The College Cost Reduction Act Would Be Harmful to HBCUs, MSIs, and Their Students

First introduced in January 2024 by Congresswoman Virginia Foxx, the College Cost Reduction Act (CCRA) would represent a significant shift in higher education finance and the student loan repayment system for millions of students and the institutions they attend. From replacing affordable student loan repayment programs to fully repealing regulations meant to protect students from for-profit and predatory colleges, the CCRA would leave many students without protections that ensure they have access to an affordable and accessible college education.

Additionally, many of CCRA’s proposals would significantly impact historically underinvested institutions or institutions that serve low-income or minority students, such as Historically Black Colleges and Universities (HBCUs) and Minority Serving Institutions (MSIs). Two proposals in particular could be specifically harmful to HBCUs:

• the elimination of the Parent PLUS and Grad PLUS loan programs, and
• “risk sharing,” or requiring colleges that participate in the federal student loan program to pay penalties based on students’ unpaid federal student loan debt.

Many of the CCRA proposals would maintain or strengthen existing barriers to higher education faced by those with fewer resources, creating a culture of haves and have-nots while threatening the financial well-being of HBCUs and their students. This commentary will focus primarily on the detrimental effects of the CCRA provisions for eliminating the Parent PLUS and Grad PLUS loan program, and the student debt risk-sharing proposals.

What Are Parent PLUS and Grad PLUS Loans?

Both Parent PLUS and Grad PLUS loans have recently garnered significant scrutiny for how they have contributed to the overall student loan debt problem due to the high levels of debt among students and the parents of students who take out such loans. The reason Parent PLUS and Grad PLUS loans contribute significantly to student debt levels is that, unlike other types of federal student loans—which have lower interest rates, no origination fees, and relatively modest loan limits—Parent PLUS and Grad PLUS loans are capped at the students’ total cost of attendance. For example, if the total cost of attendance at an undergraduate institution is $25,000 and the student receives around $5,000 in student aid—which could include the Pell Grant or scholarships and subsidized and unsubsidized federal Direct Loans—the parent of that undergraduate student would be able to apply for a Parent PLUS loan for the remaining $20,000 that the student would need based on the student’s cost of attendance to attend that particular school. Similarly, a graduate student could apply for Grad PLUS loans up to the full cost of attendance to their graduate program.

The Century Foundation has written extensively on how the Parent PLUS loan program was created in 1980 to assist middle-class families in accessing a college education yet now is overwhelmingly used by lower-income families, particularly among Black and Latino families. That is why it is also understandable that many students whose parents are Parent PLUS loan recipients are also Pell Grant recipients. The Pell Grant is available to students who demonstrate exceptional need to pay for college, determined by the student’s family income. 

Similarly, many Black students who choose to attend graduate school must rely on Grad PLUS loans to do so, as there are fewer federal resources available for graduate students. Representation of Black and Brown professionals is critical in the medical and legal professions, but the CCRA’s proposal to eliminate Parent PLUS and Grad PLUS loans would only make it harder for Black and Brown students to attend these professional programs. Furthermore, eliminating Parent PLUS and Grad Plus loans would not only limit college access for these students, but also harm HBCUs and MSIs by decreasing their enrollment. 

HBCUs, MSIs and Their Students Depend Upon Parent PLUS and Grad PLUS Loans

As mentioned, the Parent PLUS loan program primarily serves lower-income families. HBCUs have historically and will continue to welcome students from all walks of life, especially students from historically marginalized communities. Many of their students rely on the Parent PLUS program to afford college, as shown in Figure 1. 

Figure 1

Research has shown that the percentage of HBCU students whose families have Parent PLUS loans is twice that at other colleges. The same report notes that for many Black families, taking out a Parent PLUS loan is a last-resort option to ensure that their student can afford to attend college, since the students themselves have likely maximized the amount of aid they can receive.

It makes sense that many Black families whose children attend an HBCU feel compelled to request a Parent PLUS loan, as many often come from low-income households. As TCF has previously found, nearly 80 percent of Parent PLUS loan receipts at HBCUs had a student who also qualified for the Pell Grant. In other words, families already in dire situations apply for a Parent PLUS loan to ensure their child can attend college.

