State of Student Aid in Texas – 2020

Section 13: Texas Higher Education and Student Debt Policy

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In 2016, the Texas Higher Education Coordinating Board (THECB) launched a new, 15-year strategic plan for Texas higher education: 60x30TX (“sixty by thirty Texas”). The plan establishes four core goals:

  1. By 2030, at least 60 percent of Texans ages 25-34 will have a postsecondary credential or degree.
  2. By 2030, at least 550,000 students in that year will complete a certificate, associate, bachelor’s, or master’s degree from a Texas public, independent, or for-profit college or university.
  3. By 2030, all graduates from Texas public institutions of higher education will have completed programs with identified marketable skills.
  4. By 2030, undergraduate student loan debt will not exceed 60 percent of first-year wage for graduates of Texas public institutions.

In focusing on student debt and workforce outcomes, goals three and four represented a new direction for the THECB. The plan identified two key targets for containing student loan debt:

  1. Decrease the excess semester credit hours (SCH) that students attempt when completing an associate or bachelor’s degree to 12 by 2020, six by 2025, and three by 2030.
  2. Limit the need to borrow so that no more than half of all students who earn an undergraduate degree or certificate will have debt in 2030.

60x30TX Goal Updates

2015 (Baseline) 2018 2030 Goal
Overall Attainment Rate 40.3% 43.5% 60%
Completion Goals Overall Completion Total 311,340 341,307 550,000
Hispanic Completion 96,657 115,735 285,000
African American Completion 38,964 41,594 76,000
Male Completion 131,037 143,981 275,000
Economically Disadvantaged Completion 114,176 124,471 246,000
Texas High School Graduates Enrolling in Texas Higher Education 52.7% 51.6% 65%
Marketable Skills Goal Working or Enrolled Within One Year 78.9% 78.5% 80%
Student Debt Goals Student Loan Debt to First-Year-Wage Percentage 59.5% 59% 60%
Excess SCH Attempted 19 16 3
Percent of Undergraduates Completing with Debt 49.2% 45.8% 50%
While meeting the target for excess SCH will require substantial reductions, about 60 percent of undergraduate degree completers already borrow student loans. This is partially because students with a greater need to borrow tend to have lower odds of completing their degrees; students with more resources who do not need to borrow are overrepresented among completers. Without significant changes to students’ costs and/or resources, increasing the number of minority and low-income students who graduate (an explicit goal of 60×30) will raise the percentage of graduates who borrow. Conversely, if grant funding does not increase significantly, then increasing the rate and amount of borrowing might be necessary for financially needy students who would otherwise drop out to persist to graduation. At current prices, making progress towards completion goals while holding the borrowing rate at 60 percent and containing the debt burdens of graduates will likely require additional grant funding.

Sources: Texas Higher Education Coordinating Board. THECB 60×30 Progress Report, July 2019 (http://www.60x30tx.com/media/1518/2019-60x30tx-progress-report.pdf).
The 86th Texas Legislature was in session from January 8, 2019 to May, 27, 2019. A number of bills related to higher education were ultimately passed into law, including the General Appropriations Act for Fiscal Years 2020-2021 that contains funding for higher education. Below are some of the higher education-related bills:

HB 3: Relating to Public School Finance and Public Education

  • Requires that high school students complete and submit a Federal Application for Federal Student Aid (FAFSA) or a Texas Application for State Financial Aid (TASFA) prior to graduation

HB 2140: Relating to Creating an Electronic Application System for State Student Financial Assistance

  • Requires the Texas Higher Education Coordinating Board to develop a process that would allow students to complete the Texas Application for State Financial Aid online on the same website as the common admission application form

HB 3808: Relating to Measures to Facilitate the Timely Graduation of and Attainment of Marketable Skills by Students in Public Higher Education

  • Requires specified changes to the Texas College Work-Study Program, the Texas WORKS Internship Program, and the filing of a degree plan to aid in timely graduation and acquiring marketable skills
  • Requires that public institutions designate a liaison officer for current and incoming students to provide them with comprehensive information about support services and other available resources

HB 2784: Relating to the Creation of the Texas Industry-Recognized Apprenticeship Programs Grant Program

  • Requires the Texas Workforce Commission to create and administer a program to encourage the private sector to develop apprenticeship programs
  • No funding was appropriated with this bill
Sources: Texas Higher Education Coordinating Board (THECB), Legislative and Media Resources, Higher Education Policy and Appropriations, “Summary of Higher Education Legislation, 86th Texas Legislature” (2019) (http://reportcenter.thecb.state.tx.us/training-materials/presentations/board-legislation-2019-summary/).

