For the uninitiated, a staring contest is a game in which two people stare into each other's eyes and attempt to maintain eye contact for a longer period of time than their opponent. The game ends when one participant intentionally or unintentionally looks away. Some people use different rules, where participants not only attempt to maintain eye contact, but also must resist the urge to blink. Others prohibiting virtually any action but staring (laughing, making a face, winking, nodding, talking, et cetera). In other words, any reaction at all, other than a blank stare, is a fail.
This battle is brewing over financial aid (the kind that comes from the State) between the Illinois Board of Higher Education (led by Chairwoman Carrie Hightman and the Illinois Student Assistance Commission (ISAC) on one side, and seemingly everyone else on the other. The suggestion, proposed by the Illinois Student Assistance Commission, is opposed by the Illinois Community College Board, the Illinois Community College Trustees Association, and the Illinois Council of Community College Presidents.
Some background:
The need-based Monetary Award Program (MAP), created in 1967, was designed to help low- and middle-income Illinois residents attend the colleges of their choice within the state and last year provided assistance to more than 140,000 students. About the same number of qualified students didn’t, though, because the money ran out in April, and the money is awarded on a “first-come, first-served” basis.Unsurprisingly, the hardest-hit groups by the lack of funding were community college students, who we know typically register for classes and apply for financial aid much later than students at four-year schools.
The issue:
Selling "human capital investment bonds" to raise funds for MAP grants for community college students.
A what? Human capital bond? Sounds vaguely disturbing. Actually, the concept is quite simple. An investor's (in this case, the tax payers) total wealth typically consists of two parts. One is financial assets and the other is human capital. The latter is defined as the present value of an investor's future labor income. Although human capital isn't tradable, it is apparently bondable.
How it would work:
Under the initial proposal, up to $550 million in bonds would be issued through 2015. That borrowing would be repaid with interest. The bonds would be paid back by diverting the future income taxes paid by community college students who receive the grants. Income taxes of MAP grant-receiving community college students would be diverted from the state’s general fund to pay off the bonds for up to 10 years.
With approximately $100 million in bonds issued each year, ISAC could provide MAP grants for the 50,000 community college students who currently receive grants plus 50,000 more students who currently miss out because the Monetary Award Program has insufficient resources to meet growing needs.
The notes would carry no state guarantee, but are expected to have 1.85 times debt service coverage based on data that showed income growth for MAP recipients and that 90 percent of students who attended Illinois community colleges remained in the state for 10 years, according to ISAC Executive Director, Andy Davis. Oh, and Grant recipients would not be required to stay in Illinois.
The opposition:
It seems a little strange that the organization directly representing community colleges and their students would oppose such a move, no?
Well, there are three main reasons. First, those of us that deal with the State of Illinois for portions of our revenue know that things are bad and likely to get worse with respect to timely payment (if at all). One of the most significant contributing factors is the consistent and long-term underfunding of state pension systems. We have borrowed against them for so long and for so much that the burden is unbearable. Adding another borrowing scheme of any sort is not only fiscally risky, but to borrow a line, "morally repugnant".
Secondly, why is it that we want community college students to receive funds from a borrowing program while all other students get MAP money from a cash-based program that comes directly from state funds? Is there something special happening?
I know that 64% (now 70% ?) of Illinois college students attend a community college yet receive just 14% of the higher education budget.
I know that 90% of our graduates stay in Illinois.
I know that 70% stay in our district.
