Tucked into the two-year congressional budget deal are provisions that would greatly benefit two colleges in Senate Majority Leader Mitch McConnell’s home state of Kentucky.
One provision would exempt private colleges that do not charge tuition from a new tax on their endowments, an exemption that would protect Berea College.
The Kentucky school uses its $1 billion endowment to cover tuition for all of its roughly 1,600 students, one of a handful of colleges with that mission. Senate Republicans fought to protect the college during the tax deal by revising the definition of “applicable educational institutions” from those with at least 500 students to ones with at least 500 tuition-paying students. Adding those two words — tuition-paying — automatically exempted Berea from the 1.4 percent excise tax on its investment income. But Sen. Bernie Sanders (I-Vt.) had the provision removed from the final GOP tax plan in an attempt to delay the legislation.
McConnell was livid and said Senate Democrats “purposefully penalized” and “knowingly hurt schools that provide tuition-free education to students who can’t otherwise afford to go to college.” The Senate majority leader vowed to help Berea avoid a hefty tax bill, an estimated $1 million tab, according to the school’s calculations. And it appears he has succeeded, by slipping the same tax exemption back into the budget deal.
McConnell’s office did not immediately respond to requests for comment.
Another provision in the budget agreement, which is set for a vote Thursday, gives the secretary of education greater authority to waive sanctions imposed on colleges and universities whose students consistently default on federal education loans. The measure would apply to public colleges in economically distressed communities, defined as a county that ranks in the lowest 5 percent of all counties in the country based on a national index of economic status.
Based on those narrow parameters, education experts say the provision would most likely benefit Southeast Kentucky Community and Technical College, a school skating on the edge of being cut off from federal student aid because of its high student loan default rate.
The Department of Education routinely measures the share of people not making payments on their federal student loans within three years of the debt coming due, under a statute known as the cohort default rate. Schools with a default rate of at least 30 percent for three consecutive years, or a rate higher than 40 percent for one year, are at risk of losing access to federal loans and grants, a critical source of funding.
The percentage of defaults at Southeast Kentucky Community and Technical College hovered above 30 percent for three consecutive years, starting in fiscal 2012, according to data from the Education Department. It is the only public college facing sanctions. If passed, the waiver would last only as long as the budget deal, two years.
Democratic staffers say McConnell has been fighting for relief for Southeast Kentucky for some time, and unsuccessfully included a similar provision in earlier appropriations bill. They said the earmark for the community college was dropped into the budget deal at the last minute, after negotiators thought they had reached a deal.
Higher education experts have long been wary of the cohort default rate for several reasons, including that it can be gamed and doesn’t capture whether students are struggling to make payments. Community colleges have also taken issue with the measure because a small number of their students borrow, so the repayment behavior of the handful who fall behind skews the default rate data. In other words, it takes only a few students who are behind on their debt to make the cohort look bad.
“This highlights the challenge of effective higher education accountability in our current limited approach,” said Ben Miller, senior director for postsecondary education at the left-leaning Center for American Progress. “Instead of finding some way to push the school to improve or separating the consequences and accountability measures for loans and grants, we come up with selective fixes.”