Penalties possible over student debt

Trump asks colleges to have 'skin in the game'

University of Iowa President Bruce Harreld in August 2017 addresses a Board of Regents tuition task force meeting in Iowa City on the university’s five-year tuition plan. Regents ultimately approved a lower residential undergraduate rate than the university proposed. (Jim Slosiarek/The Gazette)
University of Iowa President Bruce Harreld in August 2017 addresses a Board of Regents tuition task force meeting in Iowa City on the university’s five-year tuition plan. Regents ultimately approved a lower residential undergraduate rate than the university proposed. (Jim Slosiarek/The Gazette)

Addressing Iowa’s Board of Regents last month, a handful of students from the state’s public and private colleges and universities voiced frustration over rising tuition rates and the barriers to higher education and additional debt they can create.

“I don’t think university presidents enjoy students graduating with debt from their colleges,” said Grinnell College senior Ross Floyd, who helped organize the speakers as part of an unsuccessful initiative to reverse the regents’ plan for tuition increases over five years. “But I don’t think they have a commitment to making college accessible to working-class students, either.”

President Donald Trump and his administration apparently agree, earlier this month slipping into what was touted as an executive order on campus free speech language aimed at addressing student debt.

“Today’s order also directs the Department of Education to propose a plan that will require colleges and universities to have skin in the game by sharing a portion of the financial risk of the student loan debt,” Trump said during his remarks.

“I believe that colleges and universities, their costs have gone up more than anything I can think of. I’ve watched this,” the president said. “And the reason — there’s no incentive to them to watch costs.”

The Board of Regents disagrees. It receives annual updates on student financial aid, including campus efforts to curb debt and improve access for those with need, according to board spokesman Josh Lehman.

“The regent universities have made significant progress in the last decade in reducing student debt,” he said. “All three of our institutions are below the national average in student loan debt and are among the lowest in the state of Iowa. Additionally, 43 percent of regent university students graduate with no debt.”


But 57 percent do, with the average debt upon graduation for Iowa’s three public universities topping $27,300 for the class of 2017, the most recent data available.

And although university heads have stressed the importance of reducing debt — vowing to use state appropriations for scholarships, while mandating students take new financial literacy courses — the institutions are increasing tuition.

The universities say they need the extra revenue to make up for cuts in state funding, and they note their rates are well below peer institutions in other states.

But critics say tuition hikes curtail access for low-income students and counteract debt-reduction efforts, leaving them strapped with insurmountable expenses and an academic and professional disadvantage.

A recent regents report cited a 2013 study that found “each additional $1,000 in unsubsidized federal loans makes low-income students 5.66 percent less likely to graduate in six years.”

Floyd — a member of Iowa Student Action, a statewide affiliate of Student Action and People’s Action, committed to “fully-funded higher education for all people” — said he doesn’t think Iowa’s universities are pushing hard enough for real improvement in access and debt.

“The regents have control over tuition increases, and they can decide to not raise tuition and then force the state Legislature into a position where they’re given few other options other than increasing appropriations,” Floyd said. “The question for the regents is how long they’re going to allow themselves to be disrespected by the state Legislature.”

Trump’s order vowed to address the issue relatively quickly, directing his education and treasury secretaries to — among other things — submit by 2020 policy recommendations on risk-sharing for colleges and universities that participate in the federal student loan program.


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“I’m going to work to fix it because it’s outrageous what’s happening,” Trump said. “You’re not given that fair start. You’re too far down. It’s not right.”

‘Skin in the game’

Although the order doesn’t spell out methods for getting university “skin” in the “game” of student loans, hints came days earlier when the Trump administration introduced priorities for reauthorizing the Higher Education Act.

Lawmakers, for example, urged institution accountability based on loan repayment rates. And a White House proposal suggested curbing loan debt by enacting new caps on some programs that let borrowers take unlimited amounts.

The White House cited research that found a correlation between the availability of federal aid and tuition increases.

Other measures outlined in the administration’s proposal to reform the Higher Education Act included requiring campus loan counseling; consolidating existing income-driven repayment plans into one; and offering loan forgiveness to undergraduate borrowers after 15 years of payments.

The proposal also suggested Congress allow data sharing on tax information between the departments of treasury and education in hopes of simplifying student aid applications and repayment — perhaps automatically deducting student loan payments from borrowers’ paychecks.

Iowa State University Student Financial Aid Director Roberta Johnson said she’s heard talk about campus default rates coming into play — with schools above a certain threshold covering a portion of that debt or paying some sort of penalty to the Department of Education, which is responsible for absorbing the defaulted loans.

“I would hope that the three public institutions in Iowa — we have very low default rates — so if that model were adopted, I would hope that we would be OK,” she said.

The three-year default rate for the class of 2014, the most recent data available, was 2.9 percent at ISU, down from 3.9 percent in 2012; 2.7 percent for the University of Iowa, down from 3.2 percent; and 3.5 percent for the University of Northern Iowa, down from 4 percent in 2012, but up slightly from 2.9 percent in 2013.


