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S. HRG. 114–131 

FINANCING HIGHER EDUCATION: EXPLORING 

CURRENT CHALLENGES AND POTENTIAL 

ALTERNATIVES 

HEARING 

BEFORE THE

JOINT ECONOMIC COMMITTEE 

CONGRESS OF THE UNITED STATES 

ONE HUNDRED FOURTEENTH CONGRESS 

FIRST SESSION 

SEPTEMBER 30, 2015 

Printed for the use of the Joint Economic Committee 

( 
(II) 

JOINT ECONOMIC COMMITTEE 

[Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress] 

SENATE 

DANIEL COATS, Indiana, Chairman 

MIKE LEE, Utah 

TOM COTTON, Arkansas 

BEN SASSE, Nebraska 

TED CRUZ, Texas 

BILL CASSIDY, M.D., Louisiana 

AMY KLOBUCHAR, Minnesota 

ROBERT P. CASEY, JR., Pennsylvania 

MARTIN HEINRICH, New Mexico 

GARY C. PETERS, Michigan 

HOUSE OF REPRESENTATIVES 

KEVIN BRADY, Texas, Vice Chairman 

JUSTIN AMASH, Michigan 

ERIK PAULSEN, Minnesota 

RICHARD L. HANNA, New York 

DAVID SCHWEIKERT, Arizona 

GLENN GROTHMAN, Wisconsin 

CAROLYN B. MALONEY, New York, Ranking 

JOHN DELANEY, Maryland 

ALMA S. ADAMS, PH.D., North Carolina 

DONALD S. BEYER, JR., Virginia 

VIRAJ M. MIRANI, Executive Director 

HARRY GURAL, Democratic Staff Director 
(III) 

C O N T E N T S 

OPENING STATEMENTS OF MEMBERS

Hon. Daniel Coats, Chairman, a U.S. Senator from Indiana .............................. 1 

Hon. Carolyn B. Maloney, Ranking Member, a U.S. Representative from 

New York .............................................................................................................. 2 

WITNESSES

Hon. Mitchell E. Daniels, Jr., President, Purdue University, West Lafayette, 

IN ........................................................................................................................... 5

Dr. Andrew P. Kelly, Resident Scholar and Director, Center on Higher Education Reform, American Enterprise Institute, Washington, DC .................... 7 

Mr. Rohit Chopra, Senior Fellow, Center for American Progress, Washington, 

DC .......................................................................................................................... 9 

SUBMISSIONS FOR THE RECORD

Prepared statement of Hon. Daniel Coats ............................................................. 36 

Prepared statement of Hon. Carolyn B. Maloney ................................................. 36 

Hon. Mitchell E. Daniels, Jr., President, Purdue University, West Lafayette, 

IN ........................................................................................................................... 39 

Dr. Andrew P. Kelly, Resident Scholar and Director, Center on Higher Education Reform, American Enterprise Institute, Washington, DC .................... 46 

Mr. Rohit Chopra, Senior Fellow, Center for American Progress, Washington, 

DC .......................................................................................................................... 60

Questions for the Record for Mr. Rohit Chopra and Responses submitted 

by Representative Maloney ................................................................................. 70 

Questions for the Record for Mr. Rohit Chopra and Responses submitted 

by Senator Amy Klobuchar ................................................................................. 70 

Questions for the Record for Hon. Mitchell E. Daniels, Jr. and Responses 

submitted by Representative Alma S. Adams, Ph.D. ........................................ 71 

Questions for the Record for Dr. Andrew P. Kelly and Responses submitted 

by Representative Alma S. Adams, Ph.D. .......................................................... 72 

Questions for the Record for Mr. Rohit Chopra and Responses submitted 

by Representative Alma S. Adams, Ph.D. .......................................................... 72 

(1) 

FINANCING HIGHER EDUCATION: EXPLORING 

CURRENT CHALLENGES AND POTENTIAL 

ALTERNATIVES 

WEDNESDAY, SEPTEMBER 30, 2015 

CONGRESS OF THE UNITED STATES, 

JOINT ECONOMIC COMMITTEE, 

Washington, DC. 

The Committee met, pursuant to call, at 10:10 a.m. in Room 562 

of the Dirksen Senate Office Building, the Honorable Daniel Coats, 

Chairman, presiding. 

Representatives present: Brady, Paulsen, Hanna, Maloney, 

Beyer, and Delaney. 

Senators present: Coats, Lee, Cassidy, Klobuchar, Casey, Cotton, Heinrich, and Peters. 

Staff present: Connie Foster, Harry Gural, Colleen Healy, 

Christina King, Kristine Michalson, Viraj Mirani, Brian Neale, 

Thomas Nicholas, Robert O’Quinn, Leslie Phillips, Ansley Rhyne, 

Stephanie Salomon, Aaron Smith, Sue Sweet, and Phoebe Wong. 

OPENING STATEMENT OF HON. DANIEL COATS, CHAIRMAN, A 

U.S. SENATOR FROM INDIANA 

Chairman Coats. The Committee will come to order. 

I would like to welcome our witnesses and thank them for being 

here this morning to discuss how we can improve our current system of higher education financing. Most of us, if not all of us, will 

agree that the current framework is far from ideal. 

From a student’s perspective, rising student debt means greater 

difficulty in obtaining financial stability early in their careers, impacting important life decisions such as buying a house or starting 

a family. This is particularly true in light of the slow economic recovery where lower paying entry-level positions create additional 

pressures for young Americans. 

From a taxpayer’s perspective, the free flow of federal student 

loan dollars to higher education institutions without proper incentives to control costs will continue to lead to higher tuition prices 

charged to students. 

While loans to cover tuition are relatively easy for students to obtain, many are not adequately informed as to the implications of 

this debt for their ability to achieve post-graduation financial success. 

Greater system-wide accountability and transparency are needed 

and our witnesses will be sharing their thoughts with us today on 

how to best achieve these goals. 
2 

I am pleased to have Purdue University President Mitch Daniels, 

former Governor of our State, before us today to talk about his several initiatives to control costs, to improve financial literacy, and 

to create value for students attending Purdue. President Daniels 

will be outlining, among other incentives, the ‘‘Bet On A Boiler’’ Income Share Agreement Pilot Program and how Congress can assist 

similar higher education financing reforms. 

I am also looking forward to hearing Dr. Kelly’s thoughts on how 

our current student loan system distorts the higher education market and the role competitive principles can play in making higher 

education more affordable for everyone. 

And finally, we are also pleased to welcome Mr. Chopra, who will 

outline the need for proper safeguards as Congress considers alternatives to the current higher education financing arrangement. 

With that, I look forward to discussing these issues in more 

depth with our witnesses today, and now want to recognize Ranking Member Maloney for her opening statement. 

[The prepared statement of Chairman Coats appears in the Submissions for the Record on page 36.] 

OPENING STATEMENT OF HON. CAROLYN B. MALONEY, 

RANKING MEMBER, A U.S. REPRESENTATIVE FROM NEW YORK 

Representative Maloney. Well thank you, Chairman Coats, for 

calling this hearing today, and welcome to all of the witnesses. 

Rapidly growing student loan debt is a significant challenge facing our country. Student loan debt grew steadily through the Recession, more than doubling from the start of the Recession in 2007 

to today, and is now close to $1.3 trillion. 

Student loan debt is now almost twice the size of credit card 

debt, which is a staggering statistic. More than 40 million people 

have, on average, more than $27,000 in debt. The recent explosion 

in student debt risks the economic security of Americans and 

threatens our economic growth. As debt levels increase, young people are forced to delay buying a car, purchasing a home, starting 

a business, and saving for retirement. And some end up paying 

back their loans well into their 30s, 40s, and 50s. Now how in the 

world did we get to this burden on our young people? 

Part of the story is that many American families have struggled 

in recent decades and have had trouble saving money for their children’s college education, and many were hit hard by the recent Recession—the most severe economic crisis since the Great Depression. 

When parents have less savings, students are forced to borrow 

more, substantially more. In fact, borrowing has gone up sharply 

in recent years with the average debt at a four-year public institution, climbing from $21,000 in 2006 and 2007, to over $25,000 in 

tuition in 2012 and 2013. 

Another critical part of the story is that tuition has risen dramatically especially at public colleges and universities, which educate the vast majority of our students. States have also been hit 

hard by the Recession, and in response many have slashed funding 

for higher education. 

Median state funding per student, for example, fell by almost 

one-fourth from 2003 to 2012. Cuts in state funding for higher edu-
3 

cation forced public universities to charge more. As a result, this 

forces students and their parents—they have to pay more. And this 

means that students have to borrow more money to go to college. 

With a declining state investment, tuition increases have far outpaced inflation since the 1980s. After adjusting for inflation, tuition 

and fees at a public four-year university more than tripled in the 

past 30 years. 

The Bush-era Recession increased the overall amount owed by 

students in another way. As job opportunities shrank, more and 

more young people opted to enroll in school and they had to take 

out loans to pay for it. 

The recent Recession also accelerated the loss of many higher 

paying jobs that did not require a college degree, further increasing 

the demand for college or other post-secondary education. 

For-profit institutions, in particular, saw their enrollments surge, 

quadrupling between 2000 and 2011. A new report finds that 75 

percent of the increase in student loan defaults between 2004 and 

2011 results from the increase in borrowers at for-profit institutions. 

Student debt is a big problem. And how do our Republican colleagues suggest that we respond to this problem? By restricting the 

availability of federal student loans and by expanding the private 

student loan market. 

As recent history has shown us, private student loans pose significant risk to borrowers. These loans lack—these loans often lack 

consumer protections. They typically carry higher interest rates, 

some greater than 18 percent. 

Many borrowers have been forced into default when lenders 

would not renegotiate, or negotiate viable repayment plans, income-based repayment, and extended loan terms. These plans, 

which are available with federal loans-typically are not available 

with private student loans. And there are many, many examples of 

private lenders really preying on student borrowers. 

Defaults can affect employment background checks and cause 

lasting damage to a person’s credit and their future ability in their 

professions. There is probably broad agreement in this room about 

the need to continue to clean up the abuses in the student loan industry. It has been the Wild West with providers marketing their 

loans to students desperate for financing through every conceivable 

channel: Pandora, YouTube, on-campus, off-campus, and in many 

different ways. 

As we consider new private options for financing a college education, we must make absolutely sure we have strong safeguards 

in place to prevent private lenders from using any type of predatory practices to take advantage of students. 

Today we will discuss a new private lending mechanism—Income 

Share Agreements—that could offer some students an alternative 

way to finance their college education. 

I would like to hear from our witnesses what they have to say 

about this issue. I would also like to know specifically how they 

would protect students from any predatory practices that have 

been a part of the existing private student loan market. 

Rather than look to the private sector to magically solve the student debt problem, we should strengthen public support for higher 
4 

education. It is important to remember that an educated workforce 

is a public good, and thus without government involvement we 

would under-invest in education. 

There are four steps that we can take right now. 

First, we should make tuition free for students at community college. Students would then be able to build their skills and perhaps 

obtain an associates degree without taking on huge debt. 

Second, states need to partner with the Federal Government to 

reinvest in higher education, and to begin to reverse the years of 

budget cuts at the state level. 

Third, at the Federal level we should increase investment in Pell 

Grants to give low-income students a real shot at a college education. Despite recent increases, Pell Grants now cover just onethird of the cost of going to a public university. Finally, we need 

to reform the system so that universities and colleges have some 

‘‘skin in the game,’’ some consequences when a student is unable 

to pay back a loan. And colleges should be rewarded when a student does succeed. 

Before we take the advice of my Republican colleagues and scale 

back federal student loans and increase private lending to students, let’s take a minute to remember how much students benefit 

from federal loans: Much lower rates. Better consumer protections. 

Income-based repayment. Extended loan terms. 

College has been a gateway to opportunity for generations in our 

country, but for too many Americans as the price of college rockets 

up, the dream of an affordable college education slips away. Our 

goal should be college education that is more accessible and more 

affordable. 

The Federal Government, state governments, universities, colleges, community college, the private sector, and families all have 

a role to play. I look forward to our discussion today. 

I thank the witnesses for their commitment to this issue. I look 

forward to their testimony. I might say that it’s good to see a 

former leader here in Congress. Welcome back, President Daniels. 

[The prepared statement of Representative Maloney appears in 

the Submissions for the Record on page 36.] 

President Daniels. Thank you. 

Chairman Coats. Thank you. Let me introduce our witnesses. 

President Mitchell Daniels is a long-time friend coming from my 

home State of Indiana. He became the 12th president of Purdue 

University in January 2013 at the conclusion of his second term as 

Governor of the State of Indiana. President Daniels also comes 

from a successful career in business, holding numerous top management positions. He is a member of the board of numerous nonprofit organizations, including the Urban Institute and the American Academy of Arts and Sciences Commission on Post-Secondary 

Education. 

Additionally, he serves as co-chair of the Committee for A Responsible Federal Budget. Mitchell Daniels earned a Bachelor’s Degree from the Woodrow Wilson School of Public and International 

Affairs at Princeton University, as well as a Law Degree from 

Georgetown University. 

A warm welcome to you, President Daniels. 
5 

Dr. Andrew Kelly is a Resident Scholar In Education Policy 

Studies and the Director of the Center for Higher Education Reform at the American Enterprise Institute where he works on higher education policy, innovation in education, financial aid reform, 

and the politics of education policy. 

