2-3). The discussion ranged widely, pitting the advocates of radical change against those calling for more funding. The economists urged reliance on loans, since the students as the major beneficiaries of this "private good" should assume the costs; financial aid experts, advocates of the "public good," preferred grants to avoid rising debt burdens (Gladieux & Hauptman, p. 83).

In a 1995 presentation during another conference sponsored by the U.S. Department of Education, Arthur Hauptman advised Congress to "Cut the Cloth to Fit the Student," since the one-size-fits-all approach greatly increased costs without much return—tuition, housing, etc. (Hauptman 1995). As institutions raised the costs, federal aid increased. Diversifying the program with the focus on actual student needs—e.g., for remediation, short-term training, baccalaureate education, graduate education, careful targeting of grants and loans on those with demonstrated need, limiting in-school subsidies for loans, focusing income-contingent payment plans for loans on demonstrated need after graduation, and the like—promised to control costs while also broadening access (Gladieux & Hauptman, Chapter 2-3; Hauptman n.d. but 2011).

Others suggested ways to provide incentives to students, states, and institutions to control costs, such as transforming loans into grants after graduation, offering differential Pell Grants based on student status and success (front-loading and other techniques), and tying federal aid to educational effectiveness and efficiency (Hauptman 1998; Hauptman 28 February 2005; Nettles 1995; Breneman & Galloway 1995; Kolb 1995; Mingle 1995). Aid advocates had initially assumed that awarding Pell Grants directly to students assured quality because students would vote with their feet (Gladieux & Hauptman, p. 16). However, with trade and vocational schools, community colleges, and traditional colleges participating, and students lured by glowing but unfulfilled promises of post-graduate benefits from their studies funded by federal aid, critics raised concerns about "Access to What?" (Gladieux & Hauptman, pp. 25-37, at 34).

More cautious advocates of federal aid opposed broad-ranging efforts to link educational reform with student assistance as 1) contradictory to the original purpose of federal aid (Gladieux & Hauptman, Chapters 2-3), or 2) detrimental to "the proper workings of institutions that are simply not the federal government's to run" (Johnstone, p. 1). Bruce Johnstone opined that "we should stop fussing...that some hitherto undiscovered restructuring plan can somehow make it all right" (Gladieux & Hauptman, p. 84). The existing system had proven "quite workable, and even quite sensible, given several fundamental assumptions about the American higher education system" (Johnstone, p. 1). Any effort to rebuild "from scratch a system of federal financial support" that focused on students, assured access for heretofore disadvantaged students, retained competition in the educational market place, avoided micromanagement, respected federal-state responsibilities, and guaranteed cost-effectiveness "would...[produce] a system...very much like our current array of...programs" (Johnstone, p. 4). In their concluding assessment of the 1993 conference, Gladieux and Hauptman agreed that the federal program "is likely to remain...untidy, reflecting our nation's diversity and...traditions of federalism" and its growth by accretion (Gladieux & Hauptman, p. 89). The perception stubbornly persisted over the years.

But change nonetheless continued. In 1993, the Clinton administration implemented an income-contingent payment plan for the neediest borrowers under only the direct lending program, including those already in default, and expanded the direct federal lending experiment initiated in 1992 (Gladieux 1995, p.5; Salmi & Hauptman 2006, p. 35; Choy; Archibald, pp. 153-155). Thomas Kane urged using the income-contingent plan as "Forward-Looking Means Testing" for all federal loans based on borrower incomes after graduation rather than student and family resources before college (Kane, pp. 148-150; see discussion infra). However, aside from income-contingent repayment for some borrowers under the direct lending program, the major changes during the '90s implemented tax credits and announced the intent to move over time to direct lending by the federal government to reduce costs by eliminating private lenders (Gladieux 1995, p. 5; Hauptman 1995, pp. 10-11). As it happened, the private lenders held off that drastic change until after the Great Recession of 2008 virtually froze credit and forced the issue (Federal Student Loan Programs—History; Lips 15 September 2009).

In 2001, the Advisory Committee on Student Financial Assistance established by the amended Higher Education Act of 1986 reported that the system had not sufficiently broadened access and sought reaffirmation of that central goal (Archibald, pp. 197-198). To do so, the Committee recommended enhancing the grant and loan programs for low-income students and raising the eligibility threshold for middle- and higher-income students. In 2002, Robert Archibald attacked the loan program wholesale for perpetrating "moral hazard" because neither the institutions nor the recipients had any "skin in the game"; only the taxpayers lost when defaults or other problems occurred. Actually, the guaranty agencies charged to pay the lenders and then try to collect the defaulted loans increased their reimbursements only by keeping defaults low and collecting as much as possible of actual defaults. Not persuaded, Archibald also condemned the dominant role of the federal government for "stifling" innovation and urged radical revision of the entire federal program—eliminating institutional grants and leaving all grants solely to the federal government, re-assigning loan guarantee responsibility to the institutions, basing family contributions on income rather than assets, and using tax credits to assist borrowers with repayment (Archibald, esp. pp. 125-138 and Chapters 8-10). Despite its economic elegance, his proposal gained no traction and the Committee report stimulated only marginal enhancements of the existing program.

By 2004, Derek Price found that "Current practice in federal policy treats student loans as entitlements intended to be the primary mechanism by which students pay for college," a practice he faulted because it ineluctably reinforced class, race, and gender inequalities (Price, p. 27, Chapter 2-3). As a result of the reliance on loans, two-thirds of all baccalaureate graduates from public colleges in 2006 had loans averaging $16,000 (graduates of private nonprofit colleges averaged $20,000), and that proportion remained stable even with increased enrollments and graduates (Gertner, p. 3; Baum & McPherson 14 November 2011). Jon Gertner reported in 2006 that "Many educators believe...these numbers portend an emergency" (Gertner, p. 3). However, students borrowed because they had no alternative, default rates remained low, lenders vied for involvement in the program because of federal subsidies, and student loan experts urged loan counseling. The annual loan volume of $33 billion in 1998 grew to $103 billion by 2011, with loans nearly tripling grants of $37 billion (up from about $7 billion in 1998), essentially Pell Grants for low income students (Kane, pp. 20-21; College Board 2011, p. 10).