Looking at the Grad PLUS loan program reveals an even more interesting story. According to National Clearinghouse, since 2019 there has been a steady increase in graduate school enrollment across age ranges. The number of students that borrow to attend graduate school varies based on the type of institution: 11.1 percent of graduate students who attend traditional colleges and universities take out a Grad PLUSs loan compared to 16.2 percent of graduate students at HBCUs. Table 1 shows the percentage of graduate students attending either an HBCU or non-HBCU that rely on the Grad PLUS loan program. Table 2 displays the percentage of Grad PLUS recipients among the total federal student loans that are available to graduate students. While the percentage difference by institution type is slim, it is clear that HBCU graduate students desperately depend on Grad PLUS loans to pursue master’s and professional degree programs. The annual, GradPLUS disbursements at HBCUs in 2023–24 is $198 million, indicating that these institutions are dependent on this revenue stream as well. 

Table 1

Table 2

Policymakers Should Reform, Not Eliminate, the PLUS Loan Program

Parents and students who participate in the PLUS loan program often do so reluctantly, because they have no other way of paying for college. And, just as students who attend HBCUs often rely on PLUS loans in order to pay for college, HBCUs themselves rely on these payments in order to provide their students a high-quality, high-value education. It is remarkable that HBCUs have continued to perform at this level despite the historic underfunding they have endured for over a century. The PLUS loan situation presents the challenge of balancing reforms to the program to ensure that families are not saddled with significant debt while also understanding that the reforms themselves should not burden families and institutions that have historically been marginalized by eliminating an important funding stream without anything to replace it.

Any reforms to the PLUS loan program should be paired with additional funding for grant aid and scholarships to students and families that rely on the programs to attend college. Policymakers must understand that any changes to the PLUS loan program will particularly impact Black and Brown students and HBCUs. For example, in 2012, under pressure from many stakeholders, the Obama administration introduced stricter credit requirement standards for parents to qualify for the Parent PLUS loan program. Although the new credit rules were well-intentioned in trying to solve the overall Parent PLUS loan debt crisis, the new credit rules had a disastrous impact on Black students and, therefore, HBCUs themselves. Nearly 28,000 students and families experienced an adverse credit check, leading to the denial of a Parent PLUS loan, contributing to a $150 million loss for HBCUs, almost a 19 percent decrease in funding for HBCUs collectively, and a significant decline in enrollment. This example demonstrates how even the slightest changes to the PLUS programs could tremendously impact Black students and HBCUs, regardless of the policy change’s intentions.

The CCRA’s elimination of the PLUS loan program takes the all-or-nothing approach. Instead of taking a scalpel and implementing reforms, such as decreasing the interest rates of the loans, or other policy solutions, this legislation would eliminate PLUS loans altogether. This proposal fails to carefully consider the impacts of such policy changes. Although eliminating the Parent PLUS and Graduate PLUS programs in the CCRA would lead to significant reductions in government spending, it would also lead to a decline in government revenues, since the government receives more money from the Parent PLUS loan program than it disburses. Policymakers must also look beyond just the numbers and realize the stories of individuals who have benefited from the program.

CCRA’s PROMISE Grants Is a New Policy with Old Consequences

Along with CCRA’s elimination of the PLUS loan program, there are also proposed solutions to the resulting funding gap. One proposal in the CCRA is the creation of the Promoting Real Opportunities to Maximize Investments and Savings in Education (PROMISE) Grant program, which would be a new performance-based aid program that would incentivize aid based on student outcomes. While in theory, this program may seem like a good idea to help keep the cost of college low—based on Pell Grant eligibility, or through the maximum total price guarantee requirements,¹ while holding colleges accountable for graduation rates and other outcome metrics—it could be problematic in its implementation. Table 3 displays the results of an analysis by the House Education and Workforce Committee, using data disaggregated based on institutional type, showing that the majority of 1890 HBCU land-grant universities would not receive anything from the PROMISE Grant.

