Background

To help students pay for college, several forms of financial aid are  available through federal, state, institutional, and private sources, as  shown in table 1.
In academic year 2011-12, about 70 percent of the undergraduate  students attending college borrowed money from federal or private  lenders. Before 2010, federal Stafford Loans and PLUS Loans were part  of the Federal Family Education Loan (FFEL) Program as well as the  William D. Ford Federal Direct Loan (Direct Loan) Program. Under the  FFEL Program, private lenders made federally-guaranteed student loans  to parents and students. The Student Aid and Fiscal Responsibility Act of  2009, enacted as a part of the Health Care and Education Reconciliation  Act of 2010, terminated the authority to make or insure new FFEL loans  after June 30, 2010. At the time, there was concern that paying banks to  act as middlemen for student lending was adding to the cost of student  borrowing. A Congressional Budget Office study estimated that the  government would save over $85 billion over 10 years if it did the direct  lending itself. Starting July 1, 2010 all Stafford and PLUS loans are  originated and disbursed directly from the Department of Education under  the Federal Direct Loan Program. FFEL Program loans disbursed before  July 1, 2010 continue to be serviced according to the terms and  conditions of the FFEL Program master promissory note the borrowers  signed when they obtained the loan.
The Stafford Loan program is the largest source of federal financial aid  available to postsecondary students. In academic year 2011-12, 35  percent of undergraduate students participated in the program, which  provided an estimated $89.6 billion to eligible students through subsidized  and unsubsidized loans. The federal government pays the interest on  subsidized loans while students are in school, and students must have a  financial need as determined under federal law to qualify for this type of  loan. Each student’s financial aid need is determined by subtracting the  student’s expected family contribution (EFC) and certain other estimated  financial assistance from the total price of attendance. Regardless of  their financial need, students can borrow unsubsidized loans to pay for  educational expenses and are responsible for paying back any interest  that accrues on the loan. A student may be eligible to receive both  subsidized and unsubsidized loans, which are generally referred to as a  combined loan.
To help students and their families pay for the rising cost of college,  Congress first passed a law that raised Stafford loan limits for first-and  second-year undergraduate students as well as for graduate and  professional students in academic year 2007-08, and subsequently for  all qualified undergraduate students receiving unsubsidized or combined  Stafford loans in academic year 2008-09 (see table 2).
Students whose financial need is not fully met by federal assistance and  the school’s own resources (school grants and loans, called institutional  aid) may turn to private lenders for college funding. While the private  student loan market is dominated by traditional financial institutions such  as banks, a variety of other private student lenders exist. Specifically, in  addition to the traditional banks, nonprofit lenders, many of which are  affiliated with states and certain schools, have elected to fund or  effectively guarantee loans.

	Any Impact of Increases in Loan Limits on Rising College Prices Is Difficult to Discern

For more than a decade, college prices have been rising consistently  across most types of institutions of higher education and continued to rise  after the Stafford loan limits increased, but it is difficult to establish if a  direct relationship exists. Numerous events that affected the economy  likely influenced rising prices, which generally followed a consistent  upward pattern across three commonly-used measures of college prices  (see fig. 1).
As figure 2 shows, the tuition and required fees that a typical student  would incur rose at an average annual rate of about 2 to 5 percent from  academic years 2007-08 through 2011-12, following a decade-long trend  of steady, consistent increases. The one exception to this pattern was at  for-profit 2-and 4-year institutions, where prices decreased across all  three measures during that time (see fig. 1). That is, for academic years  2007-08 through 2011-12, the tuition and required fees decreased at an  annual average rate of 3 percent (see fig. 2).
This pattern of gradual increases in tuition and fees has generally  persisted across different regions of the United States, with higher overall  annual rate increases from academic years 2007-08 through 2011-12 in  the Far West region (average annual rate increase of 14 percent), and  lower increases in the Great Lakes and Plains regions at 1 and 2 percent,  respectively. Enrollment, which can be sensitive to college prices, was  unaffected by increases in college prices, and continued an upward trend  as shown in figure 3, rising to about 18 million students in academic year  2011-12, with variations by region, student characteristics, and higher  education sector. Further, over the last decade, the cohort of college  students who are 18-24 has grown substantially, with this population  comprising about 42 percent of all college students in 2011. See  Appendix III for additional data on college prices and enrollment.
Although college prices went up, we were unable to determine whether or  not these increases resulted from the loan limit increases because of the  interference of various economic factors occurring around the same time  these loan limit increases went into effect. Specifically, when the loan limit  increases went into effect, the nation was in a recession which created  one of the most tumultuous and complex economic environments in  recent history, affecting families’ employment, income, and net worth (see  fig. 4). As shown earlier, the availability and types of federal and  institutional financial aid available to students increased around the time  the new loan limits went into effect (see table 1), also making it difficult to  discern any effect those loan limits may have had. For example, the dollar  amounts of Federal PLUS loans, federal tax benefits, Pell grants, and  federal veterans grants all increased. Further, the amounts of state and  institutional grants and loans also increased, while the amounts of state  appropriations for colleges and college endowments decreased.
Further, colleges appear to have responded to the economic crisis in  ways that are difficult to capture in a model. We found some evidence of  this in our discussion with selected college officials, who responded to the  economic crisis in different ways. For example, officials at a private  nonprofit 4-year institution said that despite declines in their endowments,  they used their general operating and annual giving funds to provide more  aid to students. In contrast, officials at one public 4-year college said that  they set their tuition so that their students, the majority of whom qualified  for federal Pell grants, could cover the price of tuition with their grant aid.  In addition, officials at one public 2-year college described how their state  board of education would not allow them to increase their tuition more  than 5 percent each year, while officials at a public 4-year college said  that any public school in their state that increased their designated tuition  by a certain percentage had to set aside more money for financial aid to  their students. Finally, Stafford student loan borrowing that occurred after  the loan limit increases presented a mixed picture. The proportion of  students taking out the maximum in Stafford student loans continued to  decline between academic years 2007-08 and 2011-12 for unsubsidized  (24 to 20 percent) and combined loans (61 to 58 percent) but not for  subsidized loans, which increased from 54 to 57 percent in the number of  students borrowing the maximum loan amount (see figure 5).