Dr. Kelly received his Doctorate and Masters Degree in Political 

Science from the University of California at Berkeley, and a Bachelor’s Degree in History from Dartmouth College, and we thank 

you, Dr. Kelly, for being here today. 

We’re going to have to have a cell phone turnoff. 

[Laughter.] 

We’re going to get a screen like they have at the movies, you 

know, so if everybody would silence their phones that would be 

helpful. 

Finally, Rohit Chopra, who is a Senior Fellow at the Center for 

American Progress. Previously Mr. Chopra worked to establish the 

Consumer Financial Protection Bureau, and served as part of the 

senior leadership team. 

Mr. Chopra earned his Bachelor’s Degree from Harvard College 

and a Master’s Degree in Business Administration from the Wharton School at the University of Pennsylvania. 

With that, let me turn to President Daniels as the first witness, 

followed by Dr. Kelly, and Mr. Chopra. And I thank the witnesses 

for being here this morning and apologize for being late. We had 

a vote at ten o’clock in the Senate and I was the first to vote and 

the first out of the chamber. So we are doing the best we can. 

Representative Maloney. And I have just been called to a vote. 

I will be back. 

Chairman Coats. President Daniels. 

STATEMENT OF HON. MITCHELL E. DANIELS, JR., PRESIDENT, 

PURDUE UNIVERSITY, WEST LAFAYETTE, IN 

President Daniels. Thank you, Mr. Chairman (off microphone). 

Chairman Coats. Would you press that [button]. Thank you. 

There you go. 

President Daniels. The two thoughtful opening statements that 

we just heard make it plain there is no need to rehash the dimension of the problem we are facing, except to affirm that it is still 

getting worse. Last year by close to a billion dollars, 7 or 8 percent 

on top of the astonishing number that Ranking Member Maloney 

reminded us of. 

Our research partners, Purdue’s research partners at Gallup just 

yesterday released the second installment of the biggest study ever 

of college graduates and documented the blight on young lives that 

the debt is causing—postponing housing, postponing purchase of 

cars and durable goods, postponing starting businesses, postponing 

having the children this Nation is going to need to meet its obligations decades from now. 

That is our principal concern, economic and personal costs. It is 

also of course a fiscal catastrophe, or should I say another one. It 

has overrun its projections in six of every seven years by my reckoning, the debt programs that we have today, and you saw the biggest write off ever, $22 billion. We all know it is just the first of 

many to come. 
6 

These same people who were indebted, or are indebted to the tune of almost $60,000 for public debt that has been run up, not 

for investment in their future but for current consumption, and we 

should not forget that this issue we are discussing here today contributes very directly to the buildup of that. 

But we are here to concentrate on the constructive. I have three 

things, among many, that we could talk about: transparency and 

information, very important. Secretary Duncan was on the Purdue 

campus two weeks ago. We commended him and thanked him for 

the new scorecard. It could be improved. It, for instance, would 

help to see data on earnings program by program, because averages can be deceiving. But that is a good start. At Purdue where debt is down $50 million in the last three 

years, or about 23 percent, a major factor has been a four-year 

freeze on tuition. We are halfway through it. But we have found 

that a little information and a little counseling goes a very long 

way in helping young people and their families make better decisions at the front end. So things the Federal Government can do 

to encourage that are very important. 

Accountability, which the education system lacks end-to-end and 

everywhere is a factor here, too. I completely agree with Congresswoman Maloney’s suggestion that colleges share in the risk that 

their graduates will not be able to meet their obligations based on 

the education they received. And you can sign Purdue up for one. 

We’re more than willing and find that more than appropriate. 

And many of us believe that some new approaches are in order. 

And just to center on the one that we were invited to talk about, 

the so-called ‘‘Income Share Agreements,’’ it is very important, by 

the way. They were loosely mentioned a minute ago as ‘‘lending.’’ 

They are not lending. That is their principal distinctive feature, in 

my opinion. Think of them as equity as opposed to debt. We see 

them not as a panacea but as an important addition to the portfolio, maybe a replacement for PLUS and most private loans which 

I quite agree are the biggest locus of the problem we have. 

They shift the risk from the students to the investor—not the 

lender but the investor. They provide limits, and they provide some 

certainty to the obligation that a graduate will have. They would 

know that never more than an agreed-upon negotiated, and freely 

chosen percentage of their future income in any given year would 

go to pay back the investor. 

You want debt-free education? Here it is. So we want to thank 

Congressman Young, Congressman Polis for this bipartisan House 

initiative, and I am very encouraged to hear that it has some prospects. It will be necessary, in our opinion, to provide clarifications 

on subjects like state usury laws, and tax treatment and, as was 

mentioned by Ms. Maloney, protections for—reasonable protections 

and boundaries for those who might participate. 

I will say there is one thing about the bill that I recommend a 

closer look at. We do not believe—I’m sorry, we do—I would believe 

that, like other equity investments, income share agreements 

should be dischargeable in bankruptcy. As you know, student loans 

are not. It is another way in which they are—can fairly be described as indentured servitude. They are the most onerous form 

of debt we have. 
7 

I would suggest changing the bill to indicate that ISAs are dischargeable in bankruptcy. But we thank the sponsors, and we appreciate the bipartisan nature of the look that has been taken. 

[The prepared statement of President Daniels appears in the 

Submissions for the Record on page 39.] 

Chairman Coats. President Daniels, you have not lost your 

touch. You spoke for exactly five minutes. 

[Laughter.] 

You ended at five minutes on the second. I appreciate the content 

of what you said, and the brevity with which you said it. 

Dr. Kelly. I am not trying to put too much pressure on you, Dr. 

Kelly, but . . . 

STATEMENT OF DR. ANDREW P. KELLY, RESIDENT SCHOLAR 

AND DIRECTOR, CENTER ON HIGHER EDUCATION REFORM, 

AMERICAN ENTERPRISE INSTITUTE, WASHINGTON, DC 

Dr. Kelly. Setting a very high standard, as always. 

Good morning, Chairman Coats, Ranking Member Maloney, and 

distinguished Members of the Committee: 

Thank you for the opportunity to testify. My name is Andrew 

Kelly. I am the Director of the Center on Higher Education Reform 

at the American Enterprise Institute. We are a nonprofit, nonpartisan public policy research organization, and my comments 

today are my own and do not necessarily reflect the views of AEI. 

I am here because the federal approach to financing higher education is on an unsustainable path and too often fails to help those 

who need it most. While federal per-pupil aid increased 46 percent 

over the past decade, net prices and out-of-pocket costs at most institutions have never been higher. 

Simply pouring more money into the system will not solve these 

problems and may make them worse. That is because the Federal 

Student Aid System suffers from four design flaws. 

First, it essentially empowers colleges to capture as much federal 

aid as they can. Aid eligibility is based in part on the cost of attendance, which colleges control. In addition, colleges use detailed 

financial information about their applicants furnished by the Federal Government to price discriminate, often substituting federal 

grant aid for their own institutional resources. 

Second, a lack of clear comparable information on costs and quality makes it difficult for consumers to identify the most valuable 

options. Systematic data on student outcomes like learning, job 

placement, and earnings are rare, hindering consumers’ ability to 

make prudent borrowing decisions. This reduces market pressure 

on colleges to compete on price and quality. 

Third, there is almost no underwriting of federal student lending. 

Any high school graduate can borrow to attend any accredited college at almost any price. Federal loans and grants provide no signal to students about the value of different offerings and allow 

them to enroll in poorly performing schools. 

Fourth, existing policies do not exercise sufficient quality assurance. Federal eligibility criteria are far too generous, meaning few 

schools ever lose access to grants and loans no matter how poor 

their outcomes. Continued access to aid props up colleges that 

would never pass a market test. 
8 

In short, the problem is not only that we make so much money 

available in student aid, but that we make so much money available with very few strings attached. One potential consequence is 

the Bennett Hypothesis, the notion that increases in federal aid 

cause increases in tuition. Existing research on this question is 

mixed, but most studies find that at least some types of colleges 

raise prices in response to federal aid. 

A recent study found that for every dollar in subsidized student 

loans colleges raise tuition prices by about 65 cents. It is difficult 

to identify whether aid causes tuition increases, but it certainly 

seems to relax the incentive to keep tuition low. 

The Bennett Hypothesis has helped explain why federal investments have not kept tuition low. But the focus on price increases 

ignores a more pressing problem: the failure of federal aid to promote higher education quality. 

Aid policy provides colleges with plenty of incentives to enroll 

students but less reason to worry about whether they are successful. New college scorecard data suggests that at a majority of colleges at least half of the alumni earn no more than a high school 

graduate six years after enrolling. Default rates are highest among 

borrowers with low balances, and even inexpensive institutions like 

community colleges have low repayment rates. These patterns indicate that higher education’s problems go beyond tuition inflation. 

For far too many students, federal aid is providing access in name 

only. With these challenges in mind, there are several reforms that 

would encourage colleges to compete on price and value. 

First, capping PLUS Loans to parents and graduate students 

which allow unlimited borrowing up to the cost of attendance 

seems like a straightforward way to curb tuition inflation. 

Second, federal policy should empower consumers with better information about costs and student outcomes. The College Scorecard’s new earnings data is a start, but the Federal Government 

should expand on this effort to collect and make public programlevel outcome data. 

Third, policymakers should create two simple accountability 

mechanisms based on loan repayment rates: A performance floor 

that would exclude the worst performing institutions from federal 

aid programs; and a risk-sharing policy that would give institutions 

above that floor greater skin in the game. If all colleges were held 

responsible for a percentage of their students’ unpaid loans, they 

would have incentive to contain their tuition, maximize rates of 

student success, and reconsider their admission standards. 

Fourth, reform should create space for private financing that can 

inject more market discipline into higher education. In theory, private investors could underwrite on the basis of program quality 

and future earnings, driving students toward valuable opportunities. Existing private student loans do not appear to be forwardlooking in this way. More than 90 percent of new private loans feature a co-signer. An alternative is an Income Share Agreement 

under which students obtain funding for school in exchange for a 

percentage of their after-school income over a set period of time. 

Because an investor’s return is directly tied to his student’s success, ISA providers have incentives to help students navigate toward valuable opportunities. There are a number of for-profit and 
9 

nonprofit entities trying to offer this option to students, but a lack 

of legal and regulatory clarity has limited the growth of this market. 

Policymakers like Senator Marco Rubio and Representatives 

Todd Young and Jared Polis have introduced bills that would provide such clarity and put common sense consumer protections in 

place. 

I appreciate the opportunity to provide testimony and I look forward to the discussion. 

[The prepared statement of Dr. Kelly appears in the Submissions 

for the Record on page 46.] 

Chairman Coats. Dr. Kelly, you almost—you were three seconds over. 

[Laughter.] 

I think we have set a standard here now. 

Mr. Chopra, you really are under a lot of pressure, but we look 

forward to hearing from you. 

STATEMENT OF MR. ROHIT CHOPRA, SENIOR FELLOW, 

CENTER FOR AMERICAN PROGRESS, WASHINGTON, DC 

Mr. Chopra. Thank you, Mr. Chairman, and Members of the 

Committee, for having me today. 

I am someone who has always been a big believer in the power 

of competition, whether it is Olympic runners training for a big 

race, or a burger joint looking to be the best in town. 

Competition can push us and help us be our best. But like many 

others, I am also someone who believes that competitions and markets do not reward the best when competitors cheat rather than 

compete. 

Today I want to talk about our student loan market and the need 

for common sense rules of the road to promote fair competition that 

protect consumers and honest businesses. Now we do not have to 

go very far back in history for an example of what happens when 

businesses cut corners. 

This month marks the seventh anniversary of the collapse of 

Lehman Brothers and the acceleration of the financial crisis. 

Sketchy lenders and mortgage brokers pushed borrowers into exotic 

new products, sometimes using bait-and-switch tactics that led to 

surprises on closing day. 

We did not get the benefits of competition. What we got was catastrophe. Families across the country saw their home values 

plummet, their retirement savings crater, and their jobs vanish. 

With state budgets squeezed, support for higher education 

slashed and household wealth slipping away, more families could 

not pony up to pay for college, making more and more seek out student loans. 

Since the collapse of Lehman, outstanding student debt has doubled, with debt-per-borrower far outpacing the growth in tuition. 

While most of our student loan market consists of federal student 

loans, private competition has played a big role in the student loan 

industry, but with mixed results. 

For example, there are upwards of $500 billion in student loans 

originated using private capital still outstanding. Now in theory 

private lenders could have participated in the federal loan program 
10 

and competed on price and service, but it turns out it did not work 

as planned. 

An investigation by the New York AG did not find lenders competing, he found them cheating. Lenders gave kickbacks to schools, 

and even transferred company stock to keep financial aid personnel. 

By the end of 2007, the eight largest lenders in the market, including some of the biggest names in Wall Street, signed codes of 

conduct and many paid millions to settle charges for wrongdoing. 

Our private student loan market, the one operating outside of 

the federal program, is not doing much better. Like the subprime 

mortgages that skyrocketed in the boom years, Wall Street 

securitization of private student loans surged, giving lenders the 

ability to sidestep schools and aggressively target families without 

clearly explaining that private student loans did not include some 

of the key protections of federal loans, like income-driven repayment plans which would prove to be a lifeline for students who 

graduated in a tough economy. 