Major Texas Financial Aid Programs
Appropriated Funds by State Program and State Fiscal Year*

State Fiscal Year 2019 State Fiscal Year 2020 State Fiscal Year 2021
Towards EXcellence Access and Success (TEXAS) Grant $393.2 $433.2 $433.2
Texas Educational Opportunity Grant (TEOG) $47.9 $47.9 $47.9
Texas College Work-Study $9.4 $9.4 $9.4
Tuition Equalization Grant (TEG) $85.9 $89.3 $89.3
B-on-Time Loan $3.8 $1.2 $0
The 86th Texas Legislature passed House Bill 1, the General Appropriations Act for Fiscal Years 2020-2021. This bill appropriated funding for the state fiscal years* 2020 and 2021 for, among other things, state higher education grant programs. Funding for Texas’ largest state grant program, the Towards Excellence Access and Success (TEXAS) grant, was increased by $40 million. Funding for the Tuition Equalization Grant, the Physician Education Loan Repayment Program, and the Texas Armed Services Scholarship was also increased.

Other programs were appropriated level funding except for the B-on-Time Loan Program, which was repealed in 2015. The legislature has appropriated about $1.2 million for renewal awards for continuing students in state fiscal year 2020 and has not appropriated any funds for state fiscal year 2021.

All state grant programs assist students with financial need, promoting access to higher education to low-income students while helping to limit their need to borrow student loans, though some programs (like the TEXAS Grant) also have an explicit merit-based component.

Other Large Texas Financial Aid Programs
Appropriated Funds by State Program and State Fiscal Year*

State Fiscal Year 2019 State Fiscal Year 2020 State Fiscal Year 2021
Developmental Education $1.3 $1.3 $1.3
Texas Research Incentive Program $17.5 $17.5 $17.5
Professional Nursing Shortage Reduction Program $9.9 $9.9 $9.9
Teach for Texas Loan Repayment Assistance Program $1.3 $1.3 $1.3
Physician Education Loan Repayment Program $12.6 $15.3 $14.9
Texas Armed Services Scholarship $1.3 $3.4 $3.4
Math and Science Scholar’s Loan Repayment Program $1.2 $1.2 $1.2
*The Texas state fiscal year is September 1 through August 31.

Sources: Legislative Budget Board, State Budget by Program “86th Regular Session, Final Bill” (http://sbp.lbb.state.tx.us/).
Rising national student loan debt has garnered much attention for several years. As of December 31, 2019, the total volume of outstanding student loan debt in the United States was estimated at $1.51 trillion, representing an increase of about $50 billion over the previous year and $132 billion over the previous two years. As of the end of 2019, the estimated outstanding student loan volume in Texas was about $114 billion, up about 5.0 percent from the previous year compared to 3.4 percent growth nationally. Because the growth rate of Texas student loan debt exceeds the rate for the U.S. as a whole, the proportion of all student loan debt held by Texans has increased. In 2007, Texans held about 6.5 percent of U.S. student loan debt; in 2019, Texans held about 7.6 percent. The relative youth of the Texas population is likely a major contributor to the growth in student loan debt relative to the nation.

Estimated Outanding Student Debt in Texas
(in billions*)

Estimated Outanding Student Debt in Texas (in billions*)

While the growth rate of Texas student loan debt exceeds the overall U.S. growth rate, both rates have slowed somewhat in recent years. Texas has added about $7 billion per year in outstanding student loan debt since 2012, resulting in higher absolute growth but lower percentage growth than in previous years. For the U.S., absolute debt growth of about $75 billion annually since FY 2014 (and only $50 billion from 2018 to 2019) has been smaller than usual, such that the annual percentage growth has declined even more quickly.

At the state and national level, the majority of the outstanding student loan debt comes from federal loans, including Federal Family Education Loans (FFEL)**, Federal Direct Loans, and Federal Perkins Loans. Private and state-level education loans, which generally do not provide accommodations like income-linked repayment plans, deferments, or forgiveness, accounted for about 12 percent of student loans borrowed in AY 2018-19.