	Private Student Loan Borrowing Declined After the Loan Limits Increased

The landscape of private education borrowing has changed since the loan  limit increases took effect. Before the loan limit increases, the total  number of students borrowing private student loans had been increasing,  rising by 188 percent from 961,356 to 2,764,469 students between  academic years 2003-04 and 2007-08 (see fig. 6). After the loan limit  increases went into effect, the number of students taking out private  student loans dropped overall by 52 percent, down to 1,325,997 students  between academic years 2007-08 and 2011-12. This pattern persisted  across all types of institutions of higher education, with the steepest  declines at public 2-year (61 percent) and for-profit 2-and 4-year  institutions (58 percent) over this time period, according to Education  data. While it is unclear why there were steeper declines among these  types of institutions, increases in the availability of other types of aid may  have been a contributing factor. For example, officials at one for-profit 4- year institution participating in our study told us they increased the  amount of scholarship assistance available to students. Similarly, the  financial aid administrator at a public 2-year school told us the school was  able to increase institutional aid to students because its foundation  aggressively sought grants to fund scholarships.
Students also borrowed less private student loan money after the loan  limit increases, on average about $1,179 less in academic year 2011-12  than in academic year 2007-08– approximately a 17 percent decrease  (see table 3). While the decline in the amount students borrowed  occurred across all higher education institution types, amounts borrowed  by students attending public 2-year schools (28 percent) and private  nonprofit 4-year schools (22 percent) dropped the most. In terms of  average amounts borrowed in dollars, student borrowing at private  nonprofit 4-year schools showed the largest dollar decline: about $2,178.  The decrease in the average private loan amount borrowed by students  at public 2-year schools may have resulted in part from the effort by  school officials to rein in student borrowing and the increased availability  of other aid. For example, the financial aid administrator at a public 2-year  school said they encourage students to pursue federal loans first and  private loans as a last resort. Officials at a private nonprofit 4-year  institution said they adopted an “interventionist” approach toward students  who were considering private student loans. These officials said they  reached out to students who were considering private student loans and,  in some instances, increased the amount of institutional aid to students so  that they would not need to take out private loans. Private lenders we  interviewed also said that they had to rein in student borrowing to reduce  the risk of loan defaults. One lender said that some lenders decreased  loans to students at for-profit schools because of low graduation rates  and high default rates.
The decline in the number of students borrowing private student loans  paralleled other declines in the private education market. According to a  study by the CFPB—the agency that supervises large banks and  nonbanks that make private student loans—new loans for nine major  lenders steadily increased from 2005, peaking in 2008 at $10.1 billion.  However, in 2009, the calendar year the second loan limit increase took  effect, new loans decreased 31 percent (dropping from $10.1 billion in  2008 to $7 billion in 2009). From 2009 to 2010, new loans dropped  another 20 percent to $5.6 billion (See fig. 7).
As the average amount of private student loans borrowed by students  dropped, the average amount of federal education loans at all institutions  increased (see fig. 8). For example, between academic years 2007-08  and 2011-12, the average amount of private loans borrowed by students  at public 2-year institutions dropped by 28 percent while the average  amount of federal loans increased by 16 percent. At for-profit 2- and 4- year institutions, there was about an 11 percent decrease in the average  amount of private student loans borrowed and a 22 percent increase in  the amount of federal student loans. The trend of less reliance on private  student loans and more on federal student loans to fund education  persisted across all types of institutions.