Recently regulators have started to crack down on some of the 

worst abuses. The Justice Department fined Sallie Mae and 

Navient millions for ripping off military families. 

The FDIC tacked on even more for their illegal student loan 

servicing practices and violations of anti-discrimination laws. And 

just this summer, the CFPB fined Discover for illegal debt collection tactics and for inflating billing statements. 

None of us like the outcome of the game when athletes are 

doping, or when the ref is in cahoots with the bookie to favor one 

competitor over another, and in the marketplace we are all better 

off with sensible, well-tailored rules and a fair referee. 

In the student loan market, honest actors and consumers will all 

benefit if we make disclosures clear, ensure that servicing and 

credit reporting are accurate, and free of conflicts of interest, and 

repayment plans in times of distress are not gimmicky band-aid solutions. 

That is how competition can help every student reach the finish 

line, instead of being part of a race to the bottom. 

Thank you, and I look forward to your questions and the discussion. 

[The prepared statement of Mr. Chopra appears in the Submissions for the Record on page 60.] 

Chairman Coats. Dr. Chopra, thank you. 

I will start with just some questions. I will try to adhere by my 

own rules. As a quarterback or point guard looking at the play 

clock, as I get down to zero I will have my staff poke me in the 

back and say time’s up. 

President Daniels, Dr. Kelly listed several things here, and you 

did also, relative to responsibilities, accountability, transparency, a 

number of things as we address this. What I would like to hear you 

talk about is what is the responsibility of the university relative to 

these tuition costs, other related costs that are rising two, three, 

four times the rate of inflation? 

What is the role of the university in the accountability that it 

must engage in? You suggested a couple of things, and I think you 

have done more from what I understand at Purdue to be account-
11 

able from the management side of the educational institution in 

getting control of its costs, because ultimately that drives up the 

costs to students and to the parents and students that are having 

to repay these loans. 

President Daniels. Well up until recently, I guess you would 

say that the responsibility was purely an ethical or a professional 

one, and it was not very often honored. Colleges raised prices year 

on year on year because they could. And they were certainly windassisted by the gusher of federal money. It is perfectly well documented now that this has been a driver of higher costs and made 

it easy, far too easy, for those increases to happen. 

I think that, belatedly, market pressure has begun to assert 

itself, and none too soon. As I mentioned, at our university we froze 

tuition the last two years. We have pledged to keep it there the 

next two years. Don’t know beyond that. It cannot go forever, but 

we take that very seriously, and we are aggressively promoting our 

university on a value basis, quality of the education divided by its 

cost. 

And our partners at Gallup yesterday revealed that among those 

graduating from college in the last few years, there is a very big 

difference in how they value the education they got, whether they 

think it was worth it or not, compared to those who graduated 10, 

and 20, and 30, and 40 years ago. 

So there are signals that universities would be well advised, not 

to mention better stewards of their responsibility, if they were 

more careful about their costs. And I think those that are not are 

going to be taking an increasing risk in what could be a shakeout 

in higher ed coming. 

Chairman Coats. In reference to that, there was a Wall Street 

Journal article yesterday about the Gallup Purdue Index. I might 

just quote from that, that the steep decline in the perception of 

whether a degree was worth the cost startled Brandon Busteed, 

Gallup’s Executive Director for Education and Workforce Development. He said, ‘‘When you look at recent graduates with student 

loans, it really gets ugly really fast. If alumni don’t feel they’re getting their money’s worth, we risk this tidal wave of demand for 

higher education crashing down.’’ That is quite a statement. You, 

Purdue, participated in that effort, and with all our well-intended 

goals of educating our young people for the challenges of, employment challenges of the future here, if this persists that certainly 

puts us in an ever more difficult position in terms of that. 

And whether you, President Daniels, or Dr. Kelly, or Mr. Chopra 

want to just quickly comment on that, I have got one minute left, 

I would like to get your response to that. 

Dr. Kelly. Sure. I will just say three things, quickly. There are 

three important trends to keep in mind here. 

Number one, we all know what has happened to tuition prices. 

Number two, the labor market outcomes of recent college grads 

have not looked good. And it is not just function of the Recession. 

If you look at wages for the youngest workers with a bachelor’s degree, they have been on the decline since about 2000. 

But the third trend is also really important, which is that the 

fortunes of high school graduates have been even worse. They have 

done even worse in the labor market. So people are paying more 
12 

for a degree that is earning them less money, but having a degree 

is more important than ever before because the out—the counterfactual is worse. And so we need to keep that in mind when we are 

thinking about debt and whether debt is a net negative. The 

counterfactual of not having the debt is not having the degree, 

which is much worse in many cases. 

Mr. Chopra. I think there is a lot of talk about the college wage 

premium. That is, the difference you earn over your life between 

getting a degree and not. And it is very interesting. This is all fully 

explained not by the increase in wages for college graduates but 

the decline in wages for everybody else. 

So what we have is a combination on an inflation-adjusted basis 

of flat or declining wages for college graduates, and more and more 

and more debt. And the combination of those two is not really good 

for the credit capacity of our country in terms of formation of small 

business loans, mortgages, and others. So it is both sides we have 

to look at, the debt and the wages. 

Chairman Coats. Thank you. My time has expired. Congresswoman Maloney has designated Congressman Beyer as ranking 

member, which entitles you and those of us up here will be followed by Vice Chairman Brady and Senator Klobuchar, and then 

we will get the titles out of the way. 

[Laughter.] 

And the rest of you can engage. So, Congressman Beyer, you’re 

on. 

Representative Beyer. Thank you, Senator, very much. 

So thank you very much for coming. Senator, Governor Daniels, 

President Daniels, in my prior life as an automobile dealer I spent 

an enormous amount of time arranging loans, which very greatly 

varied, depending on the credit history and the credit scores, of the 

customer who is before us. 

On the ISAs, why wouldn’t they only go to the most credit worthy, or to the people, that the private investors who have an equity 

stake in this person see to have the greatest possible return? What 

will this mean for—especially if we dial back on PLUS, what will 

this mean for the lower income, or the lower expectation student? 

President Daniels. Well we will have to see, Congressman. My 

belief and supposition is that if the market does take off and begin 

to mature, you will see a spectrum of those who have the very best 

prospects, yes, will maybe be the first approach for these contracts. 

They will also be able to negotiate the very best terms. 

I still think it could be, at least up to some point, much more advantageous than other options like PLUS loans for those who 

might have to commit a higher percentage of their income, or for 

a slightly longer time, but would still get the benefits of having 

shifted the risk in a way that debt does not. And having secured 

some certainty and some limits to that percentage of their future 

wages that would be taken up paying for college. 

You know, as I have described it elsewhere, working your way 

through college after college. And those who wound up or chose a 

less remunerative career quite naturally would have a different set 

of terms. It does not mean it would not be better for them. 

Representative Beyer. Governor, why the need to have exemption from state usury laws? 
13 

President Daniels. Because it is not debt. This is an equity investment by every—and by the way, that is why I do not think— 

why I do think it should be dischargeable in bankruptcy. But if we 

are really going to shift the burden and shift the risk away from 

the partner, the student, graduate here, then we should treat it in 

that fashion all the way around. 

Now the bill as drafted does have upper limits. I think that is 

just fine. It does have extensive consumer protection. I think that 

is just fine. But I think it would probably strangle the plan in the 

cradle if we let it be subject to usury laws, which 50 different flavors which really do not apply. 

Representative Beyer. Great. Thank you, Governor. 

Mr. Chopra, in the move away from PLUS loans and their relying on the private sector, I am concerned about the many things 

you read that the private sector loans have higher interest rates, 

that they do not have some of the other options that the federal 

borrowers enjoy, income-based repayments, flexibility for forbearance, financial hardship deferments. That typically federal loans 

are fixed interest rates; the private loans are often floating. 

Is there any reason to think that moving away from the PLUS 

system to the private would make the problem worse? 

Mr. Chopra. Well I think unlike a lot of other consumer products, there are really not many consumer protections when it comes 

to these consumer loans that are marketed as private student 

loans. 

In my testimony I mention some of those issues, everything from 

credit reporting, to the treatment of service members, to anti-discrimination laws. And I think we will need to think about updating 

that. 

One of the things we learned in the lead up to the financial crisis 

is that regulators failed to exercise decent judgment on when the 

market was spiraling out of control for subprime mortgages. Disclosures were not working well. There were problems from beginning 

to end. 

And I think it is good for us to take another look at the student 

loan market, particularly if we are thinking of new products entering. I appreciate Governor Daniels’ distinction that it is equity 

versus debt, but for a student the difference between the products, 

it is a different financing transaction. And I do not want all of 

them to need a Ph.D. in finance before they even enter college. 

Representative Beyer. Great. Thank you. 

And very quickly, I read that a third of all college debt is actually post-graduate, mostly law school and medical school, and another third of the for-profit colleges, which leaves you only a third 

that are the traditional undergraduate college educations. And that 

most of that is related to the increasing number of kids going rather, than the debt per person. 

Is that accurate, Dr. Kelly? And are we overstating the crisis? 

Dr. Kelly. In terms of the big growth in student debt over the 

past decade that people tend to cite, the aggregate number, that is 

a function of growing enrollments in large part. It is also a function 

of growing enrollments in graduate school. 

Some estimates of graduate school peg it at more like 40 percent. 

And I do think that that raises a really important point for policy-
14 

makers as they think about the student debt problem writ large. 

Disaggregating the grad school debt from undergrad debt, and the 

struggles there, I think is really important. 

Representative Beyer. Thank you, Doctor. Mr. Chair, I yield 

back. 

Chairman Coats. Thank you. 

Vice Chairman Brady. 

Vice Chairman Brady. Mr. Chair, thank you for calling this 

hearing. Thank you for the witnesses. This is a bipartisan issue, 

and I also appreciate Representative Hanna’s nearly daily interest 

in student debt and college financing. 

I had a young man in my office the other day talking about 

health care issues. He is in graduate work in the medical profession. He has $600,000 in debt. His fiance ́ is also in health care, 

$400,000 in debt. The reason I cannot remember the topic he wanted to talk about is I kept looking at him thinking ‘‘you’ve got a million dollars of student debt.’’ 

And thankfully that is not the case with everyone, but it illustrates where we have come. This committee is about the economy. 

We had a tough Recession. The good news is we have had many 

months of job creation. The problem is, it is very low. It is like a 

car that is stuck in first gear at 15 miles an hour. 

The problem is that this is the most disappointing recovery in 

half a century. We are missing about 6 million jobs that should be 

in the economy right now, many of those available for college graduates. We are missing an economic hole in America’s economy 

about the size of Canada’s economy. And for a family of four, we 

are missing about $1,100 a month from our family paycheck that 

ought to be back right now, which is a lot of savings for college. 

The challenge is the adults in the workforce is almost at what 

it was seven years ago. So college graduates are having trouble 

finding a job. They have high student loans. They are postponing 

purchases, which also hurts the economy. So today how do we tackle this? 

We can go with the stale old ideas you always hear up here, 

which is more federal regulations at state colleges and universities. 

Or encouraging students to borrow more so they can go deeper in 

debt. Or, free everything, which almost always comes with a bill 

later on. 

We are looking for fresh, new, 21st Century solutions. That is 

what this hearing is about. I wanted to ask Governor Daniels, one 

of the keys on financing seems to be much greater knowledge about 

what degree you are pursuing and what income that generates 

later so you can make good decisions. 

That is starting, it seems to me, the doors cracked open at the 

state level but nowhere near what it needs to be from our level. 

What can we do to encourage at the state level that type of knowledge for students and parents so, just as we have a skills’ gap 

today—you know, jobs versus the skills we need, so we do not have 

that dream gap of what that degree might generate versus the 

loans they might pick up. What advice would you have for us? 

President Daniels. First of all, I would not underestimate the 

extent to which today’s young people and their families are focused 

on that. Overwhelmingly they tell us, almost, I think to an exces-
15 

sive extent, that is why they are going to college. That is what they 

are looking for. What will get me a good job at the other end? 

There are other very important aspects of higher education that 

I hope we do not lose sight of. Nobody should think of it as vocational school. But there is a real fixation on that now. At Purdue 

University we teach—this is readily available information—we 

teach 11 of the 12 most highly paid degrees, careers by most often 

associated degree. We are, unlike a lot of other schools, experiencing a surge of applications, up 15 percent last year after a 

record increase the previous year. 

And when we ask why, it is because I think students are newly 

concentrating on the likely benefits of a degree, and they are also 

looking at, you know, at price on the bottom of the fraction. 

So the other thing I would say, though, and as Andrew made reference, one benefit of adding to the inventory of possible financing 

tools an equity-like tool like we were discussing is it would serve 

as a signaling mechanism back to the Congressman’s previous 

question, you bet. Those who would invest will bid more aggressively for the degrees and the likely careers that they see as 

strongest in the market. 

Vice Chairman Brady. And it seems to almost dictate, demand 

almost a cost/benefit analysis for a family, or a student looking at 

where they want to head, what they can pay, afford to pay, and so 

all that seems—this is a fascinating solution. And your point I 

think this is not the only solution. It ought to be another tool for 

families and students to finance their education. 