Table 3

We have seen this before. Research has shown that previous attempts at performance- and outcome-based funding has negatively impacted HBCUs in Maryland, Florida, and Tennessee, leading to cuts in funding, limiting program offerings, and impeding student success.² For example, in 2017, there was evidence of inequitable funding to Florida A&M University. During that time, the State of Florida University System governing body’s outcome-based funding metrics penalized the institution for pursuing its mission to enroll and serve low-income, marginalized students, leading to drastic cuts in their funding. These cuts heavily impacted Florida A&M’s programs and torpedoed its operational budget for a number of years, hampering the university’s ability to improve student outcomes and thus threatening a vicious cycle.³ What has also become apparent is the state has doubly underfunding the institution through a decrease in state aid and state appropriations, leading to students and alumni suing the state of Florida for underfunding $1.6 billion, over funding years dating back to 1987. Unfortunately, that lawsuit was thrown out, but it doesn’t negate the fact that performance-based funding proposals like the one in CCRA are just a new form of the same old systemic barriers that have restricted access to higher education for certain students and reduced funding to the HBCUs that serve them.

The CCRA would not only start the PROMISE Grant program but also would eliminate the existing Leveraging Educational Assistance Partnership, which is a program that provides money to states to award need-based grants to eligible students to attend college. What is being proposed in this bill is not new, but similar tactics wrapped in a new package to hinder Black and Brown students from accessing college. 

CCRA Would Introduce Risk Sharing

The CCRA includes a proposal to require institutions to pay back the federal government when students are unable to repay their debts. With student loan debt reaching nearly $1.73 trillion, many policymakers are exploring new approaches to ensuring that students and taxpayers receive a return on their investment in a college education. The Department of Education previously has addressed the problem of nearly 7 million student loan borrowers having defaulted on their debt by implementing a new repayment plan, the Saving on a Valuable Education (SAVE) Plan. The CCRA’s proposed provision on institutional risk sharing would shift focus from students to institutions, requiring them to pay back the government for a portion of the defaulted student loan debt held by students who attended their institution. In the CCRA proposal, colleges and universities would have to pay annual risk-sharing payments to the government based on the balances of defaulted student loans from different cohorts and based on the amount forgiven by the federal government as a result of income-based repayment. Colleges’ payments would also take into account the schools’ return on investment by adjusting the payments based on student earnings as compared to the program’s costs.

The large number of students in default has caused many to wonder whether students—and taxpayers—are receiving a good return on their investments in higher education via federal student loans. Some have argued that colleges and universities have no incentive to keep costs low or to provide value for their students and, therefore, have no skin in the game in ensuring that students can actually afford to pay back their student loans—something that institutional risk sharing is supposed to correct. However, the CCRA’s risk-sharing proposal has implications for institutions who have the best return on investment, yet have been chronically underfunded.

Institutional Risk Sharing Is Detrimental to HBCUs

Although institutional risk sharing is conceptually reasonable, as it would encourage institutions to be more mindful of their total costs and benefits of their programs and to put resources into better-performing programs, it would also have several harmful effects on institutions and students. 

Firstly, institutions would be incentivized not to accept students who have a higher chance of defaulting on their student loans, such as students from lower-income families and/or historically marginalized communities. To be clear here, these students that have a higher chance of defaulting are often defaulting not because they aren’t industrious, aren’t studious, or haven’t received a good education at the institution they chose, but rather because they have begun and lived their lives from a position of disadvantage, which can greatly hamper their earning power—and yet these are precisely the students that higher education can most benefit. And so, despite having to do more with less, HBCUs have always welcomed students of all backgrounds, particularly those who face tremendous challenges. Even with less access to funding sources to make essential investments in their infrastructure, HBCUs, by and large, serve their students well by dedicating most of the revenue they receive in tuition and fees directly back to students through instructional and student services spending. So, while some institutions will undoubtedly change their admissions policies to accept students they believe will repay their loans, HBCUs will continue to serve as engines of social mobility and welcome any student that walks through their doors; the CCRA will just penalize them for that. 