*Estimates are based on state-level per capita student debt averages from the Federal Reserve Bank of New York Consumer Credit Panel, which excludes persons without credit reports and persons living in counties where fewer than 10,000 people have credit reports. The result for a given year is adjusted by the same factor by which the result of this methodology for the United States as a whole deviates from the United States total outstanding student debt for that year as reported in the Quarterly Report on Household Debt and Credit. This adjustment, which was not made in some previous editions of SOSA, has been applied to all years.

**The FFEL Program ended in 2010, but borrowers are still making payments on outstanding FFEL balances.

Sources: U.S. Student Loan Debt Estimate: Federal Reserve Bank of New York (FRBNY), Quarterly Report on Household Debt and Credit, 2019:Q4 (https://www.newyorkfed.org/microeconomics/hhdc/background.html), Texas Student Loan Debt Estimate: FRBNY Quarterly Report on Household Debt and Credit, Q4 2007 through Q4 2018, and Household Debt and Credit Statistics by State (https://www.newyorkfed.org/microeconomics/databank.html); Non-federal borrowing: College Board. Trends in Student Aid 2019 (https://trends.collegeboard.org/student-aid/figures-tables/total-federal-and-nonfederal-loans-over-time).
Concerns over student debt tend to focus on two trends: high default rates and high loan balances. Default rates have been slowly declining in recent years, but far too many student loan borrowers continue to default. Nationally, almost one in nine student loan borrowers who entered repayment in fiscal year 2016 defaulted in that year or the next two (a three-year cohort default rate [CDR] of 10.1 percent), but lifetime default rates are much higher. The federal Office of Management and Budget predicts that 20 to 25 percent of undergraduate Direct Loan borrowers who entered repayment in FY 2016 will default over the next 20 years, and a recent study of students who began postsecondary education in 2003-04 found that 27 percent of borrowers had defaulted within 12 years.

Although the average loan balance continues to climb, the relationship between this trend and default rates is not straightforward. In fact, borrowers who are current on their loans tend to have higher balances, while those in delinquency or default tend to have lower balances. This counterintuitive pattern has one key cause: Borrowers incur higher debts by staying in school longer.

National Average Loan Balance by Loan Status for Federal Direct Loans
(Current dollars; as of Q1 2020)

National Average Loan Balance by Loan Status for Federal Direct Loans (Current dollars; as of Q1 2020)
The common explanation for the inverse relationship between borrowing and default is that persisting to graduation requires more borrowing but also leads to higher incomes, such that the loan payments are actually more affordable. Data support this explanation, but it is incomplete. Provisions like deferments and income-driven repayment plans offer borrowers effective means to avoid defaulting on federal student loans regardless of income. Helping borrowers acquire the knowledge and skills to navigate the repayment process early on can be an effective default prevention strategy for all borrowers, especially those more likely to drop out and be at greatest risk of default.

Sources: U.S. Department of Education, Student Aid Data, Federal Student Loan Portfolio, “Direct Loan Portfolio by Delinquency Status (DL, ED-Held FFEL, ED-Owned)” (https://studentaid.gov/data-center/student/portfolio); Cohort default rate: U.S. Department of Education, “Official Cohort Default Rates for Schools”, (http://www2.ed.gov/offices/OSFAP/defaultmanagement/cdr.html); Lifetime default projection: U.S. Office of Management and Budget, FY 2017 Budget for Dept of Education, (https://www.whitehouse.gov/sites/default/files/omb/budget/fy2017/assets/edu.pdf); 12-year default study: Woo, J. et al (2017). Repayment of Student Loans as of 2015 Among 1995-96 and 2003-04 First-Time Beginning Students. NCES. (https://nces.ed.gov/pubs2018/2018410.pdf).
The Texas B-On-Time (BOT) Loan Program was an undergraduate student loan program that sought to increase access to higher education and encourage students to graduate on time, which costs less, and focus on academics, which should promote learning and better employment outcomes. Established in 2003, this loan was completely forgiven for borrowers who completed their degrees on time with a 3.0 GPA or higher. Loans to students at public institutions were funded by a tuition set-aside; legislative appropriations funded loans to students at private institutions. The Texas Legislature ceased the disbursement of new loans in 2013; renewal loans will be made through 2020.