President Daniels. That’s right. I mean, I favor broad reform. 

It is not the subject of this hearing, but broad reform of the student 

financing scene we have today. Andrew has written, and really 

both have written persuasively on those subjects. 

Vice Chairman Brady. All right. Thank you, Mr. Chairman. 

Chairman Coats. We welcome back the Ranking Member in 

time to do your questioning. 

Representative Maloney. Thank you. There seems to be a general agreement that tuition increases are driving the explosion in 

student debt, and I would like to understand why it is jumping up 

so much. 

I know, Governor Daniels, that you froze tuition when you went 

to Purdue I believe in 2013, and that is a wonderful thing to have 

done. But I am interested in your perspective on the tuition increases prior to your coming over the past decade. And tuition and 

fees for an in-state undergraduate at Purdue increased from just 

over $6,000 in 2004–05 to almost $10,000 in 2013 and 2014. So 

that is an increase of almost $4,000 in nine years, a 64 percent increase, roughly two-and-a-half times the annual rate of inflation 

during that period. 

Could you give us some perspective? I know that was when you 

were not there, but why did Purdue raise tuition rates so dramatically during this period? What were the causes for this 64 percent 

increase? 

President Daniels. They wanted to spend more money. They 

did it because they could. I am not being critical. They were—our 

university was no different in either the long, in that case 36 year 
16 

history of continuous increases, from almost any other you could 

find. Neither did the go up as much by degree as many others did. 

A lot of reasons for that. Separately I have been asked a lot of 

questions about the cost of federal regulations as a contributing 

factor among many others. I will tell you what I do not believe it 

can be attributed to, at least in our case. Indiana has been assessed, now retrospectively, as the third best State in the country 

for maintaining its public support of higher education. 

Representative Maloney. That’s good. 

President Daniels. Tried to send even more money than that, 

but a reluctant legislature didn’t agree with a couple of our ideas. 

But with only one very modest reduction, we were not one of 

those states that had the big real-dollar cuts in public support. So 

that can’t explain it. I think regrettably the number one reason 

was discussed earlier, was the now well-documented contribution of 

free and easy federal dollars, followed by trends in higher ed in 

which competition has been based too often on nonacademic factors, amenities and so forth. 

Representative Maloney. So it was because the federal loans 

were easy for students to get, and would you say that was the contributing—— 

President Daniels. I would say that was not the whole explanation, but it was a—— 

Representative Maloney. But was it state budget cuts? 

President Daniels. In some states I don’t doubt that it contributed, but the Indiana experience shows that it is not a complete 

explanation, probably not even the—as large an explanation as the 

so-called Bennett Hypothesis which is no longer a hypothesis. I 

think it has pretty much been empirically proven. The New York 

Fed I think is the most recent to find validity in that. 

Representative Maloney. So in other words, Purdue was taking advantage of students because they had federal student loans 

and it was easy to get, you know? 

President Daniels. Well I think to a much lesser—that’s a fair 

statement—to a lesser extent than most other schools I can point 

to, our school remains even at the time that those increases went 

in place, one of the least expensive in our peer group. And so I tend 

not to look back at what was but try to look ahead in an era in 

which I think value for money finally will become a decisive factor 

in higher ed. 

Representative Maloney. Well that is a little discouraging that 

they just used the student federal money just to raise it and make 

it harder for more children to come to school. 

I would like to ask Mr. Chopra, you know, many students you 

read about they are being forced into default because of these high 

loans that they have and it has lasting negative consequences for 

us. What are the main differences in consumer protections between 

federal student loans and private student loans? 

What is the contrast between them and any protections that are 

there with federal loans, any predatory practices with private 

loans? Could you give us an overview as this is your area of expertise? 

Mr. Chopra. It really is like comparing apples and oranges. One 

of the things that—and you listed some of them earlier—but one 
17 

of the ones I really want you to think carefully about is the ability 

to restructure that debt if you happen to graduate in a tough economic cycle. 

People who entered college in 2005 during the boom of the private student loan market, they graduated in a time that was much 

different, when an economy was not doing well. And so they had 

a tough time of avoiding default because those private student 

loans do not include income-driven repayment and term extensions, 

as you mentioned earlier. 

It is made even worse by securitization structures, where the 

servicer, the bond holder’s trustee, they do not talk to each other 

and they cannot get to solutions. And this is not just bad for the 

student; it is also bad for the investors. But it is a symptom of very 

poor design and thinking up front. 

Representative Maloney. My time has expired. Thank you. 

Chairman Coats. Senator Klobuchar. 

Senator Klobuchar. Thank you very much, Mr. Chairman. 

Thank you to our witnesses. 

Governor Daniels, unemployment in Minnesota is somewhat 

similar to Indiana. I was just in your state a few months ago, and 

there are some commonalities between Minneapolis and Indianapolis besides the ‘‘apolises.’’ And you are at 4.6 percent. We are at 

4 percent. And I think one of the things we have found is that we 

are starting to have job openings in everything from graduate degrees, four-year degrees, one- and two-year degrees. They tend to 

be more in science and technology and the medical areas. 

And I would like to get your perspective, as former Governor and 

a college president, what you think we need to do to get students 

into these areas where we have job openings and make sure they 

are getting the kinds of degrees we need them to get. 

President Daniels. I do think the news is spreading. We have 

a very detectable increase in interest, an appreciation by parents 

and young people of the importance of math, and science, and the 

technical education that flows from them. 

And as I mentioned a minute ago, if we are any indicator—and 

we are the third most STEM-centric university, public university in 

the country already, and investing to become even more so—so at 

least temporarily, and encouragingly, I think there is a growth in 

appreciation for this. We have got a lot of work to do at the K–12 

level to have students ready for the rigors of today’s scientific education. 

I know from talking extensively with the president of the University of Minnesota, and we share a concern about—every college 

president will tell you that K–12 improvements are absolutely—— 

Senator Klobuchar. Right. 

President Daniels [continuing]. Essential. 

Senator Klobuchar. Because they just keep thinking to make 

these degrees more relevant, and with the costs and those kinds of 

things, when you need to make sure that they are training the kids 

in the areas where we have the openings. 

President Daniels. Well as we have been discussing, more 

transparency, and I commended on stage a couple of weeks ago 

Secretary Duncan for the most recent efforts there. We need to go 

further. 
18 

Senator Klobuchar. And how would you go further? 

President Daniels. Well the first phase there shows, for instance, average income of graduates of school A versus B versus C, 

and we need to drill down into the specifics. Because as you know 

at any given university there’s a wide spectrum of career prospects 

based on what a student decides to study. 

So, and again, one of the virtues I think of a more equity-like financing option is it would send us a market signal, the market 

would bid differently for the chem-E grad than it might for a graduate of a different discipline. 

Senator Klobuchar. Thank you. 

Mr. Chopra, my dad is a graduate of a two-year degree, and then 

went on to get the rest of his degree at the University of Minnesota. My sister went to a community college as well. So I have 

some sense of the importance of that. And I think we know that 

by 2020 an estimated 35 percent of job openings will require at 

least a bachelor’s degree; 30 percent will require some college or an 

associates degree. So how does this all fit with the community colleges? And can you talk about that, the cost there, and what can 

be done to make those degrees more desirable since some of the 

openings we have that I mentioned before, whether they are in 

welding or some kind of trades, are one- and two-year degrees. 

Mr. Chopra. Yes, I think this goes hand in hand actually with 

our previous discussion about those who are defaulting often are 

ones who do not complete college and have lower balances. And 

many of them are going to pretty poorly performing, often for-profit 

schools. 

And I think we should think more about how community college 

investments can be a gateway for people to in some ways try college, get that first associates degree, without having so much debt. 

Senator Klobuchar. Exactly. 

Mr. Chopra. And that allows—— 

Senator Klobuchar. And actually getting a degree where they 

can work. 

Mr. Chopra. That’s right. And I think, to go on the previous discussion, there is not right now a market incentive for many schools 

to produce job—degrees that lead to jobs. We have many, particularly in the for-profit sector, where the market incentive is to revenue maximize with whatever degrees there may be. 

And in Dr. Kelly’s testimony you can see that the accountability 

structure is not there in that sector, as well as others; that we need 

to remove some of these low-performing schools that are just having people drowning in debt. 

Senator Klobuchar. Okay, let’s put them aside for a second. I 

just really want to get at the one- and the two-year degrees that 

are performing, and how we make it easier for kids to go to those 

and incentivize them. 

Mr. Chopra. Well part of that is investing more in those degrees. I think too many people actually—a lot of people are able to 

go for free, but a lot of people are not. 

Senator Klobuchar. Okay. Thank you very much. 

Chairman Coats. Congressman Hanna. 

Representative Hanna. Thank you, Chairman. 
19 

I want to just quickly mention, Utica College, which until recently was affiliated with Syracuse University in my District, has 

lowered their tuition 43 percent, at a year when they have had the 

largest enrollment and applications in their history. 

And it will take them 14 years, at a 31⁄2 percent interest rate, 

to get back to where they are today. And they have done this on 

their own, so I think that is worth looking at. I will give you some 

information on it. 

The other thing I wanted to mention is Congressman Kilmer and 

I, and along with Orin Hatch, Senator Hatch, have a bill that will 

allow students, or teachers who stay in Title I schools with poverty 

levels below 40 percent, or above 40 percent of the poverty line, to 

have a direct cash credit to help them fund their college education 

debt. And in addition to that, along with what Ms. Klobuchar was 

talking about, we also have a bill that I want to ask you about in 

terms of allowing people to capitalize their debt as if it were an expense like any other business. It’s called a STEM Education Opportunity Act, something I wrote out of my office, that would allow 

someone, regardless of when they pay off their debt, to write off the 

cost of that—and I’m sure there are a lot more details to be 

added—but throughout the course of their life based on when they 

decided to take it. 

So they would capitalize it as if a business bought a piece of 

equipment. But for the moment, though, I want to ask, we know 

that the implications for this huge amount of debt abroad, across 

the economy, and I want to ask each of you if you have a notion 

of what that means. 

We know people are not buying homes as early. We know that 

people are withholding—not getting married, not having children, 

a whole host of things. And they owe a trillion dollars or so. 

President Daniels, would you like to speak about that? 

President Daniels. Well you said it all, Congressman, or most 

of it. I guess I would add, these are very, very real problems. As 

I said earlier, we ought to worry most about the damage to the 

prospects of young lives. But behind that, to the near-term effects 

on the economy. And they are very real. We are learning more all 

the time about postponement of purchases, about the postponement 

of business startups, and so forth. 

But we ought not neglect the fact, you are talking about write 

offs, you know, ultimately we are writing off, and we are going to 

write off, a ton of federal debt. It is all coming back to visit—it will 

come back to visit itself on these very same young people. 

So if the average student loan—student indebtedness now is $27- 

to $30,000, they already owe twice that in federal debt that has 

been run up not by them, or not on their behalf, but by their elders, us, for current consumption. And that is an economic—it is 

a huge economic problem, the dominant one I believe for the future 

of this country. And this subject we are gathered on this morning 

is now a material contributing factor to it. 

Representative Hanna. Have you seen numbers on what percentage, or part of a percentage it might be in terms of our growth 

to our economy? 

President Daniels. Yeah, I mean there is a mountain of evidence that shows that debt burdens as they grow are a direct pen-
20 

alty on growth. And if you ask me to name the single dominant 

problem facing the country now, it is that we are staggering along 

at, as was made mention, at historically low growth rates coming 

out of a recession that deep, and no other problem we face is susceptible to a satisfactory solution while that is the case. 

And so the debt anchor that we are already carrying, let alone 

the one that is right in front of us, is a very real problem for the 

growth of this country and everything means in terms of upward 

mobility, hopes for low income people, and commitment, frankly, to 

the democratic process, which has always produced that hope. 

Representative Hanna. Dr. Kelly. 

Dr. Kelly. I would caution against making too many inferences 

about the effect of debt on the economy from this period in particular, just because two trends covary does not mean that one necessarily causes the other. 

The best study on how debt affects home ownership finds very 

small effects among student debt on getting a mortgage or obtaining a mortgage. That’s a longitudinal study by a researcher at the 

University of Wisconsin, as one of the authors. 

I will say that part of the problem we have is that the composition of who has student debt has actually changed dramatically as 

a function of the Recession. People went back to college. People left 

their jobs and they went back to college, lower income people often. 

And so those people are going to be less likely to own homes in the 

first place, and also they are likely to have lower credit scores, and 

so on. 

So one of the ways to interpret those trends is as part of the access story. That is, we invited more people to go back to college. 

People with debt are going to look like they are struggling more in 

the economy. 

Representative Hanna. Thank you. My time has expired. 

Chairman Coats. Thank you. Senator Peters. 

Senator Peters. Thank you, Mr. Chairman. 

And thank you, our panel, for your excellent testimony here 

today. President Daniels, I just have a question for you, particularly given some of the comments you have made particularly 

about the increases that we saw at Purdue prior to your tenure, 

and Dr. Kelly as well talking about large increases in tuition with 

colleges and universities across the country. 

A disturbing trend that I have seen in universities is the increased use of adjunct professors as opposed to having full-time faculty, often tenured faculty who are doing substantial research and 

other types of activities. I think some of the statistics I have seen 

is that roughly 50 percent of instructors now in universities across 

the country are part-time instructors. And a majority of these folks 

are not in a career somewhere and then teaching part-time, this is 

actually their job and they have to cobble together their teaching 

at several universities, or having many classes, often earning very, 

very low wages. 

