Bo Cutter: Universal Pre-K Is the First Step Toward the Next American Economy

Apr 29, 2015Laurie Ignacio

Our series on “The Good Economy of 2040” continues this week with Next American Economy Director and Roosevelt Senior Fellow Bo Cutter.

Our series on “The Good Economy of 2040” continues this week with Next American Economy Director and Roosevelt Senior Fellow Bo Cutter.

If Cutter could pick one policy solution to ensure a good economy in the future, he’d call for universal pre-K through secondary school to "bring up children from low-income households" and teach all children "the element of imagination, creativity, and innovation to make their way in the world that's coming."

Read more about the case for universal pre-K here:

"Pre-K for All" (US News & World Report)

"Arne Duncan: High-quality preschool is a sure path to the middle class" (WashPost)

Bowman Cutter is a Senior Fellow at the Roosevelt Institute and Director of the Next American Economy Project. He was a managing director of Warburg Pincus, a major global private equity firm headquartered in New York City, between 1996 and 2009, where he served both as the firm’s economist and as a leader in its international business, with particular reference to Asia. He has served with distinction during two Democratic presidencies: as director of the National Economic Council and Deputy Assistant to the President during the Clinton presidency; and as Executive Director for Budget during the Carter presidency. He also served as leader of the OMB transition team after the election of President Obama.

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Denise Cheng: To Prepare for the Future, Lower the Voting Age

Apr 22, 2015Laurie Ignacio

The Next American Economy's video series on “The Good Economy of 2040" continues this week with Denise Cheng from the MIT Center for Civic Media and the San Francisco Mayor’s Office of Civic Innovation.

The Next American Economy's video series on “The Good Economy of 2040" continues this week with Denise Cheng from the MIT Center for Civic Media and the San Francisco Mayor’s Office of Civic Innovation.

Cheng is an advocate of open government initiatives like open data and participatory budget projects. But if she had to pick only one thing to ensure a good economy in the future, she would lower the voting age to 16 “so people are actually getting their civic education while they’re still in high school," ensuring that "they have the best information to make an informed vote.”

Read more about initiatives to lower the voting age to 16:

"Scotland let 16-year-olds vote. The US should try it too.” (Vox)

"Hyattsville becomes second U.S. municipality to lower voting age to 16" (Washington Post)

Denise Cheng is an innovation fellow with the San Francisco Mayor’s Office of Civic Innovation. She has an eclectic background in community building, the future of news, and labor in the peer economy—specifically, worker support around the growing pool of people who depend on piecemeal income. Cheng has spoken, written, and appeared widely in NPR, Harvard Business Review, and Next City, at the New Museum and Personal Democracy Forum, and more about the sharing economy. She received her MSc from MIT and is an affiliate researcher with the Center for Civic Media at MIT Media Lab.

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Online Learning Is No Substitute for Campus Community Engagement

Apr 22, 2015Zach Lipp

“Within 5 years the world's best education will be available online and it will be free,” said George Mason University professor Tyler Cowen in a September 2013 interview. “Arguably that's already the case.”

“Within 5 years the world's best education will be available online and it will be free,” said George Mason University professor Tyler Cowen in a September 2013 interview. “Arguably that's already the case.”

When I heard the claim last summer, I took notice. I was and continue to be an undergraduate with a love for online learning. I have watched dozens of lectures recorded on YouTube, enrolled in an unrealistic number of edX, Udemy, and Coursera courses, and taken a Codecademy track or two. But while I love digital learning, I also love the traditional campus experience, and I do not believe the former alone can suffice.

The public sphere is rife with claims that online education opportunities can subvert the American higher education system. The most recent barrage comes from Kevin Carey’s new book The End of College, which has generated many media reports and reactions. Missing from the debate are the voices of students: not just traditional college students, but digital learners as well. As a representative of both groups, I see the gaps in online learning.

While record numbers of students are attending colleges, they remain a relatively elite set of institutions. The costs of attending college are high and only growing, and student loan debt has expanded dramatically in recent years. Meanwhile, a treasure trove of learning opportunities is available online for free. Some see this as spelling the demise of the college; however, MOOC (Massive Open Online Course) completion rates are alarmingly low.

Yet even if MOOCs had the demographic pull and (at least) the completion rates of American colleges, they would still earn the scorn of academics. Digital course companies and colleges support competing purposes of education. As Harvard College Dean Rakesh Khurana said in his opening address this year, college can be either transactional or transformational. Yes, some students will always approach college as transactional, but a digital education, I believe, is necessarily transactional.

The college experience consists of much more than courses: as I have mentioned before, campuses teem with opportunities for civic engagement. Colleges around the country host speakers, rallies, and student organizations like the Roosevelt Institute | Campus Network, engaging students in communities in ways an Internet connection cannot. Moreover, these communities extend beyond their campuses. By fostering student education and activism, campus organizations foster citizenship.

