U.S. GOVERNMENT PRINTING OFFICE

63–465 cc WASHINGTON : 2000

S. Hrg. 106–515

RISING COST OF COLLEGE TUITION AND THE

EFFECTIVENESS OF GOVERNMENT FINANCIAL AID

HEARINGS

BEFORE THE

COMMITTEE ON

GOVERNMENTAL AFFAIRS

UNITED STATES SENATE

ONE HUNDRED SIXTH CONGRESS

SECOND SESSION

FEBRUARY 9 AND 10, 2000

Printed for the use of the Committee on Governmental Affairs

(

For sale by the Superintendent of Documents, Congressional Sales Office

U.S. Government Printing Office, Washington, DC 20402

(II)

COMMITTEE ON GOVERNMENTAL AFFAIRS

FRED THOMPSON, Tennessee, Chairman

WILLIAM V. ROTH, Jr., Delaware

TED STEVENS, Alaska

SUSAN M. COLLINS, Maine

GEORGE V. VOINOVICH, Ohio

PETE V. DOMENICI, New Mexico

THAD COCHRAN, Mississippi

ARLEN SPECTER, Pennsylvania

JUDD GREGG, New Hampshire

JOSEPH I. LIEBERMAN, Connecticut

CARL LEVIN, Michigan

DANIEL K. AKAKA, Hawaii

RICHARD J. DURBIN, Illinois

ROBERT G. TORRICELLI, New Jersey

MAX CLELAND, Georgia

JOHN EDWARDS, North Carolina

HANNAH S. SISTARE, Staff Director and Counsel

ROBERT J. SHEA, Counsel

JOYCE A. RECHTSCHAFFEN, Minority Staff Director and Counsel

KENNETH R. BOLEY, Minority Counsel

SUSAN E. PROPPER, Minority Counsel

DARLA D. CASSELL, Administrative Clerk

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C O N T E N T S

Opening statements: Page

Senator Thompson ............................................................................................ 1,55

Senator Lieberman ........................................................................................... 2,56

Senator Collins ................................................................................................. 5

Senator Levin .................................................................................................... 6

Senator Voinovich ............................................................................................. 7

Senator Akaka .................................................................................................. 8,75

Senator Durbin ................................................................................................. 20

WITNESSES

WEDNESDAY, FEBRUARY 9, 2000

Jamie Pueschel, United States Student Association ............................................ 11

Claire L. Gaudiani, Ph.D., President, Connecticut College .................................. 21

William E. Troutt, Ph.D., President, Rhodes College, and Chairman, National

Commission on the Cost of Higher Education ................................................... 26

David W. Breneman, Ph.D., Dean, Curry School of Education, University

of Virginia ............................................................................................................. 27

Caroline M. Hoxby, Ph.D., Associate Professor of Economics, Harvard University ......................................................................................................................... 31

William F. Massy, Ph.D., President, Jackson Hole Higher Education Group,

Inc. ......................................................................................................................... 35

THURSDAY, FEBRUARY 10, 2000

Lawrence E. Gladieux, Executive Director for Policy Analysis, The College

Board ..................................................................................................................... 58

Michael S. McPherson, Ph.D., Professor of Economics and President,

Macalester College ............................................................................................... 62

Patricia Somers, Ph.D., Associate Professor of Higher Education, University

of Missouri ............................................................................................................ 78

Jerry S. Davis, Ed.D., Vice President for Research, USA Group Foundation .... 83

Mark Kantrowitz, Publisher, FinAid Page, L.L.C. ............................................... 86

ALPHABETICAL LIST OF WITNESSES

Breneman, David W., Ph.D.:

Testimony .......................................................................................................... 27

Prepared statement with an attachment ....................................................... 110

Davis, Jerry S., Ed.D.:

Testimony .......................................................................................................... 83

Prepared statement with attachments ........................................................... 260

Gaudiani, Claire L., Ph.D.:

Testimony .......................................................................................................... 21

Prepared statement .......................................................................................... 100

Gladieux, Lawrence E.:

Testimony .......................................................................................................... 58

Prepared statement with attachments ........................................................... 138

Hoxby, Caroline M., Ph.D.:

Testimony .......................................................................................................... 31

Prepared statement .......................................................................................... 120

Kantrowitz, Mark:

Testimony .......................................................................................................... 86

Prepared statement .......................................................................................... 274

Page

IV

Massy, William F., Ph.D.:

Testimony .......................................................................................................... 35

Prepared statement with supplement ............................................................. 129

McPherson, Michael S., Ph.D.:

Testimony .......................................................................................................... 62

Prepared statement by Dr. Michael McPherson and Dr. Morton Schapiro

with an attachment ...................................................................................... 159

Pueschel, Jamie:

Testimony .......................................................................................................... 11

Prepared statement .......................................................................................... 95

Somers, Patricia, Ph.D.:

Testimony .......................................................................................................... 78

Prepared statement by Dr. Patricia Somers and Dr. James Cofer .............. 215

Troutt, William E., Ph.D.:

Testimony .......................................................................................................... 26

Prepared statement .......................................................................................... 103

APPENDIX

Additional prepared statements for the record from:

U.S. Department of Education ........................................................................ 276

University of Illinois with attachments .......................................................... 290

California Community Colleges ....................................................................... 297

Massachusetts Institute of Technology ........................................................... 299

University of Hawaii ........................................................................................ 307

Letter from Edward O. Blews, Jr., President, Association of Independent

Colleges and Universities of Michigan, dated Feb. 8, 2000 .............................. 309

Chart entitled ‘‘Figure 6. Inflation-Adjusted Changes in Tuition, Family Income, and Student Aid, 1988–89 to 1998–99 and 1980–81 to 1998–99’’ ......... 310

Chart entitled ‘‘Percent Share of Grants vs. Loans, 1980–81 to 1998–99’’ ......... 311

Questions submitted for the record by Senator Akaka and responses from:

Claire L. Gaudiani, Ph.D. ................................................................................ 312

David W. Breneman, Ph.D. .............................................................................. 314

William F. Massy, Ph.D. .................................................................................. 315

Jerry S. Davis, Ed.D. ........................................................................................ 316

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RISING COST OF COLLEGE TUITION AND THE

EFFECTIVENESS OF GOVERNMENT FINANCIAL AID

WEDNESDAY, FEBRUARY 9, 2000

U.S. SENATE,

COMMITTEE ON GOVERNMENTAL AFFAIRS,

Washington, DC.

The Committee met, pursuant to notice, at 10:11 a.m., in room

SD–628, Dirksen Senate Office Building, Hon. Fred Thompson,

Chairman of the Committee, presiding.

Present: Senators Thompson, Collins, Voinovich, Lieberman,

Levin, Akaka, and Durbin.

OPENING STATEMENT OF CHAIRMAN THOMPSON

Chairman THOMPSON. Let us come to order, please. Thank you

all for being here today. I want to give special thanks to Senator

Lieberman, whose idea it originally was to have this hearing, and

the more I have gotten into it, the more important I think that it

is.

We are meeting to discuss an issue that is important to every

family in America, the cost of college tuition. The problem of rising

tuition is known to many of us, but it is worth restating for the

record. From 1990 through 1996, average tuition for a full-time

resident undergraduate student rose 43.8 percent, but during the

same time, the Consumer Price Index rose only 15.4 percent and

median household income rose a mere 13.8 percent.

In a recent report, the College Board wrote, ‘‘Since 1980, college

prices have been rising at twice and sometimes three times the

CPI. Over the 10-year period ending in the year 2000, average public 4-year tuition and fees rose 51 percent compared to 34 percent

for private 4-year colleges. Since 1981, both public and private 4-

year college tuitions increased on an average of more than 110 percent over inflation. Private college tuition rose most sharply in the

early and mid-1980’s, while public tuition increased the most in the

late 1980’s and early 1990’s.’’ That is the end of their statement.

I think we will learn today that certainly it is not uniform across

the board, that tuition has actually dropped for many colleges and

institutes, but, of course, there are several on the upper end that

have risen astronomically, hence the averages that we mention

here.

The most puzzling thing about this problem, astronomically rising tuition, is that no one seems to have a handle on why this is

occurring. The Congress, in its infinite wisdom, set up a commisVerDate 11-SEP-98 12:41 Jun 27, 2000 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 63465.TXT SAFFAIRS PsN: SAFFAIRS
2

sion to analyze the problem and made recommendations about how

to address it, but even with the able leadership of William Troutt,

the commission could not figure out the totality of the problem, either.

In its final report, the commission wrote that, ‘‘Academic institutions have made little effort, either on campus or off, to make

themselves more transparent to explain their finances. As a result,

there is no readily available information about college costs and

prices, nor is there a common national reporting standard for either.’’

The commission recognized the irony and apologized that it

‘‘found itself in the discomforting position of acknowledging that

the Nation’s academic institutions—justly renowned for their ability to analyze practically every other major economic activity in the

United States—have not devoted similar analytical attention to

their own internal financial structures.’’ Apparently, colleges and

universities themselves do not have a good understanding of why

tuition rates are rising in many cases so rapidly.

As this Committee has found with government agencies, you

have to know the nature of the problem before you can work to

solve it. The Federal Government makes available to students over

$41 billion every year in the form of grants and guaranteed loans.

As the role of this Committee is to study the efficiency, economy,

and effectiveness of the government’s programs, it is incumbent on

us to take a serious look at the effect of this government spending

on tuition rates.

But there are innumerable other factors that make up the cost

and price of a college education—administrative costs, faculty salaries, technology, Federal regulation, endowment, State appropriations, and many, many more. This is clearly a case where not one

single factor works in a vacuum to affect the costs and price of a

college education. Just as not one single factor affects the cost and

price of a college education, there is not one single answer to the

problem, but hopefully by focusing on it here today, we can at least

have a much better understanding than we do now.

Colleges and universities must work to control their own costs.

Public officials must ensure that public aid programs work to the

public good, and we must all work together to ensure that purveyors of fraud do not take advantage of students and their families.

Again, this is an important issue worthy of the Committee’s attention and I want to thank Senator Lieberman, as I said, for suggesting this inquiry. We have some distinguished witnesses here to

help us explore the myriad issues relating to this topic and I look

forward to their testimony.

Senator Lieberman.

OPENING STATEMENT OF SENATOR LIEBERMAN

Senator LIEBERMAN. Thanks, Mr. Chairman. Good morning.

Thanks so much for your responsiveness to our suggestion that this

was a topic that was important for us and this Committee to get

into. Our staffs have worked very well and very hard together, as

you and I have, and I do believe that we have a couple of days of

substantive and important hearings ahead of us.

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As you indicated, the high price of a college education is a matter

of deep and growing concern for America’s families. The numbers

I have are 20-year numbers, but they mirror what you indicated.

Over the past 20 years, tuition has more than doubled at both public and private colleges, rising, as you said, well above the rate of

inflation. Yet subsidies to schools in the form of State appropriations or aid to students and their families have failed to keep pace

with those increases.

I have tuition increases at slightly over 110 percent over the last

2 decades. Aid is up 68 percent, and as we will find out here, importantly, more of the aid now than then is in loans as opposed to

grants. And the median family income has increased 22 percent

over the last 2 decades. Those numbers give a snapshot. I suppose

one can overreact to them, but they show what is the bottom line

here, which is that tuition has been rising, not only more than the

rate of inflation, but more than the increase in median family income, and aid to fill that gap has not been rising proportionately.

Parents are painfully familiar with these developments. I must

tell you that everywhere I go in Connecticut, this seems to be just

about the number one topic of concern. Families are anxious about

how they and their kids are going to afford college. Last October,

there was a poll in the Washington Post that reflected this nationally, and I must say, based on the anecdotal evidence that I have

had in Connecticut, I did not find it surprising. Sixty-three percent

of Americans with school-age kids said they worry a great deal

about college costs.

Maybe even more striking, a report by the American Council on

Education found that 71 percent of the American people believe

that a 4-year college education is not affordable for most Americans. The interesting fact is, as we will hear during the hearing,

that, in fact, most people are somehow managing to afford it, although taking on great burdens. But the fact that 71 percent think

it is not affordable is corrosive.

Sixty-five percent on this American Council on Education poll list

the cost of college education as a top concern, ranking it among

their concerns ahead of violent crimes against children, children’s

health care, and even the quality of public schools. So that gives

us some measure of public anxiety about this issue.

Now, I think the anxiety is a reflection of the importance that

we have always attached to higher education in this country and

that parents attach today. They are willing to shoulder just about

any burden to give their children the help they need, but they fear

that the burden is increasing to back-breaking proportions and that

their children will be priced out of higher education and thereby

kept from realizing their own personal American dreams.

The stress on individual students is only part of the story. There

is also, of course, a powerful connection between our Nation’s ability to provide higher education and our ability to maintain healthy

economic growth. Growth in our time is dependent on innovation,

the kind of innovation that comes from educated people. We also

hear constantly from employers about America’s shortage of skilled

workers to help us compete globally.

So if college becomes a luxury that an increasing percentage of

our population cannot afford, it will not only be bad for those who

4

cannot afford it and expand the economic divide between higher

education haves and have-nots, it will come to stunt our economic

growth and our national well-being.

Today, we have an extraordinary group of witnesses, and tomorrow, as well, who we are going to ask some important questions,

I think, that are important to America’s families and to America’s

future.

The bottom line is, why is college tuition so high? Schools tell us

that they are providing an expensive and valuable product, an education that will mean thousands of dollars more in future earning

power for graduates. But, of course, many parents are concerned

that schools may not be using their tuition dollars as efficiently as

they should be, that perhaps they are paying more for a college

education than is really necessary. We are going to look at the component parts of tuition here, those costs incurred by institutions in

providing an education and ask whether colleges and universities

are doing everything they can to hold down their costs.

From the student’s perspective, the amount of aid he or she receives is, of course, as important as the sticker price of tuition. So

we are going to look at the subsidies for higher education and ask

whether aid to students and to schools is adequate.

Before public universities, for instance, set tuition, State appropriations are enormously important offsets against those public

school costs. It is important to remember that over three-fourths of

undergraduates in our country go to public colleges and universities, so State and public appropriations are critically important to

the cost of education.

Many private schools can use their endowments to offset costs

and lower tuition. So we are going to ask how many can afford to

do that and are they doing it.

And, of course, in addition, there are scores of Federal, State,

and private grant and loan programs that assist students in tuition. Are they adequate to the task? Are they adequate to the need

and the national interest in allowing every one of our children able

to go to college to do so?

We are also going to look into the growing and controversial use

of something called merit aid, also referred to as tuition discounting, which can dramatically affect the price tag of a student’s

education. College applicants and their families should know that

when a school gives a sticker price for tuition, apparently that may

just be the beginning of a negotiation. Asking for a better price is

an increasingly utilized and successful tactic, even for students who

do not qualify for need-based programs, and what are the implications of that?

We are going to try to assess the impact of education loan debt

on students and this increasing proportion of school aid that is

made up in loans as opposed to grants. Students are finding themselves obviously carrying a tremendous debt burden. What effect

does that have on their education and on their life choices afterward?

And finally, Mr. Chairman, I know we have worked with our

staffs to try here to expose what might be called merchants of

scholarship fraud. You can always count on somebody to try to take

advantage of people’s anxieties and needs. Apparently, scholarship

5

fraud amounts to over $100 million annually that is taken without

cause from vulnerable students and parents. The most common

scams include a required up-front fee in exchange for guaranteed

success in locating a scholarship. Also, there are sales pitches that

are disguised as free financial aid seminars. Of course, families are

already stressed out over exorbitant tuition fees and we hope that

through these hearings we can make them aware of the illegal

schemers who lay in wait for them.

So, Mr. Chairman, again, I thank you. I hope that we can learn

from these hearings whether our Nation is on track in providing

access to all of our children to higher education and whether government is doing everything it can to ensure college affordability,

whether the colleges and universities themselves are doing everything they can, and if not, what can we all do together to guarantee

full access to higher education.

I want to extend, finally, a special personal welcome to Dr. Claire

Gaudiani, President of Connecticut College in New London, Connecticut. Today, we are going to hear from a great educator, a great

success story in her own right as a person who was a student

through scholarship aid, and, may I say, a wonderful citizen leader

in Eastern Connecticut.

So I thank you again, Mr. Chairman, for convening these hearings and I look forward to 2 very constructive days of testimony.

Chairman THOMPSON. Thank you very much. Senator Collins.

OPENING STATEMENT OF SENATOR COLLINS

Senator COLLINS. Thank you very much, Mr. Chairman. I want

to commend you and Senator Lieberman for your leadership in convening this morning’s hearing to examine the effectiveness of Federal financial aid and its relationship to the rising costs of higher

education. Having worked at a college in Maine prior to my election to the Senate, I have a special interest in this issue and I remember well the discussions that we would have on where and

how we should set the tuition rates for the upcoming year.

It is becoming more evident every day that some form of higher

education is needed to participate fully in the economy of the future. More and more jobs require some sort of higher education,

and indeed, even in traditional industries and manufacturing

where a high school degree used to be adequate, things are changing.

I visited two paper mills in Maine over the recess and talked

with the managers, who told me that no longer will they hire someone with only a high school degree. Instead, they are now requiring

at the paper mills in Maine a minimum of 2 years of higher education, either at a technical college or at the university. This is a

considerable change.

In addition, college graduates make, on average, $17,000 more

annually than do high school graduates. Thus, increasing educational opportunities is key to narrowing the widening gap in this

country among income groups. It is for these reasons that I have

consistently fought for an expansion of Federal financial aid programs, including Pell grants, student loans, and the new LEAP

program.

6

Nevertheless, as we do increase Federal aid, it is extremely important that we continue to assess the effectiveness of these efforts

to improve access to higher education, particularly for our low- and

middle-income students. Ideally, our goal should be that every

qualified student should be able to attend college without facing insurmountable financial barriers.

I have been concerned for some time that Congressional efforts

to increase student aid may have been undermined by continuing

tuition increases that are far above the level of inflation and far exceed the growth in family income. Senator Lieberman gave some

statistics over the last 20 years, but even if you look at more recent

years, you find that there still is a disparity between the increases

in inflation versus tuition rates. For example, from 1990 through

1996, the average tuition rose by almost 44 percent compared with

an increase of just a bit over 15 percent in the Consumer Price

Index and about a 14 percent increase in the median household income.

My concern is that we appear to be pouring more money into the

system only to have it mopped up by tuition increases, and if, in

fact, that is the case, then we are not achieving our goal of expanding access.

I am hopeful that these hearings will shed further light on this

concern for, at the very least, the increased availability of Federal

financial aid has made it easier for colleges to raise tuition without

running into signs of consumer resistance. The suggestion that I

have heard that Federal assistance is not a factor in tuition increases is, according to a report by the Council for Aid to Education, ‘‘akin to arguing that the ready availability of home mortgages has no impact on the price of housing.’’

At the heart of these hearings are significant policy questions

that I look forward to hearing addressed by our witnesses today.

It has always been the objective of aid programs to broaden access

and increase opportunity for students, but the question before us

is has that objective been stymied by unrestrained tuition increases? How can we appropriately encourage colleges and universities and technical schools to hold down their charges without resorting to inappropriate controls and interference?

These are the difficult questions that I hope our panelists will

discuss today. I look forward to hearing their testimony, and again,

I want to commend both the Chairman and the Ranking Minority

Member for initiating this very important investigation.

Thank you, Mr. Chairman.

Chairman THOMPSON. Thank you very much.

Senator Levin, do you have a comment.

OPENING STATEMENT OF SENATOR LEVIN

Senator LEVIN. Thank you very much, Mr. Chairman. Let me

congratulate and commend both you and Senator Lieberman for

your initiative in calling this hearing this morning.

Access to higher education has been the principal reason for

America’s economic strength and for the persistence of our democratic values. It is essential. Access to higher education is absolutely essential to economic opportunity for more and more Americans.

7

1The letter from Mr. Blews appears in the Appendix on page 309.

It seems to me that one of our goals in this Congress and in future Congresses has got to be what other Congresses before us

have achieved, which is extending higher education opportunity to

more and more Americans. Financial aid is the key that unlocks

the doors to our colleges and our universities for millions of Americans, and the fact that tuition costs have gone up increases the importance of financial aid programs and the need to broaden the

availability of those programs to more and more people.

As you pointed out, Mr. Chairman, in your opening comments,

there is a great variety of experiences between the States and within our States as to tuition cost increases. There is not one uniform

tuition cost increase that applies across the board. We have had

some real success in my home State of Michigan, both in some of

our public universities and in our independent colleges and universities with keeping tuition costs down, and I would like, Mr. Chairman, if I might, to ask that a portion of a letter from the President

of our Independent Colleges and Universities of Michigan, Edward

Blews, be inserted in the record at this time which describes the

success of our independent colleges in keeping tuition rates and increases down.1

Chairman THOMPSON. It will be made a part of the record.

Senator LEVIN. Thank you very much. One of the former presidents of one of those independent colleges, David Breneman, is one

of the witnesses today. He is now at the University of Virginia, but

we miss him very much in Michigan, and Kalamazoo remembers

you very fondly, indeed. I cannot stay for your testimony, but I

wanted to give you a special welcome here this morning.

Thank you, Mr. Chairman.

Chairman THOMPSON. Thank you. Senator Voinovich.

OPENING STATEMENT OF SENATOR VOINOVICH

Senator VOINOVICH. Thank you, Mr. Chairman. I am pleased

that you and Senator Lieberman are holding these hearings on a

very important issue of the rising cost of college tuition and the effectiveness of government financial aid.

I believe that a quality education is the foundation of success for

our Nation’s young people. In an increasingly complex and technologically advanced world, higher education is more valuable than

ever before. However, that value often comes at a formidable price.

As tuition costs for most schools continue to outpace inflation by

significant margins, the financial cost to families and the debt burden for students makes affording college a struggle for many.

I recall a civics professor in high school who said that he defined

a democracy as an equal opportunity to become unequal, and access to a quality, affordable education is one way that we give people an equal opportunity to become unequal.

In my own case, I cannot but think of my dad, who was a first

generation American, but for a Kroger scholarship to Carnegie

Tech would not have had a chance for higher education. My own

family, I think as many here, benefitted from scholarships. My

daughter who went out to Stanford on a 2-year graduate program,

benefitted. And my oldest son, it took him 6 years to pay off his

8

debts because he decided to go to a private law school. So I think

a lot of us sitting here understand having three kids in college at

the same time, the burden that is there.

On the other hand, I am glad that Senator Lieberman mentioned

that our public colleges are about 75 percent of the action. One of

the things that I did as Governor, and I am only mentioning this

today because I think it does prove that if you set your mind to trying to work harder and smarter and do more with less, there is a

lot that can be achieved. What we did was set up a thing called

Managing the Future and got some of the best people in the State

together. Tier one was how we do a better job with our education

system in the State, better coordination between the universities

and leveraging their efficiencies. The second thing we did was to

ask each university to do their own operations improvement task

force. Were there things that they could do to bring down their

costs?

I cannot help but think of Cleveland State University. In 1 year,

the private sector people went to work and saved that university

$8.5 million a year because they put private sector spectacles on to

look at how that place could be better operated.

As a result of going forward with that, we now have a program

called Securing the Future of Education, and since 1993, our universities have saved over $212 million, a savings that has been

passed on to Ohio students through more reasonable tuition increases. This year, Ohio is going to spend $2.4 billion towards lowering the overall cost of higher education through financial aid, institutional support, and Ohio’s Access Challenge Program.

It is interesting to note, Mr. Chairman, that tuition in Ohio has

fallen from a 5.1 percent increase in tuition in 1994–95 to 4.8 percent in 1998–99, and this is going to be the first year that for our

2-year colleges, the tuition is going to be less than it was last year

because of our Access Challenge Program.

The point I am making is that as we look at these programs to

see how we can do a better job of helping the young people in this

country achieve this opportunity for their future, I think we also

should talk about ways that we can do a better job of keeping the

cost down. I think that I can tell you that when we started with

this program, I caught a lot of you know what from a lot of the universities. But as time went on, many of the presidents came and

said to me, ‘‘I am glad, Governor, that you did go forward with this

program, that we thought we were doing everything that we could,

but you know what, we were not.’’

Chairman THOMPSON. Thank you very much. Senator Akaka.

OPENING STATEMENT OF SENATOR AKAKA

Senator AKAKA. Thank you very much, Mr. Chairman. I, too,

want to add my appreciation for you and Senator Lieberman’s calling of this hearing on the rising costs of college tuition and the effectiveness of government financial aid. Thank you for providing

this opportunity to talk about an issue that affects the lives of millions of students and families each year, the affordability of a college education.

As a former teacher, vice principal, and principal, and also as a

grandparent of 14 grandchildren, I have been involved in many

9

sides of this issue. I tell you, even as a grandparent, you become

part of the process here and help to pay for the costs.

Right now, many high school students, seniors, are going through

the exciting task of finishing up applications to the colleges of their

choice. They are also rushing to file a FAFSA, or the Free Application for Federal Student Aid and to meet financial and aid deadlines imposed by colleges and universities, scholarships, loan programs, or the programs aiming to help them finance their way to

a college degree.

I have a long statement, Mr. Chairman, but I ask that my full

statement be included in the record. I want to make one final point

before I conclude.

Many colleges and universities have worked diligently to ensure

that the unique needs of minority students have been met. However, additional needs remain in minority communities, particularly in areas of high poverty in inner cities, rural areas, and certain island areas over which the United States maintains jurisdiction. Furthermore, tremendous variation in need exists within minority communities.

In order to assess true need by race, we must strive to look at

the data relevant to these communities disagregated in addition to

as a whole. For instance, among Asian Americans and Pacific Islanders, the aggregated group may be doing well in terms of financial access to college. However, when separating the East Asian

Americans, such as Chinese and Japanese, compared to Southeast

Asian Americans, such as Vietnamese and Laotians, and Pacific Islander Americans, such as Chamorros and Samoans, East Asian

Americans are doing better than other groups.

I do not believe there is enough being said on the subject and I

urge our panelists to take this issue back to their organizations,

discuss it, and start coming out with applicable data on this.

Mr. Chairman and Senator Lieberman, I thank you again for creating this opportunity to discuss a most important issue. I look forward to hearing the testimony that will be presented today. Thank

you very much.

Chairman THOMPSON. Thank you very much. Your statement

will be made part of the record. And thanks for reminding me that

I am still just a novice in the grandparenting business.

[The prepared statement of Senator Akaka follows:]

PREPARED STATEMENT OF SENATOR AKAKA

Thank you, Mr. Chairman and Senator Lieberman for providing an opportunity

to talk about an issue that affects the lives of millions of students and families each

year: The affordability of a college education. As a former teacher, vice principal,

and principal, and also as a grandparent of 14 grandchildren, I have been involved

in many sides of this issue.

Right now, many high school seniors are going through the exciting task of finishing up applications to the colleges of their choice. They are also rushing to file

the FAFSA—Free Application for Federal Student Aid—and to meet financial aid

deadlines imposed by colleges and universities, scholarships, loan programs, or

other programs aiming to help them finance their way to a college degree.

Should these students receive Federal aid, the door to a college degree is opened.

However, things are not completely rosy on the other side. A study released by the

American Council on Education in November, 1999, states that regardless of race,

economic status, or gender, most college students attend school part time and work

long hours while enrolled. This jeopardizes their chances to complete a degree. The

trend of rising costs for tuition, books and other associated expenses contributes

10

1The statement referred to appears in the Appendix on page 307.

negatively to this, because students’ anxiety increases with rising costs. Many feel

that they must work even more to cover the growing tab for their college degree,

which further jeopardizes their attainment of that degree.

Despite rising college costs, there is no question that a college degree makes a

difference in an individual’s earning potential. According to the U.S. Census Bureau,

the average earnings of college graduates have risen over the last two decades,

while wages for those with only a high school diploma or less have dropped.

Between 1978 and 1998, average yearly wages for those without a high school diploma dropped from nearly $20,000 to nearly $16,000, and wages for high school

graduates went down by roughly $1,000 to about $24,000. In contrast, those with

bachelors’ degrees were making an average of $44,740 in 1998, compared to about

$39,000 in 1978. Clearly, the importance of a postsecondary degree cannot be understated. What we must continue to do is help individuals finance their college education and overcome rising costs.

I am pleased that the Fiscal Year 2000 omnibus spending package included modest increases for Federal student financial aid programs. The increase in maximum

Pell Grant award from $3,125 to $3,300 was needed. In addition, increases were approved in Supplemental Educational Opportunity Grants, Federal Work-Study,

Leveraging Education Assistance Partnerships, and TRIO programs. I look forward

to hearing about further funding needs in these Federal programs and their impact

on college affordability.

Many students in Hawaii rely heavily on these Federal programs, and they will

probably need them even more in the coming years. The University of Hawaii is currently considering a 5-year tuition increase proposal for many reasons, including:

Budget cuts in recent years, low tuition compared with other schools, decreasing enrollments, and Hawaii’s poor economy, as reported in the Honolulu Star-Bulletin,

February 5, 2000. Unfortunately, this could reduce enrollments even further, particularly of those who may be considering moving from community college to the

university level.

