Testimony of Dr. Donald E. Heller

Hearing on H.R.3039, the Expanding Opportunities in Higher Education Act

House Education and the Workforce Committee
Subcommittee on 21^st Century Competitiveness

September 11, 2003

    Mr. Chairman, and Members of the Subcommittee:

    Thank you for the invitation to address the subcommittee on the Expanding Opportunities in Higher Education Act of 2003. My name is Donald E. Heller, and I am an education professor at The Pennsylvania State University. My comments today represent my views on portions of this legislation, based on the research I and other scholars have conducted on federal aid and its impact on postsecondary students and institutions.

    The reauthorization of the Higher Education Act of 1965 is always a critical juncture for higher education, and this reauthorization is particularly important. The fiscal conditions facing most states and the nation as a whole have placed great constraints on the resources available for funding higher education institutions and students. Most observers believe the situation is unlikely to improve in the near future; thus, the decisions made by Congress during reauthorization will be vital to the future of American higher education.

    The United States is universally recognized as having the best system of higher education in the world. Part of what has created this reputation is the existing level of competition among the more than 6,000 postsecondary institutions in the nation, competition that benefits the more than 16 million students enrolled in these Title IV-eligible institutions. Most students, regardless of their academic interests or geographic location, have some form of choice available to them when they are contemplating their postsecondary plans. But those choices are often limited by the financial and other resources available to those students and their families. It is because of these constraints that the federal role in funding higher education students and institutions is so critical.

    I will take my brief time today to comment on four aspects of the proposed legislation: 1) implementing a single definition for postsecondary institutions; 2) repeal of the 90/10 rule governing institutional receipt of federal funds; 3) repeal of the 50 percent rule governing institutions enrolling students in distance education programs; and 4) simplifying the federal student aid programs.

    I urge you not to implement a single definition for all postsecondary institutions in the nation. The existing law distinguishes between public and private, non-profit colleges and universities – which are eligible for Title III and Title V institutional assistance – and for-profit institutions – which are not eligible for these programs. For almost 40 years this distinction has served well both the institutions and the federal government. Public and private non-profit colleges and universities have important public service missions and obligations that are not shared by for-profit institutions. For-profit institutions also are not held to the same accountability standards as are their public and non-profit counterparts. In an era of limited resources at both the federal and state levels, it makes little sense to open up the Title III and V programs to an even broader array of institutions. This would dilute the potential of the programs to assist many colleges and universities that have borne the brunt of the recession.

    There are a number of accountability measures that affect public and private non-profit colleges and universities in ways distinct from for-profit institutions. Public colleges in most states are subject to reporting and accountability regulations from state higher education boards that go above and beyond the minimal reporting required of all licensed postsecondary institutions in the state. In addition, freedom of information laws in many states provide a mechanism for the public to access information about subjects as diverse as salaries, presidential searches, and compliance with federal, state, and local laws. Financial information about private non-profit colleges is available via their Internal Revenue Service 990 forms. Information about for-profit institutions, in contrast – particularly if they are not publicly-held – is not as readily available to students and their families.

    Another important distinction that this subcommittee should keep in mind when debating the creation of a single definition for postsecondary institutions is that of access to capital markets. For-profit institutions have unlimited access to private capital markets (both borrowing and equity) that is not available to public and private non-profit colleges and universities. While the latter institutions can sometimes take advantage of access to specialized debt markets through the issuance of tax-free bonds, the amount of borrowing available in these markets is limited, and these colleges and universities have no access to equity markets.

     The amount of money available in the Title III and Title V programs is very limited, and many of these programs have grown little in recent years. For example, the roughly $80 million available in the Strengthening Institutions Program – which benefits colleges and universities enrolling large numbers of federal aid recipients – has changed little in the last eight years. In order to ensure that these limited funds are used most effectively to assist this nation’s neediest students, I would encourage Congress not to eliminate the dual definition laws.

    The 90/10 rule dictates that a proprietary institution must receive no more than 90 percent of its revenue from federal sources in order for its students to qualify for Title IV assistance. I can think of no good reason for eliminating this rule. It is more than reasonable to expect a for-profit institution to demonstrate its ability to compete in the higher education marketplace without being more than 90 percent dependent upon revenue from federal sources. As a for-profit, with a mission that is not as restrictive as that of public and non-profit colleges and universities, these institutions have the flexibility to develop revenue sources to supplement those available through Title IV. I believe that eliminating this provision of the law will potentially open the door to more fraud and abuse in the Title IV programs, without doing anything to improve educational opportunity for disadvantaged students.

    I would encourage Congress to examine ways to ease the burden of the 50 percent rule, while not eliminating it entirely without appropriate study and deliberation. This rule restricts the number of distance education courses that can be offered and the number of students enrolled in them in order for students to be deemed eligible for Title IV grants, loans, and work study assistance. The use of technology in both distance and classroom-based instruction holds great promise for broadening access to postsecondary education as well as for changing the ways that faculty teach and students learn. While we still have much to understand about how to use technology most effectively in higher education, it is important to ensure that federal regulations do not get in the way of innovation and experimentation. Let me use an example from my own institution.