Want more numbers? Here they are for Parkland College:
Financial Aid Program Disbursement Amounts (2007 – 2011) | |||||||||||||
Fiscal Year | PELL | SEOG | Work Study | Student Loans | Alternative Loans | MAP | IIA | Veterans Grants | Scholarships, Grants, Fellowships, Traineeships | Talent Waivers and Scholarships | Total Disbursed | Financial Aid Applications | |
2007 | 5,017,569 | 165,096 | 162,138 | 6,346,939 | 402,701 | 1,958,300 | 171,000 | 889,619 | 172,133 | 513,729 | 15,799,224 | 6,578 | |
2008 | 5,595,696 | 165,766 | 189,344 | 8,575,516 | 355,950 | 1,939,326 | 185,500 | 739,100 | 197,673 | 615,277 | 18,559,148 | 6,691 | |
2009 | 6,460,403 | 192,509 | 116,311 | 8,800,674 | 195,444 | 1,910,757 | 172,250 | 720,139 | 278,291 | 622,285 | 19,469,063 | 7,545 | |
2010 | 11,074,791 | 169,472 | 132,751 | 11,270,286 | 258,773 | 1,883,259 | 43,000 | 851,787 | 267,242 | 707,837 | 26,659,198 | 9,356 | |
* 2011 | 6,289,935 | 63,012 | 31,439 | 5,394,873 | 229,689 | 851,755 | 0 | 318,272 | 131,826 | 363,705 | 13,674,506 | 9,242 | |
* One semester
MAP is in decline. PELL is on the rise. Student loans are way up. Total aid is up $11MM since 2007 and the number of student applying for aid after one semester is nearly equal to what it was for all of last year.
According to Financial Aid Director, Tim Wendt, there are several factors for the increases:
- Awareness of the importance of a college education in the workplace,
- Increased awareness of the availability of financial aid,
- Simplification of the financial aid application process,
- Increases in the amount of the (Federal) Pell Grant program (2007 – Maximum was $4,050 and in 2010 – Maximum was $5,350)
- Increase in the amount that a student may borrow (2007 – Dependent Freshman Maximum was $3,500 and in 2010 – Maximum was $5,500)
- And last, but not least, the “Great Recession” has impacted our students, and their parents, dramatically.
The third reason is a little more interesting. Recall that this bond proposal estimates that an additional 50,000 students would/could enroll in one of the 48 community colleges in Illinois. Someone should probably raise the question about capacity, both physical and financial.
If you understand how Illinois community colleges are funded, you will know that there are three sources; property taxes, tuition, and state funding.
Assume for a moment that property taxes and tuition are holding steady. They aren't, but I'm running out of room and you are likely running out of interest. The State's portion of public higher education for community colleges consists of a per credit hour reimbursement. Urban legend has it that 33% of the cost of delivering a credit hour was to come from the State. Today, it sits at around 12% for Parkland. It is not likely to go up anytime soon. Tuition, property taxes, and austerity make up the difference. Adding more students does not balance a budget when one of the three legs of the stool is short.
Physically, this proposal assumes that our colleges can absorb whatever percentage of the 50,000 additional students we will see. It assumes both classroom space, faculty, student support, and all the ancillary services can be scaled without additional costs. Some can, others can't. It will be an interesting problem to solve.
So, the stare-down begins. Despite objections, the Illinois Board of Higher Education announced that it formed a group to study the proposal. Director Davis from ISAC said his group has a "moral imperative" to ask the state to borrow for higher education for the state’s neediest residents.
“For us to get to the lowest-income group in our state, who have the most to gain by being educated, all of a sudden to get fiscal morality and say we have to draw the line someplace... I find that morally repugnant,” he said.
Sudden fiscal morality. So much to say...
The task force is due to make its recommendations on February 15. If the note plan is adopted, Davis said the Illinois General Assembly would need to vote to allow the student assistance commission to tap the students' income tax revenue to pay off the debt.
Remember that in a staring contest, if you blink, you fail.
What do you think?
Sudden fiscal morality. So much to say, indeed! This economics teacher's head is spinning at the very prospect of this dubious plan. Thanks for the lucid explanation.
ReplyDeleteWhat would keep a future General Assembly from voting to use the income tax revenue stream for something besides paying off the "human capital bonds"? Can one General Assembly bind the decisions of another? I don't think so.
ReplyDeleteCan we trust the legislatures of Illinois to do the right thing and live up to the promises made by past legislatures? History tells us the answer is "no".