And if you look at overall wages for professors, I think last year 

was the first increase of 2 percent, the first one above inflation in 

five years. So it does not seem as if the money is going into the 

classroom, particularly when we have this incredible trend to parttime instructors who are living, some of them, not much above the 
21 

poverty level even though they have Ph.D.s and substantial education. 

So where is all the tuition increase—where is that money going 

if it is not going into the classroom and going into the professors 

who are actually teaching our students? 

President Daniels. Yes, Senator, I think you have put your finger on something very important. I am happy to tell you that at 

Purdue we have very, very few adjunct faculty, a high ratio of 

tenured and tenure track and clinical or research faculty. 

But nationally, I believe you are quite correct. This has been the 

trend, and it simply indicates, and I made quick mention earlier 

that too often in higher ed the terms of competition lately have not 

been academic excellence, and they certainly have not been affordability. In fact, quite the contrary. 

The terms of trade, oddly enough, were that in the absence of 

other evidence people associated a higher sticker price with more 

quality. And I don’t know the Utica situation directly, but where 

we see these dramatic—a few dramatic reductions in tuition, they 

weren’t collecting it in the first place. They were backdoor discounting through, you know, scholarship assistance and so forth. 

But the dollars that were getting collected too often were invested or spent on amenities, and creature comforts, and things 

that people who went to college even 10 or 20 years ago would not 

recognize. 

So I think that is all changing. I think the terms of competition 

are, as they were bound to, shifting. And I hope they will shift very 

much in the direction of those schools which are maintaining and 

can prove educational quality and academic excellence for the dollars they are charging. 

Senator Peters. Dr. Kelly. 

Dr. Kelly. I think this concept of shifting the terms of competition is actually the most crucial insight here as to how to right this 

system. I think this is partly why simply adding more money to the 

system without changing the incentives that colleges face and how 

they compete with one another is not going to change a whole lot. 

It will be sort of gobbled up by the system as it always is, and then 

we will maybe reset the clock for a year and be back where we 

started. 

I think the rise of adjunct instructors really helps to crystallize 

this incentive structure, that colleges are not judged on the basis 

of how much students learn and how well they do once they are 

out in the labor market. Instead, they are judged on amenities, and 

student-faculty ratios, and so on. 

Those things cost money, and hiring adjuncts allows you to save, 

to redistribute some of the money you were spending on teaching 

to do other things. 

Senator Peters. No, I want to push back a little bit. My comments, I didn’t mean that adjunct is an inferior professor. In fact, 

adjuncts can be highly skilled, very good instructors. They just simply do not get paid adequately for their services. They are being 

shortchanged. And so if there is money that a university is raising, 

it is going somewhere else other than paying faculty members who 

are the people who are actually educating our students. 
22 

Dr. Kelly. That’s right. And, you know, please interpret my 

point to mean that the university is signaling its priorities by 

where its money is going, and it is not necessarily going to teaching, often, because they are paying adjuncts less money. 

There is some research as to the difference between adjunct faculty and full-time faculty. It tends to find that full-time faculty, you 

know, have higher performing students. I would not push that too 

far. There has been, to my knowledge, no randomized controlled 

trial of that. But I think your point remains that simply spending 

more money, the concern is that it will not actually reach the classrooms, that it will go to other functions and other things without 

changing the terms of competition. 

Senator Peters. Thank you. I’m out of time. 

Chairman Coats. Thank you, Senator. 

Representative Paulsen. 

Representative Paulsen. Thank you, Mr. Chairman. Thanks 

for calling this hearing, to identify some of the current challenges 

we have in the higher education system. But it is also refreshing 

to talk about some new ideas and some new solutions. 

It seems that too often the conversation that we have here in 

Washington focuses on whether or not the student loan interest 

rates should be 41⁄2 percent, or they should be 51⁄2 percent. That 

is an important conversation to have, but we are missing the opportunity really to focus on the real driver of student debt. And 

that is the rising cost of college. 

I think we would all agree that while the difference between an 

interest rate of 41⁄2 percent or 51⁄2 percent is noticeable, there is a 

much larger difference between needing to borrow $15,000 to complete your college education, or borrowing $100,000 to complete 

that education. 

And with more and more jobs today requiring a college degree, 

it is likely we are going to continue to see more and more American 

students choosing to go to college. And so we should be focusing on 

reigning in college costs. 

And, President Daniels, you have become very well known across 

the country for cutting costs at Purdue, for freezing tuition now for 

four years. Can you talk a little bit more about how you have been 

successful in getting the Purdue community on board with trimming costs? 

President Daniels. Thanks, Congressman. First of all, I am not 

particularly impressed with anything we have done so far. I think 

there is much, much more to do, but it is a start. But I would not 

overclaim at all. 

But I like your question because I think it was a central one. I 

would say this. One of the beauties of our campus or any campus 

I know is the wide variety of views on almost every subject. It is 

one of the joys of working at a place like that. 

But if I could identify one thing that I think is a matter of consensus on our campus at least, it is that we want our doors to remain open, as they have been for 150 years, to people of all social 

and economic backgrounds. 

We are a land grant school. A lot of people do not know it because of our name and, frankly, I think a great academic record, 
23 

but we are. And it is very much a core principle for us. And so from 

the beginning we have asked everyone to contribute. 

We have a fund, by the way. Many of our faculty, administrators, 

and staff forego raises voluntarily and contribute it to a fund which 

we use to buy down the cost of next year’s tuition. 

So, yes, we are doing those things which I hope will conserve dollars for the real core purpose, which is excellent faculty and facilities for them to teach in. But I am happy to tell you, and I believe 

this would be true on most campuses, that when people are asked 

to think about it they very much want to work at and teach at 

places where no-one is denied the opportunity based on economics. 

Representative Paulsen. You know, you also talked about onesided accountability. Can you elaborate a little bit more on what 

you mean, and how you can create a system that actually focuses 

on shared accountability among government, universities, and students. The NY Federal Reserve study showing, every dollar of increase in federal student aid is a 65 cent increase in tuition. We 

know that it is the same for Pell Grants, 47 cent increase for every 

dollar that we put in the student loans. 

President Daniels. I think it is pretty straightforward. You 

know, I was in the health care business for a long time, and the 

parallels are pretty plain. When someone else is paying the bills, 

or large portions of the bills, the buyer is immunized or insulated 

against the full, at least temporarily in the case of student loans, 

against the sense of value that they are acquiring for it. 

So the schools had it going both ways. A lot of free money coming 

in one way. Nobody measuring that value on the other end. And 

now fortunately, and thanks to this committee and other leaders 

here, Secretary Duncan and others, we are beginning to see scrutiny of the results, more public information about the results, and 

I hope likewise some sharing at least of the risk and accountability 

on the front end. 

As I said, we for one institution would be willing to step up to 

that. 

Representative Paulsen. Dr. Kelly, maybe you can add a little 

bit on how to have a better accountability system that focuses on 

shared accountability? 

Dr. Kelly. So the problem of the current federal rules around financial eligibility that are based on the cohort default rate, which 

is the percentage of your students that default after three years— 

three years after entering repayment. 

It is a binary variable. You are either above the measure and you 

are out of the system, or you are just below it and you are in with 

full access to the system. And so that creates little incentive for 

people below that floor to improve. 

There are also lots of ways to appeal the Department’s decision 

as to whether to kick you out. The result is that very few schools 

ever lose eligibility, despite horrible outcomes in many cases. So 

one of the things we have proposed is a risk sharing system where 

colleges would be on the hook financially for loans—for some percentage of the loans that go unpaid by their students. 

It does not have to be a large percentage. In the mortgage market they found that risk retention of 3 to 5 percent changes behav-
24 

ior. So—and there is a bipartisan push to do this now, and I applaud that. 

Representative Paulsen. Thank you. Thank you, Mr. Chairman. 

Chairman Coats. Thank you. Senator Heinrich. 

Senator Heinrich. President Daniels, one of the areas where 

there seems to be some agreement is that shifting the terms of 

competition is really going to be key to beginning to arrest some 

of these unsustainable increases both in terms of tuition and in 

terms of student loan debt. 

In addition to apples to apples kind of comparisons and scorecards like you have talked about, do you see other tools that can 

get at that same issue and make sure that we are measuring 

value? 

President Daniels. Yes, sir. In our state, and in a growing 

number of states, at least a portion of state aid is now predicated 

on performance. It is in early stages. These are imperfect measurements. They do lead to occasionally some anomalous outcomes, but 

it is the right direction to go, which is to say that when some percentage—and I hope it will be a growing percentage—of government assistance, state or for that matter federal, is based on the 

value of the product being the service being delivered, the graduation rates, the retention and progress rates, and maybe one day the 

success of graduates elsewhere, you will have another incentive 

pushing in the right direction. 

Senator Heinrich. Mr. Chopra, I want to get at another issue 

that I think, in the case of New Mexico may not look exactly like 

the rest of the country but which is very important to our students. 

I am very proud of the fact that a number of our higher education 

entities—the University of New Mexico, New Mexico State, New 

Mexico Tech—have actually done a very good job of managing their 

tuition costs. We have not seen the kinds, the scale of change and 

increases that we have seen in other places. 

And I have certainly talked to a lot of students who talk about 

the incredible importance, oftentimes first-generation students, in 

Pell Grants and being able to access those relatively modest cost 

institutions that provide a high value. 

It led me in some case to introduce S. 1998, the Middle Class 

Chance Act, which updates Pell Grants to a little over $9,000, 

allow recipients to use those for 15 semesters instead of the current 

12, and use them year-round. 

Do you have thoughts for some of the traditional financing tools 

and whether, how important they continue to be, especially for low 

income students to get in the door? And in particular with firstgeneration students. 

Mr. Chopra. As we discussed earlier, an entry point of community college and using a Pell Grant, many of those students are 

able to go almost for free. And I think more of that should occur 

as long as we are getting good performance out of it. 

One of the things that I would encourage you also to think further about is how we structure the post-9/11 GI Bill benefit. We 

have a lot of people that are nontraditional who have served, and 

in some ways they are not necessarily getting to use those benefits 

in the most high-value way. 
25 

So, and to echo what others are saying here, you know, accountability to ensure that poor performing high-cost schools are not 

grabbing most of the dollars is critical. And part of that is rigorous 

enforcement that if we have standards that people are failing, they 

need to be kicked out and not be able to get the benefit, whether 

it is federal aid or the GI Bill or what have you. 

Senator Heinrich. I suspect, certainly in my case and I suspect 

many of my colleagues would love to know your thoughts on improving those post-9/11 GI benefits. And I’ve got a little bit of time 

here, so why don’t I ask you quickly, could you remind us and 

elaborate a little more than in your limited testimony some of the 

unique financial pitfalls that our Service Members and our Veterans face when trying to finance higher education, and some of 

the abuses that we have seen in recent years within that sector of 

the market? 

Mr. Chopra. Yeah, the Congress funds the DoD Military Tuition 

Assistance Program, as well as the post-9/11 GI Bill benefit. There 

are also specific programs for military spouses, as well. And I have 

been personally troubled at the very aggressive recruiting of people 

with these benefits. 

There is a law, a requirement called ‘‘the 90/10 Rule’’ which requires certain institutions to get 10 percent of their revenues from 

non-Title IV sources. And so many of these service members or veterans are seen as nothing more than a dollar sign in a uniform. 

So I think some of the same principles we are talking about with 

accountability and risk sharing we need to think about that more 

broadly, too, to make sure that people are not just enrolling students to get those GI Bill benefits, but they are actually succeeding. 

Senator Heinrich. Thank you all for your testimony. It is very 

much appreciated. 

Chairman Coats. Thank you, Senator. 

Senator Lee. 

Senator Lee. Thank you, Mr. Chairman. 

Thanks to all of you for being here. It is an honor to have you 

here, and we always benefit from your insight. You know, this is 

an exciting time to be involved in a discussion about higher education. I happen to believe we have got the best higher education 

system in the world here in the United States. 

It has challenges, yes, and we have got to confront those, but it 

is an exciting opportunity to be part of this discussion. I look at 

some of the things that are happening in this area, and I am encouraged by steps that a lot of people in this field are taking, including for instance President Matt Holland, the president of Utah 

Valley University, who recently set up a financial services initiative within this University, a big school and a rapidly growing 

school within the State of Utah. He set this up for the purpose of 

providing guidance to students, giving them information to make 

sure that they know what they are getting into, the implications, 

the ramifications of their different student financing options. 

And he did this not in response to a high loan balance among his 

graduates. In fact, Utah Valley University has a very low loan balance among its graduates, perhaps the lowest in the State of Utah. 

He did this, rather, because he wants to provide a valuable service 
26 

to his students. I appreciate what he is doing there and the insight 

that you have given us today. 

I would like to start with President Daniels. You were asked, I 

believe, a few minutes ago about what kind of transparency is offered to students at your university. I wanted to ask you, what 

kind of a burden would it be for institutions like yours administratively and financially to have to provide information like that, information regarding, you know, average debt load per major, average time to graduate per major, average starting salary per major, 

and things like that? 