All those rates are well below the national average for public four-year institutions of 11.3 percent, according to a recent regents report. Iowa community colleges report the highest average default rate of more than 18 percent, according to the report.

While 57 percent of Iowa public university graduates leave with some debt, according to the 2017 statistics, 59 percent of Iowa community college graduates do so; 74 percent of nonprofit private school graduates leave with debt; and 92 percent of for-profit private grads have debt.

But Johnson cited industry concerns about penalizing universities with fines. Specifically, she said, some thought leaders worry such federal regulations could incite a new “cottage industry” to provide assistance — via a type of insurance — for educational institutions.

“This could end up being a situation where schools are having to buy some insurance as protection against increase default claims,” Johnson said. “And they probably are going to end up increasing their cost of attendance because they’ve got to pay for that somehow or another.

“So that doesn’t necessarily end up being a situation where you are trying to keep costs low and be as transparent as possible.”

Others have criticized lending caps as disenfranchising low-income and minority students who need higher amounts to achieve a bachelor’s degree.

But such talk is not new, Johnson said.

“When it’s been discussed in the past, it never has grown legs, so we don’t have any real model to tell us what that potentially could look like,” she said. “It will be interesting to watch the guidance coming out in the next few weeks to figure out what they’re actually talking about.”

As for motivation, Johnson said ISU is working to lower student debt because it’s “the right thing to do.”


“We do not want our students to be saddled with debt when they leave the institution,” she said. “And I think the state of Iowa in general has really, particularly from the regents standpoint, taken a hard look at this and put in place the mechanisms that we are trying to have a positive impact.”

‘Economic exclusion’

All three of Iowa’s public universities regularly cite student debt figures — including drops in how many graduate with any — in reports to lawmakers and regents and appeals to donors and prospective students.

But some worry the universities’ focus on statistics might come at the expense of low-income applicants who need more aid and thus pose more risk — especially as tuition increases.

Iowa Student Action, in fleshing out its concerns to the regents, cited a 2017 New York Times report analyzing the rates at which universities and colleges enroll students according to income scales.

That analysis found the UI enrolled 60 percent from the top 20 percent of the income scale and just 2 percent from the bottom 20 percent. ISU enrolled 47 percent from the top 20 percent and 3.2 percent from the bottom 20 percent. And UNI enrolled 38 percent from the top 60 percent and 2.1 percent from the bottom 20 percent.

All three schools showed trend lines inching up in the top 20 percent category and down in the bottom 60, according to the New York Times analysis.

Additionally, the report ranks the UI at No. 8 of 377 “selective public colleges” for its share of students in the top 1 percent. The UI ranks No. 374 for its share of students from the bottom fifth of incomes.

Floyd, with Iowa Student Action, said those figures are evidence of “massive amounts of economic exclusion of poor and working-class families at Iowa’s regent universities.”

And, he said, the regent plan to ratchet up tuition at the UI and ISU over five years will only make that worse.


“It’s clearly going to hurt poor students,” Floyd said, arguing the change has to happen with tuition — in that loans and the threat of debt only discourage low-income students from applying.


But the board has been resolute in its plan to increase rates at ISU and the UI — with UNI in a different situation based on its more regional student body and peer group. Iowa and Iowa State have boasted room to raise rates while still remaining competitive with peer schools.

Floyd questioned the regent motives — pointing to potential conflicts of interest.

He noted longtime regent Milt Dakovich is chair of the board of directors for Lincoln Savings Bank, based in Reinbeck with 17 locations in Iowa. That bank, according to its website, “works with Iowa Student Loan to offer supplemental private student loans to help you pay for college.”

The bank redirects browsers to the Iowa Student Loan website but includes a footnote that, “Lincoln Saving Bank is compensated by Iowa Student Loan for the referral of partnership loan customers.”

Dakovich, according to state financial disclosure forms, received “gross income in excess of $1,000” from Lincoln Saving Bank in 2018. He didn’t report that relationship as a conflict of interest through his membership on the Board of Regents, and board spokesman Lehman said it isn’t one as he “does not manage the day-to-day operations of the bank.”

“We have been aware of his Lincoln Savings Bank board membership for as long as he’s been on the Board of Regents,” Lehman said.

Iowa Student Loan Chief Executive Officer Steve McCullough told The Gazette that although his organization has had a relationship with Lincoln Savings for about two years, the bank never has referred any customers.

“In this case, we have never paid them anything because they’ve never referred anyone,” McCullough said.

And, as to the larger issue about mounting student debt and barriers to higher education, McCullough said his entity is equally concerned and urging public education.


“One of the things we are held accountable to is to have very low-cost loans,” he said, noting many families choose higher-cost options because they don’t do the research. “It’s a real tragedy … they’re paying millions more than they have to because they don’t know about the low-cost loans that we provide.”

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