		Factors Contributing to Private Loan Declines

Overall, the turmoil in the nation’s financial markets and the resulting  recession set the stage for the declines in private loan borrowing and  lending, but there were other contributing factors, too.
Lender exit. In response to the turmoil in the financial markets, some  lenders exited the student loan industry altogether, according to a  study by CFPB. These actions changed the market from one with  many lenders to a smaller market dominated by a few large lenders.
More stringent lending criteria. Lenders responded to the crisis by  tightening their lending criteria, making it more difficult for some  students to obtain these loans, according to a study by the CFPB  which was echoed by lenders and subject matter specialists we  interviewed. The CFPB study found that in the years leading up to the  2007-2009 recession when private student lending was increasing,  lenders were making a higher percentage of loans to borrowers with  weaker credit qualifications. This trend reversed during the  recession. In the aftermath of the credit crisis and recession, private  lenders changed their criteria for making student loans. For example,  the CFPB study found that lenders began to rely more heavily on  criteria that had been traditionally used to determine a borrower’s  creditworthiness, such as the borrower’s ability to repay the loan and  individual repayment history as reflected by a borrower’s Fair Isaac  Corporation credit score (FICO). Many lenders also required or  strongly encouraged students to have a co-signer for their private  student loans. While students could still obtain loans without a co- signer, lenders said student borrowers with a co-signer are more likely  to secure a lower interest rate and more favorable loan terms.
New consumer protections. In addition, the fallout from the turmoil  in the national financial markets in 2008 increased scrutiny of the  private student loan market, and subsequent statutory changes  increased consumer protections (see table 4). Enacted in 2008, the  Higher Education Opportunity Act (HEOA) amended the Truth in  Lending Act (TILA) and the Higher Education Act of 1965 to add new  disclosure requirements related to private student loan rates, terms,  and the availability of federal student loans. For example, it provided  for a 3-day period after consummation of the loan during which a  borrower may cancel a loan without penalty and also provided that a  borrower has 30 days after a loan is approved to accept the loan,  during which time the lender generally cannot change the loan rates  or terms. The new disclosures were accompanied by new borrower  responsibilities. In an effort to prevent over-borrowing, applicants for  private student loans must now complete a self-certification form that  includes a calculation of how much the student needs to borrow, and  attest that they are aware of the federal loan options available to  them. See Appendix IV for a sample self-certification template.  Several of the officials we interviewed noted that the self-certification  forms helped to keep students from borrowing more funds than they  actually need for educational costs. Furthermore, the HEOA amended  the TILA to prohibit certain practices by private lenders, including  revenue sharing between creditors and educational institutions. (See  table 4 for more information).
Proactive school initiatives. Officials at all of the schools in our  study described a wide range of activities they implemented to raise  student awareness and understanding of the various types of financial  aid available to them. Some school officials also described efforts  aimed at providing students with alternatives to private student loans.  While most of the schools provided personal counseling to help  students understand the obligations that come with borrowing private  student loans, financial literacy training, and a wide range of online  tools to help students calculate their college costs and financial need,  they also told us about efforts that were unique to their own  institutions. For example, officials at one public 4-year university  described how 80 to 90 percent of their students are eligible for Pell  grants, which cover much of their costs, and that many students do  not have the credit scores to qualify for private student loans. Officials  told us that they kept tuition at a level that would enable students’ Pell  grants to cover the full cost of tuition. Rather than raise tuition, school  officials said the school made modest increases to room and board  prices for students who chose to live on campus.
Officials at another public 4-year university said that they were able to  hold tuition steady by increasing enrollment. They said that they have  a multi-year plan to increase enrollment, especially for students  served through their online education programs. These officials also  described how they now offer a $10,000 degree to students who  pursue a Bachelor’s degree in the specific field of organizational  leadership. The program is competency-based rather than semester  credit-hour based, and features a combination of traditional classroom  instruction and credit for life learning. The $10,000 cost of the degree  covers tuition and fees but not room and board, transit, or other  miscellaneous costs. In addition, officials at both public 4-year  institutions said that their state boards of education require them to  keep college prices below a certain designated threshold, and if they  go above it, they must then increase the amount of institutional aid to  students. Their states put this policy in place, they said, to make  college more affordable and reduce the need for students to seek  private student loans to finance their education.
Officials at a private nonprofit 4-year institution described an  aggressive strategy for helping students pay for their education  without private or federal student loans. According to these financial  aid administrators, the university has adopted a policy of fully meeting  each student’s financial aid need and that for all students in general,  they have a no loan policy. To carry out this policy, the administrators  said the university does not include loans when determining a  student’s financial aid award and has increased institutional funding  for students through grants and scholarships. According to university  officials, during the recession they tapped into the university’s  operating funds to ensure sufficient levels of grant aid for students. In  addition, they said the university has changed the way it calculates a  student’s financial need for purposes of institutional aid by eliminating  home equity as a factor when considering a student’s eligibility for  institutional aid. The elimination of home equity as an asset, school  officials said, resulted in more students from middle income families  qualifying for financial aid.
Officials at all three for-profit institutions we interviewed said that  keeping costs down is a significant part of their effort to reduce  students’ reliance on loans, similar to the efforts that public institutions  reported. Officials at one of the for-profit institutions participating in  our study said they are focusing on reducing costs for academically  gifted students by increasing merit-based financial aid. Students with  higher admission test scores and GPAs receive more aid than other  students. The same institution also recently announced that it is  offering students in its honors program full tuition for their fourth year  of school. Officials at another for-profit institution told us that the  number of its students using private student loans had decreased to  11 percent in 2009 and has remained at that level. School officials  saw this as particularly notable because students’ private loan usage  had been as high as 30 percent in some years preceding 2009.  School officials told us that students who are considering private  student loans must participate in an interview at the school so that  they fully understand the terms and conditions of their private loan.  During the interview, the student is given information about private  loan interest rates, and information about federal loans. School  officials told us they encourage students considering loans to exhaust  their federal loans before they take out private loans.