Nonetheless, student loan experts continued to question the effectiveness of the federal program (Hauptman 1995; Hauptman 2005; Gladieux 1995, pp. 8-12; Hauptman 2011; Hauptman, n.d. but 2011). Of course, the perspective depended on the definition of the goals. Most agreed that the program swelled college enrollments, although high-income students still enrolled at five times the rate of low-income students (Frase; Gladieux & Hauptman, pp. 29-30; Mortenson various; Price, pp. 35-40). The "erosion of needs-based" standards allowed middle- and even high-income students to participate because of eligibility based on the cost of attendance (Hauptman 1998; Hauptman 11 November 2005; Gladieux & Hauptman, pp. 24-25). Moreover, broadening the scope beyond traditional colleges and universities allowed proprietary and for-profit training and vocational schools to flourish with questionable benefits (Gladieux 1995; Hauptman 1995; Hauptman 2005). Abuses inevitably occurred, such as favoritism toward certain lenders, undocumented loans, high interest rates charged by private lenders, false promises of gainful employment after graduation by predator for-profit institutions, and increases in default rates (Gladieux 1995, pp. 7-8; Wood 27 June 2007; The New York Times 16 September 2009). The need for reform gained recognition with no consensus about the reforms.

The current situation

The economic melt-down of 2007-2008 virtually froze the credit markets, threatening the availability of capital for all loans. When loan auctions failed, more colleges and universities switched to direct lending for access to funds. Just as home mortgage lenders did, Sallie Mae and others raised their standards for student loans. And, as typically happens during economic doldrums, higher education enrollments skyrocketed because high school graduates opted for college rather than a tight labor market, enrolled students chose to pursue more education, and those who lost jobs sought training to compete in a restructured workforce. Simultaneously, states reduced higher education budgets, institutions raised tuition and other prices, and the current and new students scrambled for financial assistance to support their education and training (Baum & McPherson 28 October 2011; Federal Student Loan Programs—History). By 2011, the average graduate who borrowed had a debt of $25,520, with predictions of an outstanding loan volume exceeding $1 trillion by 2012 (Reed et al., p. 1; Ross; Lewin 15 March 2011). One reporter found these developments worrisome: "Suddenly, the similarities between the mortgage bubble and the current student loan situation are difficult to deny," evincing concern about "the whole market of debtors" (Ehrlich 2011).

In rapid succession, several states and the Obama administration took action to curb the abuses in the for-profit sector by imposing financial and other penalties on the offending schools and seeking to bar persistent offenders from participation in the federal financial programs (Lederman 15 August 2011; Fain 2011; Lederman 13 June 2011; Baum 21 June 2011). Some questioned the effectiveness of the actions, since lobbying softened the intended impact. In addition, the administration increased the number of students served by the Pell Grant program, raised the Pell Grant maximum with the increases as entitlements, and funded the changes by terminating the federally guaranteed loan program over the protests of the loan industry (Lips; Delisle 21 June 2011; Burd 30 August 2011; Hauptman 2009; Smole et al. 2009). By executive order, the President 1) authorized student borrowers under both the guaranteed and direct lending programs to consolidate prior loans for a 0.5 percent reduction in the interest rate; 2) broadened the eligibility requirements for participation in the income-contingent plan; and 3) shortened the period to loan forgiveness from 25 to 20 years. Because of these changes, the Secretary of Education predicted benefits for 6 million borrowers (Lewin 25 October 2011; The New York Times 18 September 2009; Nelson 15 November 2011; Hauptman 2009; Hauptman n.d. but 2011).

Not everyone agreed with the President's reforms. Some cautioned about the "moral hazard" or the risk that the "federal government cannot bail out improvident lenders [and borrowers] indefinitely" (Wood 14 May 2008; Sledge). Student loan experts found the administration's "ambitious" goals for higher education inconsistent (Hauptman 2009). While calling for increased graduation rates, the President also urged that "every American should...try postsecondary education for at least one year." "Giving more people a chance to go to college is why graduation rates in the U.S. traditionally have been modest when compared to other countries," Hauptman argued. The President's proposal threatened to worsen the comparisons. Raising Pell Grants and enhancing the loan programs will only increase enrollments in open-access and for-profit institutions but do little to "improve graduation rates." To impact graduation rates required attention to academic preparedness, academic progress in college, and restraint on the soaring costs of college, critics argued.

Hauptman warned again that the "growing availability of federally sponsored loans has been a key factor in the rapid growth of college tuition" (Hauptman 1998; Hauptman 2009; Hauptman n.d. but 2011). As evidence in point, federal aid "covered less than one-tenth of the cost of attendance in the public sector and less than one-fifth in the private sector" in 1975, but "nearly one-half" of the former and "nearly two-fifths" of the latter by 1995 (Hauptman, 1998). The lack of restraint on rising costs—tuition, fees, housing, books, etc.—merely expands the "Flawed Status Quo" (Hauptman 2009; Hauptman 28 February 2005; Hauptman 11 November 2005). Nonetheless, it appears that available aid outpaced rising costs by a considerable margin, thus directly benefitting students. Hauptman and others preferred an approach that went "Beyond Student Aid" to help students prepare for and succeed in college (Hauptman & Rice 2000).