Colleges are anchored in diverse communities that provide ample learning experiences. My involvement with the Rethinking Communities project , which provides a framework for students to expand and improve their college’s impact in their local communities, leads me to question how to leverage these relationships. My most meaningful lessons took me into the cities beyond my campus. We can learn an immense amount by engaging in our local communities, and there is no opportunity for this type of learning in an exclusively digital college. My experiences tell me digital education falls short of developing and engaging citizens, and as a result, so does the claim that online courses will replace physical ones.

Zach Lipp is a junior at Concordia College and a Rethinking Communities Braintrust member.

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Predatory Finance Has Hurt Our Universities, But Students Can Fight Back

Apr 13, 2015Dominic RusselRyan Thornton

Our tuition checks shouldn't be going to pay off debts from Wall Street's bad deals.

Our tuition checks shouldn't be going to pay off debts from Wall Street's bad deals.

The last few decades have not been kind to America’s local public institutions. Cities that once built state-of-the-art infrastructure are now struggling to fix potholes in the street. Public schools that were once the best in the world are lagging behind. Even our universities, which used to be gateways to a shot at a better life, are increasingly becoming too expensive for much of the population.

There’s no shortage of explanations for these problems, ranging from globalization to government waste to an aging population. These answers, however, all overlook the role that a growing Wall Street has played in changing the picture for public institutions.

In 1950, the financial sector accounted for about 3 percent of U.S. GDP; it now accounts for more than 6.5 percent. This financialization has given the big banks on Wall Street immense wealth and power, allowing them to extract greater and greater earnings from public and private borrowers. While the financial industry is reaping huge profits, it is individuals, not corporations, who pay an increasingly large share of the taxes that are supposed to support our public institutions. Since 1950, corporate tax contributions have dropped from 32 percent to only 17 percent despite corporations claiming a growing share of GDP. In contrast, individuals now pay 63 percent of taxes, up from 45 percent in 1950.

Our cities and schools—and all public institutions that rely on taxes to provide essential services—have felt the impact of this change. Facing slashed budgets, they have been forced to turn to the financial industry for loans. Undoubtedly, borrowing is necessary for financing extensive long-term capital projects; however, public institutions are increasingly compelled to secure loans for their short-term spending as well. Big banks are more than happy to accept the business of cities and universities desperate for funding, especially when the banks get to write the terms of the deal.

Wall Street’s profits are no longer solely built on interest from traditional “vanilla” loans. Instead, its banks have turned to high-risk, high-cost, and unnecessarily complex deals to further inflate their profits. Take interest rate swaps, for example. Swaps are a financial instrument devised by banks that allows cities and universities—those issuing bonds to finance long-term projects—to “swap” a variable interest rate for an agreed-upon fixed interest rate.

These interest rate swaps were deceptive from the very start. They were sold as protection from changing interest rates, but because exorbitant termination fees made refinancing extremely costly, they were essentially dangerous bets that would have only worked out if interest rates rose. And the deck was stacked against the cities and universities making these bets.

Banks illegally manipulated the London Interbank Offered Rate (LIBOR), which was tied to many deals, and helped precipitate a financial crisis that led to near-zero interest rates that continue today. Because banks had negotiated the swaps contracts so that they would be paying the variable market rates, cities and universities ultimately ended up locked into deals in which they were paying as much as 50 times what the banks were paying—all of which went to Wall Street as profit.

Both of the schools we attend—the University of Michigan and George Mason University—entered into swap deals that have costs them millions. One swap at Michigan even protected banks by allowing them to terminate the deal if variable rates hit just 7 percent, while offering no protection for the university when rates actually sank near zero.

The current imbalance in power need not be the case. Increased transparency surrounding the fees and terms of public finance deals would allow students and taxpayers to oversee the officials and banks who use their money and hold them accountable. When university regents, trustees, or other executives receive or have received compensation from the financial institutions their school does business with (as was the case in a series of University of California swaps), they should immediately recuse themselves from financial decision making to avoid conflicts of interest. Cities, states, and universities can work together to bargain with banks or create public options for bond underwriting and borrowing.

In situations in which our public entities have been targeted by banks, we can organize and pressure our public leaders to regain the money we lost. The city of Detroit was able to reduce its bank payments from $230 million to $85 million by exposing the invalidity of a swap.

Because swaps were often marketed to public institutions as a safe protection from variable interest rates—not as risky bets—it may be possible to pursue legal action to reclaim some of the losses. One avenue to reclaim public funds is the regulatory framework of the Municipal Securities Rulemaking Board, which mandates that municipalities be made fully aware of the risks and possible costs of entering into financial deals.