Students who received BOT loans consistently graduated at higher rates than students who received aid but no BOT loan. About forty percent of public university students with BOT loans graduated in four years, compared to 29 percent for non-BOT aid recipients. According to the Texas Higher Education Coordinating Board (THECB), “these data suggest that the prospect of loan forgiveness may have been a strong enough incentive to influence behavior leading to more timely graduation”.

Graduation and Persistence Rates of BOT Recipients and Non-Recipients who Received Other Aid, by Sector (program lifetime)

Graduation and Persistence Rates of BOT Recipients and Non-Recipients who Received Other Aid, by Sector (program lifetime)

Despite its promise, the BOT program was underutilized. Thirty-six percent of funds were not allocated in FY 2011, and only five out of 136 institutions disbursed their entire allocation. Four-year private institutions used 90 percent of their funds, while public universities used 64 percent. Community colleges used only 3 percent of their allocation.

In 2013, the Sunset Advisory Commission identified several issues hindering the BOT program. These included both poor structural fit and inadequate funding at community colleges, strict eligibility requirements, complexity, and lack of awareness. Federal “preferred lender list” rules likely contributed to this lack of awareness. Created to prevent conflicts of interest with private student lending, the rules prevent college staff from volunteering information about non-federal loans unless the institution develops a “preferred lender list”. This process entails risks to the institution and diverts scarce administrative resources. Public institutions, whose lower costs are less likely to require non-federal borrowing, are less likely to have preferred lender lists; this may partially explain their low utilization rates relative to private institutions. Acknowledging this issue, the Commission concluded that, “despite its flaws, the state benefits from a program [BOT] that supports access to college through no-interest loans and encourages graduation.” The Commission made several recommendations to improve the program, but the state opted to phase it out.

Sources: Texas Higher Education Coordinating Board (THECB), Report on student financial aid in Texas higher education for fiscal year 2015, September 2016 (http://www.thecb.state.tx.us/reports/PDF/8504); Utilization: Sunset Advisory Commission, Staff report with hearing material: Texas Higher Education Coordinating Board, July 2013, pp. 48 (https://www.sunset.texas.gov/public/uploads/).
The Public Service Loan Forgiveness Program (PSLF) cancels the remaining balance of Federal Direct Loans for borrowers who have made 120 qualifying monthly payments while working full-time for certain government and non-profit employers. Qualifying payments must meet several eligibility criteria, including being made in full, within 15 days of the due date, and under an income-driven repayment (IDR) plan. PSLF first became available in 2007, and borrowers could (theoretically) have achieved 120 qualifying payments beginning in October 2017.

Borrowers who pursue PSLF take a risk. PSLF applies only to borrowers who enroll in IDR plans, which lower monthly payments but extend the payment period, resulting in higher interest costs over time. Borrowers who spend several years in IDR making qualifying payments can still lose eligibility due to employment changes, income growth, or Congressional action altering the PSLF terms; these borrowers now may face higher costs than if they had attempted to repay on the Standard Repayment Plan. Borrowers may also choose to pursue forgiveness through payment caps on certain IDR plans, though these options take longer and are also subject to Congressional action, and the Internal Revenue Service may tax this forgiveness as income (amounts forgiven under PSLF are not taxed).

Approved PSLF Applications by Employer Type

Approved PSLF Applications by Employer Type

As of February 2020, 75 percent of the 2,828 approved PSLF applications were for government employees while the other 25 percent were for 501(c)(3) non-profit employees. Among the 163,576 applications deemed ineligible, 59 percent were rejected because the borrower had not made enough qualifying payments, 23 percent of the applications were missing information, and 14 percent applied for forgiveness on a loan that was not eligible.

Most Common Reasons for Ineligible PSLF Applications

Most Common Reasons for Ineligible PSLF Applications

Sources: U.S. Department of Education, Federal Student Aid, Public Service Loan Forgiveness Data: https://studentaid.gov/data-center/student/loan-forgiveness/pslf-data; U.S. House Committee of Education and the Workforce, PROSPER Act: https://www.congress.gov/bill/115th-congress/house-bill/4508.
The U.S. Congress passed a massive $2 trillion bill (the Coronavirus Aid, Relief, and Economic Security, or CARES, Act) on March 26, 2020, signed into law the following day, intended to help the country financially weather the novel coronavirus (COVID-19) pandemic. The bill provides about $14 billion to higher education via an Emergency Stabilization Fund. Half of that fund is to be used for emergency grants to students for expenses related to campus disruptions due to the COVID-19 pandemic, such as food, housing, technology, health care, and childcare. The other half can be used by institutions for crisis-related expenses, such as lost revenue, technology costs associated with transitioning to remote learning, and payroll.