	Agency Comments and our Evaluation

We provided a draft of this report to the Department of Education and  Consumer Financial Protection Bureau for review and comment. The  Department of Education and the Consumer Financial Protection Bureau  had no comments.
We are sending copies of this report to appropriate congressional  committees, the Secretary of Education, the Director of the Consumer  Financial Protection Bureau, and other interested parties. In addition, this  report will be available at no charge on GAO’s website at  http://www.gao.gov.
If you or your staff members have any questions about this report, please  contact me at (617) 788-0580 or nowickij@gao.gov. Contact points for  our Offices of Congressional Relations and Public Affairs may be found  on the last page of this report. GAO staff who made key contributions to  this report are listed in appendix V.

Appendix I: Objectives, Scope, and Methodology

This appendix discusses our methodology for the study, which was  framed around two objectives: (1) the extent, if any, that Stafford loan limit  increases affected tuition, fees, and room and board prices at institutions  of higher education; and (2) the trends in private student loan borrowing  since the loan limits took effect.
For our first objective, we developed a panel regression model—a  statistical method where data are collected over time from the same panel  to explore possible relationships among events—to examine the impact of  Stafford loan limit increases on tuition, fees, and room and board prices at  higher education institutions. This model is described in Appendix II. We  conducted supplemental analyses of Department of Education  (Education) data to determine patterns in college prices, enrollment, and  students’ use of federal student loans before and after the loan limits took  effect. For this objective, we also interviewed college officials to better  understand the extent to which, if any, loan limit increases influenced how  they set prices, such as tuition, fees, and room and board.
For our second objective, we analyzed Education data on private student  loans, reviewed results of a private student lenders survey conducted in a  study by the Consumer Financial Protection Bureau (CFPB), the agency  that supervises large banks and nonbanks that make private student  loans. We also interviewed college officials about private student loan  borrowing. For both objectives, we reviewed relevant federal laws,  reports, and other information relevant to these issues.
We assessed the reliability of the Education data we used by testing it for  accuracy and completeness and reviewing documentation about systems  used to produce the data. We found the data we reviewed reliable for the  purposes of our analyses. Similarly, we assessed the reliability of the  CFPB study’s private student lender survey data by reviewing  documentation about systems used to produce the data and reviewing  the survey methodology. We conducted this performance audit from  December 2012 to February 2014 in accordance with generally accepted  government auditing standards. Those standards require that we plan  and perform the audit to obtain sufficient, appropriate evidence to provide  a reasonable basis for our findings and conclusions based on our audit  objectives. We believe that the evidence we obtained provides a  reasonable basis for our findings and conclusions based on our audit  objectives.

	Analysis of Education Data on Trends in College Prices, Enrollment, and Federal Student Loan Borrowing Patterns

To determine trends in college prices since the loan limits took effect, we  examined 13 years of trend data (academic years 1999-2000 through  2011-12) for all Title IV-eligible, degree-granting institutions of higher  education from Education’s Integrated Postsecondary Education Data  System (IPEDS), and from the three most recent National Postsecondary  Student Aid Study (NPSAS) results (academic years 2003-04, 2007-08,  and 2011-12). We examined this data for undergraduate students—the  majority of college students—across four institutional sectors (nonprofit,  for-profit, public 2-year, and public 4-year colleges) and geographic  regions. For public 2-year and public 4-year colleges, we also reviewed  the annual tuition for both in-state and out-of-state students. We  analyzed three descriptors of price:  1.  Tuition and fees: the amount of tuition and required fees covering a  full academic year charged to students. These values represent what  a typical student would be charged and may not be the same for all  students at an institution. Tuition and fees data are weighted by  undergraduate enrollment. We analyzed these data by sector and by  region.   2.  Total price of attendance: what a typical student would pay for tuition  and required fees, books and supplies, room and board, and other  personal expenses. We analyzed these data by sector.   3.  Net price after grants: the total price of attendance minus all grant aid  received by a typical student. We analyzed these data by sector.
To determine patterns in undergraduate student enrollment, we used  IPEDS to analyze enrollment trends from academic years 1999-2000  through 2011-12. To determine the characteristics of enrolled students,  we also analyzed IPEDS data on institutional characteristics (geographic  region and sector) and student characteristics (attendance status and  race and ethnicity).
To determine the extent to which students borrowed Stafford loans at  their maximum levels in academic year 2011-12, we used NPSAS data.  For each loan type, we analyzed and compared the proportion of eligible  borrowers who received their maximum Stafford loan amount in academic  years 2003-04, 2007-08, and 2011-12.
Because NPSAS data are based on probability samples, estimates are  formed using the appropriate estimation weights provided with each  survey’s data. Because each of these samples follows a probability  procedure based on random selection, they represent only one of a large  number of samples that could have been drawn. Since each sample  could have provided different estimates, we express our confidence in the  precision of our particular sample’s results as a 95 percent confidence  interval (e.g., plus or minus 2.5 percentage points). This is the interval  that would contain the actual population value for 95 percent of the  samples we could have drawn. Unless otherwise noted, all percentage  estimates from NPSAS have 95 percent confidence intervals that are  within 8 percent of the estimate itself. All NPSAS dollar estimates have 95  percent confidence intervals that are within 8 percentage points of the  estimate itself.