The University of Hawaii is not alone in considering tuition hikes. Therefore, even

with increased funding for Federal financial aid programs in FY 2000, we have a

lot to make up for. Education is often put on the back-burner when it comes to funding priorities. Instead, it should be a top priority because it is an investment in the

future of this country. At this time, I would like to insert into the record a statement from University of Hawaii President Kenneth Mortimer.1

Finally, one aspect of this issue that I would be very interested to hear more

about are differences among and within minority groups, particularly Asian Americans and Pacific Islanders. Many colleges and universities have worked diligently

to ensure that the unique needs of minority students have been met. However, additional needs remain in minority communities, particularly in areas of high poverty

in inner cities, rural areas, and certain island areas over which the U.S. maintains

jurisdiction. Furthermore, tremendous variation in need exists within minority communities. In order to assess true need by race, we must strive to look at the data

relevant to these communities disaggregated, in addition to as a whole.

For instance, among Asian Americans and Pacific Islanders, the aggregated group

may be doing well in terms of financial access to college. However, when separating

out East Asian Americans such as Chinese and Japanese, compared to Southeast

Asian Americans such as Vietnamese and Laotians, and Pacific Islander Americans,

such as Chamorros and Samoans, East Asian Americans are doing better than the

other groups. I do not believe there is enough being said on this subject, and I urge

our panelists to take this issue back to their organizations, discuss it, and start coming out with applicable data.

Mr. Chairman, and Senator Lieberman, thank you again for creating this opportunity to discuss this most important issue. I look forward to hearing the testimony

that will be presented today.

Chairman THOMPSON. I would like to recognize our first witness,

Jamie Pueschel, Legislative Director for the United States Student

Association. Ms. Pueschel is a recent graduate who will testify

about the pressures put on students seeking financial aid.

Thank you for being here with us today, Ms. Pueschel. Do you

have a statement for us?

11

1The prepared statement of Ms. Pueschel appears in the Appendix on page 95.

TESTIMONY OF JAMIE PUESCHEL,1 UNITED STATES STUDENT

ASSOCIATION

Ms. PUESCHEL. Good morning, Mr. Chairman, Mr. Lieberman,

and distinguished Members of the Committee. On behalf of the

nearly 15 million students across the country, I thank the Committee for holding hearings on this most important issue, college

costs.

As the country moves into a new millennium and a new economy, it becomes increasingly important for the country to invest in

the education of our young people if we want to continue to compete globally. Young people are feeling the pressure to get a degree

now more than ever so that they, too, can participate in the booming economy. Every year, though, achieving that college degree becomes more and more difficult and more and more costly for students and their families. Annually, tuitions rise and students take

out more and more loans to pay for college. Tuition and fees only

comprise part of the cost of going to college. Students have to pay

for room and board, not to mention books and supplies.

While graduating with a reasonable amount of debt is better

than not having a degree and the opportunities that come with

that degree, debt can affect the job a student takes, the place he

or she lives, and the assets that student may or may not acquire.

I am such a student.

I graduated from Claremont McKenna College in Claremont,

California, in May 1998. My parents are both teachers and recently

started a 7th through 12th grade Episcopal school in Lawrence,

Kansas. I have an older sister who graduated from Tufts University and is a teacher in Boston and a younger brother who just

started his freshman year at the University of Kansas.

I graduated with approximately $18,000 in Stafford loans and

$1,000 in Perkins debt. While I was in school, I worked 15 to 20

hours per week under the Federal work-study program to pay for

living expenses such as groceries and books. My parents made just

over $50,000 combined while I was in college. Just to pay for my

education, they took out more than $22,000 in PLUS loans. They

had taken more out to pay for my sister’s education.

I was lucky in that Claremont McKenna gave me between $10,000 and $15,000 in institutional grants every year, without

which I would have accumulated even more debt or not been able

to attend. Even with the grant aid, however, I could not have attended without these loans. Every month, I write a check for

$208.32 to Sallie Mae and a check for $40 to Claremont McKenna.

Nearly $250 of my monthly income is paid to student loans. I make

$25,000 a year as Legislative Director of the United States Student

Association, fighting to increase access to higher education for all

students.

In applying for jobs after graduation, the most important factor

was salary and/or help with loan repayment. While USSA does not

pay the highest salaries in Washington, it is livable because of such

loan repayment. Luckily, USSA as part of our philosophy provides

$150 a month in that repayment. I would not have been able to

take this job without that help.

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Beyond just job choice, though, I have little ability to save money

and have no idea when I will be able to afford a car, let alone buy

a house. This level of debt has limited my ability to fully participate in this economy through saving and investing.

This enormous burden students take on affects decisions this

country must make, as well. Currently, this country is discussing

the problem of teacher shortages and teacher quality. My family

feels this problem acutely because my parents and sister are all

teachers. As a Nation, we provide no incentives for our young people to go into teaching. Teacher credentials require a fifth, if not

sixth year of school, therefore requiring the student to take on

more debt, and then pay them meager wages in increasingly poor

schools. My sister has an enormous amount of debt, has chosen to

teach in low-income schools, and received little or no support for

that decision. Business leaders are also complaining that they have

an unqualified workforce and they need assistance in developing a

qualified college graduated workforce.

My sister and I are merely representative of the education debt

accumulation problem in this country. There are millions of students like me in this country and increasing numbers of such graduates. But let me tell you why, in spite of my debt, I am one of

the lucky students. Not only did my parents go to college, they are

both educators. They know the importance of a degree, but more

important, they know how to get there. They know about applying

to schools and how to fill out the FAFSA form. I understood taking

on debt and paying it off. I knew that if I needed help from my parents, I could count on it. I went to a great high school that offered

me a lot of support and counseling in applying for college. That

high school gave me an education that prepared me for college. I

am a traditional student. I do not have to worry about children or

helping to support my family.

Students have always actively opposed tuition increases. Just

this year, students at the University of Wisconsin system organized

and passed a tuition freeze when they faced a potential 10 percent

tuition increase. Students at North Carolina are fighting a tuition

increase, as well. What is most interesting now, though, is that in

some States, they are passing tuition freezes or cuts because the

States are running such large surpluses. California’s Governor

Gray Davis is proposing a tuition freeze, and Republicans in the

State are proposing a 50 percent cut to tuition. Williams College

in Massachusetts recently decided to freeze tuition for the next

school year, as well.

The College Cost Commission showed us that in financially difficult times, such as the late 1980’s and early 1990’s, when tuition

increases were highest, States were cutting back on State support,

thus increasing a family’s percentage of income going to college.

Now that the Federal Government and the States are seeing surpluses, tuition increases are low and, hopefully, State aid contributions will increase.

It is crucial for the Federal Government’s role to increase and to

work with the States to make colleges more affordable for students.

Both the States and Federal Government are experiencing unprecedented surpluses. Such surpluses provide an unprecedented opportunity for the Federal Government to make some choices and inVerDate 11-SEP-98 12:41 Jun 27, 2000 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6601 63465.TXT SAFFAIRS PsN: SAFFAIRS
13

crease funding for programs that will truly help all students afford

college and life after college.

I think everyone would agree that education is the best investment our country can make in its young people and the economic

future of our country. It is certainly an important investment for

my brother, sister, and I. Unfortunately, we may not be able to

make any other investments for our future.

I thank you for allowing me to discuss with you my story of going

to college and what steps would be useful in helping college students pay for school.

Chairman THOMPSON. Thank you very much, Ms. Pueschel. That

is very helpful testimony and it really gives us an insight that we

need in talking to real people and real experiences, and you help

us do that.

I think I just have one question for you, but I think it is an important one, and that has to do with the attitude of young people

as they are coming out of school, such as yourself. You have experience, not only your own experience, but you talk to other young

people, so you would be a good witness on that.

It seems to me that you have followed what is becoming a traditional path, and I guess maybe has been traditional, in that you

have pieced together money from loans, your parents have helped

some, your college obviously has helped some, and you wound up

with a pretty substantial debt as you come out. Everybody wants

to get more for less, obviously, but the question we all have to come

away with is what is fair, what is right. I think probably a lot of

us, I know when I left college, I had some debt, much, much lower

than what young people today have, obviously. Some of my kids

did, too, and most of us pieced together those various kinds of

things. There are more programs out there today than there used

to be, but there still were some in the old days.

Just the fact that we are getting more into debt even in and of

itself is not an indictment on the system. I just heard yesterday,

for example, that I think the consumer debt, the average consumer

debt in this country overall went up 7 to 8 percent just last year

alone. We are all borrowing more. We are all living more on credit

cards. But we see the astronomical rise in some cases of these tuition prices.

So balancing all that out, I am wondering, do American students

believe they are getting fair value for the price that they pay for

a college education? You are obviously getting something very important. You are paying a big price for it. Do you feel it is fair, and

being as objective as you can, where are the shortfalls here in

terms of how young people coming out of school today with some

debt, but having a valuable commodity, how do you feel about it

and how do you think most young people feel?

Ms. PUESCHEL. I think you raise a couple of really good points.

What is interesting now about a college education is that we are

almost required to have it so that we can compete in this economy

and get the jobs that are going to provide us a home and provide

for our families. I think that is a difference from years ago, where

you could get a job without a 4-year degree, maybe a 2-year degree,

and still provide for your family. I think that that is not true anymore.

14

1 Chart entitled ‘‘Figure 6. Inflation-Adjusted Changes in Tuition, Family Income, and Student

Aid, 1988–89 to 1998–99 and 1980–81 to 1998–99,’’ appears in the Appendix on page 310.

Chairman THOMPSON. A high school education meant more then

than it does now, that is for sure.

Ms. PUESCHEL. Absolutely. I think this chart 1 alone shows how

little income has increased versus tuition, and I think we all see

a value in what we get. I mean, certainly, I appreciate my education. I would not be here without it.

Is there a way to balance the price of tuition or the price of college with affordability? I think so. I think that we as a country

need to look at how much we value college education and decide

what steps we are going to take to make it more affordable for students. Students obviously are willing to take on the debt and go to

school because we have increasing numbers of kids in college. Is

that affecting our decisions afterwards? I believe so. But I think

that we can work together with——

Chairman THOMPSON. You mentioned in terms of being a teacher

or public service, from that standpoint, too——

Ms. PUESCHEL. Absolutely.

Chairman THOMPSON. In our Committee, we do a lot of work in

the area of government performance and efficiency and economy, if

that is not an oxymoron when it comes to the government, but we

are increasingly concerned, even those of us who consider ourselves

quite conservative as far as government is concerned, that we are

losing out on bright young people coming into government to serve

a little time—they do not have to spend their life there—because

we are becoming more and more technologically dependent, for example. We talk about not only the technology we use, but the

threats to our Nation from cyber terrorism and things of that nature. You really have to have good bright young, not necessarily

young, but most of them in that area seem to be these days people

coming in and spending some time and helping us with regard to

that, and you see what they can do on the outside. So whether it

is teachers, government service, whatever, what you are saying is

that there are an awful lot of young people coming out with such

a debt burden that it is making it difficult for them to make those

choices.

Ms. PUESCHEL. It is scary to come out of college with so much

debt, especially for a low-income student. I was a middle-class student. But coming from a low-income student’s background, growing

up in an area where people do not take out loans, that they do not

ever own anything, and then looking at your future, not knowing

if you are going to have a job when you graduate and looking at

having to take out the maximum allowed loans in subsidized every

year, which is what I did. Maxing out results in about $18,000 of

Stafford loans.

It is really scary to look at graduating with a lot of debt and not

knowing what you are going to gain. Someone might say, ‘‘Well, I

will take this $6 an hour job or whatever because it is keeping food

on my table right now and that is safe,’’ even though the country

would be much better off putting more of our kids into college. And

like Senator Akaka said, reaching into our minority populations

15

that go to college at the lowest rates, helping them get into college

and take the steps there.

But I think you are absolutely right. I mean, look at Congressional staff salaries. We are not talking about a ton of money here.

Chairman THOMPSON. Well, it seems pretty high to me. [Laughter.]

Ms. PUESCHEL. I think I just made some friends.

Chairman THOMPSON. Some of them are making more than we

are. That is kind of a sensitive subject. [Laughter.]

Ms. PUESCHEL. They are certainly making more than I do. But

anyway, I think that you are right. I mean, you talk to some of the

business leaders, there are real complaints that they are not having a qualified workforce to hire. If you are a techie now, you are

going to do OK, but for how long is that going to last? I just think

we need to make some concrete steps to make sure that we maintain our economy.

Chairman THOMPSON. I get your point. I will just finish with you

along the lines of the original question I asked. There was a Higher

Education Nationwide Survey, out February 8 of this year, that

said 73 percent of Americans believe that securing a college education is very important in helping someone to succeed. On the

other hand, nearly half, 47 percent, say that those in college are

not getting good value for their education. Almost half the people

feel that they are not getting good value. That is of concern, because ultimately, that will produce bad things of various sorts if we

do not at least get more transparency in the system so that people

understand, if costs have to be high, that people understand why

they are high. We do not do that very well, and especially to our

young people coming out after running up all these bills. Thank

you very much.

Senator Lieberman.

Senator LIEBERMAN. Thanks, Mr. Chairman. Thanks for your

testimony, Ms. Pueschel, which has been very helpful both in terms

of your personal story but also insofar as you’re representing the

United States Student Association. I thank you for that.

I think your personal story reminds us of the pressure, not only

on those who are lower-income, in finding a way to afford college,

but on those who are not, in conventional terms as we understand

it, poor as your folks, but nonetheless take on a tremendous burden

and that you take on a tremendous burden financially, as well. I

am struck by the fact that your Mom and Dad together make

around $50,000 and they took on a loan indebtedness of $22,000 for

your education. I may have missed this. Did you at any point get

a scholarship grant from your college?

Ms. PUESCHEL. Yes. The money I got was in the form of a grant.

Senator LIEBERMAN. It was? OK, then that was in addition to the

loan indebtedness of the $18,000 that you took on and the $1,000

or $2,000 additional that you mentioned.

That just points out, the Pell grant program, which is a wonderful program, obviously does not reach a family like yours, does it?

Ms. PUESCHEL. It helps—and it is supposed to help the lowestincome students who most likely would not have gone to college

without it.

16

Senator LIEBERMAN. I know it is a sliding scale. I notice in some

of the material I have that the average family income of Pell grant

recipients, that is, students who are dependent on their parents for

financial support in 1996–97 was $19,260. So it is a great program,

but it does not reach up to where you are.

Just two quick questions, because I think the Chairman asked

you the questions that I had in mind, as well. One is, does the Student Association have any particular proposals? I mean, one of the

things we are going to try to do here today and tomorrow is to talk

about why tuition is as high as it is, how are the aid programs affecting it, etc. But does the Association have any priority proposals

as to what, for instance, Congress might most effectively do to deal

with this problem?

Ms. PUESCHEL. I do not know if you actually want to ask me that

question for proposals. There are lots of things that we would like

to do.

Senator LIEBERMAN. Just give me the brief form of the answer.

Ms. PUESCHEL. I do not think anyone has come up with a great

answer on college costs. I think States have a great opportunity

now with public colleges to keep down their costs or to freeze tuition, and I think the Congress has a great opportunity to catch up

as far as on our grant programs like the Pell grant. The College

Board also puts together wonderful statistics on what percentage

of college Pell grants make up. Twenty years ago, for a public institution, it comprised 60 or 80 percent of tuition at a public 4-year

college. Now, it is down to 40 percent. So there are places that we

can make leaps and bounds in our funding to really make up for

the differences now that we do have a surplus.

Senator LIEBERMAN. Let me just stop you. So, in other words,

one thing you are proposing is to expand the income eligibility levels for Pell grants and the amounts of the grants?

Ms. PUESCHEL. Well, whenever you increase the amount of the

grant for a Pell grant, because of the way it works on the graph,

the highest amount goes to the lowest-income people, and whenever you increase it, it pushes into higher and higher incomes. The

minimum grant a family can receive is $400. There are other programs, like SEOG, a matching program with institutions that provides a ton of grant money, I think a maximum of $4,000 now, to

really low-income kids. The LEAP program is a State grant matching program, as well as the opportunity to do things like making

Pell mandatory. That is a pretty out-there thing to say right now,

but we actually have the money. We are spending it on——

Senator LIEBERMAN. What would it mean to make it mandatory?

Ms. PUESCHEL. Take Pell out of discretionary funding and make

it an ‘‘entitlement.’’ And we could fund it at much higher rates

now. The President just proposed spending $30 billion on tax incentives. Making the program mandatory and increasing it, doubling

it, would cost less than that.

Senator LIEBERMAN. Would you prefer that as opposed to the

proposal that the President made for the money going to the Pell

grant program?

Ms. PUESCHEL. I think we always like to see money put into

grant programs as opposed to the tax incentives, because we still

have a large population that is not going to college that would not

17

1 Chart entitled ‘‘Percent Share of Grants vs. Loans, 1980–81 to 1998–99,’’ appears in the Appendix on page 311.

without Pell and other need band grants. I am a student that

would have gone to college anyway. It is just unfortunate, the debt

I have to face afterwards.

Senator LIEBERMAN. Thanks very much. Just one comment that

Senator Akaka’s opening statement and your response to it brings

to mind, which is in terms of the special needs of lower-income kids

and either minority or first-generation Americans, which is that if

you look at the demographics, our population of children in the decades ahead is going to become increasingly, what we refer to now

as minority populations, and probably increasingly from lower-income families, so that our ability as a Nation to continue to have

the bright minds, the innovators, will be increasingly affected by

our ability to make it possible for lower-income kids, minority kids,

to get a higher education. So the problem as we go along is probably going to get more demanding because of that demographic

change that we see coming, that a greater proportion of the kids

are going to be from the families that are going to be most in need.

Thanks so much for your testimony.

Ms. PUESCHEL. Thank you.

Chairman THOMPSON. Thank you very much. Senator Collins.

Senator COLLINS. Thank you, Mr. Chairman.

Ms. Pueschel, I was very interested in your testimony and I want

to follow up on the questions that the Chairman and Senator

Lieberman asked you. You mentioned that you graduated with

some $18,000 in debt, and that was the experience that I saw with

students at Husson College, where I worked, as they were graduating with this mountain of debt. And one of the reasons, and I

have asked for the chart 1 to be put up, is that the ratio of grants

versus loans has changed dramatically in the last 10 years. Where

it used to be that Federal assistance covered more of the cost

through grants, now much more of it is covered through loans. It

is essentially reversed of what it used to be.

I found at Husson, where I worked, that some students got so

discouraged by the prospect of facing this mountain of debt that

they dropped out of school and went to work. Has that been your

experience in talking with students, that the changing ratio and

the prospect of being faced with 10’s of thousands of dollars of loan

payments due after graduation discourages people from remaining

in school?

Ms. PUESCHEL. I think that is a huge problem right now. There

are a couple of reasons kids drop out, one being the seemingly insurmountable amount of debt that they are going to take on. One

is that there is not much consistency in your aid package from year

to year. Annually, you take out more and more loans. The way our

maximum loan amounts you can take out work is it is capped, I

think, around $2,500 in your freshman year and it increases to

about $5,000 in your senior year. So every year, you are taking out

more and more debt. That is scary, especially if you can go out and

get a job and pay for things right now. Meanwhile, you are going

to leave school with debt and not have a degree.

18

Some kids come from high schools that do not provide as great

an education as mine did and they get into a classroom with 500

other kids in their freshman year math class and they are not

doing as well as some other kids and that is awful. They do not

see a point if they are taking on all this debt and are not doing

very well. Why should I stay in this? I can go get a job, and subsist.

But that is a problem, because you are forcing kids to drop out

without a degree but with debt.

Senator COLLINS. And as you have pointed out, that debt load

also discourages students from pursuing careers where they might

make a real contribution, say in teaching or in public service, but

because the salaries may be lower, they just feel they cannot take

on those careers.

I know my work-study student at Husson College was going back

to her hometown in northern Maine where income levels and salaries are very low and she was faced with a debt load of $18,000

that she was going to have to pay back. In fact, she was the inspiration for my introducing a bill to allow the interest on student

loans to be deducted was her experience. I think it raises a very

important policy question for us as Senators on where should we

put the money. Should the money that we appropriate go to tax

credits or tax deductions? Should it go into Pell grants? Should it

go into student loans? What is the right mix for making sure that

we are doing as much as possible to expand access? I think your

point about the need to expand Pell grants is very important in

that regard.

My final point, I think you have raised a very important issue

about whether there is a bit of a bait and switch going on at some

colleges, where the colleges will provide more institutional grant

aid in the freshman year and then gradually take some of that

away and change it to loans for the sophomore, junior, and senior

year. I have heard that complaint from many students, and I think

that is something we need to bring up with our college representatives, as well.

Ms. PUESCHEL. I agree. It is scary when you are getting your

loan package every year and it is different.

I am glad you brought up the student loan interest deduction, because that is another area that we can really help our graduates

out. The President has put it in his budget a second time. The Senate passed it last year with Ms. Snowe making an amendment to

change it into a tax credit.

I just got my little slips in the mail that told me how much interest I paid last year, and I paid about $1,400 in interest alone last

year, and I can tell you, it would be really helpful to have that back

in a credit. Right now, I can only deduct it for the first 60 months

of payment, and for those students who have the most amount of

debt, that pay over 25 years, it would really help them out for the

next 20 years for them to be able to take that deduction.

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

Chairman THOMPSON. Thank you. Senator Akaka.

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

I want to commend you for your many accomplishments in this

early age of your life. I believe that the struggle you and your family endured in financing your college education and that of your

19

siblings is typical of the struggle of many middle-class Americans,

and I am pleased to note that you were successful in your endeavors, but disheartened by the substantial education debt that you occurred. Eighteen-thousand is huge. I applaud your concern and recommendations for increased aid for low-income students, and I

agree wholeheartedly with your recommendations to provide economic relief across the economic spectrum.

I would like to thank Senator Lieberman for mentioning the

issue in my statement regarding minority students. I would like to

at a later time see anything that USSA might have produced in relation to this issue, unless you have any comments at this time on

this.

Ms. PUESCHEL. We would be happy to share any of our research

with you. We have a largely minority population in our membership and have our Campus Diversity Project, which operates out of

our office, which is continually working on the issues of recruitment and retention of students of color, especially from low-income

backgrounds, and we would be happy to share with you at any time

what we work on. We work on affirmative action and programs

that are going to make sure that students stay on campus, such as

support services, but we would be happy to share that with you at

any time.

Senator AKAKA. In a section of my statement that I submitted for

the record, I mention a study released by the American Council on

Education in November of last year. This study said that regardless of race, economic status, or gender, most college students attend school part-time and work long hours while enrolled. This

jeopardizes their chances to complete, in some cases, a degree.

What are your thoughts on this, and maybe even touching on what

reasons, other than the need to pay for their education, convinces

students that they need to work while in school.

Ms. PUESCHEL. Federal work-study becomes part of your package, as it was part of mine. Often, students, though, who are nontraditional students, students who are first generation, students

with children, students going back after a long time, veteran students will work outside of school, not in the Federal work-study

program, to make up for either their family costs, helping to help

out their families if they come from a low-income background, paying for their own children, just regular costs of school.

The important factor, I think, for all of us to recognize is that

the amount of money required to go to school far exceeds tuition

and fees. Room and board are issues, even if you do not live on

campus. Your books are extraordinarily expensive.

But as a lot of people report, students are working at extraordinarily high levels these days, often well over part-time, and I

think cost is part of that, a large part of that, because families see

no other way to afford it unless their kids are working. It makes

it harder for you to focus on your studies. It makes it harder for

you to take a full load and graduate within 4 or 5 years and is extending the amount of time that you—because of work and because

of the extra time spent in school—are going to be taking out more

debt.

Senator AKAKA. My last question for you, in thinking of all of the

experiences that you have had, what recommendation would you

20

now make to a high school student, a high school senior who is

looking at college, regarding their options or opportunities for financial aid?

Ms. PUESCHEL. Well, I would talk to them about the difference

between going to a private school and a public school. I am certainly feeling that now. I would talk to them about the different options they have got as far as Pell grants, SEOG, LEAP, any community scholarships they can research, talk to their own financial

aid officers, develop a relationship with your financial aid officer

and work on ways that the institution can help you out to find

some other scholarships that will last you through the 4 years, not

just for the first or second year, so that you can maintain the same

level of grant aid over the 4 years.

Senator AKAKA. Thank you very much for your response. Thank

you, Mr. Chairman.

Chairman THOMPSON. Senator Durbin.

OPENING STATEMENT OF SENATOR DURBIN

Senator DURBIN. Thank you, Mr. Chairman, and thank you for

your testimony today, which I did not hear in person but I read,

and I thank you for being here.

It is interesting, we focus on the Federal scene, as we must because that is our responsibility, but a little bit of research that our

office has done has shown that since 1980, State revenues for higher education have decreased almost $1,200 per student in constant

dollars. Tuition revenues have increased by over $900 per student

during this period. So at the same time as we are having more

loans than grants, the Pell grant is not keeping up with the increasing cost of tuition, States are putting less money in higher

education, forcing institutions, public institutions, in particular, to

raise their tuition to make up the difference.

Another factor contributing to increased student borrowing is

that in the last 20 years, the relative value of the maximum Pell

grant has decreased by one half. In 1979–80, the maximum Pell

grant of $1,800 represented 47 percent of the total cost to attend

the University of Illinois. In 1999, the maximum Pell grant of

$3,125 represents only 23 percent of the estimated cost of attending

the university.

At the same time, I might add, that we are debating increasing

the minimum wage, which I think should be done and should have

been done a long time ago, a lot of students trying to supplement

their incomes are working in fast-food places and whatever they

can find and often making a minimum wage. When we talk about

the minimum wage, I think we overlook that, that some students

get by on it. I did it when I was in school. I bet you did, too, those

types of jobs.

Ms. PUESCHEL. Yes.

Senator DURBIN. So I thank you for being here today and for

your testimony, and because I came in a few minutes late, I will

not delay the hearing any further. Thank you.

Chairman THOMPSON. Thank you very much.

Thank you very much. You have been very helpful to us.

Ms. PUESCHEL. Thank you.

Chairman THOMPSON. We appreciate your being here.

21

1The prepared statement from the University of Illinois with attachments appears in the Appendix on page 290. 2The prepared statement of Ms. Gaudiani appears in the Appendix on page 100.

Our next panel consists of highly distinguished members of the

academic community. They will discuss how colleges and universities manage costs and set tuition.

This panel will include Dr. William Troutt, President of Rhodes

College, Chairman of the National Commission on the Cost of

Higher Education; Dr. David Breneman, Dean of the Curry School

of Education at the University of Virginia; Professor Caroline M.

Hoxby of Harvard University; Dr. William Massy, President of

Jackson Hole Higher Education Group; and Dr. Claire Gaudiani,

President of Connecticut College.

Dr. Gaudiani, I understand you have a plane you have to catch

and you probably are going to have to leave here in about 15 minutes. If it is all right with everyone else, would you give us the benefit of your statement first?

Senator DURBIN. Mr. Chairman.

Chairman THOMPSON. Yes?

Senator DURBIN. May I, just a moment, ask for consent to enter

into the record a statement from the University of Illinois on this

issue? 1

Chairman THOMPSON. It will be made part of the record.

Senator DURBIN. Thank you.

TESTIMONY OF CLAIRE L. GAUDIANI, Ph.D.,2 PRESIDENT,

CONNECTICUT COLLEGE

Ms. GAUDIANI. Thank you. Thank you very much, Mr. Chairman.

I appreciate the grace of my colleagues and you and Senator

Lieberman and the distinguished panel in permitting me to go

first. I am, in fact, going back to New York to be part of a panel

honoring and working on the work of Senator Fulbright.

I come to you probably looking—well, let us say, hopefully, after

12 years, looking like a college president, but actually being a

scholarship student, the oldest of a family of six, and benefitted

from scholarships both as an undergraduate at Connecticut College

and then through the National Defense Foreign Language grants

support through my Ph.D. My husband and I—also, my husband

was a scholarship student at Princeton and also did a Ph.D. under

government support, and both of us finished paying back our college and university loans the year our children went into private

high school education.

Chairman THOMPSON. I had the very same experience.

Ms. GAUDIANI. So when I look at indebtedness, I want us all to

be sure we know this is not a new trick. It is a persistent problem

and we need to address it vigorously.

But our Nation has been built on the American dream, which is

people who are able and are willing to work hard will have opportunities to contribute their full giftedness to the strength of this democracy and their own personal and their family’s advancement. I

am going to speak to you today about one major item I hope you

will consider in the coming days and in your work enabling more

support to come to American citizens who need to continue to benefit from financial aid.

22

I do not need to remind this distinguished panel that probably

the best money we have spent in this century was on the GI Bill,

which enabled a whole generation, including, for many of us, our

fathers’ generation, to make the kind of contributions that fueled

the economic progress we have in place right now.

The change in financial aid in the early 1960’s that addressed

some of the issues that Senator Akaka brought forward was another major realteration in financial aid which said aid will be

need-based. That is, we are going to make sure that any citizen

who needs aid will go to the institution that he or she is able to

get into and will not be forced to go to another institution, perhaps

of lesser rank, because the institution is more expensive or because

the student has received less financial aid. I think that is a critical

commitment for me as a college president and primarily as a scholarship student to bring before you.

What I am concerned about is that in the financial pressures

that colleges and universities have faced, which my colleagues in

economics will share with you, in the pressures we faced in the last

decade, there has come to be an alteration in the way financial aid,

institutional financial aid, is being used in some campuses, and I

want to bring this to your attention not because I am unhappy

with my colleagues who face, like I do at Connecticut College, the

tremendous pressures on our budgets to produce a very stronger

faculty.