Within this context of concern, Sandy Baum and Michael McPherson analyzed federal loans in 2011 and refuted a number of fear-inducing myths. During the first decade of the 21st century, student federal loan volume increased by 139 percent in inflation-adjusted dollars, compared to a 249 percent increase in grant volume. Between 2009 and 2011, borrowing rose by roughly 3 percent annually, even with more students and higher percentages with need, but the full-time-equivalent-student average loan actually declined by $64. Together, the total in loans and grants rose at an inflation-adjusted rate of 6 percent between 2008 and 2011, while private loans without federal guarantees declined. The average debt loads of graduates increased, but remained reasonable for those attending public institutions: 57 percent of graduates "from for-profit [four-year] institutions in 2007-8" had debts of $30,000 or more "compared to 12 percent" for public graduates; and 2 percent of graduates from for-profit two-year institutions had no debt compared to 60 percent from public two-year colleges. Baum and McPherson looked to "a time when drawing [analytical] implications...[from these data] might play a bigger role in assessment and advocacy of public-policy options" (Baum & McPherson 14 November 2011).

Baum argued on numerous occasions that "the typical college graduate has a manageable amount of student debt and a credential that will pay off well in the labor market" (Baum 7 June 2011, p. 2; Gertner, pp. 3-4). Of course, difficult economic times made finding and holding jobs problematic and affected loan repayment. Generally, so long as the payment ranged from 5 to 10 percent of monthly income, most borrowers found the burden manageable (Baum 7 June 2011, pp. 9-13). The majority credited the loans with allowing them to get their degrees, but that appreciative attitude changed after a few years of repayment. Even so, Baum cautioned against discouraging "anyone from borrowing responsibly to invest in the most important lifetime opportunity" (Baum 2009). In her view, "if students are going to...college, they're going to keep borrowing money because...[college is] not suddenly going...to be free...[with] $15,000 stipends [for students] to live" (Baum 2006, p. 7; Gertner, p. 6). In the absence of grants, gifts, or sufficient family resources, federal and prudent private loans make sense and provide a good return on investment, assuming rational decisions.

Unfortunately, "too many exceptions" to responsible decisions and manageable loans occurred "in the for-profit [higher education] sector." (Baum 7 June 2011, p. 2) "Institutions that leave students worse off than...when they arrived are...the norm in the for-profit sector" (Baum 7 June 2011, p. 1). Very "large numbers of students, particularly...from low-income backgrounds...[suffer] great hardship as a result of excessive borrowing...to finance their enrollment in for-profit institutions" (Baum 7 June 2011, p. 1). Too many students also take private loans before exhausting their eligibility for federal loans and end up with even greater financial burdens (Baum 2006, pp. 13-17; Urban 3 June 2007). Baum's public exposure of abusive practices in the for-profit sector and among private lenders led to new rules and regulations to curtail them. Partly as a result, private loans declined from $22 billion in 2007-2008 to $6 billion in 2010-2011, and private lenders innovated new strategies to meet borrower needs without causing problems in later life (College Board 2011, p. 10; Cohn 21 December 2010).

Opponents and even some supporters of federal aid such as Hauptman detected a causal link between federal aid and "soaring" tuition rates—e.g., institutions raise tuition in response to the availability of federal aid (Hauptman 1998; Hauptman 2009; Hauptman n.d. but 2011; Hauptman 2011; Salmi & Hauptman). While many respectfully disagreed, including a National Commission on the Cost of College in 1998, Bruce Johnstone dismissed the claim as "demonstrably nonsense"(Kiley; Baum & McPherson 28 October 2011; Johnstone, p. 1; Gladieux & Hauptman, pp. 62-64; Commission on Cost of Higher Education 1998; Price, p. 45). Thomas Kane worried about a different causal relationship. "The availability of federal financial aid...may...have had a more profound effect on states' decisions to limit their...subsidies...to higher education," thus leaving the institutions with little choice (Kane, pp. 69-70). In that regard, the nominal percentage increase in state appropriations of 57 percent during the entire period from 1998 to 2008 falls to 19 percent after accounting for inflation and to 6 percent after considering unfunded enrollments (Desrochers et al. 2010; Descrohers & Wellman 2011; Kiley; Redd 2000; Ross). During the Great Recession, the dynamic and causal relationship between declining state appropriations and rising tuition rates became obvious, restrained only temporarily by federal stimulus funds (Burton 26 October 2011; Gordon 14 July 2011; Crumb 23 March 2011; Anas 20 January 2012; Kelderman 22 January 2012; Kelderman 23 January 2012). Clearly, institutions played the tuition card but they also increased productivity to serve the growing numbers of under- and unfunded students.

Critics pointed to rising default rates as well, warning of dire consequences (Carey & Dillon; Covert 24 August 2011). In 2011, Hauptman estimated the annual default costs at about $7 billion (Hauptman 2011, p. 3). Student defaults within three years of graduation went from 6.7 to 8.8 from 2007 to 2009, with the for-profit defaults driving the increase (for-profits at 15 percent in 2009, publics at 7.2, with for-profits accounting for 10 percent of the students but nearly half the defaults) (Glickman 13 September 2010; Gast 12 September 2011; Lewin 12 September 2011; McPherson & Tanner). In any event, the default rates in the public and private nonprofit sectors remain very low, if gradually rising, with defaulters placed into income-contingent payment.