	Analysis of Data on Private Student Loan Borrowing

To determine trends in private student loan borrowing since the loan limits  took effect, we reviewed aggregate trend data from nine major private  student lenders compiled in a CFPB study from calendar years 2005-11.  CFPB officials told us that the portfolios of these nine major lenders  represent about 90 percent of the private student loan market. The  lenders’ participation in the data collection was voluntary, and the  information was provided to CFPB and Education under a non-disclosure  agreement and is protected under various federal laws as proprietary and  confidential business information.
These private lender data consists of:  1.  Sample loan-level data: records from all private student loans  originated from calendar years 2005 to 2011 of nine major lenders  were pooled and analyzed in the CFPB study. The data do not identify  the specific lender for each loan.  2.  Lender portfolio-level data: quarterly performance data on private  student loans originated and/or purchased by the nine major student  loan lenders who provided the loan-level data, aggregated across  lenders.
In addition, the CFPB study queried the nine lenders about current loan  terms and conditions. We reviewed the CFPB study, including data  appendices that described these data sources and methodology. To  obtain additional information about trends after the loan limit increases,  we supplemented the CFPB study data with analyses of Education’s  IPEDS data (academic years 1999-2000 through 2011-12) and NPSAS  data (academic years 1999-2000, 2007-08, and 2011-12) about private  loan usage and undergraduate borrowing. We also examined these data  by institutional sector and for undergraduate students only.

	Interviews with College Officials, Private Student Lenders and Other Experts

To provide the schools’ perspectives about the role of loan limit increases  on college prices and federal and private borrowing trends, we  supplemented our data analysis with interviews with college officials at  eight institutions. We selected a nonprobability sample of institutions to  represent each major sector of higher education and different regions,  amounts of federal aid received, enrollment sizes, admission selectivity  levels, and prices of tuition and related fees (see table 5). During these  interviews, we spoke with the financial aid directors and other school  officials with knowledge of how tuition, fees, and other prices are set,  asking a series of questions related to the setting of tuition and other  prices and the role of loan limit increases in setting tuition and other  prices. We also asked them a series of questions about private student  loans, including trends in private student borrowing among their students  and the type of information they provide students to help inform their  decision about whether to borrow private student loans.
We also interviewed officials for three of the largest private student  lenders, who also participated in the CFPB study’s lender survey. We  asked them a series of questions, including questions about the trends in  private student lending, how they disclose the terms of their loans and the  loan certification process, how private student lending has changed over  time, and whether they expected to see resurgence in the private student  loan market.
In addition, we interviewed representatives from relevant professional  associations, federal officials, and subject matter specialists, including  academic researchers.
Total price of  attendance  (living on  campus)
Total price of  attendance  (living on  campus)
Total price of  attendance  (living on  campus)

Appendix II: Analysis of the Relationship between Student Loan Limit Increases and Tuition

This appendix provides the methodology we used to develop a panel  regression model to analyze the relationship between Stafford student  loan limit increases and college prices, and the results of that analysis.  Our panel regression model is a statistical method where data are  collected over a series of years for the same colleges to estimate possible  relationships among certain variables, controlling for the effects of other  variables; in this study, the relationship was between increases in loan  limits and increases in college prices.

	Methodology

Our analysis of the relationship between loan limit increases and college  prices used a panel regression model, which allows one to compare the  same group of institutions over multiple years. Our panel dataset consists  of all Title IV-eligible colleges in the United States over an 8-year time  span that covers years before and after the change in loan limits, which  occurred in academic years 2007-08 and 2008-09. The dataset is divided  by the type of institution and the control variables used in the regression  include college fixed effects, economic variables, and college  characteristics. We examined the following sectors: public 4-year  colleges; private nonprofit 4-year colleges; private for-profit 4-year  colleges; public 2-year colleges; private for-profit 2-year colleges; and  private for-profit less-than-2-year colleges. The main source of data is  IPEDS, an annual survey of colleges conducted by the Department of  Education (Education) that collects financial characteristics of the  institutions and is maintained by Education.