If faculty salaries drop, of course, we have young people who go

into other jobs, and you have all seen what happened to young lawyers’ salaries recently. Well, I can tell you that did not happen to

America’s faculty salaries in the last couple of months. But if we

are going to have the best and the brightest in the classroom, we

have to have faculty salaries at a significantly strong level.

The same thing with the price of technology. Colleges like mine

have to have nuclear magnetic resonating spectrometers. We have

to have very expensive infrastructure, that is, technological infrastructure, in order to provide the quality of education that will fuel

America’s wealth in the next and coming generations, and that has

to be available for all students. But I am going to leave to my colleagues more fit than I the job of explaining our cost structure, and

also I very much appreciate Senator Voinovich’s concerns.

Chairman THOMPSON. You are going to opt out on that question?

Ms. GAUDIANI. No, I just know when I have masters and mistresses of knowledge in the room. But we have, for instance, at

Connecticut College gone through a cost restructuring program

about every 3 years to keep taking costs out and assuring that we

are spending our money in the absolute best places. The board has

made a commitment to raising tuition within a point to a pointand-a-half of inflation and try to respect the ratios that you have

seen up here.

But the problem that I want a moment to bring before you is

that over the last, let us say, 15 years, there has been an alteration

in the way institutions’ scholarship aid has been offered, and it is

increasingly moving toward, at many institutions—not all, of

course—merit aid, and that sounds wonderful. Let us reward merit.

Unfortunately, it is not really merit aid at a significant and rising

number of institutions, and let me just run a little scenario.

23

Imagine that I am a college president looking at my board of

trustees and I need to fill beds and I need to make the bottom line

work. A consultant comes to me and says, let me help you out. You

know that $30,000 scholarship to cover full tuition and room and

board and fees and books that you would be prepared to give to a

student who comes from a low, very low-income, first-generation

family, let me show you how to use that aid.

Instead of giving that scholarship to one student who will take up that aid, $30,000 a year, 4 years in a row, let me show you some

magic. We are going to give that scholarship to six no-need students, students whose families may make $400,000 a year, completely out of the need-based category, and each of those students

is going to get $5,000 of merit aid and we are going to do a study

using information readily available in the public sector in credit

studies and credit card studies and we are going to tell you the

price point sensitivity of those families and you are going to leave

no money on the table. So those six students getting those $5,000 merit scholarships are going to pay you the rest of the $25,000 in tuition. So, my dear

president, you are going to get a big chunk of cash, $25,000 times

six, $150,000 for that $30,000. How does that grab you?

Now multiply that times four and tell your board that one fulltime scholarship divided like this not only fills six beds and brings

you $600,000 in 4 years, but it also brings you families to whom

you can go for annual fund gifts. They are going to be grateful,

happy, wealthy families, because you know what? That student has

not gotten a merit aid scholarship anywhere else. Connecticut College would not give that student a scholarship because Connecticut

College and many of my sister and brother institutions give the

men and women who apply to Connecticut College need-based aid.

I believe that this is a problem we have to look at in higher education. It is making the scholarship money of an institution operate

as a business resource. We are tax-exempt in higher education because we are supposed to be developing social capital. We are supposed to be returning to this Nation a higher set of opportunities

in each citizen that can be played out over a lifetime.

My brother’s scholarship at Harvard has given the Nation a cardiac thoracic surgeon of the first order who has done research, who

has done transplant surgery, and has spent a career giving back

to his country and has sent three daughters to Harvard on his own

nickel, one of whom is already in medical school.

My sister who was on a scholarship at Bryn Mawr is a double

board certified endocrinologist with four children who are in private school at her and her husband’s expense, and she is returning

to this country the benefits of her scholarship. And my brother who

is a corporate executive, the same, only his kids are 4 and 2 years

old, so they have got a ways to go.

My point here is that it is important for us to look at institutional financial aid as a national resource to build social capital,

not as a bottom-line business asset to create the kind of resources

that the institution can use for other purposes.

So I would draw to your attention what I believe is a hotly contested issue in higher education, and I realize I may not be making

some friends among my colleague institutions by bringing this up,

24

but I think it is important for us to call this by its right name. It

is not merit aid, because these students are not more gifted than

students who do not get this aid, who do not receive these merit

scholarships. They are students whose families show in the credit

reports available price point sensitivity. That is, they are the kind

of people who are looking for discounts and will come to your institution if you give them that aid, and they are people with money

who will be able to provide you with money going forward.

We need to use our institutional financial aid resources to bring

the best and the brightest from all across American families to the

best quality education that we can give them access to, and for the

most part, to be quite frank, they should not be in mathematics

courses as freshmen with 500 other students.

High quality education is expensive. It is impossible to get economies of scale when we are raising human beings, and we could look

to science and to our own biology. We do not give birth to litters.

We give birth to babies, mostly one at a time, and they take about

20 years, if we are lucky, to get them independent. Colleges and

universities that are able to afford class sizes that are manageable

and educational opportunities that permit teachers to really know

students and guide them, that is the quality of education that this

Nation deserves in the coming generation.

We need to reduce the debt burden. You have heard some good

ideas. You have some good ideas. I firmly support the expansion of

Pell and the SEOG grants, but I also want to suggest that we look

into debt forgiveness, not only the tax credits for indebtedness, but

actually debt forgiveness.

David and I, my husband and I, had debt forgiveness for teaching. That was a big help in managing our loans and young family.

We could have debt forgiveness not only if people go into certain

professions at certain income levels, but also debt forgiveness for

civic engagement. It is very important for the best educated citizens to be willing to participate, as I am seeing in my own city of

New London, in running for city council and being members of

planning and zoning commissions and participating in the life of

our democracy, and it might be that we should look into some

method of debt forgiveness for citizens who have loans and who are

willing to participate actively in local government and other nonprofit opportunities for civic engagement.

We have a country that was built on a dream, and it is our responsibility to make sure that the dream can continue to be maintained at all income levels and that our country as we move forward will benefit from this great asset, which is America’s higher

education.

That is the end of my formal testimony and I would be pleased

to take questions.

Chairman THOMPSON. Thank you. Thank you very much.

Senator LIEBERMAN. Thanks, Mr. Chairman.

Ds. Gaudiani, if you are going to get that plane, I am afraid you

should go. I do not want to risk that. I just wanted to thank you.

Your testimony was stirring, as is your story, and I appreciate it.

I guess, just boiling it down to a really quick question targeted,

what can we in government, if anything, or you in higher education, do to counteract the problem of merit aid as you have deVerDate 11-SEP-98 12:41 Jun 27, 2000 Jkt 000000 PO 00000 Frm 00028 Fmt 6633 Sfmt 6601 63465.TXT SAFFAIRS PsN: SAFFAIRS
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scribed it, which to me in some ways seems as if we are making—

we are asking colleges to be more like businesses, but part of what

you are describing is a situation where colleges really are acting

like businesses and making a business, not an education, judgment

about how to use their aid.

Ms. GAUDIANI. Well, I think we have to make a very important

distinction here, Senator Lieberman, and I am so grateful for your

leadership here and the leadership of Senator Thompson, and Senators Collins, Akaka, and Durbin.

The critical issue you are asking is the critical issue we are facing in higher education. We have got to act like businesses in cost

reduction and in cost management, and we have tried to do this at

Connecticut College. In fact, our planning and management system

is a case study at Harvard School of Education that is taught every

year and showing other academic institutions how to do management and planning.

But we are not businesses. We are fundamentally not businesses.

If you go in to buy a car, no one asks you whether or not you are

willing to fill out an application so that the car dealer can decide

whether or not you really ought to be driving a Lexus or a Taurus.

We are not businesses. You apply to get into colleges and you have

to prove by what you have done ahead of time that you are worthy

to be there. And no one comes to you and takes back your Lexus

or your Taurus if they decide they do not like your driving style.

You get to keep the car if you make your payments. That is not

like higher education.

So I believe we have created some of this problem in the last 10

years in the way we have not faced up to the work that the country

wants higher education to engage. We need to be told to manage

our costs and to use the best wisdom, as Senator Voinovich mentioned, of private enterprise to control costs and to manage well.

But we need to be told that our job is to enhance social capital and

that in order to do that, we should not use our funds as a business

resource but, in fact, as a resource to develop America’s human

capital and to assure that no student is left at home without that

$30,000 scholarship that that expensive student is going to cost the

institution because the money has been used more wisely from a

financial standpoint by the institution.

So I think we probably need a small study group of our leaders

in government and in higher education to look at this in the context of the pressures on higher education to meet the expectations

of business and to see that the results of that, in fact, are to leave

young people on the sidewalk in some of our lowest-income neighborhoods, and also our middle-income neighborhoods, at our great

peril as a Nation.

Senator LIEBERMAN. Thanks so much. I appreciate your twisting

your schedule around to come, but it turns out that you are a perfect, I think, complementing witness to Ms. Pueschel in your story

and the position you occupy. I just want to say that I feel badly

for your brother, the corporate executive, because he is the only one

at the table who cannot be called doctor. [Laughter.]

Give him my regards.

Ms. GAUDIANI. Thank you very much.

Senator LIEBERMAN. Thanks. Have a safe trip.

26

1The prepared statement of Mr. Troutt appears in the Appendix on page 103.

Ms. GAUDIANI. And thank you very much, distinguished panel.

Chairman THOMPSON. Thank you very much.

I will now call on Dr. William Troutt, President of Rhodes College and Chairman of the National Commission on the Cost of

Higher Education. Dr. Troutt has a special place in my heart. He

was President of Bellmont College when two of my children graduated from there, so we have been very proud of his achievements

and leadership. Dr. Troutt.

TESTIMONY OF WILLIAM E. TROUTT, Ph.D.,1 PRESIDENT,

RHODES COLLEGE, AND CHAIRMAN, NATIONAL COMMISSION ON THE COST OF HIGHER EDUCATION

Mr. TROUTT. Thank you, Mr. Chairman, for the opportunity to be

here before you and your distinguished colleagues this morning. If

I might, let me submit my written testimony for the record——

Chairman THOMPSON. All prepared statements will be made a

part of the record, and feel free to summarize.

Mr. TROUTT. I will use this time, then, if I might, to make five

points that I hope will provide some context for our conversation

today and hopefully connect with some of the concerns you have already raised.

Point No. 1, college cost is one of those topics that grows in complexity the more you talk about it. Chairman, it is not unlike Tennessee goat meat. The more you chew on it, the bigger it gets.

[Laughter.]

Well, why is that? First of all, college finance works differently.

In the world of commerce, price equals cost plus, hopefully, some

profit. In the world of higher education, price equals cost minus

subsidy. We also do not have the best vocabulary for talking about

college costs. The distinction we make about four different terms is

very important: Price, the tuition and fees we ask students to pay;

cost, what institutions spend to educate a student; subsidy, the difference between price and cost; and net price, what students pay

after financial aid is subtracted.

At Rhodes College, it works something like this. Price is about

$18,500. The cost of educating that student is about $32,000. The

subsidy for every student is about $13,500. The net price that three

out of four students pay at Rhodes College averages $9,000.

We also have a very diverse system of higher education that adds

to this complexity. American colleges and universities vary in their

missions, in their sources of subsidy, and in the size of their subsidy. As you know, States vary greatly in their ability to support

higher education. Private college endowments vary dramatically.

We have 27 private institutions in this country with an endowment

of $1 billion or more. We have over 1,500 private colleges and universities with an average endowment of about $10 million. Subsidy

and cost both have a lot to do with price.

Point No. 2, a number of factors drive college cost. Some are obvious and have been mentioned already today—people cost, technology, facilities, financial aid—and some are not so obvious—regulatory compliance and the expectations that students and families

27

1The prepared statement of Mr. Breneman appears in the Appendix on page 110.

bring to campus about everything from support services to facilities.

Point No. 3, it is difficult to connect the availability of Federal

student aid with rising college prices. Our National Commission on

College Costs found that Federal grants did not contribute to rising

prices. But we could not find convincing evidence that loan availability affected tuition increases. More definitive research is needed. On a personal note, let me say that in 18 years of building

budgets for the administrators and trustees, I never heard anyone

propose raising tuition to capture more Federal dollars.

Point No. 4, colleges and universities are taking steps to control

costs, as you have already heard this morning. Price increases are

moderating. This year’s tuition increase for 4-year private institutions is the lowest in 27 years. Academic leaders are taking steps

to manage costs.

At Bellmont, where I served as President for 17 years, we were

able to significantly cut class offerings without sacrificing quality.

We were able to reduce energy expenses. We were able to reduce

staff through a redesign of work processes.

At Rhodes, where I serve today, we have joined with 14 other

leading liberal arts colleges across the South to share resources

and contain costs through innovations ranging from a virtual electronic library to a virtual classics department, from joint technology training for faculty and staff to jointly sponsored study

abroad programs. More can be done and must be done, but campus

leaders are taking public concerns about rising college prices seriously. You have got our attention.

Point No. 5, much work remains to be done, not just in containing costs, but in sharing information and building knowledge.

American families need to know more about college prices and

about the availability of aid.

Your hearing today is a reminder of how important this issue is

to American families and how essential it is for all of us to work

together to keep American higher education affordable. Thank you

for this opportunity to share today.

Chairman THOMPSON. Thank you very much.

I will now call on Dr. David Breneman, Dean of the Curry School

of Education of the University of Virginia. Dr. Breneman.

TESTIMONY OF DAVID W. BRENEMAN, Ph.D.,1 DEAN, CURRY

SCHOOL OF EDUCATION, UNIVERSITY OF VIRGINIA

Mr. BRENEMAN. Thank you, Mr. Chairman, Senator Lieberman,

and other Members of the Committee. I am going to enter this

through the standpoint of the media, because as I suspect my colleagues have the same experience, I must get two or three calls a

week from a reporter who is going to write the definitive story on

college costs.

Now, as I reflect over those hundreds of conversations, I have

never had a reporter ask me about the soaring cost of community

college education, where 43 percent of our undergraduates are enrolled. I rarely, actually, have them ask me about the soaring cost

of public universities, where 37 percent of our students are enVerDate 11-SEP-98 12:41 Jun 27, 2000 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6601 63465.TXT SAFFAIRS PsN: SAFFAIRS
28

rolled. What they wind up doing is obsessing about the rising costs

of about 40 or 50 colleges in this country, mostly private, highly selective, and highly prestigious. So they wind up really writing

about what, in my own view, is where their news editor’s child

wants to go, and so the reporter is tilted toward a focus on this

particular set of schools.

Chairman THOMPSON. For the record, we do not associate ourselves with any of those. [Laughter.]

Mr. BRENEMAN. I think then they write stories like Newsweek’s

famous $1,000-a-week story or the story in Time Magazine about

Penn and so on, and I think this creates a sense of panic among

parents, many of whose children will never have any interest in

going to such schools, but it filters down and I think it helps create

a perception that college is vastly more expensive than the reality

shows.

On the other hand, people act on their perceptions, and as the

polling data show, the most serious concern most people express

about higher education is exactly the subject of today’s hearing.

Now, in terms of a theory to determine the cost of college, there

are lots of them out there, but I have always been struck by Howard Bowen’s notion, the distinguished economist who was President

of Grinell and the University of Iowa, and after studying this for

some time, he came up with the revenue theory of cost, namely

that colleges raise all the money they can and they spend it on

good and useful things.

The point of this, if there is any truth to it, is that it means there

really is not an objective standard by which to say how much a college should spend. It becomes a relative standard, pure comparisons.

As you know, I am sure, Senator Collins, from working at a college, every college has a set of peers and everything we do is indexed relative to our peers. So we do not shoot at an absolute cost

figure, we shoot at a relative or a positional cost figure, and things

like the U.S. News and World Report rankings just reapply this

into a more significant competition.

Now, we are an institution or an enterprise marked by multiple

sources of revenue. I will not renumerate them for you, but we all

know what they are. Tuition is just one of many. When one goes

down, administrators seek to raise another one. For example, in

the early 1990’s when the States were cutting back sharply on

their public appropriations, we turned to tuition increases and private fundraising. The University of Virginia in response to this undertook a massive capital campaign that has just gone over $1 billion. We did this in large part to replace the State money that was

no longer there.

Now, the diversity of the revenue stream means that the analogy

to health care costs, which often gets invoked—Secretary Bill Bennett did this for the first time some years ago—is simply wrong because there is not a single dominant third-party payer in the higher education system. There are a lot of payers, no one of which is

dominant.

My own sense, and I agree on this with the Cost Commission, is

that objective evidence shows that Federal grants do not have one

29

smidgen to do with tuition increases. It just does not work that

way. If you raise your tuition, the Pell grant does not go up.

The case of loans is much more controversial and hotly contested,

and I, to be honest, have not seen a definitive study on this. Federal loan programs are capped, but you have a multitude of private

loan programs and you have home equity loans and a variety of

other loan sources and it is hard for me to believe, frankly, that

somehow this has not played into some aspect of tuition increases.

On the other hand, what do you do about that even if that were

true? I hardly believe it would be acknowledged by most parents

that taking away access to loan capital would be an improvement.

So it is a dilemma. How do you do something about it, even if you

could establish that case.

I will say that the much discussed tuition tax credit does carry

with it the incentive for tuition increases, potentially in the public

sector to make sure that the tuitions are high enough to capture

the full credit, if they are below it, and in the private sector,

schools have the opportunity to offset some of their own institutional aid funds against the credits. So I think you do run the risk

of setting up an incentive program for cost increases or price increases in those programs.

The next point, very briefly, is that I think you have to do separate analyses for tuition setting in the public and the private sectors. In the public, price is a political decision. It is manipulated

or influenced or set, even in some cases, by governors and legislatures at the State level. As far as I can see, I see no Federal role

at all in getting into that thicket other than to be aware of the incentives that your programs may be putting out there, such as the

tuition tax credits, that may influence that State-level decision.

Governors, for example, right now, in response to tuition increases in the early 1990’s, a number of the States and a number

of the governors are intervening now to buy down those tuition increases. Virginia just took a 20 percent reduction in its in-State undergraduate tuition driven entirely by the governor and legislature.

In the private sector, the market is the arbiter, and again, with

my colleague, I agree. The majority of private colleges struggle to

make ends meet and they are discounting heavily. It is not unusual

to find 40 to 50 percent of your total gross tuition revenues being

discounted in order to fill the class. I do not see any role the Federal Government can play in going in and trying to fool around

with the pricing in those schools. They are so close to the margin,

frankly, a number may indeed not survive the price wars of the

next decade or so. They are in real trouble.

That brings us back, alas, to these 50 or so extremely wealthy

institutions that have had their endowments expand by incredible

amounts in this utterly unpredicted bull market of the last 10 or

15 years. This is the group of institutions that fuels the media interest, rightly or wrongly, and I am not attacking them, I am just

saying, the fact of the matter is we have a very strange and widely

dispersed market now of higher education, much more divided into

wealthy and less-wealthy institutions than we used to.

And you have to modify Bowen’s revenue theory with regard to

those top groups because they do not raise all they can. Their tuitions, in fact, are considerably lower than they could charge with

30

the applicant pools they have, so they restrain themselves already

on the price side, I think for political reasons, and increasingly,

they are saving a great deal of the money they raise through transfers to endowment.

With the Williams College decision, which was mentioned earlier,

announced 3 or 4 weeks ago, Williams decided they were going to

freeze their tuition, and my view is that that is an attempt by the

administrators at Williams to send a signal to their peers that politically—this is not an economic move, this is a political move—

signaling their peers that it is time, for political reasons, to either

freeze or hold down tuition increases, to take the heat off.

Now, I have written about that and it is part of my testimony.

My sense is that their peer institutions will do everything they can

to marginalize and box Williams into a corner, make them look stupid. If they do not follow their lead, then the fact of the matter is,

Williams will have to raise their tuition again next year and this

one-time incident will be forgotten.

I think that would be a pity, because I think Williams is trying

to address a real issue here, but it is virtually impossible for a single institution to single-handedly try to alter this market. So in a

way, it is a fool’s errand, if you will.

The one thought I did have, though, I do believe these extremely

wealthy institutions are in what one economist has called a positional arms race, and I think they might like to mitigate that. The

antitrust case of 10 years ago has cast such a chill over the environment, that these institutions do not have the opportunity to

even talk together about what might be a rational response.

I guess if I have one idea on this subject for the Committee, it

might be to revisit the implications of that antitrust act and think

through whether there might be some way that these institutions

collectively could do something for the public that individually they

cannot do.

Finally, it seems to me the danger in the current situation is

that with all of the fears about the rising cost of college, that financial aid funds are being, as Claire suggested, diverted away from

financially needy students through government responses to the

perceived crisis, be it tuition tax credits, prepaid tuition plans, or

tax-deferred savings. All of the things that we keep coming up with

the last few years have the feature that they only benefit those

that are already at a significant wealth level. Low-income families

essentially cannot take any benefit from the programs.

But what I worry about in this, in an odd sort of way, is that

the failure we may be reckoning with here is that political responses at the Federal and State level to this crisis may actually

in some ways make some aspects of the problem worse. If I were

testifying tomorrow, I would share the suggestion of the representative, Ms. Pueschel, which was that given the tax credits, which

are entitlements, and guaranteed loans are effectively entitlements—once you are eligible, you get it—that I think in a time

when we have a surplus, we ought to make the Pell grants an entitlement, because I do worry that the one program that specifically

addresses the needs of the very lowest income is put on an annual

appropriations cycle whereas the rest are not. Thank you very

much.

31

1The prepared statement of Ms. Hoxby appears in the Appendix on page 120.

Chairman THOMPSON. Thank you very much.

Professor Caroline M. Hoxby of Harvard University.

TESTIMONY OF CAROLINE M. HOXBY, Ph.D.,1 ASSOCIATE

PROFESSOR OF ECONOMICS, HARVARD UNIVERSITY

Ms. HOXBY. Good morning, Senator Thompson. Good morning,

Senator Lieberman, Senator Collins, Senator Akaka, and Senator

Durbin. I would like to thank the entire Committee for inviting me

to speak.

There is widespread acceptance that education is an important

part of economic growth for the United States. We know this because, first, the relationship between growth rates and education

suggests that for every additional year of education that a population attains, a country grows about 1 percentage point faster per

year.

Second, American industries that have fast-growing net exports

use a disproportionately high amount of educated labor. Also, hightechnology industries demand labor that is very highly educated:

Workers who have full mastery of advanced college-level analytic

skills. If the growth of high-technology industries is not to be

reigned in by rising wages, the United States would need to nearly

double its share of new workers who have such an education by

2010. A doubling would mean an increase from approximately 7

percent of workers to approximately 14 percent of workers.

There are three forces that are primarily responsible for the

changes in college tuition that we have witnessed in the past 30

years. First, there is skill-intensive technological growth which has

increased the demand for high-intensity college education in the

American labor market. By high intensity, I refer to a college education in which students are expected to master a large quantity

of difficult material in each year of college. In order to engage in

getting a high-intensity college education, a high school graduate

must have a very full mastery of high school-level material.

In a high-intensity college education, students are typically required to interact with technologies, like computers, in a sophisticated way. They are also required to develop advanced analytic and

communications skills. People who have obtained such education

are disproportionately in demand in America’s highest-growth industry. In fact, students who have obtained such educations are

nearly 400 percent overrepresented in the ten highest-growth industries in the United States.

The second force that has been responsible for changes in college

tuition is that prospective college students are much more mobile

and better informed now than they were 30 years ago. They know

much more about their own college preparation relative to the national pool of high school graduates. It is also much easier for them

to learn about colleges.

As a result, colleges now face a more competitive market than

ever before as students compare colleges with similar offerings and

are sensitive to tuition differences among them. More than ever before, students avoid colleges that charge tuition that is higher than

32

those of other colleges with similar offerings. Also, colleges have

had to become more specialized.

Third, international trade and technological innovation have

really decreased the demand for unskilled labor in the United

States. As a result, even a high school graduate who is poorly prepared for college in the sense that he did not master most high

school-level material has an increased incentive to get some

amount of post-secondary education, even if that post-secondary

education begins with remedial courses.

The three forces I have just described have caused the college

sector to become much more diverse in order to accommodate both

poorly-prepared high school graduates who might need remedial

education and highly-prepared high school graduates who want a

high-intensity college education. Because of this increased diversity, tuition is more diverse.

College tuition has risen, but it has not risen across the board.

In fact, since 1970, tuition has remained almost flat in real dollars

for fully 50 percent of the college places in the United States. The

first figure in my written statement shows how college tuition has

changed since 1970. Tuition has declined 15 percent for the leastexpensive 10 percent of colleges in the United States. Tuition has

held steady at the 20th percentile and median tuition has risen

only very modestly. Tuition has risen significantly only for the 20

percent of college places that are the most expensive.

Also, list tuition is somewhat misleading because the colleges

that have raised their tuition the most are the ones that give the

largest grants to students. The second figure in my written statement shows how tuition paid for students has changed since 1970.

It shows that list tuition exaggerates the tuition that students actually pay.

I will make a final note on tuition statistics because that have

been cited so much this morning. It is very important that when

we compute tuition statistics over time that we do not weigh each

college equally. Many statistics weigh a Williams College (with a

class of 400 students) the same as a University of Illinois. Such

statistics do not represent the true choices that are open to students in the United States. They tend to exaggerate the rate of tuition growth because they overweigh the small colleges and the

small colleges are the most selective colleges in the United States.

Statistics that do weight by enrollment tend to weight by 4-year

enrollment. That is also a mistake. If a college graduates 100 percent of its incoming class, that college gets weighted four times as

heavily as a college that graduates 25 percent of its incoming class.

Such statistics tend to exaggerate tuition growth.

The least expensive 50 percent of colleges in the United States,

in other words, the colleges for which tuition has remained steady

or has risen only very modestly, are good points of entry for students who are not very well prepared for college or only moderately

well prepared for college. Why is this? Well, it makes sense for

poorly prepared students to enroll in less-expensive courses until

they have the skill to make use of the sophisticated and costly resources that are available at more high-intensity colleges.

Tuition has risen in real terms for the most expensive 20 percent

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creasingly specialized in providing high-intensity education. We

have had testimony this morning that describes how they have

been providing students increasingly with technology and faculty

attention. Also, the faculty themselves are increasingly expensive

because they are in demand by the same high-growth industries

that are propelling students to desire high-intensity educations.

Thus, the costs of colleges that specialize in high-intensity education have risen and their tuition has risen accordingly.

This does not necessarily imply that their tuition is not priced

competitively. Indeed, this sector of the college market is by far the

most competitive, because the students have the most ability to

choose among colleges. They are the most mobile, they are the most

informed, and they are the most sensitive to tuition differences.

Estimates suggest that the highest return to a dollar of tuition

is provided by American colleges that provide high-intensity education, and these are also the colleges that are the biggest draw for

foreign students who have a choice of going to college in their home

country or going to college in another host country, like England

or Australia.

Much of the upset over rising college tuition is caused by the fact

that commentators focus almost exclusively on the tuition charged

for the most expensive 10 percent of college places in the United

States. While these colleges may be of interest to them personally,

analysis of college access requires a comprehensive view.

To consider a different market, something like fabrics, say, you

can see how misleading it is to focus only on the maximum price

that is charged here. The same fabrics that were available to our

ancestors are available to us today at a similar price or perhaps a

lower price. But specialty fabrics have been introduced that perform much better under extreme conditions. Just think of the fabrics that are used for polar expeditions. These specialty fabrics are

more expensive because they cost more to produce.

If one were to study fabric prices by looking at only the most expensive fabrics every year, one would mistakenly conclude that fabric is becoming far too expensive for the manufacturing of fabric

goods. Competition in the fabric market keeps prices in line with

costs, but it does not prevent high-performance fabrics from being

introduced at competitive prices.

In order to see whether tuition has made college less accessible,

I analyzed two major data sets that are comparable and nationally

representative. They are produced by the United States Department of Education. I compared 1972 and 1992 high school graduates and the analysis is shown in the table in my written statement.

Let us first consider a high school graduate who is highly prepared for college but who comes from a family with very low income, less than $20,000 a year. In 1972, a student like this had a

6 percent probability of not going to college at all and had a 33 percent probability of going to one of the most expensive colleges in

the United States. In 1992, the same student had a zero percent

probability of not going to college at all and a 43 percent probability of going to one of the most expensive colleges.

Clearly, access to college generally and access to expensive colleges in particular increased for highly-prepared students from

34

very low-income families. In fact, the analysis shows that access to

college generally and access to expensive colleges in particular increased substantially for highly-prepared and medium-highly-prepared students from families of all incomes.

Next, let us consider a high school graduate who has mediumlow preparation for college. Among such students, the percentage

who did not go to college fell sharply from 1972 to 1992. Most of

the increase was at colleges that charged median tuition. Thus, it

is difficult to find evidence that appropriate colleges are inaccessible to this key group of students. This is the group of students

who are likely to succeed in college, but they are unlikely to want

to pursue a very intensive college education.

Finally, let us consider a high school graduate who is very poorly

prepared for college. A typical student in this range has SAT scores

well below 300 and was at the bottom of his high school class. Even

among such students, the percentage who do not go on to college

fell between 1972 and 1992. For instance, in 1972, 76 percent of

students with very low preparation from families with incomes between $20,000 and $35,000 did not go on to college. In 1992, only

67 percent of such students did not go on to college.