President Daniels. Approximately zero. I mean, these things 

we know or should know. And we do provide it. I was not surprised 

to hear your account of what that one university has done. It is 

very like what we have seen, and some other schools. I know our 

sister school, Indiana University, has had good luck, too. 

I said earlier a little counseling, a little financial advice goes a 

very long way, and we have seen a number of families realize they 

either do not need to borrow, or really would be wise not to borrow 

as much as they originally intended. So I think it is a responsibility, frankly, not particularly a burden, and it is always easier 

when you do not have to do it, but my sense is that any of the 

things you just mentioned we know now and it would not be an expensive or a burdensome thing to make certain that every student 

considering financial aid was fully aware. 

Senator Lee. Is there any aspect of existing federal law or existing federal regulatory practice that makes it more difficult to establish programs like that? In other words, is there any change we 

could make to federal law or federal administrative practice that 

would encourage universities to do that sort of thing? 

President Daniels. Yeah, lots of them. As in every other realm, 

yeah, I was part of a hearing a few months ago on this very subject, one which I think maybe a previous question brought up, very 

important. We are trying to move to year-round education. We are 

trying to move to progress-at-your-own rate education. And it 

would be really helpful to have some of the financial aid instruments modernized to accommodate that. 

Most of them, or all were originally designed for the old traditional start in September, finish in May, agrarian calendar, which 

increasingly describes the educational experience of a declining minority of our students. 

Mr. Chopra. Senator, if I could add? 

Senator Lee. Yes. 

Mr. Chopra. The counseling piece is a really good discussion to 

have. And it is not just at the front end when students are coming 

in. It is also when they are repaying. That is the case when they 

are outside of the confines of the school gates. And that is one of 

the reasons I think we need to take a close look at student loan 

servicing. These are the companies that are hired to collect debt on 

behalf of the Federal Government and other private actors, and 

they are required to provide students options on how they navigate 

their debt. And unfortunately I think we find too many borrowers 

are being rushed off the phone, rather than giving honest and clear 

information. And this just reminds me too much of what we saw 

in the foreclosure crisis where there were options to avoid fore-
27 

closure that would have been good for investors and good for the 

homeowner, and instead we had businesses cutting corners and it 

hurt us all. 

So we should look at not only in school but after school as well. 

Some people have thought about how housing counselors who are 

now dealing with less or fewer foreclosures, how they might play 

a role in assisting student loan borrowers, as well. 

Senator Lee. Thank you. Thanks for that insight. I see my time 

has expired. Thank you, Mr. Chairman. 

Chairman Coats. Thank you, Senator. Senator Cassidy, you’re 

on. 

Senator Cassidy. President Daniels, we have heard a lot of testimony that although you say that many of your parents and families are very interested in knowing the cost of education and the 

value thereof, to me that just shows you have got a bunch of engineering students coming to your school, right? The liberal arts person may not be quite as kind of into the numbers—it’s not like a 

stereotype—but apparently the data shows that, that most students do not pursue that. 

So I am intrigued by your ISA. That would be a clear market 

symbol. But on the other hand, you can imagine that if you move 

beyond philanthropy and loyal alums, and you move into the kind 

of financier, there is going to be some program that says, oh, this 

person had a tiger mom. We’re going to bet on this person. 

And this person came from a disadvantaged background from 

this zip code and they are less likely to complete their education 

and go far. You see where I’m going with that. Any thoughts about 

that? Because again this would be a great market signal, but I can 

see you want to have some protections, if you will. 

President Daniels. Well, we will only know when we know, 

Senator, but I can imagine in a fully developed market these things 

would, would work themselves out in very interesting ways. For instance, I suspect that at least initially, and maybe always, the most 

frequent use of an ISA would be to in essence recapitalize a student who maybe started with debt but now has shown some real 

promise. They have progressed a couple of years. 

There is a lot of data that shows that those first-generation students that you talked about, Purdue has built its reputation on 

first-generation and low-income students who went out and did 

great things after achieving a fine education. And some of them 

might look to the market like the very finest of prospects, and in 

essence as I say can convert debt, or a large portion of it, to an equity like arrangement. 

Another thing I would say is—and we have not made any decisions yet. We are studying a whole variety of options. But I think 

early on you would probably see a blended system in which there 

would be some subsidization by let’s say loyal alums, or philanthropically minded individuals, of those students with less certain 

prospects. 

Senator Cassidy. Can I interrupt you for a second? 

President Daniels. Please. 

Senator Cassidy. Limited time, so I don’t mean to be rude. Now 

it also seems—I have read about the GRAD PLUS Program which 

seems to be somewhat, you know, subject to abuse. Grad schools 
28 

have raised their tuition, and people can never hope to get paid 

back to. So this seems like an ideal thing for kind of the grad 

school component. And I’m just asking your thoughts on that. 

President Daniels. I agree completely. And in the written testimony I say some pretty direct things about PLUS loans, and both 

of these gentlemen have written about them, and I think probably 

have similar thoughts. But, yes, I think that’s the way to get rid 

of the PLUS loan program and I think the ISAs could be a partial 

replacement. 

Senator Cassidy. Let me ask Dr. Kelly. Dr. Kelly, you speak 

about this skin-in-the-game thing, but I have been told by people 

who know far more than I that if you look at those schools who 

have great repayment rates, oftentimes they have very few Pell 

Grant students, if you will, indicative that they have a kind of better-off student body to begin with. And, if you will, they may even 

be deliberately avoiding the implicit federal obligation to take on 

all social economic class, et cetera, and that you should kind of 

scale your skin-in-the-game by how many Pell Grants or some 

other kind of marker for what you are doing for the lower income. 

Any thoughts about that? 

Dr. Kelly. Sure. I think it is crucial that any risk-sharing system acknowledges that tension. The way that we have dealt with 

it in our writing and our proposals is to suggest that you couple 

a risk-sharing system with bonuses for Pell Grant graduates. 

Now we don’t want to just premise the bonus on enrolling Pell 

Grant students because that is going to lead to just more enrollment, rewarding them for enrollment. We want them to be successful. That is one way in which you would still maintain the incentive for institutions to seek out and enroll Pell Grant students, and 

in fact to sort of hedge some of the risk of doing that under the 

risk-sharing system. I think that gets you 90 percent of the way 

there to sort of—getting into a risk-adjusted, risk-sharing where 

different schools have different standards, I think it is a slippery 

slope. 

Senator Cassidy. Except, let me stop you there. 

Dr. Kelly. Sure. 

Senator Cassidy. Because there are some schools such as historically Black colleges and universities who have taken as their 

mission helping those who are disadvantaged and come from a 

background, et cetera, et cetera—you know where I am going with 

that—and then there are others who have a rich tradition and 

frankly take very few Pell Grant students, and many of their parents, you know, all the things you look for for a kid who is going 

to do well. Should they really be kind of judged on the same scale, 

if you will? 

You really want some institutions taking that risk don’t you? 

Dr. Kelly. I think you do. And I think that is why you would 

incentivize them to do so by saying to them if you’re successful 

with these students, we are going to—— 

Senator Cassidy. Yeah, but I am going to your point where you 

say you would not want to stratify the kind of risk assessment. 

Maybe I misunderstood what you said. 
29 

Dr. Kelly. Yeah, I think that that is a slippery slope toward having lower standards, frankly, for institutions that enroll low income 

students. And I think that would be a shame. 

Senator Cassidy. But—well, I am out of time. Thank you. 

Chairman Coats. I can give you 10 seconds, because that is a 

really, really good question. 

Senator Cassidy. Well, I do think that if you have a school, a 

second Ivy League school which has very few Pell Grant students, 

and you compare it to a historically Black college and university 

which is going to have a lot of Pell Grant students, to put them 

on the same scale is unfair to all. It really makes one look really 

good, and the other look pretty bad, but their missions are quite 

different. 

So knowing that it could be a slippery slope where you end up 

with lower standards, at some point do we want to run that risk? 

Because otherwise we don’t have a good picture of what the demographics of your incoming class, it may not be a great education 

you’ve just got great demographics. 

Dr. Kelly. I think this is a question about the Federal Government’s interest as a lender, frankly, and whether it wants to lend 

money to institutions that it knows most people do not graduate 

from—— 

Senator Cassidy. No, I didn’t say that. You don’t have standards, so—— 

Dr. Kelly. So this is part of the tension here. Is that—if we want 

to take—if we want to take access-oriented institutions and make 

sure they have the incentive to maintain their access, then we 

should subsidize that activity directly rather than lend for it. 

Senator Cassidy. Then let me flip it. Someone once told me 

that the original inclusion of private schools in the whole student 

loan program was conditioned upon their commitment to taking 

lower income people, lower income students, but that statistically 

they have not. And that if you take Pell grant as a proxy for doing 

so, they have just not done it. 

And so if you will, there is that flip side, right? 

Dr. Kelly. Sure. 

Senator Cassidy. You have not expanded access in any appreciable way, and so therefore should the federal taxpayer be subsidizing you? I am the proud graduate of a land grant college. I will 

say that land grant colleges I think kind of get to that sweet spot. 

But I do think that is the other side of the tension that you are 

describing. 

Dr. Kelly. I agree, and I think this is entirely in keeping with 

this notion of changing the terms of the competition. I think that 

we have encouraged elite colleges to become more selective, hyperselective often, and raised their tuition prices to signal that they 

are a higher-quality alternative. All of these things depress low income enrollment and low income interest in the school because of 

sticker shock and so on. So I think the point you are pointing out, 

the point you are making is well taken. 

Senator Cassidy. Mr. Chopra, I did not mean to ignore you. 

Mr. Chopra. I’ll take it, Congressman. 
30 

Chairman Coats. You raised an important question, actually 

because I have a hearing on that subject alone. I appreciate that, 

and appreciate the witnesses. 

Senator Casey, you have been patient, but the last shall now— 

maybe you can get extra time. 

Senator Casey. Mr. Chairman, don’t open up that door. 

[Laughter.] 

No, but I thank you for the hearing. We are grateful for this opportunity. I want to thank our witnesses for being here. 

Mr. Chopra, I will come to you in a minute not only to make up 

time that Senator Cassidy wanted, but also to probe a little more 

on the state’s role here. 

But I want to start with Governor Daniels. Governor, good to see 

you again and appreciate your Pennsylvania roots. Am I right? 

Monongahela? 

President Daniels. That’s right. 

Senator Casey. We wish when people are born in Pennsylvania 

they stay, but we lost you so we’ll keep claiming you. 

But I wanted to ask you about a program that does not get a 

whole lot of attention, but it is the subject of some work here in 

the Senate this week, the Perkins Loan Program. 

In our State, it amounts to some 40,000 students that benefit 

from Perkins. Across the country, right around 539,000 students. 

You know it well, and folks in the room know it well, low-interest, 

fixed-rate loans for students with exceptional needs. 

What we are trying to do this week, and it is interesting that 

we’ve got a bipartisan effort, about 25 co-sponsors to extend the 

program for a year. Four of the co-sponsors are Republicans. So we 

do have a good consensus in the Senate on this. 

The concern obviously is that the students that are benefiting 

here are exceptional need, as I mentioned before. One quarter of 

all loan recipients are from families with incomes less than 

$30,000. So not a lot of income. 

It is, as you know, a revolving loan program. And I am told—I 

want to make sure I am right about this—Purdue in the 2013-2014 

academic year issued nearly 3400 Perkins loans? Does that sound 

right? 

President Daniels. I don’t know, but it sounds right. 

Senator Casey. And what is your experience with the program? 

And what is your sense of it in terms of the Purdue experience? 

President Daniels. Obviously it has played a very important 

role over time. My—I am generally persuaded by the suggestion of 

those more expert—a couple of them are here—that ultimately reform here ought to be more in a Perkins-like direction, that we 

ought to have maybe one loan program that ought to be means’ 

tested. 

Among the many things we have not talked about this morning, 

the current system subsidizes wealthy families in many respects, 

and a country that is broke, and a program that is consistently 

overrunning even its own projections and causing more borrowing, 

you know, ought not to be in that business. 

So I will defer to those who live in these issues all the time, but 

my sense is that a simplified program, perhaps offering a federal 

loan program, coupled with some other vehicles of the kind we 
31 

have discussed here today, would probably wind up looking more 

like the Perkins Program than the other ones that we have today. 

Senator Casey. Interesting. Mr. Chopra, I will move to you on 

that question. I want to raise another question as well about the 

states’ role here. But just for a moment on Perkins, if you can 

speak to that? 

Mr. Chopra. I think we need to be concerned particularly for 

loans that are given to low income students that it is clearly understood, and that it is simple, it works well with the other loans they 

might have. So it feels like a place where broader reform could be 

needed, and simple extensions might not meet the goals you want, 

but I am happy to follow up with your staff further about that. 

Senator Casey. I appreciate that. 

One of the issues that we discussed today, either by way of the 

testimony or questions, was the diminution of state investment in 

public colleges and universities. We are told, if I have the data 

here, we are told that in a recent study by the Center on Budget 

and Policy Priorities, state spending on higher education nationwide is down to an average of $1,805 per student, which is about 

a little more than 20 percent. 

We are also told that in 2012, that year per-student spending by 

states reached its lowest level in 25 years. 