A study in 2011 reported delinquencies and defaults for the 2005 guaranteed loan cohort of 1.8 million graduates with nearly $40 billion in loans (average $22,000), excluding all borrowers with direct and consolidated loans (Cunningham & Kienzl 2011, p. 4). Even with the exclusions, the study offers insight into the behavior of borrowers graduating or withdrawing from college. About 37 percent fulfilled the payment plans, while another 48 percent encountered difficulties but either sought temporary relief or resolved the problems themselves to avoid default. Only 15 percent actually defaulted (9 percent of public and private non-profit borrowers), accounting for $3.2 billion in loans (average $12,400). Those who attended for-profit institutions clearly drove the default rate (Cunningham & Kienzl, pp. 18-19, 26-27). Compared to borrowers in general, defaulters had smaller loans, entered their studies less well prepared (GED or less), left without a credential, and last attended two-year institutions, predominantly for-profit schools. The authors found "the degree of debt burden...a relative, not an absolute," indicator of capability to manage loans (Cunningham & Kienzl, p. 24). Moreover, the proportion and characteristics of 2005 defaulters differed very little from those of 1989 (Biennieal Evaluation Report—FY93-94, pp. 5-6). However, the 1994 report cautioned that "while most defaulters have common characteristics, the majority of borrowers with those characteristics do not default on their loans" (Biennial Evaluation, p. 6; Price, Chapter 4). The same caveat held for the 2005 cohort.

In response to the concerns, the Obama administration re-instituted regulations imposing penalties on schools with excessive default rates during a three-year period (25 percent average) or in one year (40 percent) in addition to earlier rules limiting the percentage of for-profit institutional income from federal loans and requiring fulfillment of employment promises. The recent default rates compare to a 20 percent default rate in 1990, reflecting conditions arising during an earlier recession and more burdensome loan terms (Pope 13 September 2011). While the unemployment rate for college graduates aged 20-25 rose to 9.1 percent in 2010, the rate for all college graduates remained at 4.3 percent (Ross; Reed et al., p. 1). In contrast, the rate for the same age group with a high school diploma climbed to 20.4 percent (Reed et al., p. 1). Investment in education makes sense even in hard times.

Based on these and other developments, Jane Wellman, former Executive Director of the Delta Project, concluded, "Families and students are paying more but...getting less because...we're...[investing less] in this generation...than...in my generation" (As quoted in Lewin 25 October 2011). Moreover, whether they pay immediately or defer paying by taking loans, they nonetheless pay (Choy, p. 30). Baum ended her testimony before the Senate Health, Education, Labor and Pensions Committee with a defense of loans. Rather than "a blight on the higher education landscape and a clear sign of the moral weakness of our society...the...robust federal student loan program is a tribute to our nation's commitment to post-secondary educational opportunity." Most importantly, "Comparisons of the success rate for investments in college and investments in small businesses overwhelmingly favor college" (Baum 7 June 2011, p. 9).

Without doubt, the changes implemented by the Obama administration will make a great difference for millions of student borrowers. They do not, however, offer much relief to 1) those who left without a credential and thus without the wage premium; or any relief to 2) those who took private loans. Both groups, with considerable overlap, include high percentages of low-income and minority students (Cohn; Baum 7 June 2011; Baum 2006).

Reforming the Federal Student Aid Program

In September 2008, Sandy Baum, Michael McPherson, Thomas Kane, and 18 collaborators of the Rethinking Student Aid Study Group issued their report after two years of intensive study (Baum et al., pp. i, 1-35). The report contained recommendations for significant changes to the Pell Grant, tax credit, and loan programs and proposed incentives to families, institutions, and states. But the recommendations did not alter the fundamental character of the existing program, just as Bruce Johnstone predicted in the mid-'90s (Johnstone, p. 4).

The Study Group cited all the well known reasons for reform—the persistent low-income and minority graduation gap, the lagging educational attainment rate in the United States, the critical importance of responsive federal student aid, and the piecemeal development of the program through accretion without plan (Kane, pp. 88-127; Price, pp. 5, 47-9; Mortenson various; Hauptman 25 November 2005; Gladieux 1995, p. 2; Adelman 2006, p. 3; Hauptman 2009; Hauptman 28 February 2005; Hauptman 195, p. 3; Schemo 2011; Cook & Hartle 2011; Baum et al., pp. 2-6). Adhering to basic premises, the Study Group recommendations will target students "unlikely to...[achieve] their educational goals without financial help;" maximize grants and "reasonable...work and loans" to finance "a...degree for all qualified students"; provide continuous communication of eligibility criteria and availability of aid in easily understood language; help students enroll and succeed in college; and assure effective, efficient, and accountable use of taxpayer money (Baum et al., pp. 7-8). While not discounting larger concerns about educational reform, the report focused sharply on federal aid to students to assure access (Archibald; Gladieux & Hauptman).

As a necessary first step, the Study Group proposed to eliminate the Free Application for Federal Student Aid (FAFSA), a well recognized barrier to potential students (Baum et al., pp. 9-10; Kane, pp. 140-143; Hauptman 2009). Students wishing to apply for federal aid will file a simple form containing demographic information and authorize the IRS to release tax data to the Department of Education and the institution(s) of choice (Baum et al., pp. 10-15). Families not filing taxes will submit basic demographic and financial information. Only the Adjusted Gross Income (AGI) (capped at 150 percent of the federal poverty level) and family size will determine Pell Grant eligibility, shown in easy to use look-up tables. The Department of Education will notify eligible parents annually of the Pell Grant amount for each dependent child age 5-19, and identify local public institutions and available state aid. Finally, the Group recommended linking the maximum Pell Grant to the CPI and eliminating all supplementary federal grants. These changes will reduce the number of Pell Grants by 5 percent (cap on the AGI) and require $0.2 billion in additional funds because of the new Pell Grant maximum of $5,000 (double expenditures by doubling the Pell maximum).