In short, the evidence suggests that college is not less accessible

to students now than it was 30 years ago; it is more accessible.

Moreover, it is hard to find evidence that students are being forced

to enroll in inexpensive colleges that are inappropriate for their

level of preparedness. In fact, most of the students who are getting

displaced from very expensive colleges are students from high-income families who have low college preparedness and they are

being replaced by highly-prepared students from low-income families.

Since most of the increase in tuition affects only the most expensive colleges in the United States, perhaps it would be advisable to

intervene just at those colleges. There are some difficulties here,

however. First, these colleges are increasingly accessible to highlyprepared students from low-income backgrounds, largely because of

the aid that they give these students.

Second, they have been changing their educational services most

rapidly to keep up with the needs of high-technology industries.

While we cannot be sure that workers with high-intensity education will be crucial to future economic growth in the United

States, such workers are certainly disproportionately in demand in

high-growth industries today.

Third, it is a basic tenet of economics that we need to identify

a market failure before we suggest intervention. Right now, there

is no critical mass of economists who have identified market failures related to competition among colleges.

How can we help students have more access to higher education?

One of the key developments of the past 7 years in particular has

been the replacement of some need-based aid with merit aid. This

has been caused, in part, by the antitrust case which chilled the

sense of consensus among colleges about the importance of needbased aid. It has made it harder for any one college president to

step out and offer a lot of need-based aid.

The educational savings plans that Congress passed, commonly

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1The prepared statement of Mr. Massy appears in the Appendix on page 129.

bility for two reasons. The first is that they increase the funds that

a family has when the child needs to go to college. The second is

that they make a child aware of the fact that there is a fund being

built up for his future, thus making him think harder about preparing for college.

There are still too few students going to college in the United

States, especially from low-income and minority groups. A lot of the

problem is caused by the fact that many students have low preparation for college. They need to recognize early on that they have

to invest in themselves in order to go on to college. Better preparation is the single best way of increasing access. If there were an

education savings account that could also benefit students whose

parents were too poor to save much, even poor students would realize that they needed to invest in themselves in high school. They

would know that, if they did not, they would be sacrificing a potential fund for going to college.

I would be glad to answer any questions you might have.

Chairman THOMPSON. Thank you very much.

Dr. William Massy, President of the Jackson Hole Higher Education Group.

TESTIMONY OF WILLIAM F. MASSY, Ph.D.,1 PRESIDENT,

JACKSON HOLE HIGHER EDUCATION GROUP, INC.

Mr. MASSY. Thank you very much. Thank you all. It is a great

pleasure to be here. I think it is very healthy that this Committee

is looking beyond the symptoms and how to mitigate the symptoms, which certainly needs to be done, to get at the underlying

causes of the situation, that is what I want to speak to this morning.

I think the central question, one that the staff posed, is whether

the colleges and universities in the United States are doing everything possible to maximize value for money. My research with Andrea Wilger (who is here today) at the federally-funded National

Center for Post-Secondary Improvement at Stanford University, indicates that the answer is no.

Cost increases could be held within tighter limits, we believe,

and while the quality of education in the United States certainly

remains good by traditional standards, it could be significantly better. We believe that things need to change internally, within institutions, before the problems we are discussing this morning can be

truly solved. My written statement elaborates on these matters,

but let me give a brief summary here.

First of all, institutions and faculty do not know enough about

educational cost structures to make the kind of intelligent tradeoffs that are needed to contain costs, and cultural factors make it

difficult for them to act on the data that they have.

Second, academic quality assurance and improvement processes

appear inadequate when compared to the processes that U.S. business developed during the 1970’s and 1980’s.

Third, applications of technology are being used widely to enhance quality in teaching and learning, but only a few schools are

36

working systematically to reduce costs by using technology other

than through the obvious method of distance education.

And finally, in my view, markets can do more to discipline price

and quality, but their operation is limited by a lack of data. I think

there is a market failure because of data limitations. Today’s markets certainly are competitive, but that does not necessarily mean

they are competitive on the right kinds of issues.

In short, I think that colleges and universities can learn to contain costs while simultaneously improving the quality of undergraduate education and maintaining research leadership. However,

the needed reforms will come a lot easier if markets become more

efficient and public accountability is improved, I will offer a few

suggestions about that in a minute.

Let me turn to the Committee’s questions about tuition growth

for a moment. First of all, my personal prediction is that the real

sticker price of tuition at the majority of 4-year colleges and universities will continue to grow, probably at rates averaging as

much as one or two points over inflation, unless we can deal with

the market imperfections I have been talking about.

Now, Professor Hoxby’s data included community colleges. There

is no reason why one should not look at those, but I am talking

about the 4-year sector.

These kinds of rates are consistent with the typical ‘‘internal inflation rates’’ in higher education. These rates reflect the labor-intensive character of the enterprise. There is a never-ending desire

to fund new programs. There are escalating regulatory burdens.

There are continuing needs for investment in facilities and technology, including information technology, mass spectrometers and

things like that. But they also reflect an arms race of expenditures

triggered by the pursuit of prestige. A more efficient market would

reign in the arms race, discipline prices, and encourage better productivity that could blunt the effects of these cost drivers.

Now, it is very important that we understand that tuition depends as much or maybe even more on markets than it does on

cost. Put another way, cost tends to follow price rather than the

other way around. My colleague on the panel mentioned Bowen’s

law, namely that universities will raise all the money they can and

spend all the money they raise. As a former chief financial officer

of Stanford University, I would only add that it is the job of the

CFO, and it is a tough job, to make sure they do not spend more

than the money they raise.

There is, in other words, a very powerful desire to spend. That

is not necessarily inappropriate. Spending comes naturally from

the principles that govern not-for-profit entities. Not-for-profit entities seek to achieve results that are in the public interest, and provided they are efficient (that is a big question). Provided they are

efficient, the more money they get, the more money they can spend

and the more good stuff they can do.

Chairman THOMPSON. We are not unfamiliar with that concept.

Mr. MASSY. Yes. I know. [Laughter.]

There is a question, by the way, about how much of the money

gets spent to benefit undergraduate education as opposed to other

institutional agendas, such as faculty research.

37

I do not think tuition will grow to levels where enrollments drop

off significantly. (This is another question posed by the Committee

staff.) Institutions will charge as much as the market will bear, but

no more. That is the good news. The bad news is that this market

limit may leave a lot of students with very painful debt burdens,

as we heard this morning.

Institutions are learning to optimize use of financial aid to compete for students. In fact, enrollment management has become a

very professionalized field. There are consultants. There are models. I personally think this is both inevitable and desirable. It provides a method of price competition. I cannot imagine the Federal

Government intervening to halt price competition in this or any

other open market situation.

Less-selective institutions, especially in the private sector, already must discount heavily in order to survive. The selective ones

do it partly out of a sense of obligation and partly in order to maintain the kind of student profile they want. The market is very competitive, although as I said a moment ago, it is not necessarily efficient.

The staff asked about the baby boom echo effect. It is hard to

predict, but my guess is that, if anything, it will raise the sustainable tuition level. It will stimulate demand for a while, and the

more demand for a given supply, the more the upward pressure on

price.

One unfortunate result is that all of these effects taken together

produce a very chaotic market. The uncertainty causes a lot of anxiety on the part of students and their parents about whether and

how much financial aid will be forthcoming. I hope that, by providing better information about policies and about practices, some

of the anxiety could be mitigated.

The fundamental problem, though, is to improve what goes on

within the institution? I think there are two areas there that require attention. First, we need to improve the state of the art in

what I am coming to call ‘‘education quality work’’ and the second

is in the area of cost management.

To give you an idea of what I am talking about, just imagine—

I do not want to overdo the analogy with industry, but just imagine

an automobile industry where people, by and large, do not have a

very precise knowledge of the relative advantage of plastic or steel

in certain applications and where they do not know much at all

about the relative cost. How easy would it be for them to make the

tradeoffs needed to make their product efficient and effective? The

answer is, ‘‘not very easy.’’

The above is something of an exaggeration as far as colleges and

universities are concerned, but it is, in my view, not that much of

an exaggeration. It is these two areas, the understanding of quality

and the understanding of cost, where we need to put our attention.

Education quality work is the system of activities that improves

and assures educational quality. It focuses on performance feedback and the organizational processes needed to act on the feedback. Quality work should not be confused with teaching and learning itself. It is a feedback and control system. I must say that certain European and Pacific Rim countries are ahead of the United

38

States, significantly ahead, in developing quality work and associated public accountability.

I am glad to say, and I am sorry the Senator from Hawaii had

to leave, that the Western Association of Schools and Colleges will

soon decide whether to adopt the standards and processes used in

the United Kingdom, Hong Kong, and Sweden to regional accreditation. The North Central Association is considering the same sort

of thing from the Baldridge National Quality Award and ISO 9000

point of view. On the cost side, the United States and the United

Kingdom seem to be ahead of the other countries, but the state of

the art is not all that far advanced.

To illustrate the sort of thing I have in mind, there is an institution out in Missouri, Northwest Missouri State University, that is

starting to use Activity-Based Costing (ABC) to tease apart the

various components of instruction cost so they can make better

judgments about what is actually done in and outside the classroom to stimulate learning—that is, about cost in relation to quality. ABC, by the way, was developed by business to get at the actual cost of identifiable tasks. It is being adapted to academic work,

just as the quality principles are being adapted.

Among the advantages of ABC is that it allows one to separate

out the cost of unbudgeted research. This counts for a significant

part of the cost of so-called ‘‘instruction’’ for most universities, and

certainly the larger ones. ABC allows one to separate unbudgeted

research from instruction. Until we do that, I think we are not

going to have a good handle on the cost of education.

I will skip over the details of technology, just to say that there

are some cases now—the Renssalaer Polytechnic Institute’s ‘‘Studio’’ courses, for example—where institutions have reduced the cost

of on-campus instruction while they have demonstrably improved

quality. We need a lot more of that. People are getting interested

in such technological change, for example, in the professional associations. But technology requires the same sort of attention to cost

analysis and to quality processes that every other element of education requires.

In closing, let me offer some suggestions for the government, for

the regional accreditation agencies, and for State higher education

oversight bodies. These actions are aimed at jump-starting quality

work and improving cost management. They also will provide better information for the market in order to make the market more

efficient.

First, I think that the regional accreditation agencies should

make quality work a key feature of accreditation. I chaired the

committee in Hong Kong that developed and installed their system

and I can tell you that it has worked very well. It is receiving a

good deal of attention around the world, including from the Western Association of Colleges as I noted earlier. While I certainly

would not say that we have it exactly right in Hong Kong, I think

there are lessons to be learned and I am glad that people here are

beginning to pay attention to it.

Second, I think that State higher education coordinating boards

could and should hold public institutions accountable for quality

work and more effective cost management. Why not? One can rather easily judge whether or not an institution is doing these things

39

if one takes the trouble to develop standards and go looking. While

one cannot guarantee that better quality work and better cost management, will produce better results, it certainly is likely. Experience shows that, in fact, this tends to occur.

Finally, what about the Federal Government? I think the government could do a number of things to improve market information

and stimulate change. For example, the Department of Education

could produce in-depth studies of quality work, activity-based costing, and associated accountability methods as they are developing

around the world and in the United States, and then use the results to develop policy recommendations, model guidelines, and so

on. That is what the R&D function in the Department is all about.

I think the Department would be a very appropriate vehicle for

such work.

The Department also could encourage or seed the development of

pilot projects. You know the routine—that could have high leverage. None of these actions would cost very much, certainly not compared to Pell grants.

As a third action, the Department could fund discipline-specific

doctoral curriculum development in the areas of quality work and

cost management. As things are now, we continue to train faculty

in traditional disciplinary research with no consideration at all of

what quality and cost in instruction are all about. How you go

about getting quality? How you cost it? How you optimize cost in

relation to quality? The development of curricula would cause these

things to propagate outward into the institutions themselves, simply because more faculty (the teachers as well as the Ph.D. students) would be familiar with them.

In the longer term, the government might ask colleges and universities might be asked to provide the public with annual self-reports on their education quality work, particularly in the area of

assessment. (I have material on assessment in my written testimony.) Assessment is an essential element of quality work. You

cannot improve quality without getting feedback, and while it is

not possible in my view to develop a top-down government-mandated assessment instrument, it is entirely possible for any given

department—for every department in every institution—to develop

value-added assessment measures. The measures would be tailored

to their students, their situation, and their objectives. All institutions ought to do that such assessments. The information should be

regularly collected by external agencies and made public.

Finally, private enterprise could be encouraged to summarize

and disseminate the information. I think that, as the methodology

becomes proven, they would do this without much encouragement.

By way of a footnote, I hope that Congress continues to support

the Baldridge Award for nonprofit entities. Thank you.

Chairman THOMPSON. Thank you very much.

Congress is attempting to move these various departments and

agencies toward measuring the results that they achieve, instead

of just measuring outputs, measuring outcomes——

Mr. MASSY. Right.

Chairman THOMPSON [continuing]. And the Government Performance and Results Act, we call it the Results Act, trying to realVerDate 11-SEP-98 12:41 Jun 27, 2000 Jkt 000000 PO 00000 Frm 00043 Fmt 6633 Sfmt 6601 63465.TXT SAFFAIRS PsN: SAFFAIRS
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ly make them determine what they are trying to do and then measuring whether or not they are really actually doing it.

Do I understand from you that we are making some progress in

terms of education in that regard, that it is being used more and

more, that it is available and not being used enough, because we

all—I think a lot of people would think that that is not measurable.

You cannot tell the quality of a teacher from a gross objective

standpoint, standing back away from it. Then we hear things like

that, actually, as tuition goes up, sometimes the class size goes up,

too. Good teachers are teaching less, and publish or perish. Class

time is actually reduced and nobody pays any attention to that.

I would be interested in knowing that all these ratings you see

in these magazines about quality institutions, what goes into that

determination. My suspicion is, in large part, they are endowments

and how much money they are spending, at the State level and

then all of that.

So where are we, in summary form, where are we there? And

who needs to push that? That needs to be done at the State level,

I suppose, more than anything else. I have several things there.

Mr. MASSY. Well, that covers quite a lot, but let me comment as

best I can. First, the ratings that we all pay so much attention to,

or at least read so avidly, are heavily weighted on inputs, size of

endowment, size of expenditure, size of library, and selectivity,

which is a measure of market power.

Chairman THOMPSON. What activity?

Mr. MASSY. Selectivity: That is, admit to matriculate ratios or

some such thing. They are a measure of market power which correlate with resource expenditure. This is kind of a self-fulfilling——

Chairman THOMPSON. And they are easy to measure.

Mr. MASSY. Right. They are easy to measure. However, I think

it is possible to measure the quality of the outcomes at the grassroots, but this has to be an activity of faculty for the benefit of the

program of that faculty in that place. I think our experience with

imposing assessment from the outside has not been as successful

as we wish it had been. The reason is that it is something imposed

from the outside. The processes inside the institution have not been

transformed—have not been reformed in ways that make this kind

of information important for the institution and for the academic

department itself.

Chairman THOMPSON. They get no credit for it if they do it.

Mr. MASSY. Well, that is true. Externally imposed assessments

are pretty gross measures and it is easy to discount them. It is

easy, frankly, to circumvent them. It is easy to get around them.

Ms. Wilger and I have done 400 faculty interviews in all kinds

of 4-year institutions, and including in a number of States where

assessment is going on, and I can tell you, the above message

comes through loud and clear.

What I would like to see is a transformation of the kind that

business had to go through when foreign competition started working us over. Faculty need to fundamentally change how they view

the production of quality. The biggest difficulty is that most faculty, most of the time, consider that research and scholarship is

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ferent kinds of 4-year institutions, not just the research institutions.

In order to make progress, I think we have to shift that attitude

so that education quality work and cost management become ‘‘job

one’’ for many faculty. This means balancing and finding new ways

to do things—perhaps at lesser cost, but if more cost, at least with

the increases being justified in terms of demonstrably greater quality. I think this has to become job one for many faculty at most institutions most of the time.

I do not believe that to do that means decimating the country’s

research base. We are not talking about that much of a shift of effort. But unless that kind of shift occurs——

Chairman THOMPSON. But there is not going to be any real motivation to move in the direction that you suggest unless there is

some measurement and they know that there is going to be somebody looking at that.

Mr. MASSY. Right. That is where we get to the public accountability part that I mentioned. I think this has to be jump-started.

I think if we wait for it to arise spontaneously, we may have a

longer wait than we would like. So what I am suggesting is the external agencies that have cognizance, the State oversight boards for

the publics institutions, and the regional accreditation agencies for

everybody, put this on the agenda. You start by working it from an

improvement standpoint. That is, you go in and you work up standards and you talk with institutions and so on. You do not start

with accountability on something that nobody knows how to do.

You try to teach and work together to develop. However, accountability always is there.

We had an exemplary case in Hong Kong, where we are very improvement oriented. However, one institution declined to work on

this, so we took away some of their money. It took about 3 months.

Now they are working on it very hard and very effectively, so ‘‘yes.’’

Chairman THOMPSON. It seems to work that way.

Mr. MASSY. Yes.

Chairman THOMPSON. That is very fascinating. I hope we can follow up with some of those ideas.

Let me move on to a couple of things in the time we have left

here. I noticed several interesting things here. Tuition costs, affected by lots of different things. Nobody seems to know. It kind of

reminds me of what somebody said about a political campaign one

time. Ninety percent of it is wasted activity, but nobody knows

which 90 percent.

But a lot certainly seems to depend on State aid, and my notes

here indicate that from 1987 to 1994, State aid was down. It has

been up since 1994, but even when State aid was up and when

State aid was down, tuition kept going up under both scenarios.

On the other hand, I am getting here today from at least, I

think, from Dr. Breneman and Professor Hoxby, that perhaps we

are not looking at this correctly. Professor, you mentioned, for example, since 1970, tuition has remained almost flat in real terms

for half the colleges. Tuition has declined 15 percent for the 10 percent of colleges that are least expensive. It has risen significantly

only at the 20 percent that are most expensive. So I realize that

we are kind of talking about how long is a piece of string here, but

42

it is our job to generalize as correctly as we can, realizing it is a

gross generalization sometimes.

But on the issue of whether or not, all things considered, tuition

is, in fact, too high, do you think that our concern about the direction of things is misplaced? Am I reading you correctly in your comments? What can you say about that? What would you say to the

American people, the average American family? We all think most

things are too high for sure, but we see in the paper, some institutions are going up astronomically. As the stock market goes up and

the endowments go up, the tuition goes up, too. Then we see some

State institutions—the University of Tennessee over the last 10

years, the tuition has increased in real terms, inflation-adjusted

terms, 36 percent, not nearly as high, as much as twice CPI, I

guess. Should we feel good about that or not?

Could you elaborate a little further on that, and obviously, Dr.

Troutt, your ideas, too, and mindful of the fact, of course, you are

educators and I do not know what position that puts you in, to

come in here and say that your institutions are charging too much

money, but be as objective as you can about it.

Ms. HOXBY. One thing that we always have to keep in mind is

that our institutions are not representative of all the institutions

in America, so I think when we study this issue, one of the first

things we learn is to look outside our own institutions.

I think it would be wrong to say that Congress should not be concerned about college accessibility. The main reason that colleges

have become more accessibile to low-income families is that Congress and State legislatures have been interested in accessibility.

It is mainly the plans that are now in effect that have made things

change over the past 30 years. So taking accessibility off the radar

screen would not be a good idea.

On the other hand, I think the extent of the crisis is often overstated. There are a few things that I would focus on if I were to

talk to the typical American family about college access. First, they

need to go out and inform themselves about the opportunities that

they have. They should not focus on whatever newspaper reporters

focus on. They need to find out what their local colleges charge,

what their State university charges, what need-based aid is available, what sort of scholarships they could get. I think the whole experience would be less frightening if families were more informed.

Chairman THOMPSON. I can see a real problem there. I imagine

that this has grown up into an industry, but I can see the average

family, in some locations, they see tuition going up astronomically

and they are told, do not worry about that. There are 15 different

things out here that you can piece together. You can get a little

here and a little there and travel across town and call this guy and

qualify and fill out 10,000 forms and you can piece it all together

and get half of that astronomical figure. So I can sympathize with

that, too, can you?

Ms. HOXBY. I think that one of the best things that has happened

very recently is that parents can increasingly go to, say, the College Board website. They can plug in their own income and their

family characteristics and where their other children are going to

school. They get back a number that is a realistic estimate of how

much need-based aid they would be offered by various types of inVerDate 11-SEP-98 12:41 Jun 27, 2000 Jkt 000000 PO 00000 Frm 00046 Fmt 6633 Sfmt 6601 63465.TXT SAFFAIRS PsN: SAFFAIRS
43

stitutions. Parents should not be in the business of understanding

financial and formulas. They should be in the business of understanding what college would cost them.

It is hard to know what to think about the most expensive colleges in the United States. We are succeeding wonderfully in this

sector, in the sense that these colleges are widely regarded as the

best in the world. They are a very enviable part of our education

system. Yet, we do not really understand exactly what is happening in them. We know that they are part and parcel of our hightechnology economy, but we do not completely understand the relationship between them and technological growth.

Given the fact that we do not understand the relationship, I

would not be tempted to intervene. Also, it is important to keep in

perspective that they are just not relevant to a lot of families.

Chairman THOMPSON. If you have got to ask about it, you cannot

afford it. It comes to my mind that in all other aspects of society,

we have Cadillacs and Chevrolets and we recognize some people

can afford more than others. I think it is more the average that

most people are concerned about.

Dr. Breneman.

Mr. BRENEMAN. In direct answer to your question, back in the

1980’s, when I was President of Kalamazoo College, I got very concerned at a trend that was going on in the private institutional

world at that time, which was started, I think, by trying to catch

up with inflation. As you remember, in the late 1970’s, we were

looking at double-digit inflation and some colleges missed that and

then started catching up, and then they discovered, many of them,

that the demand for their services appeared to be virtually price

insensitive, price inelastic.

I mean, it did not seem to matter how much you charged, within

reason. People would still come. I think that was a new observation. The earlier 1970’s had been much devoted to worry about the

tuition gap between public and private, and there was a lot of fear

that the privates would be in dire straits vis-a-vis the publics. But

a subset of the privates discovered this relative inelasticity, and

then you introduced—so I was watching my colleagues raising their

prices——

Chairman THOMPSON. Excuse me, but it seemed to work inversely—you are talking about competition—it is the more you

charge, the more prestigious you are.

Mr. BRENEMAN. Well, in a way, because the more resources you

have got. And yes, so for an individual school to try to buck this

is really just to kick yourself in the foot, so we are all trapped. I

think the term positional arms race is a very good one. If Williams

has announced to the world that for next year, they are fully capable of providing the quality of education they perceive to be what

they want to provide——

Chairman THOMPSON. You would think a lot more people would

want to go to Williams, but you are saying that is not necessarily

true.

Mr. BRENEMAN. No. That is not going to have—can I read you

a little note that I got from a president of a small private college

in response to that? I think this summarizes the problem very nicely. ‘‘Three years ago,’’ and the president gave me allowance to menVerDate 11-SEP-98 12:41 Jun 27, 2000 Jkt 000000 PO 00000 Frm 00047 Fmt 6633 Sfmt 6601 63465.TXT SAFFAIRS PsN: SAFFAIRS
44

tion the name, Sweetbriar College in Virginia, but ‘‘3 years ago, we

held Sweetbriar’s tuition, fees, and room and board steady, no increase. We took this action for two reasons, both market driven.

First, we felt that we needed to get Sweetbriar out of the most expensive position it held among the Virginia women’s colleges, although the difference between our costs and those of our competitors was only a few hundred dollars. Second, we hoped to get some

positive publicity from this action. The following year, we increased

less than 2 percent, which was below the general norm. Indeed, for

a 3-year period, our increases in tuition, room, and board averaged

less than 2 percent.’’

‘‘The result? We have moved to the middle of the pack in terms

of cost. We have had no response at all from anyone about our efforts to keep tuition at a reasonable level. We have not been able

to detect any effect one way or the other on our enrollment, and

we have attracted no attention at all by our actions. Happily, because we have a small student body and a relatively high discount,

our holding of tuition was fairly painless. At this point, I have decided to go back to a reasonable 3 percent or so increase each year.

Sincerely, Betsy Mulenfeld.’’

Chairman THOMPSON. All right, let me read you one. [Laughter.]

Ten years ago, in the middle of this huge growth in college tuition, one of my staff received a letter from a private college, which

gave a very interesting, perhaps informative, explanation for a

sharp increase in tuition that year. The president of this college

wrote to parents that the increase in tuition was necessary to keep

up with the tuitions being charged by the most academically competitive colleges. In other words, to be considered in the same class

with the most academically competitive colleges, they had to charge

as much. So it is all turned on its head. To become more competitive, its the more you charge, instead of the less.

Mr. BRENEMAN. To the extent that there is an element of

disinformation in this market, and Caroline argues and I agree

with it, we have got a lot less of it than we used to have, but to

some degree, it is an odd issue because you buy it once in your life

and ultimately you really do not know what you are buying until

you experience it. So price can become a signal of quality.

Chairman THOMPSON. Dr. Troutt.

Mr. TROUTT. Mr. Chairman, I did not write that letter, as you

know. [Laughter.]

Chairman THOMPSON. It is not from Tennessee.

Mr. TROUTT. If anything, the last 21⁄2 hours, I hope, have reinforced my initial point of the complexity of this question you have

before you.

I would like to call to your attention the five-part action agenda

that our National Commission offered 2 years ago as a road map

for dealing with this complex issue and to say that you have heard

today some progress on some of those fronts, and yet we have not

heard talk much about some of those agenda items.

The first, of course, is to strengthen institutional cost control,

and you have heard anecdotally some wonderful stories of responsible institutions working very hard and you have heard some encouraging data about where price increases have been going in reVerDate 11-SEP-98 12:41 Jun 27, 2000 Jkt 000000 PO 00000 Frm 00048 Fmt 6633 Sfmt 6601 63465.TXT SAFFAIRS PsN: SAFFAIRS
45

cent years, and most recently, the lowest price increase in private

higher education in 27 years.

We have talked a little bit about the second agenda item, which

is to improve market information and public accountability. I think

we have much work yet to do there. We know that, still, families

that need to know the most about college prices know the least. We

know that families that need aid the most know the least about

how to access it.

A third action agenda item was to deregulate higher education.

We have not talked much about that this morning, but that is a

pressing item I would invite your further attention to. As a president of a relatively small college, we send here an awful lot of information, an incredible amount of information, often information

that is redundant.

Chairman THOMPSON. Can I ask, is it true that a college with a

class with experiments going on and so forth have the same regulations pertaining to the chemicals that they use that Dow Chemical

Company would have?

Mr. TROUTT. That is a very good illustration. We are very concerned about the health and safety of our students, but our laboratories are regulated—we may buy a gram, one gram of a particular

item, but we are regulated just as if we buy a carload of it, and

that is worthy of further study and thinking about how we might

deregulate higher education.

Chairman THOMPSON. So if government wants to help, they could

look at the harm and complexity that they are causing.

Mr. TROUTT. Looking at the cost of regulation would be a worthy

topic. Gerhard Casper, the distinguished President of Stanford University, testified before our Commission that out of every additional

tuition dollar, 121⁄2 cents goes in some way to regulatory compliance or reporting, which is a stunning figure in terms of direct and

indirect cost.

We also talked in our Commission about rethinking accreditation. Some comments have been made about that today. We also

talked about enhancing and simplifying Federal student aid just to

reinforce one of your last points. We continue to think everybody

working together, campuses, the Federal Government, policy makers at all levels, we can continue to make progress on this very important issue to American families.

Chairman THOMPSON. Your Commission set off, or turned the

corner, I think, on this debate, and I want to congratulate you for

your leadership on that. It is not one of those Commission reports

that somebody filed on the shelf somewhere and did not think

about anymore and I appreciate that.

Dr. Massy, I know you wanted to get in on this, but I have taken

up too much time. I am going to ask Senator Lieberman.

Senator LIEBERMAN. Thanks, Mr. Chairman. I will certainly give

Dr. Massy a chance.

First, let me say, Dr. Troutt, you said the word, and our staff

prepared us for it, this is a complicated question. Even as I listened

to the four of you and Dr. Gaudiani before, there are mixed feelings, I think, or mixed testimony here on the baseline question that

we are asking, whether tuition is higher than it should be. That

is one of the first questions we are asking. I think, Dr. Massy, you

46

would say yes and others would say probably not, although maybe

more cost efficiency could be worked in.

But I am left skeptical because of the strange market in which

higher education operates and the notion that if there was competition—first, I have come to understand better this is a segmented

market. At the top group of private and public institutions, there

is demand by the students for a supply of the product. But in a lot

of the other schools, which is the majority, it probably goes the

other way around, that the higher education institutions are competing for the students, and that has differing effects.

But the effect that Williams’ decision to freeze would not lead its

competitors, at least in that subcategory—if you talk to kids that

are applying at Williams, a lot of them tend also—I am going to

reflect my Connecticut parochialism—to be applying to Trinity, for

instance, or Wesleyan, the smaller group of fine liberal arts colleges.