	Model

The base specification of our model is given by the equation:  1.  CollegePrices(i,t) = B0(i) + B1*LoanLimit(t) + B2*CollegeVars(i,t)  + B3*EconVars(t) + B4*Pre-LoanLimitTrend(t)  + B5*Post-LoanLimitTrend(t) + e(i,t)  where the notation means the following:
The subscript i represents college “i”
The subscript t represents year “t”
CollegePrices are the prices for a college in a certain year. We used  undergraduate tuition and fees and price of attendance (i.e., tuition  plus fees, room and board, books and supplies, and other expenses).  We used in-state tuition for public institutions, out-of-state tuition for  private 2- and 4-year colleges, and trade tuition for private, less-than- 2-year colleges.
LoanLimit identifies the period following the increase in the Stafford  student loan limit. The starting period for the increase in limits for both  the subsidized and unsubsidized loans was academic year 2007-08  (when the limit was increased from $2,625 to $3,500 for dependent  students), and academic year 2008-09 (when the loan limit was  increased from $3,500 to $5,500) for unsubsidized or combined loans.  We used dummy variables that are zero in the years before the  change in loan limit and one in the years thereafter. The dummy  variables for the loan limits in academic years 2007-08 and 2008-09  are used, respectively, in separate equations because the dummy  variables overlap. The loan limit increases are one-time events. In  addition to the loan limit increases, these variables also capture the  effects on college prices of other events that occurred at the same  time, such as the onset of the 2007-2009 financial crises and  recession.
B0 is a college fixed effect. The fixed effect allows us to control for  characteristics of the college, which do not vary over time and may  affect the college prices, but are not observed in our data. For  example, the college may be located in an expensive region of the  country.
CollegeVars are variables that describe characteristics of a college in  a certain year. The key variables we used involve revenue, and  include state appropriations and endowment income. We also  included the number of undergraduates (in full-time equivalents).
EconVars are control variables that vary by year, but not by college.
These variables reflect general economic conditions and include  state-level unemployment, housing prices, and a stock market index.
Pre-LoanLimitTrend and Post-LoanLimitTrend: To capture trends in  college prices during the periods before and after the loan limit  increases, two different time trends were used. For regressions  analyzing the effect of the academic year 2007-08 loan limit increase  on college prices: 2.  Pre-LoanLimitTrend = (t – 2008)*(1 – LoanLimit), and  3.  Post-LoanLimitTrend = (t – 2008 + 1)*LoanLimit.
In Equations (2) and (3), 2008 will be replaced with 2009 for regressions  analyzing the effect of the academic year 2008-09 loan limit increase on  college prices. The post-loan limit trend is implicitly an interaction term  between the loan limit variable and a time trend.
These variables control for trends in college prices that are common to all  colleges in our sample. Including both variables in our regressions allows  trends in college prices after the loan limit increase to differ from trends in  college prices before the loan limit increase. However, these variables  also reflect changes in other unobservable factors, such as economic or  political conditions, that may cause trends in college prices to differ before  and after the loan limit increases. e is the error term, which captures potential model misspecification,  measurement errors, and unobserved variables.
We divided the sample into sectors based on the control (e.g. public,  private, and nonprofit, for profit) and level (e.g. 2-year, 4-year) of the  institution. Specifically, we examined the six sectors where there were  sufficient observations for meaningful analysis and excluded the  remaining three sectors because there were too few observations. Thus  we included public 4-year colleges; private nonprofit 4-year colleges;  private for-profit 4-year colleges; public 2-year colleges; private for-profit  2-year colleges; and private for-profit less-than-2-year colleges and  excluded private nonprofit less than two-year colleges.
The analysis was done separately by institutional sector for two reasons.  First, different institution types may not necessarily compete for the same  types of students. For example, students with lower household incomes  are less likely to attend private colleges than public colleges. Thus,  different sectors may use different strategies for the college prices they  charge. Second, different institution types are likely to be affected by  different variables. For example, state appropriations are likely to be more  important to public colleges than for-profit private colleges. This implies  that the model specification could be different for different sectors.