Mr. Chopra, I wanted to ask you about that. (A) do you think 

that is a major driver of part of the problem we have? And (b) how 

do we deal with that? What is the best way to deal with that? 

Mr. Chopra. Well one of the things that is always a challenge 

is data in this area is so poor, but there is no question that state 

budgets were killed, particularly with the downfall of the housing 

market. 

And so we now see the data showing that the percentage paid, 

that consists of tuition from students as the overall budget has increased nationally quite a bit and across most states. 

Senator Casey. So student share is up? 

Mr. Chopra. The student share is up. So I think we have to 

start questioning, given that many people are financing that, how 

do we align the incentives of states not to keep disinvesting, because someone will have to pay for it in one way or the other, either the student through more loans, the families through their 

own savings, or even the Federal Government. 

So I think it speaks to a bad trend, and probably many states 

are going to regret some of that. And I think there is good work 

in many states to try and hold their own schools more accountable 

to make sure they are delivering results. 

Senator Casey. Well since I am the only one between here and 

lunch, I will stop there. Thank you, very much. 

Chairman Coats. Well Senator Cotton popped back in. We are 

glad to have you back, Tom. 

Senator Cotton. No lunch for anyone. 

[Laughter.] 

Chairman Coats. You’re up. 

Senator Cotton. Thank you all for appearing before us. Thank 

you for taking the time to help inform us on this very important 

topic. 

President Daniels, that sounds nice. 
32 

[Laughter.] 

Many people wish they could have called you that years ago. You 

have been in and around Washington, in addition to being the 

President of Purdue now and a Governor as well, when we think 

about what is driving the student loan crisis, we have heard a lot 

of testimony today about the easy availability of debt financing 

that students may not appreciate the terms of repayment, or that 

may be driving the rate of tuition higher according to the Bennett 

Hypothesis. Some of that is the availability of debt financing from 

relatively low interest rates that have been on student loans, in 

fact capped by Members of Congress. 

I mean, in your experience do Members of Congress and Senators 

have the skill sets needed to determine what interest rates should 

be paid on student loans? 

[Laughter.] 

President Daniels. Now, Senator, what kind of a loaded question is that? 

[Laughter.] 

I admire the skill set of every Member of Congress. As you know, 

my admiration is boundless. Oh, you know, I guess what you are 

asking is, can we arbitrarily set interest rates which therefore 

amount to subsidies? Are they best determined arbitrarily or 

through some market system? And my answer would be the latter, 

and whatever they can be. 

And we have had a lot of good discussion this morning on the 

ways in which the current system of financing, everything you just 

mentioned, has contributed to distortions in the market, and probably misleading signals to students, and has certainly contributed 

very meaningfully to the runup in costs which is the root of all this 

problem. 

So I don’t know that I am answering your question about the aptitude and capabilities of our Members, but—— 

Senator Cotton. That’s not a clear answer, but—— 

President Daniels. But I would say, you know, it is beyond any 

of our human capabilities to know with certainty what the right 

number is in a setting like that. 

Senator Cotton. I mean, Hayek’s main proposition is that no 

matter how smart and capable any person is and how public-spirited it is, that person will never have all the information of millions 

of people distributed throughout a market. 

President Daniels. Yes. 

Senator Cotton. Dr. Kelly, given the rapid increases as we’ve 

seen in student debts, and because of a slow economy the difficulties so many students are having of the ability to repay their loans, 

do you foresee a kind of student debt crisis the way we saw in the 

mortgage finance sector in 2007–2008? 

Dr. Kelly. I don’t. I think they are very different scenarios, and 

I think it is important to remember who is actually struggling the 

most with their debt. And it is not the people with the highest balances. The people with the highest balances tend to have gone to 

graduate school and have completed a bachelor’s degree, and then 

gone on to graduate school. They are doing very well. 

They have low rates of financial hardship most of the time. So 

I think the real crisis here is among people who tried to enroll in 
33 

a program that was going to expand their economic opportunity, 

but without access to information about which program was the 

most valuable, and which degrees were in growing fields. I think 

they often made poor decisions, often through no faults of their 

own, frankly. 

There is downside risk to investing in higher education, and that 

is why we have created robust protections for student loan borrowers on the back end, like income-based repayment. I think we 

could change some of the terms of loan forgiveness to make them 

less perverse and potentially curb tuition inflation. But I think allowing student loan borrowers to tie their payments to their income 

is a reasonable safeguard against such a crisis. 

Mr. Chopra. Senator, if I could add, I don’t think it is the same 

type of crisis but we have some serious problems. We have 8 million Americans in default, which is going to threaten their ability 

to get on their feet economically. And I am worried that we are acting way too slowly. 

One of the reasons we acted quickly in the last crisis is because 

it threatened the sustainability and livelihood of large financial institutions, and I don’t think students have the same kind of political connections. So we need to make sure that we are thinking 

about the long game and not just the sanctity of a few. 

Senator Cotton. One alternative means of financing higher education that has been discussed here today is Income Sharing Agreements, which you piloted at Purdue. I was sponsor of legislation 

last year in the House that would have set up a regulatory framework similar to what Congressmen Young and Polis have done. 

Do you think that that kind of ISA arrangement should be available to all forms of higher education, four-year degree institutions 

and students, but also maybe just a student who needs to go back 

and get a couple of classes to build skills for their local economy? 

President Daniels. Instinctively I would say yes. We probably 

ought to walk before we run and see if it works. We talked earlier 

about the fact that it might well start among the more secure, or 

more promising borrowers, but I can see mechanisms, and we 

would like obviously to see mechanisms where it was available 

more widely and possibly everywhere. 

Senator Cotton. Dr. Kelly. 

Dr. Kelly. If I could add, I think one of the virtues of creating 

space for Income Share Agreements is that they could finance 

things that currently do not have access to the federal loan program without putting taxpayer dollars at risk, but ensuring at the 

same time that there are back-end protections by tying the payments to somebody’s income. 

Senator Cotton. Well my time has expired, and I do think I am 

standing between everyone and lunch, so thank you all very much 

for your time here today. 

Chairman Coats. Thank you, Senator. 

I want to thank our witnesses. I think this is one of the more 

instructive, constructive hearings that we have had on this Committee, and I appreciate the three of you being here to deal with 

some interesting questions. I think my colleagues are not here, but 

I think I can speak on their behalf, for their interest in this. 
34 

Too often we arrive at Committee meetings and the obligation of 

the Chairman and Vice Chairman to be there, that is all that is 

sitting at the dias. 

Obviously our witnesses can understand here there is a significant interest in this particular issue, which has major ramifications 

particularly as we are living ever more in the global economy. Getting the right flow of talent and skills into our economy is critical 

to the future of the United States being competitive in an ever 

more competitive world. 

The results from the Gallup-Purdue Index ought to give all of us 

pause in terms of how we can provide better value for the cost that 

is being endured by students and their parents. And you know this 

goes beyond just macro numbers. 

It goes to individuals who find themselves deeply in debt, living 

at home, not able to pursue what their parents had thought they 

had paid for, and that is their opportunity to have the opportunities that we have had. 

And I was happy that—well, not happy, but I think the question 

relative to the macro issue here of our ever plunging into more and 

more national debt is going to have significant consequences not 

only in our education system, but just about everything that we do 

here. 

So whether it is medical research, or whether it is education, or 

any of a number of other essential issues and things that we ought 

to be engaged in as a Nation is at great risk. And we have to keep 

our focus on that macro issue as well as the micro issues, and there 

is an interaction between the two of those. 

So all in all, I think this was a very constructive day. I thank 

you again, and with the fall of the gavel we are adjourned. 

(Whereupon, at 11:56 a.m., Wednesday, September 30, 2015, the 

hearing was adjourned.) 
(35) 

SUBMISSIONS FOR THE RECORD 
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PREPARED STATEMENT OF HON. DAN COATS, CHAIRMAN, JOINT ECONOMIC

COMMITTEE

I would like to welcome our witnesses and thank them for being here today to 

discuss how we can improve our current system of higher education financing. Most 

of us, if not all of us, will agree that the current framework is far from ideal. 

From a student’s perspective, rising student debt means greater difficulty in attaining financial stability early in one’s career, impacting important life decisions 

such as buying a house or starting a family. This is particularly true in light of the 

slow economic recovery, where lower paying entry-level positions create additional 

pressures for young Americans. 

From a taxpayer’s perspective, the free flow of federal student loan dollars to 

higher education institutions, without proper incentives to control costs, will continue to lead to higher tuition prices charged to students. While loans to cover tuition are relatively easy for students to obtain, many are not adequately informed 

as to the implications of this debt for their ability to achieve post-graduation financial success. 

Greater system-wide accountability and transparency are needed, and our witnesses will be sharing their thoughts with us today on how to best achieve those 

goals. 

I am pleased to have Purdue University President Mitch Daniels before us today 

to talk about several of his initiatives to control costs, improve financial literacy, 

and create value for students attending Purdue. President Daniels will be outlining 

for us the ‘‘Bet on a Boiler’’ Income Share Agreement pilot program and how Congress can assist similar higher education financing reforms. 

I also look forward to hearing Dr. Kelly’s thoughts on how our current student 

loan system distorts the higher education market and the role competitive principles 

can play in making higher education more affordable for everyone. 

We are also pleased to have with us Mr. Chopra, who will outline the need for 

proper safeguards as Congress considers alternatives to the current higher education financing arrangement. 

With that, I look forward to discussing these issues in more depth with our witnesses today. 

PREPARED STATEMENT OF HON. CAROLYN B. MALONEY, RANKING DEMOCRAT, JOINT

ECONOMIC COMMITTEE

Chairman Coats, thank you for calling today’s hearing. 

Rapidly growing student loan debt is a significant challenge facing our country. 

Student loan debt grew steadily through the recession, more than doubling from the 

start of the recession in 2007 to today, and is now close to $1.3 trillion. More than 

40 million people have, on average, more than $27,000 in debt. 

The recent explosion in student debt risks the economic security of young Americans and threatens our economic growth. As debt levels increase, young people are 

forced to delay buying a car, purchasing a home, starting a small business and saving for retirement. 

And some end up paying back loans well into their 30s, 40s and even 50s. 

How did we get here? 

Part of the story is that many American families have struggled in recent decades 

and have had trouble saving money for their children’s college education. And many 

were hit hard by the recent recession, the most serious economic crisis since the 

Great Depression. 

When parents have less savings, students are forced to borrow more. Substantially more. In fact, borrowing has gone up sharply in recent years, with the average 

debt at a 4-year public institution climbing from $21,900 in 2006–07 to $25,600 in 

2012–13. 

Another critical part of the story is that tuition has risen dramatically, especially 

at public colleges and universities, which educate the vast majority of our students. 

States have also been hit hard by the recession, and in response many have 

slashed funding for higher education. Median state funding per student, for example, fell by almost one-fourth from 2003 to 2012. 

Cuts in state funding for higher education force public universities to charge 

more. As a result, this forces students and their parents to have to pay more. And 

this means that students have to borrow more money to go to college. 

With declining state investment, tuition increases have far outpaced inflation 

since the 1980s. After adjusting for inflation, tuition and fees at a public 4-year university more than TRIPLED in the past 30 years. 
37 

The Bush-era recession increased the overall amount owed by students in another 

way. As job opportunities shrank, more and more young people opted to enroll in 

school. And they had to take out loans to pay for it. 

The recent recession also accelerated the loss of many higher-paying jobs that did 

not require a college degree, further increasing the demand for college or other postsecondary education. 

For-profit institutions, in particular, saw their enrollments surge—quadrupling 

between 2000 and 2011. A new report finds that 75 percent of the increase in student loan defaults between 2004 and 2011 results from the increase in borrowers 

at for-profit institutions. 

Yes, student debt is a big problem. 

And how do our Republican colleagues suggest that we respond to this problem? 

By restricting the availability of federal student loans and by expanding the private 

student loan market. 

As recent history has shown us, private student loans pose significant risks to 

borrowers. These loans lack the consumer protections of federal loans. They typically carry higher interest rates, some greater than 18 percent. And they offer fewer 

options for loan modification. 

Many borrowers have been forced into default when lenders wouldn’t negotiate 

viable repayment plans. Income-based repayment and extended loan terms—plans 

that are available with federal loans—typically are not available with private student loans. 

And there are many, many examples of private lenders preying on student borrowers. 

Private lenders regularly declare borrowers’ private student loans in default after 

a co-signer dies or files for bankruptcy, even for borrowers who paid their loans on 

time for years. 

Of course, a default can affect employment background checks and cause lasting 

damage to a person’s credit. 

There is probably broad agreement in this room about the need to continue to 

clean up the abuses in the private student loan industry. It’s been the Wild West, 

with providers marketing their loans to students desperate for financing through 

every conceivable channel—Pandora, You Tube, on campus, off campus, at the gym 

and so on. 

As we consider new private options for financing a college education, we must 

make absolutely sure we have strong safeguards in place to prevent private lenders 

from using predatory practices to take advantage of students. 

Today we will discuss a new private lending mechanism—income share agreements—that could offer some students an alternative way to finance their college 

education. 

I would like to hear what our witnesses have to say about this issue. I would also 

like to know—specifically—how they would protect students from the predatory 

practices that have been a part of the existing private student loan market. 