Finding little evidence that tax credits and deductions increased college participation, the Group proposed to combine tax credits and deductions "into one tax credit" and allow its use toward the cost of attendance rather than just tuition and fees (Hauptman 2011, pp.2-5; Baum et al., pp. 15-17). At a cost of $5.3 billion, the revised credit promised solid benefits to middle class families. The Group warned that increased "Reliance on loans among students from low- and moderate-income families cannot continue...without negative consequences" (Baum et al., p. 17). Nonetheless, since students must borrow, "the federal government [must] provide ample access to loan funds for all students...[on] terms...favorable enough to minimize both resistance to debt...and oppressive debt burdens for former students, including those who do not...complete degrees or whose career paths do not meet...expectations" (Baum et al., p. 17). The reformed loan program will allocate "subsidies to students based primarily on [their] financial circumstances after college rather than [their]...resources before college." Annual repayments "will not exceed a specified percentage of...incomes," and adequate loan limits will "prevent excessive reliance" on private loans (Baum et al., p. 17).

However, the Student Group urged against putting all borrowers into an income-based repayment plan (IBR) (Baum et al., pp. 17-19). The standard 10-year repayment plan will serve most borrowers with reasonable "debt/income ratios." These borrowers will choose between "graduated repayment amounts" paralleling income increases or pre-set monthly payments, depending on their circumstances. The Group proposed loans up to the poverty level for each year of full-time study (pro-rated for part-time students) for up to five years of full-time study. Finally, the Group recommended limiting the size of the cumulative total debt of any borrower, including origination fees and accrued interest, to 150 percent of the original loan principal.

For borrowers with high need and those in default, the Study Group envisioned an "easily accessible" IBR (Baum et al., pp. 17-19). "Transferring into IBR has to be simple and quick in order to meet the needs of...[borrowers] whose circumstances change unexpectedly," to allow defaulters to "regain good standing," and to "minimize the difficulties faced by permanently disabled borrowers." Under the guidelines, borrowers with incomes less than 150 percent of the federal poverty level will make no monthly payments; once their incomes exceed the threshold, they pay 10 percent of the incomes above the threshold per month, nothing if their incomes fall below the threshold. Finally, the government will forgive without tax consequences any debt remaining after 20 years.

The Group eliminated in-school interest subsidies, since no evidence revealed any enrollment effect, and thereby mooted the question of a needs analysis for federal loans (Baum et al., pp. 19-20; Hauptman 2011). The loans will have a "flexible" interest rate, pegged to but "lower than market rates," available to all student borrowers because they have no collateral. While collapsing all other loan programs into one, the Group encouraged retention of the Parent Loans for Undergraduate Students (PLUS) to encourage parental assistance to students. As an incentive to low income families, a savings program will direct federal funds annually into an account for each child, with expenditures restricted to educational uses (Baum et al., pp. 20-23). These accounts will in time limit Pell Grant outlays, or even displace Pell Grants. The Study Group also resurrected the Leveraging Educational Assistance Partnership (LEAP) Program to provide matching funds for state grants to low-income students (Baum et al., pp. 23-24; Hauptman 28 February 2005). Finally, harkening back to the beginning of the Pell Grants in 1972, the Group urged discretionary awards to institutions for each Pell Grant graduate as an incentive to foster student success (Baum et al., pp. 24-26). Funding for the loans, savings program, matching grants, and incentives will come from the diversion of existing Perkins loan, FSEOG, and federal work-study funds with an additional $2.8 to $7 billion, a modest investment in the future.

The Study Group plan specifically sought to enhance societal "equity" and nurture "economic and civic strength in an increasingly challenging world environment" through an effective and efficient federal aid plan. The revisions and new initiatives, the members argued, will motivate and assist "students from low- and moderate-income families to prepare for...[,] enroll in...[, and succeed in] college" (Baum et al., p. 27). However, the Study Group recommendations said nothing about cost controls, broader educational reform, or sustainability. Perhaps those omissions explained the tepid response to the long-awaited report in the aftershock of the Great Recession (Cowan 2011; McLean & Nocera 2011).

President Obama's 2012 State of the Union Address outlined several higher education initiatives, few of which appeared in the Study Group report. Emphasizing the critical importance of education, he identified "the most daunting challenge [for potential students as]...the cost of college" (Obama 2012; New America Foundation, Summary and Analysis, pp. 1-10). To keep the costs as low as possible during "a time when Americans owe more in tuition debt than credit card debt," the President urged Congress "to stop the interest rates on student loans from doubling [from 3.4 to 6.8 percent] in July" and to continue "the tax credit we started that saves millions of middle-class families thousands of dollars." In addition to his explicit attention to middle-class issues, his choice of language—"tuition debt"—presaged what followed:

...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. Higher education can't be a luxury—it is an economic imperative that every family in America should be able to afford. (Obama, p. 4)

The stridency of the threat contrasted starkly with the more nuanced concern for state governments and the middle class.

The President's comments created two distinct but questionable impressions: 1) Rising tuition explains escalating student debt; and 2) colleges and universities cause the problem by inexorably and inexcusably raising tuition. The former impression misses the mark widely, since the related costs of attendance—i.e., room and board, books, incidental expenses, foregone income, etc.—far exceed tuition, for public colleges and universities at any rate. As for the latter impression, some commentators agree but most tend to accept Bruce Johnstone's curt dismissal of it as "demonstrably nonsense" (Johnstone, p. 1; Gladieux & Hauptman, pp. 62-64). All educators agree about the importance of higher education, but few accept all or even most of the blame for rising costs, and many find the imputation at best disingenuous.

In response to the identified challenge, the President proposed to 1) double the amount of federal, state-matched, work-study funding to $1 billion; 2) increase the campus-based Perkins loan funds (under direct lending) to $8 billion from $1 billion; 3) establish a $1 billion competitive fund to support innovative programs in colleges and universities focused on cost reduction and enhanced effectiveness and efficiency; and 4) require colleges and universities to publish annually information about a) their financial aid packages and b) the earnings and employment of their graduates (Dervarics 26 January 2012; New America Foundation, Summary and Analysis). In addition, he proposed new federal funding for community colleges to train an additional 2 million workers.