Ninety percent of higher education funding ($12.5 billion) will be allocated to institutions based on the following breakdown: 75 percent on the enrollment of full-time equivalent Pell Grant recipients and 25 percent on the enrollment of full-time equivalent students who don’t receive Pell Grants (online-only students were excluded for the purposes of determining this breakdown). The other ten percent will be allocated under different specified titles of the Higher Education Act as a way to defray expenses for the institutions and for grants to students.

Additionally, the CARES Act allows student loan borrowers whose loans were held by the U.S. Department of Education to take a six-month break from making payments. Interest will be waived during that time period and loan collectors will be prevented from garnishing wages, tax returns, and Social Security benefits to collect overdue payments.

These descriptions of the CARES Act were written on March 31, 2020. As the country works its way through the pandemic, there will likely be other legislation and regulation that impacts higher education institutions and its students.

Sources: CARES Act Text of Bill (https://www.nasfaa.org/uploads/documents/CARES_Act_Final_Text.pdf); Student Loan Payment Delay: MarketWatch.com, “$2 trillion coronavirus stimulus package lets some student-loan borrowers delay payments for six months” (https://www.marketwatch.com/story/2-trillion-coronavirus-stimulus-bill-gives-student-loan-borrowers-six-months-of-relief-2020-03-26).

CARES Act Allocations at Texas Institutions by Region

CARES Act Allocations at Texas Institutions by Region

Two hundred ninety-six Texas institutions were allocated $1.02 billion through the CARES Act. The proportion of allocations by region are very similar to the proportion of Fall 2018 enrollment by region. Institutions in the most heavily populated regions of the state – the Central Texas, Gulf Coast, and Metroplex regions – will receive nearly three-quarters of a billion dollars in total to help students, employees, and higher education institutions weather the COVID-19 pandemic.

CARES Act Allocations at Texas Institutions by Region

CARES Act Allocations at Texas Institutions by Region

Sources: U.S. Department of Education, Allocations for Section 18004(a)(1) of the CARES Act (https://www2.ed.gov/about/offices/list/ope/allocationsforsection18004a1ofcaresact.pdf); Enrollment by Region: U.S. Department of Education, National Center for Education Statistics, IPEDS Data (http://www.nces.ed.gov/ipeds/).

CARES Act Allocations at Texas Institutions by Sector

CARES Act Allocations at Texas Institutions by Sector

School Type Total Allocations Number of Institutions
Public Four-Year $500,029,127 43
Private Non-Profit* $105,694,744 68
Pubic Two-Year $328,113,876 64
Proprietary $88,183,138 121

In March 2020, the CARES Act was signed into law to provide financial relief to people and organizations across the country while the COVID-19 pandemic stalled the economy. The bill included a provision to provide about $14 billion to higher education institutions and students. Using the guidance provided in the bill, the U.S. Department of Education developed a formula to determine how much funding each institution will receive. Texas institutions are allocated about $1.02 billion.

Compared to total enrollment figures, public two-year institutions are receiving proportionally less of the allocations while the other three sectors are receiving proportionally more. However, the CARES Act allocations are based on full-time equivalent (FTE) enrollment, which is a calculation that determines how many students would be attending if all enrolled students were enrolled full time. The higher an institution’s proportion of part-time enrolled students, the lower their FTE enrollment number will be. Public two-year institutions in Texas have much higher proportions of part-time students than other sectors – 72 percent at public two-year, 30 percent at public four-year, 12 percent at private non-profit, and 14 percent at proprietary. The allocation formula also excludes students who were already exclusively enrolled in distance education. The public two-year sector in Texas has a higher proportion of distance education students compared to the other three sectors.

*This category includes 4-year or above, 2-year, and less-than 2-year institutions. Ninety percent of the Private Non-Profit Texas institutions receiving allocations are 4-year or above.

Sources: U.S. Department of Education, Allocations for Section 18004(a)(1) of the CARES Act (https://www2.ed.gov/about/offices/list/ope/allocationsforsection18004a1ofcaresact.pdf); Enrollment by Sector: U.S. Department of Education, National Center for Education Statistics, IPEDS Data (http://www.nces.ed.gov/ipeds/).
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