	Data

The main source of data is the IPEDS dataset, maintained by Education.  IPEDS is an annual survey of colleges conducted by Education which  focuses on financial characteristics of the institutions. We merged the  academic year data across years and colleges to form a panel that runs  from the 2003-04 to the 2010-11 academic year. For certain income  variables, we used definitions based on work by the Delta Cost Project.  Now part of the American Institutes for Research, the Delta Cost Project  published a data map with the goal of standardizing and simplifying some  of the variables within IPEDS. Both IPEDS and the Delta Cost Project  definitions have been used in prior GAO work and deemed reliable for our  purposes.
We further refined our IPEDS data by excluding certain colleges for  various reasons. The major exclusion was institutions that did not have  complete data for all 8 years that we examined. Further, responding to  the IPEDS survey is required only for colleges that participate in the Title  IV aid programs. We also excluded colleges that were outside the 50  states and the District of Columbia, did not participate in Title IV, were not  open to the public, or were not predominantly postsecondary. We also  excluded colleges that were not active, were primarily administrative  units, or did not have undergraduate programs. This resulted in  approximately 600 public 4-year colleges; 1200 private nonprofit 4-year  colleges; 400 private for-profit 4-year colleges; 1000 public 2-year  colleges; 400 private for-profit 2-year colleges; and 900 private for-profit  less-than-2-year colleges.
We also added data from outside IPEDS to control for the potential  impact of household wealth on college prices. Specifically, we added a  state-level unemployment rate from the Bureau of Labor Statistics. In  some versions, we added the Case-Schiller composite housing price  index, which came from Standard and Poor’s (S&P), and the S&P 500  stock index, which we got from Federal Reserve Economic Data (FRED)  of the Federal Reserve Bank of St. Louis.

	Results

We ran several versions of our model, the results of which are presented  in tables 6 and 7. Table 6 shows results for the first loan limit increase in  academic year 2007-08, and table 7 shows results for the second loan  limit increase in academic year 2008-09—both best represent the various  models we estimated. Overall, the estimated models are statistically  significant as indicated by the models’ statistics (p-values).
Table 6 shows the results for the academic year 2007-08 Stafford loan  limit increase for both subsidized and unsubsidized loans on tuition and  fees (college prices). In each estimated model, the average academic  year change in college prices for years prior to the loan limit increase is  given by B4 (the coefficient on Pre-LoanLimitTrend); the average  academic year change in college prices in the year in which the loan  limits increased relative to the prior year is given by the sum of B1 (the  coefficient on LoanLimit), B4, and B5 (the coefficient on Post- LoanLimitTrend); and the average academic year change in college  prices in years after the loan limit increase is given by B5, all else being  equal. Thus, in the year the loan limit increases, the change in college  prices resulting from the loan limit and the trend effects is the sum of B1  and B5; we could not obtain the effects of the loan limit by itself because  B5 captures that effect as well as the trend effects. As shown in table 7,  for example, for private, nonprofit 4-year colleges (B1 = – $698, B4 =  $661, and B5 = $683), the average academic year change in college  prices for years prior to the academic year 2007-08 loan limit increase is  $661, the average change in college prices in the 2007-08 academic year  compared to the prior year is $646, the average academic year change in  college prices in years following the academic year 2007-08 loan limit  increase is $683, and the average academic year change in college  prices related to the loan limit increase is -$15 in the 2007-08 academic  year. Estimates from the regressions analyzing the academic year 2008- 09 Stafford loan limit increases for only unsubsidized loans are shown in  table 8.
Table 7 presents the average academic year changes in college prices by  different institutions in the periods before the academic year 2007-08  Stafford loan limit increase, the changes in college prices between the  loan limit year and the prior year, the change college prices in the years  after the loan limit increase, and the change in college prices in the loan  limit year attributable to only the events that occurred in that academic  year. The results show that average academic year college prices  generally increased across all types of colleges before the increase in the  Stafford loan limits. In the academic year of the 2007-08 Stafford loan  limit increase, college prices increased for some colleges and decreased  for others. The decrease in college prices by some colleges is consistent  with the opinion that the rapid change in economic conditions may have  led state legislatures to put political pressure on colleges in their states to  keep tuition low, a sentiment that was echoed in some of our interviews  with college officials. Furthermore, some of the college officials we spoke  with said that they held down tuition increases because of the economic  downturn and financial crises. In the years following the academic year  2007-08 loan limit increase, college prices generally increased. Although  the results appear to suggest that the loan limit increase tended to  weaken the rising trend in college prices, we cannot determine which  portion of the change in college prices in the academic year of the 2007- 08 loan limit increase is attributable to the loan limit alone because it is  confounded by other events in that year as well as the ongoing rising  prices.
The results in table 9 show the average academic year changes in  college prices before, during, and after the academic year 2008-09  Stafford loan limit increases. There were generally increases in college  prices in the academic year of the 2008-09 loan limit increase, before and  afterwards (although there were few cases of decreases). Similar to the  academic year 2007-08 loan limit increase, while the results seem to  suggest that the loan limit increase in academic year 2008-09 tended to  boost the rising trend in college prices we could not determine the portion  of the increase due solely to the loan limit increase because of other  confounding effects. Also, we could not separate out the effects of the  academic year 2007-08 and 2008-09 Stafford loan limit increases from  each other after they occurred since the two events overlapped.
Our results suggest that average academic year college prices generally  increased across all types of colleges prior to the increases in the Stafford  loan limits in academic years 2007-08 and 2008-09, and after the loan  limit increases. In the academic year of the 2007-08 Stafford loan limit  increase college prices increased for some colleges while they decreased  for others. And in the academic year of the 2008-09 Stafford loan limit  increase, college prices generally increased. But, in the effective years of  the loan limit increases we could not identify the changes in college prices  that were due solely to the increases in the Stafford loan limit increases  because of other events that happened during that time, including the  financial crisis and the economic recession, as well as the upward trend  in college prices.
We took multiple steps to verify our methodology. First, we consulted with  GAO experts on statistics, econometric modeling, and higher education  issues. Based on their comments, we made modifications to our model  where appropriate. Second, we consulted academic literature on student  financial aid and tuition. Third, we consulted academic experts who  reviewed our methodology and offered feedback. Fourth, we recognize  that our analysis has some limitations, including the difficulty in isolating  the effects of the Stafford loan limits themselves, the relatively small  number of years used, and our inability to include other types of colleges.  The results should therefore be interpreted with caution.