The Sweetbriar example is a perfect one, and maybe it is because

it is Sweetbriar, it made me think of ice cream, you know, stream

of consciousness. But I remember, years ago—that is the only way

I can explain why I had this connection. Years ago, I remember

reading an article about the man who created the Haagen-Dazs ice

cream company. First off, he made up the name Haagen-Dazs to

sound Scandinavian. It does not mean anything. Second, he put out

ice cream, pretty good, but he charged three times as much as anybody else was charging. I am choosing numbers here. I will probably get sued or at least criticized by Haagen-Dazs now, but I do

not remember the exact thing, and everybody went out and bought

it. So there is a certain way in which, not that higher education

is ice cream, but it makes you wonder about the market.

So here in the role that we have here, asking the questions, let

me start simply by asking whether there is anything Congress can

do to encourage schools who are not to make cost containment a

higher priority.

Mr. BRENEMAN. I have not had time to think about that, but it

seems to me that if that became the clear focus, I can imagine

some kind of reward system, some kind of program that you could

incentivize the doing of that precise act. The Williams case is interesting——

Senator LIEBERMAN. I am sorry. In other words, perhaps some

sort of reward system in terms of Federal aid to schools if they are

showing——

Mr. BRENEMAN. Yes, something where—see, the problem, what

was being expressed in the Sweetbriar case, they were trying to be

a ‘‘good citizen.’’

Senator LIEBERMAN. Right.

Mr. BRENEMAN. They were doing their job. All they did is lost

ground. I mean, all that Williams is likely to do is lose ground.

Senator LIEBERMAN. Right.

Mr. BRENEMAN. All the smart money in this business who looked

at the Williams study thinks they are nuts, I mean, that this was

the dumbest thing they have ever done. They are going to lose a

step on the rest of the competition. So the schools are locked into

a situation where they just cannot win in this situation. They do

the right thing, if you will, of holding the line on price and you get

47

beat up by your colleagues and everybody thinks you are a stupid

manager, and the next year, you have got to join the crowd again.

So something has got to break that cycle, and right now, there is

nothing in the system that directly breaks it.

Senator LIEBERMAN. I invite you to think about that.

Mr. BRENEMAN. Yes. Let me think about that.

Senator LIEBERMAN. I welcome your thoughts. I mean, the

Baldridge-type award is one way to recognize and incentivize good

management, as we do in the private sector.

Mr. TROUTT. Senator, we in our accreditation visit at Belmont

used the Baldridge criteria.

Senator LIEBERMAN. You did? Good.

Mr. TROUTT. It was very, very helpful. You are seeing in the

Southern Association of Colleges and Schools more encouragement

to use alternative self-studies which does the kind of gap analysis

and helpful things that you see in a Baldridge criteria.

Senator LIEBERMAN. Dr. Massy.

Mr. MASSY. Yes. I reinforce that. I would just add that the

Baldridge Award is, of course, great. It provides incentives, it provides leadership, and so forth. But what is needed is an on-going

program where every institution is doing this stuff all the time. In

particular, they should be developing assessment information that

measures the quality of the student, if you will, at input (matriculation) and the quality on output (at graduation or exit). That is,

value added, if you will.

The big problem is the market: In one sense, it is very simple.

The market really has no valid information available to it about

the quality of the value added.

Senator LIEBERMAN. And by quality of the value added, you

mean——

Mr. MASSY. I mean——

Senator LIEBERMAN. Just as you would have a general idea, I do

not know, if you buy a PC, for instance——

Mr. MASSY. You have a pretty good idea. You can look at speeds.

You can look at hard disk size. You can look at reliability. The

problem we have in higher education (again I must oversimplify)

is that you get wonderful institutions, like my own and Caroline’s,

that take in absolutely terrific students that come out absolutely

terrific. We may do more, but at least, we observe the Hippocratic

oath. We do no harm while they are there.

Senator LIEBERMAN. Right.

Mr. MASSY. Imagine a market where we had better value added

measures on a regular basis. They would be generated by the institutions but audited appropriately for accuracy. Now people would

not feel as trapped by prestige. They would not have to use the

price or the amount of assets as surrogates for quality. I think this

would produce a healthy effect. I think, in the long run, this is the

only way we are really going to solve our problems.

I think what we are seeing now in the for-profit sector, the University of Phoenix and similar kinds of entities, is, in fact, they are

beginning to generate such measures. They are learning to do it,

and that competition is getting people’s attention.

Senator LIEBERMAN. And that helps the consumers.

Mr. MASSY. Precisely.

48

Senator LIEBERMAN. It gives them more information. Therefore,

it makes them more intelligent.

Mr. MASSY. They can make better trade-offs, better judgments.

That, in turn, puts the competition on the right kind of basis, rather than what I think now is a rather imperfect market.

Senator LIEBERMAN. Dr. Troutt, I know in the National Commission—I was going to ask you this question, but what Dr. Massy

said leads to it—I am going to quote from the report, ‘‘Institutions

of higher education even to most people in the academy are financially opaque. Academic institutions have made little effort, either

on campus or off, to make themselves more transparent to explain

their finances.’’

So I wanted to ask you to just talk a little bit about whether

greater transparency would have the effect of increasing efficiency

and cost containment.

Mr. TROUTT. It certainly has that potential. I do want to commend the National Association of College and University Business

Officers. They, in fact, have a very important project underway

right now to see if we cannot begin to address this transparency

issue in a much more forthright way.

Some of the problems relate to common definitions among institutions. Some of the complexity comes, obviously, with the most

complex institutions. At research universities, where do you allocate certain costs? It makes it very difficult. But certainly, I think,

as we become more transparent, first of all, it helps policy makers

in terms of important questions about where is that money going?

Is it truly going to undergraduate education or is it going somewhere else?

I think as we make progress on the transparency issue, it will

both help policy makers, but also help people making judgments

about what kind of resources are there for my son or daughter’s

undergraduate education, and I know that is, as we learned in our

Commission hearings, a real concern for American people.

Senator LIEBERMAN. It strikes me that what we are saying here

is that it is possible, if we had a real assessment of value added

and quality institutions, that some of the institutions that now are

competing for students might actually turn out to parents and students to be a better buy.

Mr. MASSY. A better deal, yes.

Senator LIEBERMAN. And it might drive the market in that way.

Now, it is not easy to come up with a system like that, but it is

a very interesting idea.

Professor Hoxby.

Ms. HOXBY. I wanted to point out that if outcomes at the end of

college were regularly measured, it would be relatively easy for

U.S. News and World Report, for Peterson’s and Barron’s, and all

of the other college guides to incorporate them.

The nice thing about incorporating outcomes is that even if the

best, most transparent accounting data is available to parents, parents will never figure out how the money is allocated at different

colleges.

Senator LIEBERMAN. Right.

Ms. HOXBY. But they will be able to say, look, this college took

in students who had SAT scores or ACT scores like this and they

49

turned out students who had scores like that. That is something

that is not hard for parents to understand. They already understand this for K–12 education. Outcomes are the single most important piece of information that could be provided to make this market more efficient.

I do not agree that parents are not price sensitive. The National

Post-Secondary Student Aid Survey, which the Department of Education sponsors and samples about 60,000 undergraduates each

year, shows that parents are quite price sensitive. They will not

favor schools that raise their price and offer the same offerings.

Senator LIEBERMAN. That is a good point. Just one or two more

questions. One of the questions we are asking ourselves is how

does what we do affect the cost of higher education tuition, and you

have said that the studies seem to suggest pretty clearly that increasing grants to students does not lead higher education institutions to increase tuition. But it is not that clear in regard to loans,

and I am just puzzled as to why. I know you, Dr. Troutt and Dr.

Breneman, both said this, and just help me understand why the

question is not so clearly answered with regard to loans.

Mr. TROUTT. We simply do not have the data. We have not had

the kind of analysis that looks at particular undergraduate populations, what price increase has happened and what loan increase

happened. That data is just not available. In the 6 months that we

had to do our work on the National Commission on the Cost of

Higher Education, we received a number of papers. Most of those

papers tended to be more bound by theory or speculation or even

anecdote, but we were not able to come up with any hard data to

address that question.

I do think, Senator, it would be useful to think about charging

and funding a study, perhaps by the national Center for Education

Statistics, to take the time to go back and do those kind of calculations. It would be very helpful to you as policy makers. The Commission’s point was just, this is such a serious policy matter, to act

without good information would not be an appropriate thing to do.

Senator LIEBERMAN. That is a very good idea. We have heard a

couple of you refer to the antitrust case and the possibility of

granting an antitrust exemption through Congress to higher education institutions. For what purpose would that be? In other

words, so much of what we are saying today reminds me of things

we are doing in other areas. The idea of more information for consumers is part of what we are trying to do in health care today to

drive up quality, to have the various managed care plans produce

information about what they are offering so that consumers, if I am

going to get my childhood immunization and breast cancer

screenings covered for the same price, I am going to go here as opposed to there.

The analogy here with this one is the entertainment industry has

said to us when we appealed to them about self-policing content

that they are driven by competition, and so if some of their competitors go low in content, they have got to go, and then they say,

we cannot get together to set standards because the Justice Department will file an antitrust action against us. That is pretty

easy to decide how to focus that.

50

Now, what would we enable higher education institutions to do

if we gave an antitrust exemption?

Mr. BRENEMAN. My take on it, and I do not know if my colleagues share this, is that the antitrust case started out looking at

two questions, which were what are driving up prices and are colleges in any way colluding on wage pools, and 2 years later, they

wound up with the one definitive action being something that originally they were not interested in very much at all, they just happened to throw it in as a last-minute thought, and that was to do

away with a thing called the overlap group, which, in fact, was a

very public and open, I mean, it was not a secret that this happened.

A group of the top highly-competitive institutions whose financial

aid officers met to go over financial circumstances of individual applicants who had applied to several of their schools to agree upon

a common expected family contribution, and then they agreed to

that and they did not engage in bidding wars with each other over

these students. They said all of us have an adequate pool and we

will take the money out of the competition.

Now, the Justice Department apparently felt that parents have

a right to shop their kids, if you will, and go after merit aid, and

so that, which is, I think, a debatable premise. I think the outcome

of eliminating overlap was a mistake, and I guess my answer

would be that I would like to see some effort at eliminating this

kind of bidding war introduced at that level.

Senator LIEBERMAN. Professor.

Ms. HOXBY. The antitrust case made it very hard for colleges to

coordinate the idea of neediness. That is, they could not agree on

how needy a student was. The consequence of this was the following. Let us say that Yale thought that a student needed $2,000

and Princeton thought that the student needed $2,500.

Under the old regime, they would just agree on how needy the

student was. In the new regime, they cannot agree on how to calculate need so that a student who has a small aid difference between schools, begins a sort of bidding war. He ends up getting an

amount of aid that is not based on his need but is based instead

on his merit, because the way that a student wins the bidding war

is to have high SAT scores and a very good high school record. The

antitrust case has broken down the consensus that aid is for need,

not for merit. It is easy to twist a need-based formula into a meritbased formula.

The antitrust case did not just affect elite institutions. Their culture need-based aid spread throughout the entire college community and college presidents felt strongly about it.

It is hard to have the same culture when college presidents cannot say to one another, ‘‘I care about need.’’ They are afraid that

they would be breaking the antitrust rules.

Senator LIEBERMAN. Dr. Massy.

Mr. MASSY. I think if there were to be an exemption, it should

be a very narrow one.

Senator LIEBERMAN. How would you narrow it?

Mr. MASSY. I can imagine discussions, for example, on the formulas for need, but I would not extend that to looking at individual

cases and I would be very clear that getting together to discuss

51

merit aid is not appropriate. I think merit aid is a legitimate form

of composition. I realize it is controversial, but I think such price

competition is an appropriate, and in the long term, a healthy kind

of thing. Getting together to settle on a need formula could be helpful to families who are trying to predict their need-based awards,

but aid merit would represent another card that an institution

could play or not.

I think it also would be helpful for institutions to get together

and talk about what kinds of market information about value

added would be most appropriate. It may well be that is OK now

under the antitrust laws. I do not know, but a clarification certainly would be helpful. Again, they should not discuss what an individual institution should report, but if we got common formats,

common approaches, I think it would be helpful.

Senator LIEBERMAN. I thank all of you. It is complicated. I mean,

it does seem to me that the data are fascinating, and Professor

Hoxby, you referred to some. We will get into this tomorrow with

Mr. Gladieux of the College Board who is coming in. But it does

show that over the last 15 years or so, that there have been increases in attendance at higher education at each quartile of income, including the lowest, probably for various reasons.

But my impression is that that is being achieved at a very high

cost in terms of indebtedness and stress, and that if it keeps going

in that direction, at some point, particularly with the boom in the

demographics that I talked about before, the future, which certainly says that more and more of the children in our country are

going to be lower-income, perhaps first-generation American, and,

therefore, they are going to really need help to get to higher education, and, therefore, we ought to do everything we can both to

create incentives to cost containment and to increase aid in the

most effective way.

We are talking about cost effectiveness here on both sides of this

discussion. I mean, nobody here that I have heard of, anyway, or

met in Congress wants to, at the extreme, impose price controls on

higher education, but the question is, and I think you have given

us some interesting testimony and ideas, how can we incentivize?

How can we create a system where there is some more competition

that does create cost containment, and then what can we best do

to provide the most effective forms of subsidy to students to help

more and more of them to be able to afford education?

Tomorrow, we are going to focus part of the hearing on the aid

question, but I thank you very much. You represent extraordinary

experience and you have been very responsive and helpful to our

questions. Thank you.

Chairman THOMPSON. Thank you. Thank you very much. Just

another couple of minutes, if you do not mind. There is so much

that we are not going to have time to go over. I wish we did.

In listening today, I hear a lot about merit regardless of income

levels, and need regardless of merit. The person I really feel sorry

for is the low-income person who has achieved a lot and who is a

good student. It looks to me like we need to double up on those

kinds of people.

The real policy question I think that we, in Congress, are going

to have to ultimately be faced with is what is the role, in the future

52

of this country, what is the role of the Federal Government. One

can make a case that things are changing because of the global

economy, because of the increased competition, because our success

in the global economy depends upon our productivity and our productivity depends upon our growing technological capability and

growth, and that, in turn, is going to depend on a well-educated

workforce.

It has almost become a matter of national security for the future.

You see what is going on out there and the new challenges that are

facing this country out there. If that is the case, then perhaps a

case could be made for some kind of new entitlement somewhere

along the line. The suggestion has been made, Pell grants. Maybe

the Federal Government should get more involved under that scenario.

However, on the other hand, if you are going to do that, where

do you stop? What do you subsidize? How far do you go? Is it just

going to be the poorer students? Is it just going to be secondary

education? How far can we go? How much progress can we make

if we increasingly have the problems we are having in our grade

schools and our high schools not producing? We have turned the

three R’s into the six R’s now with the remedial reading, ’riting,

and ’rithmetic.

Those are the policy questions I think that we are going to have

to decide up here, which kind of pours into my question, I guess,

and that is in looking at what we do for kids, which is our main

involvement here right now, young people primarily and the aid

and so forth, I am interested in whether or not we have got it balanced right. We have got all these different kinds of programs and

loans and tax incentives and then the colleges and universities

themselves have all of this.

In one sense, it seems to me like we are not doing enough for

the lower-income students. Some of these tax credits—first of all,

you have to have an income to get the benefit of the tax credit, and

some of them only apply to the $100,000 range, the new credit, up

to $100,000 or $120,000. Although more money is coming in, it has

really stabilized or going down a little maybe per student, I think.

On the other hand, I can see the middle-income parent saying it

is just like the tax code. People at the lower end do not pay any

taxes, people at the other end get all the tax breaks and the middle

class is stuck. So the middle class is where you need it because

there is so much help for the lower end.

So I would be very interested in, as concisely as you can, in giving us your own kind of assessment as to whether or not we are

getting the mix right or as close as we can in terms of the kinds

of aid and help to the kinds of students, and also for me, it looks

like we ought to incorporate need and merit when we look at this

thing. There is no reason why a middle-class student who has tried

hard and excelled ought to be disadvantaged from a lower-income

student who is a mediocre student. I would appreciate any comments anybody has.

Mr. BRENEMAN. Well, I will make a quick remark. I really appreciated your introducing K–12 discussion, because once again, we

have done here what we do in this country so often, which is to

treat this system as if it were a set of non-interacting horizontal

53

slabs, and, of course, all of this aid for low-income students assumed proper preparation for those students. I think one of the debates about remediation are drawing to the fore are the obvious

fact that we have real problems.

Have you ever thought how weird it is that we say in one breath

that our higher education system is the envy of the world and our

K–12 system is in shambles? Now, that is completely nuts to have

those two things in your head at one time. It is one system.

I guess if there is anything I would do in all of this is I would

think real hard about the coming teacher shortage and how we are

going to get high-quality people into the classroom. One thing I

think may make it make sense for people to be supporting more

low-income students is if those students are better prepared.

With regard to your specific question, however, let me just say

I worry right now that we are tilting too far to the middle and

upper income and that we are losing our interest in access, so I

guess if you ask me for a balance, I would be tilting back. I think

the Federal role is the one place where there is an interest in the

low income clearly articulated and I would hate to see that lost.

Chairman THOMPSON. Dr. Hoxby.

Mr. HOXBY. I agree with everything that Professor Breneman

has just said about the importance of thinking through K–12 education. I think that the Federal Government can kill two birds with

one stone if it uses access to higher education as a way to give good

incentives to students in K–12 education, especially students who

really think that they have no future in higher education in the

United States.

Low-income students, minority students, students who come from

first-generation families where no one has gone through the American higher educational system before do not really believe that college is for them. They do not understand that a Pell grant might

be available to them when they reach the age of 18 or 19. Therefore, by the time they reach that age, many of them are so poorly

prepared that the biggest barrier for them is not money; it is the

fact that they have bad study skills. They face a tremendous uphill

battle to make it through the first year of college. A student cannot

stay on a Pell grant if he needs 2 years of remedial education.

Thus, I was serious about education IRAs. I think that there is

something about knowing, when you are an 8th grader, that there

is money being put away for your college education. There is something about knowing that you will lose the money for college if you

do not do well in school. If students prepare up through the 12th

grade, then when the money is given to them, it is most effective.

Students from upper-middle income families know that their parents are saving for their college education. Part of the conversation

between parents and students in high school is, ‘‘We have been saving for your college. This has been a struggle for us.’’

That same conversation does not occur in a low-income family

that cannot afford to save at all and that cannot afford to take advantage, say, of the education IRAs. One can think about saving

on behalf of poor students who are doing well in school, with a

phase out for families who can save for themselves.

Chairman THOMPSON. Yes?

54

1The prepared statement of the Department of Education appears in the Appendix on page

276. 2The prepared statement of the University of Illinois with attachments appears in the Appendix on page 290.

Mr. MASSY. I would just add, Chairman, that for me, a combination of need and merit is the way to go. I have not studied the data

enough to know whether the present mix is right or not. However,

the principle clearly has to include equity and access, and I am

sure it always will. But it also needs to include incentives for hard

and intelligent work, wherever the student starts in the process. A

properly designed merit component, normalized for differences in

background that are not the fault of the student, would be a very

helpful thing.

Mr. TROUTT. Mr. Chairman, I think we would all like to think

more about that thoughtful question, but just to come back and say

that we, I think, also should celebrate the success of the programs

that you are currently funding. As those are continued and enhanced and more people know about those programs, it will continue, I think, to support higher education and support this country

in a very powerful way.

Chairman THOMPSON. Thank you very much. And another thing

we need to keep in mind, too, is that it is not absolutely essential

that everybody go to college. I grew up in a little town in the middle of Tennessee and some of the most successful classmates I had

did not go to college. They started little construction companies

after working construction and little businesses that their dad

maybe worked at or something and they had their own business

and all of that. In the future, along with all the high-tech stuff, not

everybody is going to be either making or using computer chips and

it is going to be more and more difficult to find mechanics and people who know how to read blueprints and plumbers and construction people.

Obviously, the more education you got, the more it would help

you in any of these jobs, clearly. But as we think about what to

do in spending money, there are probably a lot of young people in

college that should not be there, and there are going to be a lot of

good ones out there that just choose not to do that. I do not think

we ought to be taxing them too much for kids who go to college,

especially the ones who are just kind of there and not really achieving. So that is another thing we have got to enter into the equation

as we consider this.

Senator Lieberman, do you have anything further?

Senator LIEBERMAN. I do not. It has been a very full and productive morning. Thank you, Mr. Chairman, and the witnesses.

Chairman THOMPSON. Thank you very much.

I would like to include in the record a statement from the Department of Education.1

I would also like to include a statement on this subject from the

University of Illinois.2

This hearing has been extremely productive. We really appreciate your help. Thank you.

The record will remain open for 1 week after the close of this

hearing. We are in recess.

[Whereupon, at 1:14 p.m., the Committee was adjourned.]

(55)

RISING COST OF COLLEGE TUITION AND THE

EFFECTIVENESS OF GOVERNMENT FINANCIAL AID

THURSDAY, FEBRUARY 10, 2000

U.S. SENATE,

COMMITTEE ON GOVERNMENTAL AFFAIRS,

Washington, DC.

The Committee met, pursuant to notice, at 10:05 a.m., in room

SD–342, Dirksen Senate Office Building, Hon. Fred Thompson,

Chairman of the Committee, presiding.

Present: Senators Thompson, Collins, Lieberman, and Akaka.

OPENING STATEMENT OF CHAIRMAN THOMPSON

Chairman THOMPSON. Good morning. Let us come to order,

please. We are convening the second day of the hearings on the

cost of higher education.

Yesterday, we heard from witnesses who testified that the finances of colleges and universities are not as transparent as they

should be. We also discussed the many issues that institutions of

higher learning have to navigate when coming up with enough

funding to educate our Nation’s children.

Today, we continue to look at the issues surrounding the high

cost of college tuition and the effect of aid programs on the availability of higher education. One might think that it ought to be

easy to come up with what goes into the price of a product, but if

we are learning anything, it is that it is not that simple. There are

so many drivers of cost and price and so little attention is given

to how those complexities interact that we cannot really get hold

of what makes college tuition rise so rapidly. To add to the confusion, there was some disagreement among the panelists yesterday

as to whether rising tuition is even a problem.

As policy makers, it is difficult to craft the right solutions to a

problem no one understands. That is the value of these hearings,

and I am encouraged by the work of the National Commission on

the Cost of Higher Education and the National Association of College and University Business Officers, organizations that are helping us unravel some of the mysteries of college and university financing.

Much like the Federal Government, it seems that colleges and

universities rank themselves as much by the level of the outputs,

how big their endowments are, how many books are in their libraries, how hard it is to get in. In the Federal Government, we are

trying to get agencies to focus not so much on what goes into a proVerDate 11-SEP-98 12:41 Jun 27, 2000 Jkt 000000 PO 00000 Frm 00059 Fmt 6601 Sfmt 6601 63465.TXT SAFFAIRS PsN: SAFFAIRS
56

gram but what results come out of those programs. It seems colleges and universities could benefit from the same philosophy. Only

then could we determine whether students were getting the value

for the price they pay in tuition.

One of the many drivers of the cost of college education is financial aid. We are devoting much of the second day of hearings to the

status and effectiveness of grants and loans. We will hear from witnesses who have a perspective on the changing financial aid policies of the Federal Government and look forward to hearing more

about just what effect grants and loans have on the availability of

higher education.

Another important part of today’s discussion will be about fraud.

Students in the position of trying to finance a college education are

easy prey, and we will hear some about the outfits that take advantage of these students. More importantly, we will learn what

parents and students should do when confronted with fraudulent

enterprises.

All of the issues surrounding the pricing of college tuition are

worthy of this Committee’s attention. We have not solved the problem, but perhaps we have shed some light and asked the right

questions so we are further along the road to understanding more

about this issue. Certainly, education in this country, whether it be

at the college or university level or the K–12 level is not primarily

a Federal responsibility, and I do not think anyone is suggesting

that we take it over.

But clearly, even if we are just looking at the aid and loan policies, there is Federal involvement and we need to understand what

we are doing right and what we are doing wrong to contribute to

the problems that we have been talking about. So, hopefully, we

will make some progress along those lines.

Senator Lieberman.

OPENING STATEMENT OF SENATOR LIEBERMAN

Senator LIEBERMAN. Thanks, Mr. Chairman. I, too, thought that

yesterday’s hearing was an important beginning. We had a range

of witnesses from differing perspectives, so I cannot say that we

had total unanimity, but my own conclusion listening to the baseline question of is tuition too high, could colleges and universities

by and large do more to achieve cost containment is, yes, they

could, and that tuition is too high, not at every school, not in every

part of the market, but the very fact that the numbers show that

the rate of increase in the cost of higher education has gone up so

much more rapidly than either the increases in inflation or, in addition, or particularly, in median family income tells us that we

have got a problem here.

Some of the anecdotal evidence that was presented yesterday,

certainly in some parts of the market, the most competitive parts

of the market, where students are actually competing for admission

to particular schools, not schools competing for students to come to

them, it is clear that the market, as one of our witnesses yesterday

said in the magnificent understatement of economists, ‘‘The market

is imperfect.’’

When you have the case of Williams College now freezing its tuition based on increases in the value of its endowment, in a comVerDate 11-SEP-98 12:41 Jun 27, 2000 Jkt 000000 PO 00000 Frm 00060 Fmt 6601 Sfmt 6601 63465.TXT SAFFAIRS PsN: SAFFAIRS
57

petitive market, one would presume that that would benefit, that

reduction in cost would benefit Williams, but our witnesses yesterday were all of a mind that it would not of itself help the school

attract the students that it particularly wanted.

A letter was read about Sweetbriar, which actually had lowered

its price, or froze its price at one point and found that, contrary to

what might be expected, it was losing applicant interest because

there was a kind of luxury mentality that if it costs less, it must

not be as good as the schools that cost more. So all of that combined to give me the impression that there is more that the higher

education institutions could do and more we can do to incentivize

them to hold down or contain the cost of the very valuable service

that they are providing.

At different times yesterday, we inevitably rolled over into the

subject of aid, and there was an interesting exchange about, for instance, the question the Chairman raises, whether Federal grants

actually have the effect, as many worry, of raising tuition. The witnesses yesterday generally indicated that the studies that have

been done show that increases in Federal grants, scholarship

grants, do not raise the cost of tuition, but that there is not similar

research done on the effect of loans, not that there is evidence that

loans do increase, but it remains a question.

And there was a fair amount of testimony about the various

kinds of aid that one might prefer and would we be better to increase the funding to the Pell grant program, for instance, to benefit the neediest as opposed to having tax credits or loan programs

that benefit those that are in need but not the neediest.

Those are some of the questions that I hope in this second panel,

or third, if we count Ms. Pueschel as the first, with the two of you

who are experts on questions relating to aid, that we will be able

to form some judgments, not only about the impact of aid on the

cost of education, both in the general sense that we talked about

but in the sense that obviously the sticker price, if you can call it

that, of a college education is only the beginning, then the net cost

is the key and that is achieved after aid and loan packages and the

rest are fed in.

And then we want to take your counsel as to what we could do,

accepting the premise that just came out from all the testimony

yesterday, not only that the access to higher education is fundamental to the basic American dream of upward mobility, it has

worked for generation after generation of new Americans, but that

it is increasingly critical to our overall economy, not just to the realization of the American dream, and that in the years ahead, the

demographics tell us that the student population that will be growing will be increasingly poor and minority, so that need for aid to

make higher education achievable, accessible, will grow more intense.

The question then becomes, what can we do, since as Senator

Thompson said absolutely correctly, we are already entangled, if

you will, involved. What can we do in the Federal Government to

not only sustain the individual American dreams by children growing up, but that we can thereby sustain the extraordinary economic

growth that we have had which, in so many fundamental ways, has

been conditioned on the education of our people.

58

1The prepared statement of Mr. Gladieux with attachments appears in the Appendix on page

138.

So these are detailed questions, but they have big results, and

I think, Mr. Chairman, we have got some real experts to hear

today and I thank them for being here and I thank you for convening this second day of these hearings.

Chairman THOMPSON. Thank you.

As our panel will look at the effect of various aid programs on

the availability of college education, we will hear from Lawrence

Gladieux, Executive Director for Policy Analysis at the College

Board, and Michael S. McPherson, President of Macalester College

and coauthor of the book, ‘‘The Student Aid Game.’’

Mr. Gladieux, do you care to make an opening statement?

TESTIMONY OF LAWRENCE E. GLADIEUX,1 EXECUTIVE

DIRECTOR FOR POLICY ANALYSIS, THE COLLEGE BOARD

Mr. GLADIEUX. Thank you very much, Mr. Chairman and Senator Lieberman. I appreciate the opportunity to testify. I did sit in

on yesterday’s hearing and I thought it was an excellent discussion.

It is a hard act to follow. At the end of that very full discussion,

I said, what is left to say, but I am really glad to join the discussion today.

I have submitted my written statement. I will summarize it. It

is in three parts.

In the first part I review indicators on the extent of progress

made in broadening college opportunities over recent decades, and

we have made progress. Access to some form of post-secondary education and training has been growing steadily overall and for just

about every economic and racial and social group. But very large

gaps persist in who benefits from higher education in America. Opportunity for it is not spread evenly across our society.