Over ten years ago, the Illinois General Assembly adopted a plan to fully fund the state's pension systems. Since that time, succeeding legislatures have chosen not to do their share to implement the plan. One legislature after another has shorted the pension systems by refusing to make adequate and timely payments.
People often complain that the state's pension benefits are too rich. They seldom mention that most participants receive only a modest pension after their retirements. All the participants have faithfully contributed to their pension plans. Sadly, the state has failed to follow suit. The problem is not that the plans were too rich but rather that the employer -- the State of Illinois -- failed to keep its side of the bargain. And the voters failed to hold the guilty legislators and governors accountable for their malfeasance.
I think I can see why some people say that this is not the time for the General Assembly of Illinois to sign another promissory note.
Now is the time to put the state's financial house in order. Stop the borrowing, cut expenses, raise the tax rates if necessary, and pay what is owed on existing obligations.
My grandmother taught me that when a person finds himself in a hole, the first thing he has to do is to stop digging.
Why is ISAC planning to skim money from the bonds' sale to use for its operations? These are recurring costs and there is a limited amount of bond sale revenue.
ReplyDeleteI find the name of this blog remarkably appropriate and transparent. Yes, you did miss something, actually, many things.
ReplyDeleteImmediately I was impressed that you took the academic high road and made fun of the proposal name, since discarded, as part of your thoughtful critique of this important concept.
Next, it appears you missed reading the legislation draft. Otherwise you would know that the proposal updates the MAP funding formula, key elements of which haven’t been adjusted despite years of rampant double-digit tuition and fee inflation. These adjustments would benefit all institutions and awardees. Another key provision that selectively missed your attention was a prohibition against a reduction of general revenue fund distributions to schools to offset MAP bond proceeds.
Finally, your attempt to scare your readers that MAP bond recipients would flee the state is among your more interesting thoughts. There will be a flight of successful students if Illinois is unable to attract new employers by offering a skilled workforce. That’s your job, right?
ISAC does not receive any general revenue funding for administering the MAP program. Historically operating expenses have been paid through student loan activities and one-time transactions to refinance its loan portfolio.
You did make one accurate observation. It is more than a little strange that strange that the organization directly representing community colleges and their students would oppose such a move.
I couldn’t have said it better.
Good points, Mr. Davis. Thanks for your thoughts.
ReplyDeletePaula: Thanks for your comments as well. The points you make about the formula are factually correct. You make no mention about the financial wisdom of another borrowing plan, the impact on the long-term viability of our State, nor the chronic decline in the State portion of our funding.
Is this really about the students or a new revenue stream for ISAC?
In fairness to President Ramage the draft legislation does not contain the formula changes mentioned above. The proposed changes compliment supplemental MAP funding but are part of a separate recommendation. In response to suggestions made by various interested parties, the draft has undergone numerous revisions and will likely be revisited pending recommendations made by the MAP task force.
ReplyDeleteIt's now up to the task force to explore the issues raised by President Ramage. I assume that ISAC is proud of its 50 year history administering financial assistance programs benefiting Illinois students, institutions and the state economy. According to its website, last year ISAC awarded more than $400M in MAP grants to 150,000 students - without the benefit of any GRF dollars for administration.
I can say with near certainty that Andy Davis has not participated in this immediate discussion.
One of the reasons this site exists is to provide a forum to discuss issues...exactly what is happening.
ReplyDeletePresident Ramage, this thoughtful and civil discussion is exactly what is needed in these challenging times. Thanks for the information and the opportunity to discuss.
ReplyDeleteComplement, not compliment, btw.
ReplyDeleteQuestions? Why do community college students apply much later? Even more importantly, why are community colleges not receiving a more proportionate allotment of MAP funds, especially given the increased enrollments in community colleges versus universities/colleges?
ReplyDeletePerhaps a forensic audit of MAP/ISAC funding, financial aid funds for our state should be performed.