Educators applauded the attention to higher education, commending the President for this use of the "bully pulpit." Brit Kirwan, Chancellor of the University System of Maryland, commented: "'There are regulations and the moral imperative to ensure that colleges remain affordable, and putting the onus on the state government and universities is in my mind exactly the right way to go'" (Goldman & Brower 2012). Kirwan did not mention the federal intrusiveness that others found objectionable. However, most educators thought the initiatives less than responsive to a difficult situation for colleges and universities as well as students.

Sandy Baum praised some of the proposals. The Study Group recommendations had urged incentives for states and institutions to increase their assistance to needy students, and "it's a good idea for the federal government to provide incentives for states and public institutions...to provide quality education at lower costs." She also welcomed reform to the distribution of "campus-based financial aid" (Khadaroo, 27 January 2012), referring to work-study and Perkins loan funds allocated to campuses for awards to students. However, these limited programs paled in comparison to the Pell Grants and direct loans—the latter two together accounting for roughly $139 billion of the $142 billion of federal aid awarded to students in 2011 (College Board 2011, p.10). The increase of $10 billion for the identified purposes and retaining the current interest rates will certainly help students. However, Baum cautioned that "'taking money away from the students who are going to college in states that are raising tuition just doesn't seem very constructive,'" since—in the words of the reporter—"the federal incentives wouldn't be enough to offset state problems that led to tuition increases...and some students wouldn't enroll in college at all if less aid were available to them at their local public institution" (Khadaroo).

Molly Corbett Broad, President of the American Council on Education, warned (Lewin 27 January 2012) that "[a]nything 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...is to limit tuition, what else would you call it but price controls?" The President had also urged states to "do their part, by making higher education a higher priority in their budgets," but he offered no assurances (Obama 2012). Jack Jennings, President of the Center for Education Policy, observed that the President has few "'power levers'" to regulate higher education (Goldman & Brower). Broad and other college and university leaders supported "the president's commitment to affordable higher education," but pleaded the difficulty of restraining "tuition...when institutions must absorb state budget cuts, increase enrollment and bolster financial aid for the growing number of families who need it" (Lewin 27 January 2012). Many states actually require dedication of portions of tuition increases for financial aid to facilitate access. As Archibald and other analysts had explained during earlier debates, using tuition from some students to subsidize other students requires ever larger tuition increases to generate the needed revenue (Archibald, Chapter 5).

Other higher education leaders and commentators voiced more strident criticisms (Jones 28 January 2012; Santa Cruz Sentinel 29 January 2012). One found "'fuzzy math'" in the assumption that the "'efficiency gains'" of colleges and universities can compensate for "'the loss of state support'" (Hefling, 28 January 2012). Another noted that the "'total cost to educate students...has gone down because of efficiencies on campus. While universities are tightening costs, the state is cutting subsidies and authorizing tuition increases to make up for the loss.'" In this critic's view, the President had displayed either a flawed understanding of public higher education finance or "'political theater of the worst sort'" (Hefling). Still another had agreed to attend the State of the Union Address and pledge to "'freeze tuition rates for a year,'" only "'if you make the 50 state legislatures and the 50 governors take the pledge first that they're going to maintain their investments. It's not up to us.'" He neither attended nor took the pledge (Goldman and Brower).

Expressing a view widely held in Congress, Senator Lamar Alexander (Tennessee) cautioned that shifting "'federal aid away from colleges and universities'" is "'hard to do without hurting students.'" In his view, "'The federal government has no business doing this'" (Kuhnhenn & Hefling 27 January 2012; Stancil 28 January 2012; Tau 27 January 2012). Arthur Hauptman, a long-time advocate for federal aid reform, has warned on several occasions against "a heavy reliance on regulatory efforts such as price controls in higher education—they will not work in the long run and they will ultimately lead to a misallocation of resources" (Hauptmann, undated but 2011). In his view, "the federal government...[lacks] the capability of figuring out what the nation's 4,000 institutions of higher learning should charge to make the system better." Change the signals by using incentives, he urged, since they promise greater returns on the investment of political, moral, and real capital.

Clearly, disagreement continues. The President's proposals faced tough going in an election year with the Congress already in grid-lock because of the continuing effects of the Great Recession, a soaring federal deficit, arguments about tax policy, and a host of other matters.

Conclusion

The response to the President's proposals and the Study Group recommendations bodes ill for a rational outcome of the debate about student loans. Over several decades, the federal student aid program consistently mirrored the persistent if shifting commitment of the American people to promote access to higher education (Gladieux 1995; Johnstone; Hauptman 1995; Hauptman 11 November 2005; Hauptman 2009; Loss). Senator Claiborne Pell (Rhode Island) provided the most eloquent formulation of that commitment to support the 1972 amendments to the Higher Education Act (Wentworth 1972; Loss, 211-212). The amended Act, Pell stated, "'establishes by law the right to a postsecondary education for all of our Nation's citizens.... [No] longer will higher education be the province of some of us—it will be the birthright of all.'" President Richard M. Nixon signed the amended Act, although he thought it "did not go far enough: We look forward in the future to having a set of Federal student assistance programs devoted to the goal of equalizing opportunities for all'" (Quoted in Baum et al., p. 3-4).