There seemed some disagreement in yesterday’s discussion, yesterday’s panel, on whether we have an access problem any longer.

I think it is clear that we do, and I will use just one indicator, but

I think it is representative. Figure 3 that is attached to my statement traces a broad index of post-secondary participation based on

census data for 18- to 24-year-olds, and what it shows is that all

groups have gotten increased access. All groups show gains. But

low-income young people attend college at much lower rates than

those with high incomes, and participation gaps are about as wide,

maybe even wider than they were in 1970.

Also, opportunity is not just a matter of access. It is a matter of

equal choice. Here, it appears that there is an increasing stratification of higher education enrollments at different levels of the system by family income. Mike McPherson and his colleague, Morty

Schapiro, have done research on that. But the real bottom line is

who actually completes a degree. Overall access has soared during

this past quarter-century, but the proportion of college students

completing degrees has remained essentially flat and gaps remain

very wide when you look at completion rates among different

groups.

The most recent longitudinal studies from the Department of

Education tell us that of high school seniors who enter post-secVerDate 11-SEP-98 12:41 Jun 27, 2000 Jkt 000000 PO 00000 Frm 00062 Fmt 6601 Sfmt 6601 63465.TXT SAFFAIRS PsN: SAFFAIRS
59

ondary education, 40 percent of high-income students receive a

bachelor’s degree within 5 years, while only 6 percent of low-income students receive a bachelor’s degree within 5 years. Clearly,

getting students in the door is not good enough. In fact, my

real——

Chairman THOMPSON. Are these of students who start college?

Mr. GLADIEUX. Who start college, yes, and this is back in 1989,

they did a beginning post-secondary study, and 5 years later, in

1994, that was the result, 40 percent versus 6 percent. And similarly, there are gaps between whites and blacks and Hispanic students, considerable gaps.

Getting students in the door is not good enough, and my greatest

concern is that some of the students who do not persist may be left

worse off. They have borrowed to finance their studies, which is increasingly the case for low-income students, particularly, and they

do not complete. They leave college without a credential and a debt

to repay.

The second part of my testimony asks why do these gaps remain

so wide, and part of the explanation is affordability, the focus of

this hearing. I will not retread the ground that was gone over pretty well yesterday. Figure 6 attached to my testimony summarizes

the trends. Adjusted for inflation, tuition has more than doubled at

both public and private institutions since 1980, while family income has only risen 22 percent over this 20-year period. And aid

has gone up, but it has not kept up with the rise in tuition.

The median family income does not tell the whole story of the

1980’s and 1990’s. We all know that income disparities have grown

during this period. So when you look at another chart (Figure 7)

attached to my testimony, it shows the cost of attendance as a

share of income for low, middle, and high, and the greatest burden,

the increasing burden is on low-income students, and even if you

factor in student aid awards, the greatest burden is on the lowand moderate-income students.

Also, it is important, and this was gone over yesterday, that aid

that students are receiving is increasingly in the form of borrowing.

Student aid has drifted from a grant-based to a loan-based system,

and low-income students, students most at risk, actually have the

highest rate of borrowing. That is reflected in Figure 10 attached

to my testimony. It is the students in the lowest-income group who

are borrowing in the greatest numbers, and they are borrowing the

largest amounts on average.

So part of the explanation for the gaps is affordability, which is

the primary focus here. But it is not the only explanation. There

are deeper roots of unequal opportunity and I think we need to

keep in mind, and this was brought out, I think, at the very end

of your discussion yesterday, the issue of academic preparation and

student readiness for higher education. Making college affordable

is critical, but we have also got to address these other challenges.

There are a lot of other things that need to begin earlier in the

lives of young people and in their schooling.

I will not dwell on this complementary set of issues and challenges, but I do think it is important to keep in mind, as I think

Dave Breneman said yesterday, that American education is all one

system. We clearly need broad K–12 reforms and improvement. In

60

my view, we also need much greater investment in direct outreach

and intervention programs that make a difference in the lives of

young, disadvantaged kids, early in their schooling. We need the

wholesale school reforms. We also need the retail, one kid at a

time, ‘‘I Have a Dream’’ kinds of efforts. These programs are very

labor intensive, but we need to invest more. We need to step them

up to a much larger scale.

The third and last part of my testimony, and you touched on

this, Senator Lieberman, in your opening comments, includes policy

recommendations to address the needs of the coming tidal wave of

students. The Census Bureau projects that there will be 5 million

more 18- to 24-year-olds in the year 2010 than there were in 1995,

an increase of more than 20 percent. The country is already experiencing this expansion in the potential pool of high school graduates

and college students, but this new cohort will look considerably different from previous generations of college students.

The age cohort that we will see over the next 10 to 15 years will

be more ethnically diverse than the general population and the

fastest growth will come from groups in our society that at least

until now have been poorer than the general population, more likely to drop out of school, less likely to enroll in college prep courses,

less likely to graduate from high school, less likely to enroll in college, and least likely to persist to completion of a baccalaureate degree. So we are looking at a huge challenge ahead of us.

To sustain or increase current levels of college or post-secondary

participation is going to require aggressive public policy, both to

strengthen the readiness of students to undertake college-level

work and to assure that low- and moderate-income students have

the financial resources to pay for it when they get to that point.

Now to my recommendations. First, keep the Federal focus on

helping those with the greatest need. The Federal Government has

exerted enormous leadership in helping to level the playing field in

higher education, begining with the GI Bill of 1944, the Higher

Education Act of 1965, the Pell grants, etc. But recent policy shifts,

and I think this was brought out in yesterday’s hearing—the Justice Department antitrust action of the early 1990’s, the tuition tax

breaks enacted 3 years ago—run counter to need-based policy. In

fact, I thought the drift of testimony yesterday was that the whole

system these days is tilting toward cost relief for the middle and

upper-middle class. The Feds, the States, the institutions are all

leaning that way. The Federal Government, in my view, should reassert its leadership in fostering need-based aid.

Second, restore the purchasing power of Pell grants. The single

most important thing I think the Congress could do is to restore

the promise that Pell grants once represented. Back in the 1970’s,

it was at its peak in real value, in buying power. In fact, the very

last chart in my testimony is a simple bar graph titled ‘‘Returning

Buying Power to the Pell Grant.’’ The first bar, the lowest bar, is

where we are right now, with a $3,125 maximum Pell. Where we

need to be is $4,300, to make it have the buying power it did back

in the late 1970’s based on the Consumer Price Index.

Based on costs of attendance as they have changed during this

period, where we need to be is $7,000 to match the average cost

of a public higher education institution, and $8,000-plus is where

61

we would need to be for a private 4-year college. I recognize that

these numbers are way out of bounds of the incremental framework

of current appropriations——

Senator LIEBERMAN. What is the standard there? In other words,

to be where we were when the Pell grants started, you mean?

Mr. GLADIEUX. Yes. In the early years, the 1970’s, I think it had

more drawing power. The Pell Grant was a beacon and it was coming at a time when institutions were aggressively recruiting the

most disadvantaged students. State scholarship programs were focusing on these same students.

Now, I realize these numbers are way out of bounds, but this is

where I think we need to be if we want to restore the Pell grant

to what it once was. And, by the way, the more we invest in the

Pell grant program, the more we help not only the neediest students, because they get a larger grant, but we bring in students in

the moderate-income range. We bring in more students who are

just outside the range of eligibility.

Yesterday’s student representative from the United States Student Association said she came from a middle-class family. Her

parents were both educators. They had $50,000 in income. She got

an institutional grant. She did not get a Pell grant. The fact is that

she is just above the eligibility line for a minimum Pell grant,

which is $400. If we increase the funding for Pell, we will bring

students like Jamie into the range.

Third, make the Pell grant an entitlement program, and I am

glad several people broke the ice on this yesterday. I am not the

first in this hearing to utter the dread word of entitlement. But we

have essentially new upper middle-class entitlements through the

tax code and the Pell grant relies on annual appropriations. In fairness, and in anticipation of the coming tidal wave of students, I

think we need to have a Pell grant entitlement.

By the way, you could provide a low-income entitlement through

the tax law by making the tuition tax credits refundable, but that

is not a very effective mechanism for people who are really struggling to meet tuition bills and make ends meet because the relief

does not come at the time the tuition bill is due. It comes in a yearend tax refund. So I just do not think the tax code is a very effective vehicle for closing these gaps.

Fourth, establish a college savings or lifetime learning trust for

low-income children. Some form of this idea was kicked around in

the Taxpayer Relief Act discussions 3 years ago, as I remember,

and there were several Senate sponsors, I do not remember who,

but the idea was the Federal Government would set up a $500

trust account for each low-income child and it would be pooled in

an investment fund. Corporations, private donors, States could chip

in, too. It was an attempt to balance the education IRAs and other

savings incentives that were being put into the law at that time.

The proposal died, but I say, let us take another look. The college

savings industry is booming. You have got substantial Federal and

State tax incentives. Savings are so important to people feeling

that they have a stake in our society and in our economy and in

their own future, but not everybody has money to put aside. Without going into particulars but to put it simply, shouldn’t we find

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1The prepared statement of Dr. McPherson and Dr. Morton Schapiro appears in the Appendix

on page 159.

a way to extend the wonders of compound interest to all our citizens?

Fifth, in the same vein of getting to kids and students early, we

need to expand pre-collegiate outreach, intervention, counseling,

and mentoring programs. The Federal Government needs to step

up and invest a lot more in this. I give wholehearted credit to the

Clinton Administration for its proposals in the budget for the TRIO

programs and the GEAR UP program along this line.

Finally, let us focus on students’ success, not just access. Again,

public policy has done a pretty good job of boosting access over

these several decades, but getting students in the door is not good

enough. We need greater attention and incentives focused on student persistence, and again, I support a Clinton administration

proposal included in this week’s budget for college completion challenge grants to institutions.

So I am not a fan of the administration’s tuition tax proposals,

but I do support these latter initiatives, I think they are right on

target, and I thank you, Mr. Chairman.

Chairman THOMPSON. Thank you very much. Dr. McPherson.

TESTIMONY OF MICHAEL S. McPHERSON, Ph.D.,1 PROFESSOR

OF ECONOMICS AND PRESIDENT, MACALESTER COLLEGE

Mr. MCPHERSON. Thank you, Mr. Chairman and Senator Lieberman, and thank you for operating such a, as I understand it, as

I was not able to be here, but such a thoughtful and wide-ranging

hearing.

My remarks this morning and my written testimony are on behalf of myself and my longtime co-author, Morty Schapiro. Our remarks are based on our work as economists to study higher education and are not meant to represent the views of the institutions

that we work for.

I will say that I know hearings thrive on controversy, but there

is nothing in what Larry Gladieux said that I would be inclined to

disagree with.

Senator LIEBERMAN. I do want to apologize to you, Dr. McPherson. Yesterday, the circuits in my brain switched and I referred to

something I had read and I said that you were from the College

Board. I know that was a terrible assault on your reputation and

I—— [Laughter.]

Mr. MCPHERSON. Well, I am a trustee of the College Board.

Senator LIEBERMAN. Oh, OK. So I was only half confused.

Mr. MCPHERSON. So I am sure that is what you had in mind.

Senator LIEBERMAN. It must have been. [Laughter.]

Mr. MCPHERSON. In my brief remarks here, I want to really pick

up on Larry’s emphasis on viewing the system as a whole, a system

that involves contributions from certainly the Federal Government

and also State Governments, which, in fact, are larger players than

the Federal Government in providing finance for higher education,

and the colleges and universities themselves. The concern I would

like to focus on is the loss of a sense of common purpose, which

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I think at one time did much more to shape our efforts in the finance of higher education.

For more than 30 years, the U.S. system for financing undergraduate education has been based on the principle that colleges

and universities, together with the Federal and State Governments, should help financially needy students to pay for their education. Increasingly now, though, we see institutions, colleges and

universities, using financial aid to recruit the most desirable students and to help their bottom lines, and we see government shifting resources from lower-income students to the children of middleclass taxpayers, who have more political clout even if they have

less need.

Those changes, in our view, threaten the educational prospects

of our neediest young people, particularly in the face of the kind

of demographic developments that Senator Lieberman and Mr.

Gladieux talked about, and they threaten the health and the stability of U.S. higher education in general.

To focus on history for a moment, the present system of meeting

families’ need for financial aid had its origins in an enrollment

slump back in the mid-1950’s, a slump that followed the influx of

Korean war veterans who were supported by the GI Bill. With enrollments declining, a number of prestigious colleges and universities found themselves slipping into bidding wars for attractive

students, just as is happening today.

In 1954, driven by the desire to stem the flow of dollars to competitive offers of student aid, as well as by a commitment to increase access to higher education, a group of institutions formed

the College Scholarship Service as part of the College Board. The

goal of that organization was to develop a uniform and objective

way of assessing financial need. The assumption was that, ideally,

institutional and governmental programs would combine to meet

that need.

Although colleges and government agencies and individual students have had lively disagreements over those many years about

how to measure a family’s ability to pay for higher education, the

underlying consensus among everyone involved has been that trying to meet financial need is the right thing to do, and that essentially creates a partnership between colleges, States, and the Federal Government. That consensus and that sense of partnership is

now breaking down.

The Federal tuition tax credits introduced in 1998 were aimed

clearly at the middle class and even the upper middle class, and

they cost the government more money every year than the entire

need-based Pell grant program. Many States seem more interested

these days in merit scholarships and in tax-exempt prepaid tuition

plans than in grants for citizens with lower incomes. And colleges

and universities themselves increasingly are turning their back on

the principle of meeting financial need as they adopt programs

such as merit aid that are aimed mainly at more affluent students.

In the past few years, indeed, our most prestigious universities

have been leapfrogging each other as they modify their aid systems

to lure the students that they want. Even Harvard University,

which last time I checked had no difficulty recruiting a class, Harvard characterized its need-based aid program as, ‘‘competitively

64

supportive,’’ and invited applicants to seek a response from Harvard to offers of aid from other leading institutions. It is no wonder

that families, feeling that the aid system can be and often is manipulated by colleges, are less and less inclined themselves to play

by its official rules.

The resulting free-for-all, with institutions competing for students and students trying to play one institution off against another, tends to divert financial support from very needy families toward middle- and upper-income students, and these trends are reinforced by the trends in governmental support that I described

earlier. It is increasingly clear in our view that, unchecked, this

trend will lead to growing stratification in U.S. higher education

and increasing inequality of income and opportunity in society at

large.

How can we reverse the trend? We need to undertake, in our

view, a national effort to restore the commitment of colleges and

of governments to the principle of meeting students’ financial need.

We would offer two specific recommendations for Congress to

consider. First, we would urge that Congress find a way to affirm

that colleges can enter into agreements to apply common standards

in assessing need and awarding aid without running afoul of the

antitrust laws. The antitrust investigation of the early 1990’s,

when the Ivy League institutions were investigated, has had a

chilling effect on forms of cooperation among colleges that, in our

view, are socially desirable.

Second, we would urge the Federal Government to create a supplemental student aid program that would provide extra funds to

students whose colleges adhere to need-based principles in awarding student aid. This, we feel, is an intelligent way to incentivize

colleges and universities to do the right thing. It would also, in our

view, help to move the balance of expenditures on student aid and

support for students in the direction of helping the needier.

The real question in our view is whether the United States possesses the will to pursue such a course. The principle of equal access to higher education which Americans continue to espouse and

which has served the country well over the past 30 years is increasingly honored only in principle while being abandoned in practice. The fate of future generations of young people depends on our

reversing that trend.

That is my basic statement. I would like to add, if I may, one

other thought, perhaps particularly appropriate to the Governmental Affairs Committee. There is a lot of uncertainty and a lot

of controversy about exactly what impact loans and grants and tax

preferences have on student behavior. There is a lot of money at

stake and there are a lot of important educational decisions at

stake in determining what these effects are, and I would endorse

a proposal from Tom Kane, who is a professor at Harvard University, that the Federal Government invest in some experiments

analogous to the negative income tax experiments that were conducted 20 years ago or more, experiments that would be aimed at

measuring in a scientific way the impact of these kinds of investments. For an investment which would be a small fraction of what

we spend every year on these programs, we could learn a great

deal about what effect they really have. Thank you very much.

65

Chairman THOMPSON. Thank you very much.

That is an interesting suggestion and it really plays into something that I have been concerned about for a long time. That is, we

get into controversies whether you are talking about how to handle

juvenile crime or what to do about education, issues of federalism.

You know, 7 percent of education spending is Federal, 7 percent

only, so we are the tail that is trying to wag the dog, you might

way.

Mr. MCPHERSON. Right.

Chairman THOMPSON. But one thing that we do better than anybody else at the Federal level is research, and again, whether you

are talking about juvenile crime, something that I have worked on

over the years, or education, there is an awful lot we do not know.

It is not like we have the right solutions to all these problems and

we just need to tell people to implement them, because we really

do not know what works oftentimes and what effect what we are

doing has.

So we really need to put more into research, and Mr. Gladieux,

you mentioned the same thing. I think at the Federal level, you do

not get into a lot of those federalism issues. What should the Federal Government be doing? What should the State be doing? We

could be a clearinghouse of research into these things, a clearinghouse for States and local communities as to who is doing what

and what results are they having, not to mention the effect it

would have on our own programs.

On another point, on the issue of access, it raises a real question

for me because I wonder about our underlying assumptions. I’m

going to play kind of devil’s advocate for a minute, but I am wondering, are we assuming, when we talk about the access problem

and we see that the completion rates are flat when the student enrollment is up, that not all people are going to school that we think

might ought to be going to school. That there is an underlying

question there as to who should be going to college. That is a societal question that we cannot answer, but we cannot totally ignore

it, either, I guess, as we look at this.

I am wondering if the philosophy that we are headed toward, toward kind of a total access, is going to wind up stratifying things

more and more. We see now that, more and more—some studies

were done recently in one large high school, one large community

where the high school students, half of them could not pass a

standardized merit test if it were given and they were required to

pass a certain test to get out of school.

We see the demographics are catching up with us. We know

about what it is doing in the elderly segments of our society, with

Social Security and Medicare. It is happening, the same thing,

again, with juvenile crime. We have a bunch of kids in a problem

age group that are coming along. We have a bunch of kids that are

coming along now from maybe poorer backgrounds into the college

system.

So how do we look at that? If we do not base it, if we continue

to stigmatize kids who do not go to college, who choose to become

mechanics or carpenters or something like that and we do not place

the emphasis on the underlying problems that get these kids in the

problems to start with and we do not really reach out and try to

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get the poor kids who show some capability and some potential and

not try to get all the rest of them into school, we are going to bring

down the quality of our college and university education. The real

good students are going to even more elite institutions at even

higher prices and we are going to have a small, extremely elite college-university system and broad-based education with broad access to everybody, dragging everybody down. The decent students,

the good students working hard will be brought down by a situation like that.

So I question whether or not when we look at the access problem

that we ought to look at it just strictly from a standpoint of who

is going to college who we think maybe ought not to be going. Does

any of that resonate with you? It kind of goes against the grain,

I guess. It seems to me that not only are we going to need a computer-literate society, more and more, we are going to need people

who know how to do things, how to do things with their hands as

well as other skills. There is always going to be room for that, too.

If we continue to push everybody toward college and universities,

it is not going to be good for anybody. And, of course, as I say, the

rich and the extremely bright are always going to have someplace

to go, but it is going to stratify things worse than they are. Does

that make any sense at all?

Mr. MCPHERSON. I have two observations. I think it is a very important issue. The first observation I would make is that, as an educator, I think it is a misfortune that, increasingly, the only path

to a good life and a rewarding life in our society is seen to be a

path that goes through college. It would be a much healthier society, in my view, if young people really felt they had a choice of

ways to build a good life, and not all of those ways ought to require

that they get a college diploma. I think it would bring a better attitude toward students when they are in college if they felt like they

had chosen that.

The reality is that if you look at income statistics, if you look at

occupational results and so on, things look pretty bad for folks who

only have a high school degree, and it seems to me that part of the

solution to that should be national investments, not necessarily

Federal Government investments, but national investment in secondary vocational training and post-secondary vocational training,

which would allow people to become equipped to become mechanics

and do other kinds of preparation which are not necessarily collegiate preparation.

But at the other end, Senator, in some of the work that Morty

Schapiro and I did, we reviewed a governmental study which

looked at the probability of people going to college based on both

their family income and their academic abilities as measured by

tests in high school, and among the top third of students in terms

of test-taking performance, the highest income group had 19

chances out of 20 of attending college. The lowest-income group,

and this is among high-performing high school students, the lowest-income group had three chances out of four of attending college.

Now, three chances out of four is better than it used to be, but it

still means that 25 percent of low-income students who clearly

have the ability to benefit from college do not get there. So I think

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we have problems to work on still at both ends of the problem you

described.

Chairman THOMPSON. Yes, and that is really the point. The distinction should be made with regard to the low-income students

who show some potential. Of course, some really have a tough time

in even showing that potential. I guess you could do a certain kind

of a test and so forth. Grades might not even be the total determining factor, based on their family situation and all, but there

must be some liberal ways of determining who has that ability. I

guess I am beginning to sound like the English system or something. I am not suggesting that. And then concentrating on those

low-income kids who show the ability or the potentiality of succeeding and wanting to go.

Mr. GLADIEUX. Mr. Chairman.

Chairman THOMPSON. Yes?

Mr. GLADIEUX. I think in these discussions, there is sometimes

an issue of terminology. We talk about college and going to college

and we all have different things in mind, but it is just the way we

refer to this process that we are talking about here.

But what we are really talking about is a very broad range of

post-secondary opportunities for education and training, and I personally do not believe that everybody should go to college. I do not

believe that is——

Chairman THOMPSON. Perhaps vocational, as Dr. McPherson

said.

Mr. GLADIEUX. Yes. And I think where the market is generating

and State systems are setting up an increasingly rich range of subbaccalaureate degree opportunities that are very important to drive

our economy and to sustain the promise of opportunity in our——

Chairman THOMPSON. In other words, there is hardly any role in

society that some post-high school training of some kind would not

clearly benefit. That is certainly true.

Mr. GLADIEUX. Yes. I am talking about completion rates. Bill

Gates is a college dropout. But in the main——

Chairman THOMPSON. And you do not have to expect them to get

a 4-year degree from some liberal arts college or something.

Mr. GLADIEUX. In the main, our economy and our labor market

is driven by credentials. So I think this is the message, that we

want to keep the options open to everybody for some form of postsecondary education or training.

Chairman THOMPSON. If somebody knows how to fix something

or do something, I know a lot of employees who do not care if you

went to the 3rd grade, and I am not suggesting that this is the

wave of the future. This is just reality. In the little community I

grew up in, there is a place and will continue to be a place that

will grow as everybody else moves into other things, people that

know how to fix things and do things and show up for work on time

and things like that will have a place.

Mr. GLADIEUX. Some people do very well without formal training,

but again, the range of what is being offered out there, is being

generated by the market, is just astounding, the certificate training

as well as the degree programs.

Chairman THOMPSON. Thank you. Senator Lieberman.

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Senator LIEBERMAN. Thank you, Mr. Chairman, an interesting

exchange. That brings up the first matter I wanted to bring up,

which is getting a handle on the effect of the increasing cost of

higher education on different income groups. It takes a little bit of

work.

I was surprised, and one of the witnesses yesterday, I think,

dwelled on this somewhat, that if you look at the last couple of decades, the participation rates for 18- to 24-year-old high school graduates has increased at every quartile of income, 11 percent for the

bottom quartile, 15 percent on up, 10 percent at the highest level,

and I found that surprising and, I guess, counter-intuitive, because

I figured as the cost went up that it seemed unlikely that there

would have been a comparable increase in the number of poorer

kids going to school, and maybe I should ask you to comment on

that.

I want to come on to other questions, some of which you have

already testified to, but is that a reflection? You have said that it

is still true that there are a smaller percentage of lower-income

kids attending college, and as the most recent exchange indicated,

and your research, Dr. McPherson, is very compelling there, that

though it is three out of four, still, that is a lot lower than 19 out

of 20, so there is still a gap.

But why is it over the last 2 decades that the number of poorer

kids in college has gone up about as much as the number of betteroff kids?

Mr. GLADIEUX. Again, the gaps remain very wide when you look

at all the dimensions of opportunity, access, choice, and completion.

But it is true. The demand for higher education in our society is

reflected on those charts that show all the lines growing up in

every group, racial or by income.

Senator LIEBERMAN. So does that show also that some of the aid

programs, like the Pell grants, have worked to enable the lowerincome kids to go to college, or does it show that there is just such

a demand that they are willing to do anything, as middle-income

families are, to make sure their kids go to college?

Mr. GLADIEUX. I think the aid programs have worked, but we

have got a long way to go.

Senator LIEBERMAN. Yes. Dr. McPherson.

Mr. MCPHERSON. I think the comparisons here we are talking

about are comparisons of 1972 to 1992, and that means it is pre—

the major Federal investments in student aid and post—those investments. It would be great to have 1972, 1980, and 1992 so that

you could get more of a profile of what has happened during that

time.

But I would underscore that while there has clearly been

progress, and it is also clear that, as you put it so well, Senator,

the economic rewards to attending college are so high that people

will work very hard to solve that problem and figure out a way to

do it.

But despite those good things, in our work, for example, we

looked at the attendance rates immediately out of high school for

white kids, African Americans, and Latino/Latina children, and in

the middle 1970’s, whites attended in greater numbers, but the differences in attendance rates were something like 3 or 4 percentage

69

points among those three groups. Now, every group has increased

its attendance rate, but the differences are quite a bit bigger.

Senator LIEBERMAN. The gaps.

Mr. MCPHERSON. They are more like 5 to 10 percentage points,

and I think what that reflects is that——

Chairman THOMPSON. Like national income figures.

Senator LIEBERMAN. There is probably a connection.

Mr. MCPHERSON. There is a persistent problem.

Senator LIEBERMAN. That is important. I mean, I think that

makes the point very compellingly.

Mr. Gladieux, those numbers you gave, however, about the completion rate of college in 4 years are stunning. That was only 6 percent of lower-income kids finish college in 4 years, whereas——

Mr. GLADIEUX. In this study, they began in 1989. Five years

later, they took another look and they went back to the same students and that was the gap in percentage that completed a bachelor’s degree.

Senator LIEBERMAN. I do not want to push you into too much detail, but how are lower-income kids defined in that study? Is it bottom quartile or poverty rates?

Mr. GLADIEUX. Yes, I think that is bottom quartile.

Senator LIEBERMAN. Do you know how many of them, of the students in the lower-income group, actually ultimately finished 4

years?

Mr. GLADIEUX. Well, there is some data, and there are additional

follow-ups. The gaps remain pretty wide. Five years after high

school graduation, students are 22 and 23 years old. If you go out

to age 30, some intermittent students come back and complete

their degrees, but the gaps remain very wide.

Senator LIEBERMAN. Yes. I am about to ask a question, what was

it, that F. Scott Fitzgerald-Ernest Hemingway dialogue about the

rich are just like the rest of us except they have more money. I

mean, I am about to ask you, why is it that there is this remarkable discrepancy, 40 percent completion in 4 years, 6 percent,

among the poorest? Is it just plain income, or is it something more?

Mr. GLADIEUX. As I said, I think it is this issue of affordability,

and there have been a lot of adverse trends, tuition, family income,

and the aid policies. I think that has played a part. But it is also

the underlying gaps in prior preparation. I mentioned that larger

challenge of student readiness for higher education. Obviously, we

cannot read that out of our calculus here in anything we are talking about. If we are focused on closing these gaps——

Senator LIEBERMAN. As you said today and was said yesterday,

it is more than aid, college aid alone. It is also our ability as a society to prepare kids in poorer families in elementary and secondary

school.

Mr. GLADIEUX. Right, though these two things, these two challenges interact.

Senator LIEBERMAN. Sure.

Mr. GLADIEUX. I suggested a savings initiative, and there have

been tremendous new incentives, Federal and State tax incentives

for college saving. Those do not reach down into the low end of the

economic scale, but it does send a message and you can help to motivate young students early in their schooling if we make a promVerDate 11-SEP-98 12:41 Jun 27, 2000 Jkt 000000 PO 00000 Frm 00073 Fmt 6601 Sfmt 6601 63465.TXT SAFFAIRS PsN: SAFFAIRS
70

ise, if we say that the financing is going to be there, and the same

with Pell grants, and that is why I put that on the table, the Pell

grant entitlement.

Senator LIEBERMAN. I assume, again, just briefly, that if the demographics of the future are as we expect, as experts project,

which is that a greater and greater proportion of children growing

up in the country will come from ethnically diverse lower-income

families, then the gaps that we have identified here, both in access

and in completion of college in 4 years, are going to get greater and

greater.

Mr. GLADIEUX. That is what I see, and the College Board has

also commissioned a study that the Rand Corporation did for us,

providing very detailed estimates of projections in the year 2015,

the students who are going to be coming online then and what

their characteristics are. It says the same thing.

Senator LIEBERMAN. Yes.

Mr. GLADIEUX. It is a huge challenge.

Mr. MCPHERSON. If I could add to that point, one of the things

we know from research is that two of the main determinants of

somebody’s likelihood of going to college are their parents’ income

and their parents’ educational attainment. What I wish we could

do is create a kind of a movie which would let us see where we are

going over the next 20 years. If we allow these gaps in educational

attainment to persist for another generation, those will then be

perpetuated because those now young people who did not get to college will have children who are less likely to go to college.