Rather than look to the private sector to magically solve the student debt problem, we should strengthen public support for higher education. It’s important to remember that an educated workforce is a public good and thus without government 

involvement, we would underinvest in education. There are four steps we should 

take right now. 

First, we should make tuition free for students at community college. Students 

would then be able to build their skills, and perhaps obtain an associate’s degree, 

without taking on huge debt. 

Second, states need to partner with the Federal Government to reinvest in higher 

education, and to begin to reverse the years of divestment at the state level. 

Third, at the federal level, we should increase investments in Pell Grants to give 

low-income students a real shot at a college education. Despite recent increases, Pell 

Grants now cover just one-third the cost of going to a public university. 

Finally, we need to reform the system so that universities and colleges have some 

‘‘skin in the game,’’ some consequences, when a student is unable to pay back a 

loan. And colleges should be rewarded when a student succeeds. 

CONCLUSION

Before we take the advice of my Republican colleagues and scale back federal student loans and increase private lending to students, let’s take a minute to remember 

how much students benefit from federal loans. 

Much lower rates . . . . Better consumer protections . . . .. Income-based repayment 

. . . . Extended loan terms . . . . 
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College has been a gateway to opportunity for generations in our country. But for 

too many Americans, as the price of college rockets up, the dream of an affordable 

college education slips away. 

Our goal should be college education that is more accessible and more affordable. 

The Federal Government, state governments, universities, colleges, community 

colleges, the private sector and families all have a role to play. I look forward to 

our discussion today and thank the witnesses for their testimony. 
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QUESTIONS FOR THE RECORD FOR MR. ROHIT CHOPRA SUBMITTED BY HON. CAROLYN

B. MALONEY, RANKING MEMBER, AND MR. CHOPRA’S RESPONSES

1. Last year, several private student loan lenders were ordered to pay 

tens of millions of dollars for violating the Servicemembers Civil Relief Act. 

This year, another private lender was fined for harming student loan borrowers. Going forward, what can we do to deter private lenders from exploiting 

student borrowers? What incentives or disincentives would be effective? 

Recent enforcement actions taken against major players in the student loan industry are not only bad for borrowers, they are bad for the honest actors looking 

to serve their customers fairly. I am particularly concerned that community banks, 

credit unions, and non-profit lenders are disadvantaged by the culture of corner-cutting among the industry giants. 

One of the most important ways to remedy the marketplace is to apply some of 

the reforms made by Congress to the credit card and mortgage markets to the student loan market. For example, explicit servicing standards to ensure borrower payments are processed properly and servicing transfers run smoothly will be critical. 

We must also explore the role that schools play. After the student loan kickback 

scandal was uncovered, Congress restricted the ability of schools to accept gifts and 

share revenue from private student lenders. Congress should consider requiring 

schools with a preferred lender list to warn prospective borrowers about legal violations by student lenders. This would provide a strong deterrent for market players 

to engage in illegal conduct. 

2. In the upcoming reauthorization of the Higher Education Act, what 

should Congress do to enhance consumer protections for borrowers of private student loans? 

Congress should enact reforms to address the following areas: 

(1) Borrowers in distress: Requiring servicers to assess a borrower in distress for a loan modification; adjusting the treatment of private student 

loans in bankruptcy proceedings 

(2) Servicing standards: Enacting consistent, privately enforceable servicing 

practices to ensure adequate customer service 

(3) Credit reporting reform: Requiring lenders and servicers to accurately 

furnish certain types of information to consumer reporting agencies 

(4) Data and reporting: Establishing public reporting of key origination and 

performance data to protect against discriminatory practices, similar to the 

Home Mortgage Disclosure Act; implementing certain data standards to 

create marketplaces and promote more vigorous competition 

(5) Harmful contract clauses: Eliminating ‘‘gotchas’’ in fine print, such as 

auto-defaults (where a borrower in good standing is put in default when a 

co-signer dies), universal default, and other clauses 

(6) Servicemembers and veterans: Streamlining the Servicemembers Civil 

Relief Act to ensure protections are not lost when refinancing 

(7) Disclosures: Implementing disclosures that allow borrowers to understand and compare all types of student loans. 

QUESTION FOR THE RECORD FOR MR. CHOPRA SUBMITTED BY SENATOR AMY

KLOBUCHAR AND MR. CHOPRA’S RESPONSE

Mr. Chopra, in your testimony, you touched on the securitization of student loans—that is, when banks or other investors buy up student loans, 

bundle them up into a security and then sell them to other investors. I am 

concerned that a disruption in this market could affect the ability of our 

young people to go to college and get the training and education they need 

to compete in the workforce. 

• Can you describe how the securitization of student loans works? What 

happens if someone defaults on their loan? 

• What protections are there for students who have loans that are bundled? 

• What lessons have we learned from the market crisis that we could 

apply to this market? 

Most outstanding student loan asset-backed securities are collateralized by government-guaranteed student loans under the Federal Family Education Loan 

(FFEL) program. Fortunately, recent disruptions in this market are not threatening 
71 

the ability of students to access new loans, since the Congress discontinued originations under this program. 

In a securitization, an issuer typically originates or purchases loans which serve 

as collateral for bonds issued by a trust. Borrower payments are sent to a servicer 

hired by the trustee and ultimately flow to bondholders. When a borrower defaults, 

the servicer will file a claim if the loan is guaranteed. In the case of ABS 

collateralized by private student loans, a borrower will typically be pursued by a 

debt collector or attorney after a default. 

There are no explicit protections for borrowers whose loans have been securitized. 

As we saw in the mortgage market, securitization can lead to distortions that harm 

borrowers. For example, servicers and trustees may not retain adequate documentation to prove to a borrower that they have the requisite legal claim to collect on the 

loan. In addition, a servicer may seek to maximize profits by not adequately informing borrowers about loan modification options—instead steering them to quick-fix 

solutions, such as forbearance. 

Policymakers must take steps to ensure that borrowers are protected against poor 

servicer practices, especially where incentives may be distorted by securitization. We 

must also rethink the 2005 changes to the treatment of private student loans in 

bankruptcy, which may be inhibiting constructive workouts between borrowers and 

loan holders. We should also enhance the quality of data by asking regulators to 

collect and publish origination and performance information. 

QUESTIONS FOR THE RECORD FOR PRESIDENT DANIELS SUBMITTED BY REP. ALMA S. 

ADAMS, PH.D., AND PRESIDENT DANIELS’ RESPONSES

1. Being a graduate of a Historically Black College and University 

(HBCUs), I can personally say that without the opportunity offered to me 

by North Carolina A&T State University I would not be sitting before you 

today, so it’s absolutely important that we ensure these institutions not 

only survive, but thrive. 

This is why my colleague, Bradley Byrne and I launched the Bipartisan 

HBCU Caucus earlier this week. 

One of the issues we’re exploring is the impact of the rising cost of college tuition on often already cash strapped HBCUs. 

To the panel, can you all discuss some policies that may be implemented 

with regard to alternative forms of financing particularly available for 

HBCUs? 

The primary means to make college more affordable should be to rein in spending 

and to encourage universities to operate more efficiently. Congress should be careful 

to avoid policies that make it easier for administrators to raise tuition prices. 

After that, we owe it to the current and future students of historically black colleges and universities to create alternatives to the PLUS and private loans that 

leave so many students in high debt. Income-share agreements, under which a student contracts to pay funders a fixed percentage of his or her earnings for an agreed 

number of years after graduation, offer a constructive alternative, both as an option 

for new originations and for refinancing existing debt. 

I am grateful to Rep. Young and Rep. Polis for introducing HR 3432, the Student 

Success Act of 2015, as a bipartisan effort. This legislation will make it possible for 

universities, including HBCUs to test whether ISAs can give students a better deal 

than they now have. The legislation is needed because it will provide important protections for students and offer clarity for the ISA provider. It’s also my hope that 

the final version of the bill will make it clear that ISAs should be dischargeable in 

bankruptcy, which will be an important distinction from the current offerings. 

Without this legislation, we will never see ISAs in use at a large scale; with it, 

we have a chance to do something real for students. I encourage the Senate to introduce and pass similar legislation to HR 3432, and to do it quickly. Legislative clarity 

will open doors for universities to explore this in a way that is not currently feasible. 

Follow-Up 

What financing alternatives should be discussed with regards to HBCUs 

when specifically considering student factors such as being low-income 

and first generation? 

There is something very American and progressive about ISAs that contrasts with 

the existing alternatives. Consider that with private and PLUS loans, access to 

higher education funding regressively depends on family wealth. With an ISA, fam-
72 

ily credit is irrelevant to one’s worthiness to get funding. What matters is the future, and an individual’s promise to work hard, and pursue the American dream. 

Research shows that low-income high school graduates are among the most risk 

adverse student borrowers, causing some to pass up higher education all together. 

ISAs address this need by shifting the risk burden off of the student and on to the 

provider. If the graduate earns less than expected, it is the funders who are disappointed. Education payments will never be more than the agreed portion of their 

incomes, no matter what life brings, including unemployment, underemployment 

and health issues. This is true ‘‘debt-free’’ college. 

Purdue University, like HBCUs, is committed to preventing discrimination of any 

kind. ISAs should be available to students of all backgrounds. Unlike other financing tools that often depend on a student’s family circumstances, such as Parent 

PLUS and private student loans, ISAs are built around the investment students are 

making in their future—not where they came from in the past. 

QUESTION FOR THE RECORD FOR DR. ANDREW KELLY SUBMITTED BY REP. ALMA S. 

ADAMS, PH.D., AND DR. KELLY’S RESPONSES

1. Being a graduate of a Historically Black College and University 

(HBCUs), I can personally say that without the opportunity offered to me 

by North Carolina A&T State University I would not be sitting before you 

today, so it’s absolutely important that we ensure these institutions not 

only survive, but thrive. 

This is why my colleague, Bradley Byrne and I launched the Bipartisan 

HBCU Caucus earlier this week. 

One of the issues we’re exploring is the impact of the rising cost of college tuition on often already cash strapped HBCUs. 

To the panel, can you all discuss some policies that may be implemented 

with regard to alternative forms of financing particularly available for 

HBCUs? 

It is important to note that income-share providers need not be proft-making entities, but may well be non-profit funds that are interested in increasing college access among particular demographic groups or at particular institutions. HBCUs 

seem like a potential target for such a non-profit model, where philanthropists could 

provide the seed money to get a fund started, and that fund would then be sustained by income-linked payments from alumni. Think about it as a revolving fund 

or ‘‘pay it forward’’ arrangement for a particular institution. 

Follow-Up 

What financing alternatives should be discussed with regards to HBCUs 

when specifically considering student factors such as being low-income 

and first generation? 

In the non-profit revolving fund example laid out above, private funders could also 

work with HBCUs to improve student services and linkages to the labor market in 

ways that maximize student success. 

QUESTIONS FOR THE RECORD FOR MR. CHOPRA SUBMITTED BY REP. ALMA S. ADAMS, PH.D., AND MR. CHOPRA’S RESPONSES

1. I would like to ask you about Parent PLUS Loans. 

As you know this program underwent some changes in 2011 that resulted 

in students who were previously eligible for these loans being denied. 

This greatly affected many students’ ability to pay tuition, and had a dramatic effect on HBCUs. 

When the problem first surfaced in 2012, 400,000 students nationwide, including 28,000 HBCU students were negatively affected by the change in 

PLUS Loan standards. 

Mr. Chopra, do you believe the recent changes to the Parent PLUS loan 

eligibility requirements are enough to fix the problem created by the 2011 

changes? 

If not, what changes do you believe need to be made to address these 

problems? 

No, I do not believe the changes to the Parent PLUS program will ultimately repair the underlying problems faced by many borrowers attending Historically Black 

Colleges and Universities (HBCUs) and other institutions that disproportionately 

serve low-income and first-generation college attendees. 
73 

While many institutions benefit from sizable endowments built on donations from 

wealthy alumni over many generations (sometimes over centuries), most HBCUs 

and other Minority-Serving Institutions (MSIs) do not have these resources. 

While examining loan programs is important, we must also take steps to ensure 

that HBCUs and MSIs have adequate resources to ensure graduates and their families do not incur excessive debt. The upcoming reauthorization of the Higher Education Act should include an examination of a modernized funding model to recognize the unique contributions of these institutions. 

2. Being a graduate of a Historically Black College and University 

(HBCUs), I can personally say that without the opportunity offered to me 

by North Carolina A&T State University I would not be sitting before you 

today, so it’s absolutely important that we ensure these institutions not 

only survive, but thrive. 

This is why my colleague, Bradley Byrne and I launched the Bipartisan 

HBCU Caucus earlier this week. 

One of the issues we’re exploring is the impact of the rising cost of college tuition on often already cash strapped HBCUs. 

To the panel, can you all discuss some policies that may be implemented 

with regard to alternative forms of financing particularly available for 

HBCUs? 

Follow-Up 

What financing alternatives should be discussed with regards to HBCUs 

when specifically considering student factors such as being low-income 

and first generation? 

As noted in my written testimony, the market for private financing products 

should be free of discrimination. For regulators to ensure that creditors are not violating the Equal Credit Opportunity Act, Congress and the industry should consider 

requiring a data reporting framework similar to the Home Mortgage Disclosure Act. 

This will help to ensure that creditors are not unfairly denying or charging higher 

prices to students and HBCUs and MSIs. 

Æ