The 1972 amendments "ordained that youth...shall be served ahead of their institutions," as Eric Wentworth wrote at the time (Wentworth, p. 10; Gladieux 1995, pp. 2-3). Many of the supporters thought that students voting with their feet had the potential to stimulate reform and promote quality assurance (Gladieux & Hauptman, p. 16, 50-58). While the amendments authorized direct funding for colleges and universities dependent upon the number of Pell Grant students served, Congress never made the necessary appropriations (Wentworth, pp. 63-64). Moreover, many educators opposed direct subsidies for fear of federal control, a concern resurrected by the President's 2012 State of the Union Address. This early intent to provide incentives to states and institutions reappeared in the Study Group proposals. Over the years, the federal program expanded by offering low interest loans to virtually all students in addition to grants to low-income students, but it never achieved Pell's vision (Hauptman 2011, p. 3). However, that vision continues to inspire program advocates.

Equally clear, the current program works fairly well during good times, but not so well in hard times. Hauptman, among others, questions the program's sustainability because of uncontrolled costs (Hauptman 2011). Archibald found few if any redeeming virtues in the existing program (Archibald). Ignorance of the program's purposes and accomplishments combined with concern about difficult economic conditions have frustrated any rational conversation about reform, as Baum, McPherson, Hauptman, Kane, Archibald, and others regret (Baum & McPherson 14 November 2011; Hauptman 19995; Gladieux 1995; Nettles 1995; Hauptman 28 February 2011; Hauptman 2009; Archibald; Gladieux & Hauptman; Barr 21 November 2011). While the timing seems problematic, with the country having barely emerged from recession and deeply embroiled in a divisive election campaign, Americans have little choice but to deal with the challenge of change. Failure to do so will almost surely guarantee another "lost generation," so chaotic has life become for young people upon whose engagement and talents the society will depend in coming years (Hauptman 2009; Baum 1995). A troubling observation holds that the current generation of Americans will rise as the first during the national era less educated than its predecessor. Can American society thrive under such circumstances?

In a recent book, former Secretary of Labor Robert Reich, currently Chancellor's Professor of Public Policy at Berkeley, called for the elimination of tuition and fees "at all public colleges and universities" and loans to low- and moderate-income students attending public institutions and any students attending private institutions who need assistance (Reich, pp. 136-137). To support this plan, he recommended that all graduates of public institutions and the graduates of private institutions who receive federal loans "pay a fixed percentage—say, 10 percent—of their taxable earnings for their first ten years of full-time work into a fund that finances public colleges and universities and provides loans to students" (Reich, pp. 136-137). In his opinion, this plan will sustain higher education of high quality in the United States and empower students to choose their courses of study to match their individual passions and societal needs.

However, Reich did not discuss the practicality of direct federal support for public higher education or the means to control costs. In 1999, Thomas Kane had urged means-testing for state as well as federal subsidies to assure appropriate benefit-cost relationships and restrain costs (Kane, pp. 132-139). Among others, Hauptman proposed several initiatives to control costs, as did Archibald in his radical redesign (Hauptman 1995; Hauptman 2009; Hauptman 2011; Archibald). Nor did Reich deal with the consequences of or reaction to federal control of public and perhaps private institutions. Derek Bok, then President of Harvard, opposed direct subsidies in 1972 precisely because of concern about centralized control and unfunded mandates (Wentworth, p. 63).

In 2004, Derek Price outlined a series of reforms designed to eliminate or reduce substantially the reliance on loans which undermined the entire federal effort and emphasized the private rather than societal benefits of higher education (Price, Chapter 6). He advocated Pell Grant entitlements for all low- and moderate-income students sufficient to cover the cost of attendance at public institutions, and the continuance of direct federal loans, subsidized during attendance in college, to assist students attending private institutions, with repayment limited to 8-10 percent of monthly income after graduation, forgiven after 10 years. His plan also called for incentives to states for maintenance of effort to support higher education with low tuition and state grants matching the federal grants. Finally, if the Pell Grant proposal failed and loans had to continue, he thought only direct lending appropriate and the creation of a loan trust to initiate loans by 1) terminating the guaranteed loan program and selling the assets in the secondary market to establish the initial trust fund; 2) selling all future loans when students graduate to add to the trust fund; and 3) limiting all future loans to the cost of education, with 8 to 10 percent of monthly income as payments, forgiven after 10 years. Price thought his proposals promised to create a sustainable federal program capable of fulfilling the original goal of equal opportunity for all and realizing the societal benefits of meaningful access to higher education, the realization of the "American dream" (Price, pp. 129-131).

The perspective provided by a half-century of federal aid suggests putting aside Reich's and Price's proposals. The Study Group recommendations and the President's proposals—omitting the price controls—appear actionable and promise real benefits to graduates in and out of default, students who left without degrees, current students, prospective students and their families, and the society at large. For relief of former students with private loan burdens, Hauptman has suggested "a seamless [loan] system," regardless of "whether the federal government or the private sector initially finances the loans," enabling borrowers "to make repayments manageable relative to their incomes once they complete their education," an IRB for all (Hauptman 2009). Hauptman's proposal, the Study Group recommendations, and the President's initiatives avoid the distractions of arguing the merits of untested alternatives. The Price and Reich proposals slide toward the radical extreme scouted by Archibald. The President's price control threats run head-long into traditional and deep-seated resistance (Johnstone).

Many commentators criticize the current approach to financing American public higher education, finding little economic sense in state control of, and responsibility and support for, institutions that serve the needs of other states and the nation. In fact, the financial burden has shifted over the years from the states to the students and families and the federal government, for private institutions as well (Baum 1995, esp. p. 5; Baum et al. 2008 Gladieux & Hauptman; Archibald; Loss). Students and families rely on federal aid and institutional contributions to pay the rising tuition and related educational costs, and the federal funds replace the declining state appropriations or endowment returns that otherwise increase the cost to students (Hauptman 1998; Kane, pp. 69-70; Gertner, p. 7). The current approach divides the cost between the states and the federal government for public higher education, and the federal government and the institutions for private higher education, but leaves the control fundamentally with the states and the institutions, in accordance with the American federal tradition (Johnstone). Providing for continuity and sustainability will, in all likelihood, allow the program to focus on the original goals in response to Price's well taken criticisms (Price).