And if we picture what that society is going to look like 25 years

from now, it is not one any of us will want to live in. But it is so

hard to come to grips with it because it is so abstract, but we are

building, I think, a divide which is going to wind up being punishing to the entire society and not just to the poor people, but to

everybody.

Senator LIEBERMAN. Let me ask a final question. Incidentally,

thanks to both of you for your recommendations, which are, I

think, very thoughtful and constructive, and perhaps on another

occasion we can go over them in a little more detail with you.

But here is my question. I accept, based on the testimony we

have heard and the numbers that have been put before us, that

both today and in the future, the greatest need for financial aid is,

this sounds axiomatic, but is among those who are poorer. But it

is also true that people who are making a little more money, the

middle class and particularly what might be called the lower-middle class, really are strapped to send their kids to college.

The young lady who was in here yesterday, not needy, not from

a needy family, but $50,000, both parents teachers, $50,000 family

income, they took on $22,000 of debt to send her to college and they

have another student coming along for whom presumably they will

also take on debt.

So we cannot, and I know you are not asking this, we certainly

cannot turn our backs on them, either. I think what we have got

to do is figure out a balanced system, and maybe it does in the best

of all worlds include more fully funding the Pell grants but keeping

a kind of tuition credit or tax deduction system for people in the

middle class who are finding it very hard.

71

I think I said yesterday in my opening statement, and it really

is true, I find that among the middle-class families in Connecticut,

the greatest single worry they have is how they are going to afford

to send their kids to college without going into hock that will stay

with them for the rest of their lives. Maybe they do not worry

about health care as much because most of them are working in

places where they get their health care. I understand that. But it

is a major worry.

So just talk to me a little bit about that and what the ideal—

I presume you are not suggesting that we turn our backs on the

middle-class families who also need help.

Mr. MCPHERSON. I certainly do not mean to suggest that we turn

our backs on those folks, and I think from my point of view, a family earning $50,000 a year with one or more children in private colleges absolutely is a needy family.

I may differ somewhat with Larry in thinking about the politics

of these things. I think it would be desirable, actually, for the Pell

grant program to reach further into the middle class, perhaps even

beyond what happens simply by driving the formula with more dollars. What I really worry about, thinking about the future of Federal funding, and I am an amateur political scientist, so forgive me

for this, but what I worry about is we have kind of created a system where there are two buckets that Congress can fill. One bucket

is Pell grants, and the label on that is poor folks in the way it is

done now. The other bucket is tax credits, and the label on that is

middle class and up.

I just have a hunch that you folks will be more attracted to filling bucket No. 2, and if we have some academically perfect system

where we say, well, Pell will take care of the poor folks and tax

credits will take care of the middle class, I do not think the poor

folks are going to win in that competition.

So just as with Social Security, a lot of its strength has clearly

been that it reaches a broad range of Americans. I think we need

to think realistically about creating a set of programs which you

folks can go out and explain to your voters which is responsive to

these underlying social needs and which reflects the reality that for

a lot of people in the middle range, it is a strain to finance college.

Senator LIEBERMAN. It is a good argument. It is very important

that we talk about that. I mean, look at not only Social Security

but Medicare. Part of the reason why it enjoys such support, and,

of course, is in such financial difficulty right now, is because it is

a universal benefit program and it has had results. People are living longer and living healthier.

Mr. GLADIEUX. If I can just address my colleague, I think we are

going to still have to work on where we disagree. I think, if I understood you, I agree that we ought to expand the Pell grant program and push it up as far as we can into the moderate and middle-income ranges. So I think we agree on it.

Mr. MCPHERSON. I tried to disagree with him.

Senator LIEBERMAN. All right, nice try. Thank you both. We are

not going to get to ‘‘Crossfire’’ here, no matter how hard we try.

[Laughter.]

Mr. GLADIEUX. If I can just add, on the tax code, I know time

is short, but on the tax code, I do support expansion of the interest

72

deduction on student loans for student loan repayment. I think

that is a judicious use of the tax code, and maybe we disagree on

this, Mike. I do support the tax incentives for savings. I think they

go mostly to middle and upper-middle class. But they support this

whole savings movement, which I think is, in general, very constructive. I just do not support the big tax breaks for current tuition bills because I do not think that is a very effective——

Chairman THOMPSON. The divide you talk about reminds some

of us what a lot of people are concerned about in society as a whole,

in terms of the gap between rich and poor. In this country, I think

it is very valid to point out that we are very mobile. We move from

one category to the next. You may be lower 1 day and then middle

the next, and that is the beauty, and perhaps that mitigates it

somewhat.

On the world stage, though, it is really, a lot of people think, becoming a problem, the haves and have nots, the technological haves

and have nots, and those are going to be driven apart further. And

while it is unfortunate and unfair, in the United States, when you

get to that level, you are talking about ethnic conflict, countries

that have nuclear capabilities now, and all of that. So this is a microcosm of what is going on in the world.

Mr. GLADIEUX. We talk about a digital divide in this country. It

is a digital chasm when you look across regions of the world, third

world and first world.

Chairman THOMPSON. Senator Collins.

Senator COLLINS. Thank you, Mr. Chairman.

Mr. McPherson, you mentioned that some 25 percent of low-income students who have the capacity to go to college still do not

get there, and Mr. Gladieux, you mentioned in your testimony that

only about 6 percent of them finish it, a statistic that I share Senator Lieberman’s alarm about.

Prior to coming to the Senate, I worked at a private college in

Maine that primarily served low-income first-generation students,

and I would suggest to you that one reason that 25 percent does

not get there, even though they are qualified, is not only that they

come from families with no experience with higher education, their

aspirations are low, and that is why, parenthetically, I would say

I am such a strong supporter of the TRIO programs. I think those

are just critical. But it is also that a lot of them are frightened of

the cost. They have sticker shock and they do not realize that help

is there.

So one of the things that I wanted to ask you to comment on is,

how can we do a better job of reaching those children who come

from families without any experience in higher education who may

even not want their children to go on to college, may be threatened

by that—I have seen that—and who look at the cost of private

schools, in particular, and think that is just not for them. There is

just no way they can experience that or afford that.

And second, and related to that, I think one of the reasons that

only 6 percent finish, based on my direct experience, is they start

looking at that mountain of debt and they think, there is no way

I am going to be able to find a good enough job to pay that off, or

they just get so discouraged by it, and they particularly get discouraged when the college changes the ratio of grant aid to loans,

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which happens over and over again, where the amount of grant aid

provided by the institution decreases the longer the student is

there.

So I think that cost is still very much part of the underlying

problem for both of those alarming statistics. Dr. McPherson.

Mr. MCPHERSON. Yes. I think you have identified a really major

problem. If I can talk from personal experience, I am the president

of a college located in the city of St. Paul and my son recently graduated from St. Paul Central High School, which is a big public high

school, and a number of his friends whom I used to drive around

were from families of moderate incomes and their families are not

willing to think about Macalester College because they hear about

the sticker price and say, oh, well, that is hopeless. The fact is that

two-thirds of our students get aid from the institution, and probably half of them get aid from governmental sources.

But it is so complicated that it is hard to get that message

across. I used to drive these folks around. I would keep copies of

our financial aid brochure in the car and I would say, show this

to your parents. This is really something you can think about. I

would think I would be a reasonably credible source, but I could

not get over on that. [Laughter.]

I think we have a lot of work to do on the college side of making

this system much more transparent, which was a word that was

used earlier. You asked, what can the Federal Government do? I

would recur to one of Larry’s recommendations. The original idea

of the Pell grant was to make it obvious to people that they could

get a good chunk of support toward paying for college, and it was

unambiguous. If the Pell grant were an entitlement, it would return to that original hope, and it was originally designed to be an

entitlement. I think that would be a great statement for the young

people of the country, that that support is there.

Chairman THOMPSON. Mr. Gladieux.

Mr. GLADIEUX. I would just add that the data that we have from

the Department of Education tells us that young people in the middle schools, 8th grade—at all income levels—tell us that they expect to go to college. Expectations are very high. It is just that the

course-taking patterns of students from different backgrounds and

different school systems just are so—they are not adequate to let

those students meet their expectations.

Senator COLLINS. It is high in the young grades. I always ask

that question.

Mr. GLADIEUX. Yes.

Senator COLLINS. It diminishes as the kids get older and older

and more attuned to the cost.

Mr. GLADIEUX. Right.

Senator COLLINS. I know we have a vote on, so I will just quickly

ask one more question. We had a witness yesterday who said that

no college ever says, let us raise tuition to draw in more Federal

aid, and I agree with that, but I will tell you what does happen,

and this is what happens. When discussing tuition rates, what colleges figure is that truly poor students are going to be taken care

of by scholarships, by Federal aid. The rich families can afford the

increase in tuition. I would suggest that it is the lower-middle class

and the middle class that really get squeezed. I think that those

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calculations very much do go into the discussion of tuition rates

and that we do play a role, whether we want to or not, in student

loans and Pell grants, and I am intrigued by the idea of extending

Pell grants further into the middle class. I think there is a lot to

be said for that.

But the other issue which I want you to comment on is the prestige of a high sticker price. When you look at your peer colleges,

there is a dynamic that goes on that if you are under the average

cost of the tuition, are you somehow sending a signal that you are

less worthy of their going there, and I think that is a very perverse

mechanism that occurs when colleges set tuition rates. Dr. McPherson, could you expand on that?

Mr. MCPHERSON. Yes. I have some sympathy with both of your

points, but also some doubts about both of them. I think there is

a phenomenon which is by no means confined to higher education

of families judging the quality by the price. I think Dave Breneman

coined the term, the ‘‘Chivas Regal effect’’ for that phenomenon. He

asked, why does that happen? The answer is, it is so darn hard to

get meaningful information about how good a college really is.

I think an area where the colleges need to do a lot of work is,

again, another form of transparency, as the Chairman began, talking not only about our inputs, the big swimming pool, the great

ratio of teachers to students, but also about the results and give

families more information that can really help them make judgments that are independent of price.

My point of view, when we think about our tuition decision at

Macalester, I am, frankly, not looking to be more expensive than

anybody else. I am looking at what I think we need to do in order

to deliver a program which will meet the standards that we have

set for ourselves, and in all honesty, it is an expensive thing to do.

On the question of feeling like poor folks will be cared for by Federal and State programs, there certainly is some consideration of

that kind, but the fact is that at a place like Macalester College,

a very low-income family will probably get a grant on the order of

$15,000 or more from the college to assist in attending and the cost

of education for a student at Macalester is higher, actually, than

the sticker price, so there is an additional subsidy involved there.

So we certainly do not feel like these folks are getting a free ride

from our point of view. We do feel like it is a fundamental commitment of the college to make it possible for them to attend and we

put up the resources that will make it possible.

Senator COLLINS. And just so I am clear, I am very sympathetic

to the idea we need to do more to help our low-income students

have that opportunity.

Mr. MCPHERSON. Right.

Senator COLLINS. I know we have a vote on, but Mr. Gladieux,

if you could just comment quickly, since I read on your face some

disagreement with what he said.

Mr. GLADIEUX. I thought Dave Breneman has put this very well.

There is price competition, but, as Dave says, higher education finance is kind of cockeyed. I mean, it is price competition in the——

Senator COLLINS. The other way.

Mr. GLADIEUX [continuing]. The other way.

Senator COLLINS. Thank you, Mr. Chairman.

75

Chairman THOMPSON. We do have a vote on. We will be in recess

for a very few minutes.

[Recess.]

Chairman THOMPSON. Let us come to order, please. Naturally, it

took a little longer than we anticipated, but thank you for waiting

on us. Senator Akaka.

OPENING STATEMENT OF SENATOR AKAKA

Senator AKAKA. Thank you very much, Mr. Chairman. Again, I

want to tell you how much I appreciate this hearing that you have

put together and look forward to witnesses and also questions.

I was particularly interested in the testimony of Mr. Gladieux.

You have indicated, Mr. Gladieux, that you are concerned that rising tuition costs still outpace inflation and fear that the income gap

is widening. My question is, do you believe that the administrative

cost containment measures recommended by the witnesses that we

have heard here today will adequately mitigate these increases?

Mr. GLADIEUX. I should turn to my colleague, the college president, who is on the front lines of responsibility for cost containment, but I am going to quote Dave Breneman again, who quoted

an economist, Howard Bowen, whose theory of higher education finance was that you raise all the money that you can and you spend

all the money you can raise. That is basically what colleges do. I

mean, every college, I think, is a bundle of ambitions for doing good

things. I think colleges have gone through various kinds of restructuring and I think they have felt pressure from the business community to get with the program and restructure and contain costs.

Have they done enough? I do not think—here I will weigh in on

the question of what is driving the tuition spiral—I do not think

that all of the pressures are on the cost side, the underlying costs

of providing the instruction. I guess this has been said, it is ground

that has been gone over, but it is also a matter of the very high

demand for the product. Everybody knows that there are good returns for this investment and a lot of demand. This is an imperfect

market, post-secondary education, but prices go up in part because

they can, because the demand is so high.

Senator AKAKA. Dr. McPherson.

Mr. MCPHERSON. One thing I would underline is from a public

policy point of view and from a concern about how these tuitions

are impacting on people’s ability to go to college, it is very important to remember that 80 percent of the students go to public colleges and universities and that most of the low-income and firstgeneration students begin in public colleges and universities. It is

also true that private colleges, on the whole, put a lot of resources

into providing aid from their own resources for low-income students

to try to provide access.

If you look at what has gone on in prices in public higher education, they have gone up pretty fast, and I think that has produced access problems. But the main thing that has driven those

price increases is reductions in State funding for the institutions,

not increases in the cost of education. The cost of education on the

public side actually has gone up quite slowly in the last decade.

State appropriations have declined in many States, and schools

have made up part of the difference with tuition increases.

76

To me, the big challenge and the big issue is, whatever happens

with tuition, are the schools, the States, and the Federal Government focused on making sure that needy low-income students are

insulated from the impact, and that is, to my mind, where the public policy focus needs to be.

Senator AKAKA. Mr. Gladieux, I was glad to read about your concern about unequal education by income and race. You discussed

here college participation and successes among these type of students. You also mentioned financial aid is critical, but not enough.

I am really interested in this area as to why we have this inequality. You pointed out that much of this probably has come because

they have not been properly prepared for college and pointed to

programs such as Upward Bound, TRIO, and GEAR UP as programs that help that cause. You also mentioned that complementary strategies are needed to equalize college opportunities.

I know you have discussed this in here, but I just wanted to further ask you whether you had anything else to say about that complement of strategy.

Mr. GLADIEUX. Well, on the broad question of what are the roots

of unequal opportunity, of course, there are many—tracking policies in schools, social conditions and society’s expectations of students. There are many, many things that play into this.

Now, what to do about unequal levels of participation, as I said,

I think we need the wholesale effort to reform the schools and lift

performance of the schools and students, but we also need, I think,

these one-on-one, one kid at a time, very intensive programs. At

the Federal level you have the TRIO programs, Upward Bound,

Talent Search and support services, and the new GEAR UP program that the administration proposed and Congress enacted.

But there are programs in the private sector that are proliferating across the country. In fact, we held a conference, the College

Board sponsored a conference, a national summit on pre-college

outreach 3 weeks ago and it brought 500 people together. A lot of

funders, a lot of foundations were there and are ready to invest

more in these efforts.

We need to save more lives. We need to reach more kids early,

to widen their horizons and keep their options open, by taking the

right courses and staying on track. That is what the I Have a

Dream program is all about. I Have a Dream is just one of the national programs now that does great work and is expanding across

the country.

Senator AKAKA. I know you are proposing expanding pre-collegiate outreach.

Mr. GLADIEUX. Right. It is very labor intensive. Mentoring students one-on-one is expensive. We just need more of these efforts.

Senator AKAKA. Would you have a word on that, Dr. McPherson?

Mr. MCPHERSON. Well, I do. One of the barriers, particularly for

first-generation college students, is sheer information, is just knowing how this whole process works, and Senator Collins talked some

about that before the break. Tom Kane, who is a professor at Harvard University’s Kennedy School, is conducting, I think, a really

interesting experiment with support from the Mellon Foundation

which—they picked some school districts in the Boston area and,

in a controlled scientific sense, are providing one-on-one counseling

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with trained counselors for a set of first-generation high school students whose parents have not been to college in low-income areas

in Boston and they want to look to see if the college-going results

differ based simply on the application to one group of students of

a serious amount of information and college counseling. I think

that is a great example of actually trying to go out and systematically learn what works.

Senator AKAKA. Mr. Gladieux, in your testimony, you spoke of

students who leave college with no degree, who have no skills and

who may be unable to pay their debts. We heard from a young lady

yesterday. She finished college and received her degree, but she is

$18,000 in debt. What percentage of students’ loans are outstanding from students who do not complete their bachelor’s degree?

Mr. GLADIEUX. Frankly, I do not know, and I do not know that

we have such data. I know we do not have good research on students who fall off the track, who do not make it. I think we need

some—Michael, do you have——

Mr. MCPHERSON. I have nothing.

Mr. GLADIEUX. I do not know that any research is being done.

It really is not picked up in the longitudinal—well, it should be

picked up in the longitudinal studies of the Department of Education. We should be able to glean something, but I do not have the

data for you.

But this is what worries me most, is the number of students, and

I guess I am just going on anecdotal evidence, what I hear. This

is the downside of this whole effort and enterprise, students who

are drawn into higher education and borrow and end up with a

debt. Now Bill Gates, he had some skills and he did not need his

degree. But for most folks who are in this situation, I think there

is a real social fallout—it is a serious problem.

Senator AKAKA. And I do worry, too. I worry about what this

might do to the default rate in the future. Thank you very much

for your responses, and thank you, Mr. Chairman.

Chairman THOMPSON. Thank you very much.

Gentlemen, thank you very much. That reminded me of another

figure that we have got here that I guess is relevant to this discussion, and that is the default rate for loan programs in fiscal year

2000 is estimated to be 15 percent, which is a lot lower than it

used to be. I am told by people who have been around here a long

time that this Committee had hearings many, many years ago and

it was astronomical, and it is slowing and it should be.

But still, just for loans in 1 year, that is over $5 billion that taxpayers are paying. That is kids who pay their loans back and go

to work, and that is grandparents who already got their kids

through college, and that is the factory worker who does not go to

college. All these taxpayers are giving $5 billion a year to the cost,

so that needs to be considered, too, in terms of Federal cost, i.e.,

taxpayers’ costs that we are incurring in these loan programs. You

can say a lot of things about it. The kids are too poor, loans are

too high, society’s standards are declining, or whatever, but that

does go into the Federal contribution.

If there is nothing else, thank you, gentlemen, very, very much.

This has been extremely helpful.

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1The prepared statement of Ms. Somers and Mr. James Cofer appears in the Appendix on

page 215.

Mr. MCPHERSON. Thank you, Senators.

Chairman THOMPSON. I appreciate it.

Our final panel will examine the growth in the use of debt to finance a college education and the danger posed by perpetrators of

fraud who prey on students seeking money to pay for college.

We will hear from Jerry S. Davis, Vice President of Research at

the USA Group Foundation; Mark Kantrowitz, Publisher of

FinAid.com, and Patricia Somers, Professor of Higher Education at

the University of Missouri in St. Louis.

Mr. Davis, would you care to make a statement?

Mr. DAVIS. Do we have to go in the order that you had listed us?

Chairman THOMPSON. Not necessarily.

Mr. DAVIS. Dr. Somers wanted to go first.

Chairman THOMPSON. All right. That would be fine.

Mr. DAVIS. So I yield to Dr. Somers.

Chairman THOMPSON. Dr. Somers.

TESTIMONY OF PATRICIA SOMERS, Ph.D.,1 ASSOCIATE PROFESSOR OF HIGHER EDUCATION, UNIVERSITY OF MISSOURI

Ms. SOMERS. Thank you, Mr. Davis. Good morning, Mr. Chairman, Senator Lieberman, and Senator Akaka. I am delighted to be

here to talk about students and their debt load and how it influences their lives.

As you said, I am Pat Somers, Associate Professor of Higher Education at the University of Missouri at St. Louis, and I am going

to be talking about a series of studies on student persistence and

debt load which I did collaboratively with Dr. James Cofer, Vice

President of the University of Missouri system, who is also here

with me today.

Collectively, we call these student debt load studies ‘‘Mortgaging

Their Future,’’ and mortgaging their future is an analogy that

came through time and time again as we talked with students. In

my remarks, I will give a brief introduction, then examine the

three questions posed by the Committee, and end with some policy

suggestions. You have heard some of these things before.

While I am a researcher who looks at the impact of student aid,

I have also had involvement in the financial aid system as a recipient. As an undergraduate at Michigan State University, I received

Federal grants, loans, work-study money, and also State grants. I

received war orphans’ benefits under the GI Bill, and I was the

first person in my family to graduate from college. Half of my

NDEA loans of $8,000 were forgiven because I ended up in an educational institution and I taught.

Then my second experience with the financial aid system as a

participant came as a parent. In 1993, I found myself newly widowed with my daughter, who is a poet, at a very expensive private

college. I ended up with $28,000 in PLUS loans on a salary of

$32,000, and I am probably the only parent in America paying back

the PLUS loans instead of foisting them on my daughter. She

ended up with $30,000 for undergraduate loans and will amass at

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least $80,000 in student debt load by the time she receives her

Ph.D. in English literature.

Now, I did point out that she could be a poet and do, let us say,

massage therapy at the same time, and I offered to fund her completely to go to massage therapy school, but she decided she really

wanted a Ph.D. in English instead, and we recognized the impact

of that decision. She also, after her father became ill with cancer,

had offered to drop out of the expensive private college and go to

the public school near home so she could help us save money. We

had over $100,000 in medical bills in 3 months. But also, she could

help take her father to treatment.

Between my experiences with financial aid in the 1960’s and my

daughter Susan’s in the 1990’s, there were some fundamental

shifts in student financial aid policy, which I will outline.

From its beginnings in the Higher Education Act of 1965, there

have been several key principles of Federal student financial aid

policy. These are, first, that the costs of higher education are

shared by the student, the parents, and the taxpayer. The second

is the Federal Government makes grants available to low-income

students so that they can afford moderately-priced public institutions, which we call access to post-secondary education, makes

loans available to middle- and upper-income students so they can

afford higher-priced private institutions, which we call choice in

higher education institutions, and provides aid to students without

regard to academic discipline or achievement as long as the student

maintains satisfactory academic progress.

A key change between when I was in college in the 1960’s and

when my daughter was in college in the 1990’s is that students

have assumed more of the cost of college primarily through loans,

while parents have decreasingly supported their students in college. As I said before, I suspect that many of the PLUS or parent

loans are actually being paid by the students after graduation.

The Higher Education Act of 1992 increased student borrowing

limits, and probably as a result, we are here today talking about

student debt load, college costs, and so forth. With this change

came renewed concern about the impact of debt load on students,

an anxiety that is supported by figures on student borrowing. Fully

one-third of all loans in the history of the student loan program

were extended in the fiscal years 1994 to 1996. Between 1989 and

1995–96, spending on student loans doubled. In 1997, the Federal

Government invested over $40 billion in generally available student aid with fully three-fourths of that devoted to student loans.

Let me now turn to the questions that the Committee has posed

me. First, to what extent does actual or potential debt load influence student choices. The studies that Dr. Cofer and I did were

based on data from the National Center for Educational Statistics

gathered between 1987 and 1996, so we do have an historical base

there, and also student interviews that we did with over 900 students around the country in 2-year, 4-year, and graduate programs.

First of all, the decision to attend a post-secondary institution.

Studies have repeatedly shown that students and their parents

make decisions about college affordability long before they have

any information about it. This may happen as early as the 6th

grade. This is why programs such as GEAR UP are so important.

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Remember, part of GEAR UP is the year 2000 scholars program

that gives 8th grade students certificates that tell them the kind

of financial aid that they could qualify for once they were ready for

college.

While we found that some students were undeterred in their educational plans because of the expected debt load, many students

chose institutions and majors based on cost. We call this the 3 Ps

of college choice: price, price, price. There are two ways to look at

price, total price of attending the institution minus all aid, and the

second, for those savvier students, total price minus the gift aid, in

other words, how much do you get for free.

Three quotes are illustrative of how financial aid affects these decisions. ‘‘This university was the closest school, and since I drive

45 minutes a day to get here, it was feasible. However, this university does not offer a degree in theater. I had to change my goals

and major in public relations instead.’’

Another student said, ‘‘Cheap is important. I would have considered getting a medical degree if the debt load was not so tremendous.’’ She chose a bachelor’s degree in allied health instead.

And finally, a student in a 2-year institution said she chose that

‘‘because of the location and the costs are low. I was able to work

and go to school at the same time.’’

Students also reported a number of loan avoidance behaviors.

One student said, ‘‘When I first started out, the first 2 years, I

tried as hard as I could not to take out a loan. My husband was

going to school and we are both trying to make life better for our

son, and after 2 years, I could not afford it. It is embarrassing living poorly, and finally, I had to take out loans. If that is what I

have got to do to make life easier for my son later, that is what

I have got to do.’’

One interesting side note is that some students charge their educational expenses to credit cards rather than take out student

loans. It sounds like a really dumb idea. No, wrong. Educational

expenses charged on a credit card are dischargeable in bankruptcy,

while student loans generally are not. This puts low-income students who may have bad credit experiences and do not use credit

cards at a disadvantage as compared to middle-income students

who do.

How does debt load influence which job to take after graduation?

One student said, ‘‘Having student loans is very stressful.’’ As students approach graduation, the specter of repayment looms large.

They really focus in on which job is going to pay them the most

so that they can reduce their debt load after graduation. They

would in many cases prefer other jobs that paid less that were a

better fit.

How does it affect other life decisions? Student debt load obviously influences financial decisions such as buying a house, buying

a car, and living expenses after graduation. However, we also found

that personal decisions, like marriage, divorce, and having children, are influenced by debt. One student said that he would not

have married his wife had he known that she had defaulted on

$30,000 worth of student loans.

The second question is, are post-secondary student persistence

rates affected by debt load? We found that student persistence in

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all types of institutions is influenced by accumulated student debt

load. Rather than being incremental, the effect of debt is felt suddenly as debt is occurred. This we call the threshold effect. That

is, a student borrows, which varies depending on need and other

factors, in a lump sum at the beginning of the semester. When the

next semester rolls around, the student has to again make a decision to persist based in part on this new higher level of debt. Students view threshold levels as intimidating, especially when they

move from one perceived level to another.

Further, in the short term, students are increasingly willing to

borrow for college and at an increasing rate. The short-term borrowing to finance tuition appears to have decreased the influence

of rising tuition on the persistence decision. This is an important

point. Because there are more grants and more loans available, tuition is not as much of an influence as it was in 1987, for example,

as it was in 1996.

However, the long-term effect of this short-term borrowing decreases the likelihood of continued enrollment, and I do have a couple of statistics which I will give you. These are all 1996 numbers

from the National Center for Educational Statistics, the National

Post-Secondary Student Aid Study. The 4-year students who have the lowest level of debt, $3,000 or

below, are 4.6 percentage points less likely to persist from one semester to the next than students who do not have debt. Between

$3,000 and $6,000, it is minus-2.7 percentage points. Above $6,000,

it is 5.3 percentage points.

For low-income students, this is particularly pronounced, and

that is the next issue that I am going to deal with. For those lowincome students who have the lowest level of debt, $3,000 and

below, are 13 percent less likely to persist than students without

loans. For those with medium-level debt, $3,000 to $6,000, they are

8 percent less likely to persist. And for those in the highest level,

$6,000 and above, they are 17.7 percent less likely to persist from

one semester to another.

The 1992 reauthorization resulted in a significant shift in Federal policy from a commitment to promote access through needbased grants to a broader strategy of loans regardless of family income or need. The findings from our study suggest that the pendulum has swung too far. Middle-income students appear to be

adequately subsidized to enable them to attend the college of their

choice. The access and choice question is essentially a public school

and private school dichotomy. Public schools offer low tuition and

little institutional-based aid. Low tuition implies that most of the

aid at public schools will go to low-income students, since middleand high-income students will have no need. Therefore, Federal

student aid acts to implement the low tuition strategy of public institutions and promote access. Remember that 80 percent of the

students are in public institutions, 2-year and 4-year.

Private institutions, in general, spend a large portion of their resources on student aid through discounting. Therefore, Federal student aid federalizes some of the cost of student aid that these institutions would incur in the natural course of business.

In addition to the decreasing persistence rate among low-income

students, our studies seem to confirm that low-income student parVerDate 11-SEP-98 12:41 Jun 27, 2000 Jkt 000000 PO 00000 Frm 00085 Fmt 6601 Sfmt 6601 63465.TXT SAFFAIRS PsN: SAFFAIRS
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ticipation in higher education was decreasing. Further, low-income

students and students of color tended to attend 2-year colleges in

larger numbers.

So what can be done? We have a number of suggestions for

changes in Federal policy. However, these must be implemented

with the recognition of the differential impact on low- and middleincome students, the bucket one versus the bucket two that we

talked about before.