Secondly, the risk-sharing proposal could severely penalize HBCUs. Analysis of CCRA by the American Council on Education (ACE) found that, out of 83 HBCUs, 64 institutions (77 percent) would have to make a risk-sharing payment. Additionally, 52 of those 64 institutions would experience a median overall net loss of $300,198, even with the new grant program that the CCRA supporters claim will mitigate the losses they will suffer under the risk-sharing scheme. Additionally, the story is similar with regard to MSIs, with 594 out of the 662 Title III and V institutions (90 percent) having to make a risk-sharing payment. Additionally, 358 of the MSIs that have to make risk-sharing payments will end up with a median overall loss of $511,692. Tables 4 and 5 showcase the impact of HBCUs and MSIs, respectively. Additionally, these payments will have to be made annually to the Department of Education, and falling delinquent by twelve to eighteen months could lead to institutions being penalized by forfeiting their eligibility for direct loans and Pell grants. 

Table 4

Table 5

Using data from the House Education and Workforce dataset that ACE uses for its analysis further showcases how damaging risk-sharing would be specifically for 1890 HBCU Land-Grant institutions. Firstly, Table 6 illustrates a university’s average annual risk-sharing payment under the CCRA. The net impact reveals the annual increase or decrease in funding that the university would experience, even if the university received the PROMISE Grant. Additionally, the net impact per student showcases the effect on full-time students enrolled at the college. Based on Table 6, on average, the 19 HBCU 1890 land-grant universities will annually experience a $1.7 million loss of revenue due to risk-sharing. In other words, on average, the financial impact on a full-time student attending an 1890 institution will be a $422 loss of aid due to risk-sharing.

Table 6

There are provisions in CCRA that would take a college’s high return on investment, such as at HBCUs, into consideration to help reduce those institutions’ risk-sharing payments. For example, if the earnings of a student who completes a program is $40,000, and the median total price charged to students in the cohort is $25,000, the applicable reimbursement percentage for that student would be zero. However, there is no clear explanation of how the accounting for determining this would be implemented, further placing administrative burden on the institutions that are already underresourced. 

The unfortunate assumption the CCRA makes is that colleges and universities will be pressed to reduce overall costs and increase value through facing the financial penalties of the risk-sharing scheme. However, many colleges and universities, especially institutions that are already lacking in public investment, may have to consider not only turning certain students away but also increasing tuition and fees to recoup their risk-sharing penalties, which is in direct contrast to the bill’s goal of making college affordable. In all, the risk-sharing proposal stands to be extremely detrimental to MSIs and HBCUs, institutions that have historically enrolled a higher percentage of marginalized and low-income students. Both groups have traditionally needed to borrow to afford and attain a college education.

Looking Ahead

The College Cost Reduction Act would be detrimental to students from historically marginalized communities and the institutions that have provided them access to a college education despite being underfunded. As the House of Representatives and Senate look for cost savings to pay for any reconciliation package they plan to pass, policymakers should consider not just the savings they could receive from enacting a piece of legislation—they also need to consider the stories and lives of students it could impact, as well as the institutions they attend. Students, their families, colleges, and workforce deserve an actual conversation about addressing the overall costs and value of college; unfortunately, the CCRA is not where it should start.

1. To determine the size of a PROMISE Grant for an IHE, ED would multiply three factors on an annual basis: 1. the lesser of (1) the three-year average of median value-added earnings for students who complete any program of study divided by the three-year average of the maximum total price for students who received any Title IV aid, minus 1; 2. the three-year average of the total dollar amount of Pell Grants awarded; and 3. the three-year average of the percentage of low-income students who received any Title IV aid and completed a program of study within 100% of the program length, or who transferred from a two-year to a four-year institution.”
2. Jones, Tiffany, Sosanya Jones, Kayla C. Elliott, LaToya Russell Owens, Amanda E. Assalone, Denisa Gándara, Tiffany Jones et al., “Double or nothing, states betting it all on performance and outcomes-based funding and the implications for equity,” in Outcomes Based Funding and Race in Higher Education: Can Equity Be Bought? (New York: Palgrave Macmillan, 2017), 13–29.
3. Ibid.

Tags: Historically Black Colleges and Universities, college costs, college affordability, HBCU