The College Access and Completion Innovation Fund is being billed as an exciting new reform program that will move the federal government’s traditional higher education role beyond providing grants and loans. But if that’s true, then why does the version of the fund proposed by the House of Representatives include a provision that directs money away from interesting reform projects to instead support federal student loan guaranty agencies, a group of 35 entities whose responsibilities are only minimally related to improving college persistence or completion rates?
Defenders of guaranty agencies claim this set aside is needed to fund important financial literacy and borrower education programs, activities that are funded through the bank-based system and would disappear with its elimination. But that’s not true: For at least the past two years the government has been providing grants to every state and most territories for just this purpose. Twelve of these grants even went to guaranty agencies or their parent organizations.
So why should we continue to siphon money away from an exciting opportunity for innovation to fund programs that already get federal support?
Using guaranty agencies for college access and completion programming is an odd choice. This group of 35 state or not-for-profit entities receives federal subsidies to provide administrative functions within the bank-based federal student loan system—they administer insurance paid to lenders, help struggling borrowers avoid default, and collect on defaulted loans. Some do provide borrower education and financial literacy services, but there is no explicit federal subsidy for this purpose. Not to mention that these activities only help access, not completion.
Though these outreach and financial literacy services make up a small portion of their job, guaranty agencies would be nearly guaranteed to keep providing them by getting preferential consideration in the selection of State Innovation Completion Grant recipients. According to the pending House legislation, any state applying for some of the $300 million available for these grants would be given priority if it planned to make a subgrant to a guaranty agency. In turn, those agencies would use the money to provide financial literacy education and help borrowers lessen their debt burdens. (It’s a safe bet that guaranty agencies won’t be developing statewide longitudinal data systems—an additional allowed use of the money.)
Dedicating a portion of exciting reform grants for boring financial literacy to a group of agencies with political connections certainly seems like a bailout. But guaranty agencies insist that borrower outreach is among the crucial services they provide that would be lost if they stop receiving federal subsidies from the bank-based student loan system.
Good thing then that Congress provided many guaranty agencies with significant amounts of money to carry out these outreach and education activities—funding that it is poised to expand significantly.
The existing source of college outreach funding is the College Access Challenge Grant (CACG) Program, which was created as part of 2007 legislation that reduced subsidies for federal student loan companies. It distributed $66 million to states in both fiscal year 2008 and 2009 using a formula solely based on the number of residents living in poverty (PDF), with a minimum award of at least 0.5 percent of available funds.
A review of the CACG Program (PDF) shows that 12 state-based guaranty agencies or their parent agencies received awards worth a total of $21.6 million in 2009. (For example, the Florida Department of Education, which has a guaranty agency office, received a CACG award of $3.1 million in 2009.) These 12 recipients represent a majority of the 22 guaranty agencies that wield significant political clout because they are part of their home state’s government.
CACG award recipients would get a big funding increase with the enactment of the College Access and Completion Innovation Fund. As proposed in legislation, the innovation fund would raise annual CACG funding to $150 million a year—putting an estimated $49.2 million in the pockets of those 12 guaranty agencies each year.
The table below shows the 12 guaranty agency–affiliated recipients, their 2009 funding, and estimated 2010 funding with the enactment of the innovation fund.
At least guaranty agencies need to be given preference elsewhere in the bill so they can support different programming from what they run with CACG money, right? Hardly. Most guaranty agency project descriptions (PDF) indicate that CACG funds go to developing and disseminating financial literacy information, helping with college planning, or providing assistance with financial aid forms—the exact same activities they would support with their money from the state innovation grants.
Even states where their guaranty agency did not get an award are using CACG funds for similar outreach purposes. Giving these other guaranty agencies an award through a different grant program just so they could provide duplicative services seems wholly unnecessary.
Here’s a thought. The provision of financial literacy and outreach activities is also provided for in the contracts between the government and the companies that will service new federal student loans. If those activities are really such a huge priority, create incentives for them to be done in a quality manner. Students will still get their information and exciting innovation money won’t be siphoned away. Guaranty agencies won’t get a guaranteed payday, but the ones with quality programming should have a good shot at securing some servicing money.
Teaching financial literacy and assisting students with college applications are certainly sold as important forms of help for students, especially those from lower-income backgrounds. The federal government has certainly recognized this by dedicating at least two funding streams for this purpose. But these activities are not rocket science, or at least don’t cost as much. Providing $150 million for them, plus whatever gets funded through the servicing contract certainly seems like more than enough. And whether through the CACG or by doubling as servicers, most guaranty agencies will get their bailout. There’s no reason to add to that at the expense of innovation.
