Washington Watch: Risk-sharing plan could be extremely costly for colleges

Community college officials should be acutely aware of a proposal in the House bill to reauthorize the Higher Education Act (H.R. 4508, the “PROSPER” Act) that would require colleges to return substantial portions of federal financial aid received by students who do not complete a term or other academic period.

The “risk-sharing” proposal builds on current “Return of Title IV” requirements for students who withdraw but makes them significantly more costly to community colleges. How much more costly is uncertain — that’s where the American Association of Community Colleges (AACC) needs feedback (see below) from the field to make its case before Congress about the hardships for member colleges. (Please note that this approach to risk sharing is not the loan-focused risk-sharing concept that, for more than two years, AACC has been worrisomely anticipating.)

Supporters of this approach argue that it will induce colleges to increase efforts to enhance college completion. They also say that institutions might choose to alter their admissions policies in order to increase completions. In addition, the bill would require aid disbursements to be made in equal installments, though upfront costs can be accommodated. The impact of this somewhat vague requirement is unclear.

The proposal’s core

The bill’s institutional refund/risk-sharing policies are driven by the concept of a student “earning” federal financial aid funds. All aid not “earned” by the student would need to be returned by the colleges. More specifically:

  • Students would “earn” their Title IV aid upon completion of each of four 25 percent increments of the period of enrollment. For example, students who complete less than 25 percent of an enrollment period would earn no federal student aid, and so the college would have to return all of their Title IV aid for that period. Students who complete 25 percent would earn 25 percent of the student aid, and 75 percent would be returned.
  • If students completed 49 percent of the term, they would earn only 25 percent of their aid, but students who complete half would earn half, with the other 50 percent returned to the federal government. Only students who complete the entire term would earn 100 percent of their aid. Under current law, students who complete 60 percent or more of the term receive the full amount, and students who leave prior to the 60-percent point earn a proportional share of their aid.
  • Finally, if a college cannot determine a formal date of withdrawal, the student can be assumed to have completed 50 percent of the enrollment, as under current law.

We need your data

The PROSPER Act also calls to eliminate an existing provision that allows students who withdraw to retain half of their Pell Grant disbursement, no matter when they leave college. The bill would authorize colleges to require students to pay the colleges up to 10 percent of the amount they owe if they withdraw prior to the end of the term. The bill states that it is not intended to supersede institutional refund policies.

AACC has stated its opposition to this provision, but our ability to advocate Congress effectively is contingent upon receiving detailed campus information. We are asking members to provide us information on student withdrawals, as well as the amount of federal funds that the PROSPER Act might require colleges to return to the government. The burden of this data collection will fall primarily on student financial aid and registrar’s offices.

For more information on this issue or related topics, please contact AACC’s David Baime, dbaime@aacc.nche.edu, or Jolanta Juszkiewicz, jjuskiewicz@aacc.nche.edu.

Washington Watch updates congressional and federal agency activities and AACC advocacy efforts.

About the Author

David Baime
is senior vice president for government relations and policy analysis at the American Association of Community Colleges.