In general, programs that increase aid to the neediest students

during college and ease repayment after graduation will help lowincome students while tax breaks and repayment reforms will assist middle-income students. I will just briefly run through the suggestions.

The first is to reform the packaging method that financial aid directors use in putting together student aid packages. The current

floor of the package is the Pell grant. If that were changed to State

grants, particularly in States like Georgia with their HOPE program, it would make more Pell money available for the neediest

students and would reduce inflationary pressures on tuition.

The second is reform of the method for payment for income-contingent student loans. You have to only think of having a 40-year

mortgage versus having a 15-year mortgage, and that is the difference in income-contingent loans.

The third thing is cafeteria payment plans. Allow those with student loans to repay these through employer-offered cafeteria payment plans and the employers could contribute matching funds.

Tax-reduction plans, which many people have talked about before me.

Loan forgiveness, which would tie forgiveness of all or part of the

student loan to working in a high-demand, low-supply occupation.

Bankruptcy law changes, and here, I have done a lot of work on

the impact of student loan discharge in bankruptcy. I know this

was a big issue with the Bankruptcy Review Commission, and in

my study, between 1980 and 1997, out of the 437 published cases

in bankruptcy involving student loans, only 121 were fully or partially discharged. That is 27.7 percent. That is not nearly as much

of a problem as we anticipated it was. So there are two things to

do with the bankruptcy law. One is standardize the undue hardship definition and the second would be to drop the special treatment of student loans in bankruptcy proceedings.

The next is vocational training, which, Senator Thompson, you

have asked about several times. This would be to provide additional training at public technical institutions and 2-year colleges,

have widely-available vocational training for students so that they

would not have to go to the more expensive proprietary schools.

And the final thing is an educational HMO.

We talked to students all over the country about student loans.

We learned that most students, unlike the popular image of a college student, were dedicated not only to achieving a better education, but being better citizens with that education. The majority

were, however, concerned that no one really cared about what they

had to offer and no one really wanted to assist them. Their frustration and anger was not uni-directional. The institution, the Federal

Government, financial aid directors, credit card companies, and

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1The prepared statement of Mr. Davis with attachments appears in the Appendix on page

260.

often professors and family were subjects of their diatribes, and I

am not going to repeat their rude remarks here about Congress,

but they are in the written testimony.

What we did learn was that most thought the program is poorly

designed and not particularly student-friendly. They perceived that

all the talk about reform was only window dressing. The proposals

that they were aware of changed only the delivery mechanism, not

the root of the problem. Many students were concerned not only

about their particular situation, but also what would be facing

their brothers, their sisters, their children.

The mortgage analogy kept repeating itself. The students were

terrified of mortgaging their future, of graduating into debt,

marrying into debt, raising children into debt, and dying in debt.

If these college students must mortgage their future, then so, too,

do we as a society mortgage our future. Thank you.

Chairman THOMPSON. Thank you very much.

Your comments about your discussion with your daughter, the

poet, reminds me of a discussion I had with an old gentleman down

in Lawrenceberg, Tennessee, where I grew up. I told him I was a

philosophy major. He said, ‘‘What does that pay, son?’’ [Laughter.]

He had not seen a whole lot of philosophy shops around town

and it concerned him.

Senator LIEBERMAN. What does he think about where you ended

up?

Chairman THOMPSON. I am afraid to ask. [Laughter.]

Who wants to go next? Mr. Davis.

TESTIMONY OF JERRY S. DAVIS, Ed.D.,1 VICE PRESIDENT FOR

RESEARCH, USA GROUP FOUNDATION

Mr. DAVIS. Maybe now we will have a panel that disagrees. Good

morning. My name is Jerry Davis. I am Vice President of Research

at USA Group Foundation in Indianapolis, Indiana. My remarks

today are based primarily on a monograph that the Foundation will

soon publish. It is entitled, ‘‘College Charges, Affordability, and

Earnings Outcomes: An Analysis of Some Long-Term Trends and

Their Policy Implications.’’ I have been looking at affordability

issues for almost a decade and have been looking at access to student loan debt burdens for almost 3 decades.

I want to talk today and summarize my presentation, which I

have given to the administrative clerk as testimony. I want to do

just three things. The first thing is to talk about a new way of looking at rising prices in college, to talk about the debt burden issues

and those questions that were posed for me in your letter, and then

to direct your attention to some important State-by-State differences in affordability that I think have very strong implications

for Federal policy.

College prices, as we have learned in previous days of testimony,

have risen faster than family incomes to pay them, but the growth

rate has slowed in recent years. In my testimony, I note that I

looked at a way of trying to figure out what college prices mean

and what college costs mean in terms of the way people actually

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behave, and I determined that the net cost of colleges in comparison to median family income for people with college-age children

absorb about 2 more days of their annual earnings a year in 1997

than they did in 1990. That is at 4-year public colleges. At 4-year

private colleges, net costs absorb about 4 more days of work.

So it takes a couple more days a year for parents to pay the costs

if they are at the median family income. College prices have not

risen much faster than the incomes of people at upper-income levels, at the top quartile.

College prices have not risen faster than the additional earnings

students achieve by attending and graduating. I want to emphasize, and graduating, since we can think of college as an investment. If we think of that and we consider the additional or marginal earnings of college graduates over high school graduates as

the payoff from the investment, it took about the same number of

months to recover college costs in 1997 as it did in 1990—I am

sorry, as 1970. Over a 30-year time period, basically, the recovery

period or recovery time has stayed about the same.

Even when you consider that many students have to borrow to

pay for college expenses, the number of months it takes graduates

to recover their expenses with higher earnings from their degrees

has not grown substantially in the past 3 decades. For example, if

you borrowed at the typical borrowing level in 1997, $12,000 for

public graduates, $14,000 for private graduates in 1997, it would

have taken males 25 months to recover their total costs for those

loans at the public institutions, females 30. In 1985, without loans,

it would have taken males 24 months; it would have taken females

33 months. So even with the increased borrowing, the time to recover the costs of education has stayed very stable.

Now, I am going to go on to another point. College prices have

risen faster than the additional earnings that students receive if

they fail to graduate. The costs of attendance are especially higher

for students who borrow and do not finish college. But in spite of

the increase in the penalty for failure, more students continue to

enroll in college, and this is because the value of a college degree

remains very high.

But there is only a slight increase in the proportion that successfully earn undergraduate degrees. We talked earlier about completion rates and the figure that we have from the Department of

Education study says that 46 percent of the students have degrees,

and that was an earlier study. I would guess that from the statistics I have looked at, it is up a little now because colleges have gotten a little better at retention, but it is not up by much.

Let me give you just the starkness of the recovery times. If a student goes for 2 years at a 4-year institution, a male student in a

public 4-year institution and borrows $5,000 and drops out, it is

going to take him 44 months of working to recover his costs. A female is going to take 56 months. Now, this is just net costs. If a

male student attends a private college and drops out, it is going to

take him 92 months to recover his costs and it is going to take females attending private colleges 118 months to recover their costs

of education.

Now, there are significant State-by-State differences in affordability of 4-year public colleges and I think these differences are

85

more the effect of State policy choices than the effect of differences

in family ability to pay for college. Federal student financial aid

policy does not consider State-by-State differences in college affordability and it does create inequities in the distribution of aid dollars among students throughout the Nation. Costs at public institutions, net costs range anywhere, the top 12 States, $6,100—I am

sorry. The lowest costs are $6,100. The highest are around $8,800.

Between two States whose families have similar financial characteristics in the ability to pay for college expenses, the students in

the State that has decided to charge higher tuitions will receive

more Federal student aid. This is because most Federal student aid

is need-based and the students in the States with higher tuitions

will have greater financial need.

These differences in affordability on a State-by-State basis are

not the function of the differences in family incomes across States.

They are more a function of policy decisions to charge higher tuitions. Thus, State policies have major effects on how Federal student aid is distributed and these effects are largely ignored in Federal policy making. Is this what Congress intended? I do not know.

Now, I want to turn to your questions about student loan debt

burden. Students and parents, as Dr. Somers has mentioned, are

very concerned about debt burden. So are the lenders. So are the

guarantors. We are probably second in terms of the people in the

United States that are most concerned about debt burdens because

the loan money is ours. Contrary to what many people believe,

when students default, it is not a game for us. It is a very strong

loss for us.

One of the things I wanted to mention is that when we talk

about mortgaging the future of our generation, we have to remind

ourselves that only about half of the 4-year public college undergraduates actually borrow, and only about 60 percent of the 4-year

private undergraduates actually borrow, and about 6 percent of the

public 2-year college students actually borrow. So we are not talking about a huge proportion of all students.

As far as the trends in student borrowing are concerned, USA

Group borrowers’ average cumulative student loan debt continued

to rise in 1999. We have been studying debt burden issues since

the early 1980’s. The growth rates in indebtedness for 4-year college and community college undergraduates rose after 2 years of

decline, so that is a little discouraging. But the annual growth

rates for graduate students and for proprietary school students

have declined in each of the past 3 years.

In spite of the increased borrowing, the percentage of borrowers

who are delinquent in making payments has moved downward

since 1995. The economy has been good. It has boosted salaries so

debt repayment burdens have eased a bit. It appears that repayment burdens continue to be manageable for most borrowers.

Dr. Somers has told you about the difficulties many students

have had in repaying their loans, and I sympathize with those difficulties. There are students in difficulty. But one of the indications

that we have of difficulty is that 90 percent of the students who

are in repayment are still using the standard 10-year repayment

cycle and they are not taking advantage of some of the debt relief

plans that we have available to them.

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1The prepared statement of Mr. Kantrowitz appears in the Appendix on page 274.

The research on borrowers in the early 1990’s has shown relatively few negative effects of borrowing on students’ decisions

about careers, pursuing post-baccalaureate study, or dropping out

without a degree. I think that since borrowing has increased, we

can reasonably assume that the potential for negative effects has

also increased, and I think Dr. Somers has mentioned that this potential has probably been realized.

We funded a study that is going to try to assess the relative effects and to parcel out the effects of borrowing on student behavior

because all behavior is complex and the motivations are complex.

So we want to parcel out and see exactly what happened in terms

of the impact of the loans.

As a director of financial aid, I used to do exit interviews. I had

to interview all the youngsters that had loans and were leaving, or

trying to leave school, and I discovered that there were lots of reasons that they left besides financial aid. I also discovered that it

was way easier to get the student to stay than it was for me to go

recruit another one, because I was director of admissions at the

same time. The research we funded, I hope, will help us parcel out

the effects of debt.

I think for now, the safest thing that I would say about borrowing to pay for college is that the effects of borrowing are much

more often positive than negative, and this is especially true when

borrowers complete their degree programs.

This summarizes my testimony. Thanks again for asking me to

be here.

Chairman THOMPSON. Thank you very much. Mr. Kantrowitz.

TESTIMONY OF MARK KANTROWITZ,1 PUBLISHER, FINAID

PAGE, L.L.C.

Mr. KANTROWITZ. Mr. Chairman, thank you for convening this

hearing on the rising cost of college tuition and the effectiveness

of government financial aid, and for inviting me to testify before

the Senate Governmental Affairs Committee this afternoon. My

name is Mark Kantrowitz and I am the publisher of the FinAid

and eduPASS websites, free resources that exist to aid students in

navigating the sea of financial aid and to combat scholarship scams

and financial aid schemes. Both sites are associated with FastWeb,

the Nation’s leading free scholarship search. Together, our sites

had more than 2 million visitors last year. I am pleased to have

the opportunity to share my experiences with the Committee today.

Every year, several hundred thousand students and parents are

defrauded by scholarship scams. The victims of these scams lose

more than $100 million annually.

The most common types of scholarship scams include scholarships for profit and guaranteed scholarship search services. The

first type charges an application fee for scholarships that never materialize, or are less than advertised, or disburses less money in

scholarships than it has received from application fees.

The second type charges a fee to match student information

against a scholarship database and guarantees that the student

will actually receive money. Few, in fact, do. Both types of scams

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were targeted by the Federal Trade Commission’s Project ScholarScam, which was initiated in 1996.

Recently, a third type of scholarship scam has grown in prominence. I call this the financial aid seminar scam. This scam sends

students a misleading letter inviting them and their parents to a

financial aid seminar or interview. To illustrate, I would like to

read an excerpt from a letter that was received by my cat.

‘‘We are pleased to inform you that Nash has been selected by

our College Review Board as one of the Pittsburgh area students

eligible to apply for grants, scholarships, negotiated tuition discounts, and interest-free loans through our college assistance program. We are committed to maximizing your eligibility to receive

financial assistance and to reducing or even eliminating your family’s expenses for Nash’s college education.’’

‘‘Your personal interview has been tentatively scheduled for Saturday or Sunday, at which time you will receive your free financial

aid information packet. Our program is dedicated to making higher

education an affordable reality to all families regardless of income.

There is no cost for your financial aid information packet or interview. Together, we can make your dream of a college education an

affordable reality.’’

I attended this meeting and several other similar seminar scams

and discovered them to be nothing more than a high-pressure sales

pitch for financial aid services and products of doubtful value. After

a 45-minute fast-paced presentation filled with incorrect and misleading information about financial aid, each family was invited to

stay for a personal interview. The interview was actually a one-onone attempt to sign up the family for the company’s services at a

cost of hundreds or thousands of dollars per year.

This type of scam is especially troubling because they appear to

target lower-income families and because they aggressively discourage families from seeking advice from recognized financial aid experts, such as college financial aid personnel.

Scholarship scams are difficult to recognize because they often

mimic legitimate organizations. A good rule of thumb, however, is

if you have to pay money to get money, it is probably a scam.

Foundations that award scholarships exist to give away money,

not get money. Most scholarship scams try to trick students into

giving them money with little or no benefit to the student in return.

Other common signs of a scholarship scam include use of the unclaimed aid myth, which falsely states that millions or billions in

aid went unclaimed last year and promises to get the student their

fair share. In fact, no financial aid goes unclaimed. This is an extremely pernicious myth because it not only defrauds consumers,

but also suggests to private sector benefactors that there is no need

for them to create new scholarships. After all, if it is going unclaimed, then there is no need.

The second is bogus guarantees, which often include restrictions

that render them meaningless, such as requiring the student to

submit rejection letters or which include Federal aid as part of the

total. If Federal aid is part of the total, of course they are going

to get the unsubsidized Stafford loan.

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And third, false claims of government or nonprofit affiliation or

endorsement. One scam even created its own bogus Better Business Bureau and gave itself a good, glowing recommendation. Others misrepresent the nature of their businesses by using an eagle

and a formal seal as their logo and words like ‘‘National,’’ ‘‘Federal,’’ and ‘‘Foundation’’ in their names.

When a family encounters a fraudulent scholarship scheme, they

should report it to the State Attorney General and the Federal

Trade Commission. It is also helpful to report the scam to college

financial aid administrators and to the U.S. Department of Education’s Federal Student Aid Information Center. Private consumer

fraud organizations, however, are not able to deal with the volume

of inquiries. One such organization reported that they were only

able to answer 5 percent of their telephone calls on the subject.

Mr. Chairman, I once again thank you and the Committee for

taking an interest in the issue of scholarship scams, financial aid

fraud, and for inviting me to share my thoughts on this matter. I

would be happy to answer any questions you may have on this or

other topics.

Chairman THOMPSON. Thank you very much.

Mr. Kantrowitz, some of our folks received the same letter your

cat did, as a matter of fact, and I think we checked on it and found

out it was a West Virginia company. The State of West Virginia

was able to, in effect, put them out of business, evidently. Are the

States dealing with this effectively, do you think? Are there specific

criminal statutes pertaining to this, or do they usually operate

under the general fraud or consumer protection statutes?

Mr. KANTROWITZ. They usually operate under the false advertising statutes in the State and the FTC Act. One problem that

they face is that the amounts per consumer tend to be lower than

in other types of fraud. In one case, the New York Attorney General sued an organization and the judge found that the organization had violated the law but questioned whether each individual

complaint, and they had close to 1,000 complaints from students,

was a triable issue of fact, and the cost of pursuing that would be

greater than any potential redress for consumers. So I do not know

what the status of that particular case is, but that is a big problem

for the states that pursue cases. Most successful cases have been

pursued by the Federal Trade Commission.

Chairman THOMPSON. I see. Thank you. On the issue of the disparity between income levels of those who do not go to college

versus those who do, I think the most helpful information there

probably is the fact that the relationship seems to have remained

the same, basically, over a long period of time.

I have always questioned that in a way, though, because it assumes that someone who graduated from a 4-year college or university, had he or she not gone to college, would make the same

amount as the average person who did not go to school. It also assumes that the person who did not go to college or dropped out of

college, had he stayed in college, would have wound up making the

same amount as the average person who stayed in college. I do not

think that is necessarily true. I think some people drop out of college because they realize they are not college material. Some people

do not go to college because they are just not up to it.

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So I think probably my own opinion is that gap realistically probably is narrower than we sometimes think. Do you have any big

problem with that?

Mr. DAVIS. No. One of the things that I was using that information to point out is the phrase in my testimony, the penalty for failure. As college costs go up, the penalty for failure to try and fail

has gone up because we have shifted more of the burden of paying

for college onto the student through loans. I think that we still

have an open access society. Our colleges do a great job of trying

to do as much as they can to get students into school. But I do not

think that they have done as much as they can do to get them

through school.

If you look at graduation rates over time, say a 30-year time period, the graduation rates have increased hardly at all, and so it

may be a function that they are dipping further down into the applicant pool, because two-thirds of high school graduates go to college now.

But as far as your comparison of the spreads of income, they are

averages. I know there are exceptions to averages. Averages are

simply central tendencies, and so I do not have any way of refuting

or assessing your observation.

Chairman THOMPSON. Professor Hoxby yesterday pointed out

that one of the reasons why we have the higher dropout rate is because we have such open access. That is good in many respects. We

concentrate sometimes on the students who we openly let in who

never should have been let in, perhaps, but there is also a group

of students, such as myself, who did not exactly tear it up in high

school, but somewhere along the line, they got my attention, and

once I got in, I did all right. So we need to take into account those

types of people, too. A lot of people go into the army and come back

and really turn things around. So I think we have got to keep very

open access, but it is not necessarily bad that you have a

winnowing out process of those who belong there and those who do

not.

Senator Lieberman.

Senator LIEBERMAN. Thanks, Mr. Chairman. Thanks to this

panel of witnesses. I was tempted, Mr. Kantrowitz, to ask you how

your cat did on the College Boards. You do not have to answer.

[Laughter.]

I am interested, actually, in your websites. Could you tell us a

little more about that? You said you had a couple of million hits

last year?

Mr. KANTROWITZ. Right. We have three websites. We have the

FinAid website, which is free information about student financial

aid. It acts as a comprehensive collection of information and advice

for helping students make the critical decisions regarding financial

aid.

We have eduPASS, which is a guide for international students

who wish to study in the United States. It provides information

about admissions and financial aid and cultural differences in the

United States.

And FastWeb is a free scholarship search. The students provide

information about their class rank, their GPA, their academic inVerDate 11-SEP-98 12:41 Jun 27, 2000 Jkt 000000 PO 00000 Frm 00093 Fmt 6601 Sfmt 6601 63465.TXT SAFFAIRS PsN: SAFFAIRS
90

terests, and are matched with awards for which they are eligible.

They then write to the sponsors and get information and apply.

Senator LIEBERMAN. So you have created these three sites?

Mr. KANTROWITZ. The third site, I did not create. The first two

sites, I created.

Senator LIEBERMAN. And this is your business or is this a——

Mr. KANTROWITZ. This is a business.

Senator LIEBERMAN. That is quite remarkable. Do people pay a

fee, or——

Mr. KANTROWITZ. It is free to the students.

Senator LIEBERMAN. It is free to the students, and like so many

businesses on the Internet, I presume there is advertising.

Mr. KANTROWITZ. There is advertising.

Senator LIEBERMAN. Are you surprised at the number of hits you

have had?

Mr. KANTROWITZ. We are always surprised at the number of hits.

It has been growing very steadily and we try to provide new services to encourage even further growth. We find that the better we

serve the student population, the better we do. That is a wonderful

formula.

Senator LIEBERMAN. Is this an active area? In other words, are

there other sites like this that are providing information to parents

and the college applicants?

Mr. KANTROWITZ. There are many, many sites on the Internet

that provide information, some great quality, like the College

Board has a site, some of lesser quality. There are sites out there

that still mention the SLS and GSLs instead of the Stafford.

Senator LIEBERMAN. That is quite something. I wish you well

with that. There was a story in the Washington Post the other day

about somebody who has created a site on which students can essentially put out a bid for a college, offer a price along with their

academic record and then see who matches it. Have you heard of

that?

Mr. KANTROWITZ. Ecollegebid, yes.

Senator LIEBERMAN. Yes.

Mr. KANTROWITZ. I do not know how many colleges or students

are actually participating in that.

Senator LIEBERMAN. If I remember, the article said that the creator had only had nine or ten colleges that were signed up at this

point, so it is not much of an auction, but is that something that

is likely to grow, or are there limits to it?

Mr. KANTROWITZ. I do not think that that kind of haggling is necessarily going to grow. It is most beneficial for students who maybe

missed deadlines and are looking to go to any college. I do not

think you will see Harvard or other Ivy League institutions joining

in such an effort.

Senator LIEBERMAN. We heard here yesterday particularly, and

a little bit today, about merit aid or discounting, but I am curious

as to why, if that is going on among colleges that are not getting

either as many applicants as they want or the quality that they

want, why that would not eventually be something that would be

done on the Internet.

Mr. KANTROWITZ. I think in many cases the negotiation that is

going on, the bidding, it has more to do with what their perceptions

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are of the costs of college than in any real change in financial aid

that they are receiving.

Senator LIEBERMAN. Very interesting. Thanks.

Mr. Davis, I am going to read to you from your 1997 publication,

‘‘College Affordability: A Closer Look at the Crisis,’’ where you

write, ‘‘Access to 4-year colleges for lower and lower-middle income

students has diminished since the early 1980’s. While the college

affordability crisis is neither uniform nor universal, if college costs

continue to rise faster than student ability to pay them from family

or financial aid resources, the crisis will become pervasive.’’

But in your testimony today, you compared loan payback periods

from 1975 with those in 1997 and found them to be about the

same, so I want you to relate that paragraph from your book and

particularly whether, I ask the question rhetorically in some way,

whether you believe, therefore, that higher education is really as

affordable today as it was then and that there is not the crisis that

you thought might occur.

Mr. DAVIS. No. Higher education is not as affordable now as it

used to be. If you look at affordability in terms of paying the costs

from current income, student financial aid, borrowing, and whatever resources are available to you to pay it in present time. What

has happened, though, is that the payoff or the value of higher education has remained fairly constant and has increased, I guess you

could even say it has increased in terms of finishing a degree.

So the payoff, the results of going to college are holding up, and

I think the results are what make it valuable to make the sacrifice

to go to college. But it is not as affordable as it used to be, and

it is especially not affordable for the lowest-income families.

Senator LIEBERMAN. Right. Dr. Somers, we looked at some recent

data that came out from the College Board in something called

‘‘Trends in College Pricing’’ and I was really interested there to see

a comparison of the average annual income of high school graduates as set against somebody who had some college and then

somebody who finished the 4 years, and this goes back to that

group we talked about in the last panel and maybe in some ways

goes to some of the questions that the Chairman was asking before.

This is average annual income in 1997 for a high school graduate, this was in inflation-adjusted dollars, was $23,608. The average income of people with some college was only $27,052, so it really was very little difference. And then a college graduate, average

income was close to $42,000. So it leads me again to focus in on

that group that starts it off, does not finish it, as we have heard

earlier, disproportionately represented in, I suppose obviously, but

poorer minority communities. They not only end up with that debt,

do not go on to college, but are being forced to pay it off with a

much lower income.

It is an open-ended question to you, is what we might specifically

do, either by way of aid programs or other supportive services, to

try to rescue a higher proportion of that group from dropping out

early on.

Ms. SOMERS. There should be a place for everyone in post-secondary education. It may not be at a 4-year institution. It may not

be at Harvard. It may not be at my 4-year school. It may be at a

2-year school or a technical school.

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I think the problem in the relatively small gap between high

school graduates and those with some college is those students who

went to a 4-year school and took maybe some very general education courses for a year and then left. They may have been better

served if they had taken some of those general education courses

and then transferred to a 2-year institution or a technical college.

Senator LIEBERMAN. Yes, or they came out with some kind of

technical-vocational training.

Ms. SOMERS. Or they may have been students who went to very

high-ticket proprietary schools and ended up with lots of debt, and

for the little more they make than the high school graduates, they

are paying off $20,000 or $30,000 worth of loans.

Senator LIEBERMAN. Thanks. Your comments are well taken.

Thanks to the three of you for your very thoughtful testimony and

some helpful suggestions. Thanks, Mr. Chairman.

Chairman THOMPSON. Thank you very much.

There is one final thing. This is a little off the beaten path of

your subjects, but we have talked to others about this. In terms of

the aid, in terms of what the Federal Government is doing, obviously the States, the loans, the schools themselves, and I am particularly thinking about public schools, the tax credits, and all of

that, I think a lot of people are trying to figure out just where is

the biggest need and what should we be doing.

Senator Collins was talking about a lot of colleges seem to kind

of assume the lower students will be taken care of because of all

this mix of things that they have available to them, whether they

are aware of it or not.

Assuming that everyone was aware of all of their opportunities

at every level, to what extent do we have the mix right or wrong

in terms of emphasis on lower Pew-type approach, tax credits, ect.?

Are we not concentrating enough on the lower end, or is it the

lower end or the middle income, as Senator Collins suggested, that

we need to emphasize? This is not exactly maybe on point, but——

Ms. SOMERS. Philosophically, I think that the way we set up the

Federal financial aid program in the 1960’s, the emphasis was on

access for low-income students. I think we have let them down. I

think that we have loaded them up with loans and the grants

are——

Chairman THOMPSON. We put more money into it, but the money

per student is actually going down a little, I guess.

Ms. SOMERS. That is right. So philosophically, we need to put

more money into those grants for the low-income students and the

lower-middle-income students. However, politically, the middle

class is really feeling the pinch if they are putting one or two or

three kids through college, whether it is a 4-year private or public

or a 2-year school, and politically, there needs to be some assistance for the middle class, too.

Chairman THOMPSON. Mr. Davis, do you have any comments?

Mr. DAVIS. Yes. I think I would focus more grant aid on students

in the early years of post-secondary education, especially at the 4-

year level, at 4-year colleges. The other thing I would try to do is

develop policies that create incentives to States to contain costs in

their public institutions, or at least to increase their financial aid.

In the 1970’s when the Pell grant was developed and there was

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1The prepared statement of the U.S. Department of Education appears in the Appendix on

page 276.

also the State Student Incentive Grant program developed and

those were working quite well. The SSIG provided a very strong incentive to States to increase their financial aid packages and programs.

But the Pell grant program was funded at a very high rate, a

very rapid rate, and many of the States that had started financial

aid programs, they looked at it and said, well, the Feds are going

to do it with the Federal grants and why should we jump in? And

so two different programs that the Federal Government was funding had two very different results and actually countervailing results.

What I would love to see is a regeneration of the partnership between the Federal Government, the States, and the institutions in

providing financial aid so that they supplement and complement

each other rather than operating as if there is no conjunction between what each other does.

Now, I know you have the problem of federalism, and you mentioned that, but there is one thing that you can do and——

Chairman THOMPSON. We can do all kinds of things with money,

though. I mean, we can provide inducements and carrots and

sticks. You cannot tell them what to do, but——

Mr. DAVIS. But you can strengthen that whole partnership, because it is very interesting to me that if you look at 40 years of

participation rates and you look at college-going by States, by State

levels, the States that had miserable participation rates in 1960

have relatively miserable participation rates in 1990.

Chairman THOMPSON. So you are suggesting we somehow tie Pell

grants to the level of State support?

Mr. DAVIS. You might. That is one way of doing it. I have no idea

what is the best way, but that is one—but I do know that something needs to be done, because——

Senator LIEBERMAN. Why do you not think about it and then we

invite a response that would encourage States more.

Mr. DAVIS. OK. Thank you.

Chairman THOMPSON. Thank you very much. I think these have

been 2 excellent days of hearings. I want to thank Senator

Lieberman again for suggesting these hearings. We have perhaps

no real definitive answers, but I think we understand the situation

much better. I know that I do, and it will help us in our role in

trying to contribute something to the solution of a problem that affects so many people. Thank you very much.

Senator LIEBERMAN. Thanks, Mr. Chairman. Let me just ask, I

have been putting this aside, I must have a mental block about this

for these 2 days. The U.S. Department of Education has submitted

written testimony and I would ask that it be printed in the record.1

Chairman THOMPSON. It will be made part of the record.

Senator LIEBERMAN. I thank you for your leadership here. It has

been a very educational couple of days, no pun intended, and at a

quite reasonable cost, I would say, too. [Laughter.]

Chairman THOMPSON. That depends on what we do, does it not?

94

Senator LIEBERMAN. Yes. But I look forward to working with you

and seeing if we cannot come up with some ideas from this that

can make the situation better. Thanks very much.

Chairman THOMPSON. Thank you very much.

The record will remain open for 1 week after the close of this

hearing. We are adjourned.

[Whereupon, at 12:49 p.m., the Committee was adjourned.]

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