Committee for a Responsible Federal Budget
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BPC Releases Recommendations on Reforming Federal Higher Education Support

Jan 31, 2020 | Other Spending

The Bipartisan Policy Center (BPC) Task Force on Higher Education Financing and Student Outcomes recently released a report outlining 45 recommendations to improve the way the federal government and state governments support higher education attainment. Encouragingly, the report sets a goal of being budget neutral.

The report focuses on three key areas: reforms to improve access and affordability, reforms to improve outcomes and increase institutional accountability, and reforms to improve data and information for students.

The largest set of recommendations, which focuses on improving access and affordability, envisions a restructuring of federal support for higher education away from tax provisions and loan subsidies towards direct funding. Specifically, the report recommends providing states with annual $5 billion in total matching grants for institutional support and expanding Pell Grant funding by $90 billion over the next decade, which would be targeted towards students from low- and middle-income backgrounds and be unavailable to students from households in the highest income quartile. Furthermore, these expanded Pell Grants could be used for short-term programs and would be available to incarcerated students.

Policy Ten-Year
Cost/Savings (-)
Provide Matching Grants to States $50 billion
Expand Pell Grant Funding $90 billion
Invest in Minority-Serving Institutions $5 billion
Reform Public Service Loan Forgiveness $80 billion*
Subtotal, Costs $225 billion*
   
Eliminate American Opportunity Tax Credit, Lifetime Learning Credit, & Student Loan Interest Deduction $190 billion
Repeal In-School Interest Subsidy $20 billion
Reform Income-Driven Repayment, Including by Removing the Standard Repayment Cap $10 billion
Impose Institution Student Loan Premium $5 billion
Subtotal, Savings $225 billion
Net Total $0*

Sources: Congressional Budget Office and BPC Higher Education Task Force. * While there are no cost estimates for the Public Service Loan Forgiveness proposal, it is designed with the intention of budget neutrality, so we assume the costs will roughly equal the offsets. We assume all other proposals are budget neutral consistent with the intended goal of neutrality. All numbers are rounded to the nearest $5 billion.

For student loans, the recommendations would simplify Income-Driven Repayment (IDR) by making it the default repayment method, eliminating the standard repayment cap (which allows high-income borrowers to take advantage of loan forgiveness offered by IDR), eliminating the in-school interest subsidy, and making a number of changes targeted towards minimizing the risk associated with borrowing for parents and graduate students. Additionally, the Task Force recommends eliminating blanket forgiveness from the Public Service Loan Forgiveness program in favor of a $300 monthly supplement over the first five years of repayment. Finally, it would boost funding for Minority-Serving Institutions by $400 million annually.

To offset the costs of these changes, the Task Force recommends entirely eliminating tax expenditures specific to higher education – namely the American Opportunity Tax Credit, the Lifetime Learning Credit, and the student loan interest deduction. The report estimates this would save the federal government nearly $200 billion over the next decade, which we estimate (in combination with eliminating the in-school interest subsidy) would more than cover the additional funding specified. Finally, the Task Force recommends charging a premium to higher education institutions to help share the risk associated with student loans, which they estimate will raise $4 billion over a decade. These cost-saving changes would shift the federal government's role from providing tax and loan support that can often benefit high-income households to direct support that better targets low- and middle-income households.

The report also makes several additional recommendations that aim to hold higher education institutions accountable for student outcomes and make it easier for students to navigate the system – worthy goals in and of themselves.

BPC's Higher Education Task Force deserves significant commendation for putting forth recommendations that not only focus on better supporting and improving access to higher education for those who truly need it but also have bipartisan support and do not add to deficits. In evaluating reforms to higher education, this report should serve as a good example for lawmakers to consider going forward.