However, the current and recommended aid structure offers no explicit guidance concerning state appropriations, tuition and fee rates, or cost controls. As Gertner noted, citing a conversation with Thomas Kane, "this country needs to figure out a better way to pay for college" (Gertner p. 7). Both considered an "income-contingent repayment" plan as "the most practical solution available." Indisputably, state "government subsidies for higher education [will] continue to shrink relative to the costs of running" the institutions. As a result, "the quality of our colleges" will deteriorate or tuition will increase. With no doubt about the likely choice under anticipated (and real, as it happened) circumstances, they agreed that "Income-contingent repayment" resolves the problem of rising costs: "Who you are—rich, poor, middle class—when you apply for aid before college would not be the main determining factor. And what you become after college wouldn't matter greatly, either. You would still just pay a percentage of your income" (Gertner, p. 7).

When states can no longer maintain their investments in higher education and endowment returns fall during economic downturns, and when states impose budget cuts and institutions increase productivity, tuition and other costs must and will rise, as they have to date, and so will federal grants and loans in response. Repayment of loans occurs through the repayment plans. However, a sustainable program for the 21st century will unquestionably require cost controls of some kind. Proposals offering the greatest potential include the following, all suggested during earlier debates:

1. separating out short-term job training and remedial education for funding under detailed performance contracts issued competitively by the federal and state governments (Gladieux & Hauptman, pp. 39-50; Hauptman 1995; Hauptman 2009; Hauptman 2011);
2. implementing the Study Group proposals for grants, loans, and incentives and the President's initiatives for work study awards, state matching funds for federal loans, and competitive funding to promote curricular and other reforms in higher education (Baum et al. 2008; Obama);
3. encouraging and funding institutions to increase online delivery of courses and requiring all students to present at least 30 online credits for graduation (Eyring & Christianson 2011; Mills 2006); and
4. assessing strict and immediate penalties, including ouster from the aid program, for violating the rules.

More critically, sustainability will require a change in the definition of access, as Clifford Adelman has argued repeatedly (Adelman 2007). He concedes the existence of an "access crisis" in the United States, but not the "threshold" crisis people typically have in mind. Virtually any American can find a place in some institution somewhere, although not necessarily in the preferred institution. No amount of financial aid will assure open and free choice of institution to every American, but attention to the quality of pre-college education will mitigate the concern by opening opportunities to exercise choice. Directly to the point, Adelman had never found financial aid "a significant factor in whether students" complete degrees compared to appropriate preparation and motivation (Adelman 2006). Once over the threshold, the matriculating student encounters and must overcome the challenges of "participation access," the actual and pervasive national crisis in Adelman's view. Unless adequately prepared for the work and engagement required in college or any learning institution, those without preparation and motivation either 1) never cross the threshold, or 2) leave without the benefits of education. As he put it, "Completing the requirements for a degree [or a certificate] and ultimately graduating require that students accept a much higher level of responsibility than they do when they matriculate" (Adelman 2007).

Hauptman and Rice also argued that financial aid alone will not suffice to assure meaningful access for students (Hauptman & Rice). Baum agreed as well that "'[m]uch of the solution [to "'different college participation rates of young people from different socioeconomic backgrounds'"] has to occur long before college decision time'" (Gladieux & Hauptman, p. 85). Establishing actual curricular articulation between high school and college and clarifying and enforcing graduation and admission standards in terms of educational outcomes alone can assure a rational and sustainable federal aid program (King 2011; Krueger 2011). Gladieux and Swail quoted Laura Rendeon's conclusion that "'students [actually] begin to drop out of college in grade school,'" and cited Adelman that students who complete college degrees "'were [always] best prepared regardless of race, regardless of financial aid'"(Gladieux & Swail, p. 5-6). They thought that "everyone knows [or should know] that financial aid is not enough.... But debates on financial aid tend to be insular," as Hauptman noted and this discussion has demonstrated (Gladieux & Swail, p. 11; Hauptman n.d. but 2011).

Those points in mind, the last proposed reform, critical to the success of the other four, will depend upon the outcome of an intensive and extensive collaboration between the K-12 and postsecondary educational sectors to align high school graduation requirements with strengthened and strictly enforced college admission standards (Adelman Fall 2008; Klein & Rice 2012). The timing appears right for that collaboration, since virtually all states have engaged the nationwide effort to identify and implement common educational standards complete with protocols for learning outcome assessments (King; Krueger). As Brit Kirwan observed, "'Closing the gap between high school completion requirements and college entrance expectations is arguably the single most important thing to fix'" to regain world leadership in educational attainment (King, p. 7). The "'well-being of future generations'" and the success of American society hang in the balance.

Even with these critical reforms, a sustainable federal aid program will require additional funds to achieve its goals. To spread the burden broadly and equitably, the dedicated yield from a 1-2 percent tax on all college graduates with incomes above 150 percent of the poverty level for five years after they become fully employed will likely suffice, assuming the continuation of inflation-adjusted current federal commitments and good-faith state efforts. To manage the loans and the income from the tax, Price's proposal of a loan trust under the auspices of direct lending will serve nicely. If implemented, each generation of Americans will once again assume the obligation to educate the next in accordance with the venerable American "social compact"(Faulkner 2005; Dennison; Gladieux & Hauptman, Introduction; Loss, p. 234).

References

[The Montana Professor 23.1, Fall 2012 <http://mtprof.msun.edu>]