ReplyDeleteAnonymous, ISAC is currently audited by The Auditor General of the State of Illinois. They are regular and rigorous in their approach. One thing that the audits do consistently show is that, as required by law, 100% of ISAC's appropriations go to grant and scholarship programs. The agency itself takes zero dollars for administrative overhead. If there is any other information that you would like on the agency just ask. We pride ourselves on making our agency transparent, accountable and responsive to the people of this state.
ReplyDeleteAndy Davis
Executive Director
PS I applaud President Ramage for his public discussion of the MAP program. I am confident
that he and the entire Parkland CC community share our goal of finding full funding for student financial aid in Illinois.
Director Davis (not to be confused with Gary Davis at the beginning of the comments section):
ReplyDeleteI appreciate your participation. We do agree on the goal of full funding for MAP. I think the method we should use to get there is the tougher question. I have great respect for Tom Schmidt, the Chair of the task force. He will do a good job.
To Anonymous at 4:38pm, there are a number of reasons that community college students apply late. Often, the decision to even attend is made late in the year due to financial, family, or other similar constraints. Given the fact that there is no real application deadline helps perpetuates the notion that there is no need to apply early as well.
I'll do some checking on the proportion question and get back to you, unless someone else provides the answer in the meantime. I do know that eligibility for the awards is based on the financial need of the student and/or the family, and awards are determined by ISAC. There has to be some way to fairly distribute the available funds, so first come - first served is the method.
Good discussion.
Update:
ReplyDeleteISAC Executive Director, Andrew Davis will be writing a piece for us on the MAP, describing the overall increase in applications and eligibility for MAP along with analysis of the recent trends in MAP funding by sector. look for it on 1.10.11
Thank you, Director Davis and President Ramage for providing in-depth answers. Is there a way to more strongly encourage our students to apply earlier? It has been my experience that many students,especially first and second semester freshmen, tend to be (a) relatively unaware of the urgency of applying for ISAC funds due to its first-come, first-serve nature, or (b) feel that they may not qualify for the funds. Perhaps placing a very large announcement in our college semester registration catalog, placing notification on our in-house television station, and/or larger signage across the college may provide more assistance with this, such as table tents, along with any other mailings we provide to students.
ReplyDeleteAlso, we have done a really great job of making television appearances about what's happening in our college. Can Tim Wendt,our Financial Aid Director, make an appearance on local tv to explain the financial aid process and encourage quicker application for ISAC/MAP funds?
Also, it might be helpful if faculty and staff were made more aware of the funding formulas and need to assist our students by announcing dates on syllabi,in-class, or through other means. Jack Lyons, our past financial aid director, held an excellent presentation a number of years ago in CETL which illustrated the impact of withdrawals, F grades, attempted hours, etc. on students and their financial aid?
At the risk of sounding less than academic, I don't trust the General Assembly farther than I can throw them, and I'm betting that many in our fair state feel the same way. Given the lack of a stronger calling for this esteemed body to become more accountable and transparent, how can we guarantee that the proposed funding will actually be spent appropriately? Other state agencies should be so rigorously audited as ISAC.
Several community colleges have had some success in alerting their students that "time is fast running out for you to apply for a MAP grant." But even when the colleges make heroic efforts to persuade students to apply earlier, many students fail to heed the call.
ReplyDeleteIn my opinion, this is based on the fact that college is only one of about the many things on the typical community college student's priority list. More important are: 1) taking care of my kids; 2) keeping my boss happy at work; 3) caring for my severely handicapped mother; 4) paying the rent; 5) supervising my sister's kids while she is in Afghanistan.
I'm sure you can begin to see why "get your MAP app in today" doesn't penetrate?
Tom, I am not at all sure that "first come, first served" is a fair way of divvying up the MAP money. For years ICCTA has begged ISAC to make grants to students who applied later -- in the summer months. Actually ISAC was making headway in that direction until the dollars dried up in Springfield.
Community college advocates have my deepest respect for their efforts to keep general revenue MAP dollars flowing to community college students who are in need. We have to be sure that the bonding proposal for MAP is not a Schlimmbesserung, an improvement that makes things worse.