    Each semester, thousands of students take courses at Penn State’s World Campus, one of the nation’s largest and most well-respected distance education programs. Finding ways to simplify the awarding of federal Title IV funds to students enrolled there would help Penn State ease the delivery of funds to more low- and middle-income students around the country who could benefit from the World Campus courses and programs. In addition, as our own residential students who are Title IV-eligible enroll in World Campus courses, it becomes an administrative burden to monitor the distribution of their student aid between World Campus courses and traditional term-based courses for which the current regulations are written. Regulations that better address the unique benefits and methods for education delivered through technology, and easing the constriction of the 50 percent rule, will encourage further expansion of higher education programs and courses to more and more people.

    In the 1998 reauthorization of the Higher Education Act, Congress mandated that the Department of Education conduct a demonstration project on distance education to examine whether the 50 percent rule can be eased. Currently, over 100 higher education institutions are participating in the demonstration project. While the Department has issued some preliminary reports to Congress on the status of the demonstration project, I suggest that Congress request the Department or another party to conduct a thorough evaluation of the project in order to determine what worked well and what has not worked as effectively. The results of such an evaluation could help determine if and how the 50 percent rule should be eased, while still ensuring that federal student aid is disbursed efficiently and effectively, and helps accomplish the goals of promoting equity and opportunity in higher education.

    Section 401 of the Expanding Opportunities in Higher Education Act of 2003 calls for a study to be conducted by the Advisory Committee on Student Financial Assistance on how the qualification for federal Title IV assistance can be simplified. I strongly encourage you to include this provision in the legislation. Applying for Title IV aid has become a complex process, one that taxes the resources and capabilities of many students and their families. Research on college access indicates that information about the federal financial aid programs and how to apply for them is a barrier for low-income students.

    The Advisory Committee is the ideal organization to conduct such a study because of its role in advising both the Congress and the Secretary of Education on student financial aid matters. I believe that a well-designed study conducted by the Advisory Committee in conjunction with outside experts can help inform Congress and the Department on ways to improve how data about families’ financial circumstances are collected, and how those data are used to determine eligibility for federal assistance. Such a study can help establish how best to balance the twin goals of program effectiveness and efficiency.

    Another provision of the bill calls for the Secretary of Education to notify students who qualify under federal means-tested aid programs, such as free lunch or food stamps, of their eligibility for Pell Grants. This is an excellent idea, and I would encourage Congress to go even further and examine ways not just to notify students much earlier in their school careers of their eligibility for federal Title IV assistance, but to make an actual commitment of such aid (conditional, of course, upon their enrollment in a Title IV-eligible institution). Research has consistently demonstrated that the earlier students can prepare both academically and financially for college, the more likely they will enroll.

    There are excellent programs that make such an early commitment of financial aid, and they have been found to be successful in promoting the college attendance of low-income students. Indiana’s Twenty-First Century Scholars program is an outstanding example of a state that makes an early commitment of publicly-funded financial assistance for college to low-income students. Seventh and eighth grade students in the state have to pledge the following:

    In return, the state commits to pay up to four years of tuition at any public institution in the state the student attends, or an equivalent amount at an Indiana private institution. This assistance is in addition to any federal, institutional, or private aid for which the student qualifies. In addition to the tuition grant, the Twenty-First Century Scholars program also provides academic support to the students while enrolled in middle school, high school, and college, and has a parent involvement component.

    The unique aspect of this program is that it makes a commitment of tuition assistance to students as early as their middle school years. There are no qualifiers or caveats; as long as the student adheres to the pledge, the Indiana legislature has committed to appropriate sufficient funds to pay for the student’s tuition for four years. A recent independent evaluation of the program concluded that, "Participation in the Scholars Program improved postsecondary opportunity for low-income students. This study confirms that the program played a role in the substantial gain in college access in the 1990s in Indiana" (Lumina Foundation for Education, Meeting the Access Challenge: Indiana’s Twenty-first Century Scholars Program).

    As I stated earlier, this reauthorization of the Higher Education Act of 1965 is a particularly important one. In contrast to the last reauthorization in 1998, when higher education institutions enjoyed the benefit of flush state coffers and a robust economy, many colleges and universities today find themselves facing constrained resources in an era of increasing demand. More and more students are knocking on our colleges’ doors, driven both by the demographics of the baby boom echo as well as the increased need for some form of postsecondary training in order to be successful in today’s labor markets. If the No Child Left Behind Act is successful in graduating more disadvantaged students from high school and preparing them for some form of postsecondary training, then the demand for higher education will increase even further in the near future.

    The combination of constrained resources and increasing demand leaves low-income students in peril. The fiscal crisis has forced many higher education institutions to cut back on course offerings and institutional financial aid at the same time they are raising tuition prices. The role of the federal government in ensuring postsecondary educational opportunity is critical in an era when other parties have been unwilling or unable to shoulder their burden.

    I want to thank the subcommittee again for the opportunity to address these important issues facing Congress. I would be happy to take any questions you may have.