Appendix III: Additional Data on College Prices and Student Enrollment

Appendix IV: Sample Self-Certification Form for Private Loan Applicant

Appendix V: GAO Contact and Staff Acknowledgements

	GAO Contact

Jacqueline M. Nowicki, (617) 788-0580 or nowickij@gao.gov.

	Staff Acknowledgements

In addition to the contact named above, Sherri Doughty, Assistant  Director, Kristy Kennedy, Sandra Baxter, Patrick Dudley, John Karikari,  and John W. Mingus made significant contributions to this report. Also  contributing to this report were Jessica Botsford, Melissa H. Emrey Arras,  Lorraine Ettaro, Mimi Nguyen, and Kathleen L. Van Gelder.

Summary:
Why GAO Did This Study

A college education can increase the choices and opportunities available to individuals, but high college tuition rates have prompted concerns that a college education may be an unattainable goal for some. To help students finance their education, Congress passed a law that raised the ceiling on the amount students can borrow under the federal Stafford Loan Program (referred to in the law as "loan limits"). The Ensuring Continued Access to Student Loans Act of 2008 mandated a series of GAO reports over a 5 year period assessing the impact of these increases in the loan limits on tuition and other expenses and on private student loan borrowing.
For this final report, GAO examined: (1) the extent to which, if any, the Stafford loan limit increases affected tuition, fees and room and board prices at institutions of higher education; and (2) the trends in private student loan borrowing since the loan limits took effect. GAO developed a statistical model to explore whether the loan limit increases in academic years 2007-08 and 2008-09 had an impact on college prices in subsequent years. GAO analyzed data from the Department of Education (Education) and the Consumer Financial Protection Bureau (CFPB), and interviewed officials from eight higher education institutions that represented a mix of college sectors in different regions of the country, three of the largest private student lenders, federal officials, and subject matter specialists.

What GAO Found

For more than a decade, college prices have been rising consistently and have continued to rise at a gradual pace after the Stafford loan limit increases were enacted in 2008 and 2009. However, it is difficult to determine if a direct relationship exists between increases in college prices and the Stafford loan limit increases because of the confluence of many other factors that occurred around the time the loan limit increases took effect. Specifically, when the loan limit increases took effect, the nation was in a recession, which created one of the most tumultuous and complex economic environments in recent history. GAO's analysis found that the economic effects of the recession, which affected families' employment, income, and net worth make it difficult to isolate the impact the recession had on students' decisions to borrow money to finance college expenses versus the impact of the loan limit increases. Further, federal, state, and institutional aid available to students also increased significantly around the same time the loan limit increases went into effect. It is difficult to determine the extent to which the increased availability of this financial aid influenced the decisions of students on whether and how much money they should borrow versus the availability of increased loan limits. Conversely, GAO's analysis shows that even though college prices continued to increase at a gradual pace over the last decade as well as after the loan limits increased, enrollment, which can be sensitive to price increases, also generally continued to grow across both public and private institutions and in all regions of the country.
Around the time that the loan limit increases took effect, the number of students taking out private education loans decreased across all types of institutions; lenders were making fewer loans and students borrowed less. Specifically, before the loan limit increases, the number of students borrowing private loans for academic year 2007-08 was about 2.8 million; after the limits went into effect the number dropped by over 50 percent to about 1.3 million for academic year 2011-12. Similarly, the average amount of money that students borrowed from private student loans decreased by about 17 percent after the loan limits went into effect. For example, for academic year 2007-08 students' private student loans averaged about $7,048 and for academic year 2011-12 this had dropped to about $5,870. According to the federal and institutional officials as well as financial lending experts that GAO spoke with, many factors may explain the changed private loan landscape. For example, these officials and experts noted that:
lenders tightened lending criteria—such as requiring higher credit scores and co-signers—making it more difficult to obtain these loans;
Congress enacted new protections to raise students' awareness about private loans, including disclosures of loan rates and terms; and
colleges took steps to help students find alternatives to private borrowing and reduce reliance on private loans, such as increasing institutional aid and providing financial literacy counseling to help inform students about their federal assistance options.

What GAO Recommends

GAO makes no recommendations in this report. Education and CFPB had no comments.