As students, we feel the impact of Wall Street every time we pay tuition. We put ourselves in thousands of dollars of debt to pay for school, but because most university borrowing is backed by student tuition, this personal debt simply begets institutional debt. All this borrowing means huge profits for the banks that finance debt, much of it coming from hidden fees and inflated payments on long-term deals with our schools.

However, as students we also have the unique opportunity to band together and make our collective voice heard. For a few years our well-being is the primary focus of a massive anchor institution, and our dollars are often the main source of its funding. We can demand better than the status quo by pressuring our schools to reclaim that money from wealthy bankers and put it back into our institutions.

If borrowing from the big banks was on fair terms and intended for long-term capital projects, it wouldn’t be a problem. Unfortunately, instead of using our nation’s wealth to pay for education, increase our human and physical capital, and build our long-run potential for growth, we are using it to increase incomes for the wealthiest bankers.

We've reached a worst-case scenario, but it doesn't have to stay that way. By holding Wall Street accountable for how it plays with tuition and tax dollars, we can bring things back around so that public investment means improving society, not improving Wall Street's balances.

Dominic Russell is a sophomore at the University of Michigan and the Roosevelt Institute | Campus Network's Policy Impact Coordinator for the Midwest. Ryan Thornton is a junior and Campus Network chapter head at George Mason University.

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Why Is Lehman Brothers Suing Georgetown from Beyond the Grave?

Apr 9, 2015Alan SmithAditya Pande

The ghost of Lehman Brothers is still haunting colleges and universities around the country, continuing to extract money from institutions even though the financial firm itself is long dead.

The ghost of Lehman Brothers is still haunting colleges and universities around the country, continuing to extract money from institutions even though the financial firm itself is long dead.

When Lehman Brothers Holdings declared bankruptcy in 2008, it was the fourth largest investment bank in the United States. The giant’s collapse was felt in all corners of the global economy, but at least that collapse was thought to be a thing of the past. Now, it turns out that Lehman Brothers lingers on as a bankruptcy group trying to collect debts from the schools it already fleeced in 2008.

In St. Louis, the haunting is public: Lehman is suing St. Louis University because it doesn’t feel the school paid a fair market value (equivalent to the termination fee at a given time) on some interest rate swap derivatives in 2008.

Let’s look at that transaction: the school paid about $25 million in early termination fees on its interest rate swaps.* SLU didn’t necessarily want to bail out of these swaps, even though they were costing the school millions; it had to terminate them because Lehman Brothers, the counterparty to the deals, was going belly up. But in a lawsuit filed in December 2014, Lehman alleges that SLU’s termination payments were short of market value and that Lehman is in fact owed another $17.5 million on these swaps. 

Let's say that again: These swaps triggered in 2008 because of the Lehman bankruptcy. The school had to pay a termination fee because the firm that owned the swaps had effectively ceased to exist. And now that firm is suing the school because it wasn’t adequately compensated for its own failure.

Here’s where the story (and related research by the Roosevelt Institute | Campus Network) gets really interesting: The ghost of Lehman isn’t just in St. Louis. Looking at the financial records of Georgetown University, there appears to be a similar story playing out in private but with even larger stakes.

Georgetown’s financials from 1998 onward are rife with big bond projects, but for now let’s focus specifically on auction rate security (ARS) bonds. These are economic devices where the interest rate paid on the bond is regularly reset through a public auction. The theory was that these auctions would allow the market to drive the interest rates to the lowest possible bidder each period; some even reset every week. These bonds were being marketed (sometimes by Lehman Brothers) as a highly liquid way to get some safe cash.

We’ve since learned that nothing could be further from the truth, as the rate markets for ARS bonds locked up in 2008 and borrowers like Georgetown were stuck paying double-digit interest rates. These bonds were more than simply investments that didn’t pan out; banks that sold the ARS bonds were also propping up the market by bidding on the rates in their own auctions, which created a false impression for buyers that the market was stable. These were bad deals made worse by illegal activity, and universities and municipalities across the country were suckered into them. When the banks eventually stopped keeping the market afloat, most such auctions failed, and the ARS market has been largely frozen since.

Although Georgetown is now almost entirely out of the ARS market and has brought down its variable-rate debt, getting rid of these increasingly expensive ARS bonds appears to have cost the schools millions in fees and even more in borrowing to pay off that debt.  Some of those bonds were underwritten by Lehman; some by other investment banks.

None of this even begins to capture the costs of the swaps, which is where this story started. The ARS bonds were cheap but had highly volatile interest rates. To mitigate these risky fluctuations, Georgetown bought interest rate swaps with Lehman Brothers. But like SLU, Georgetown did not realize it had made a deal with a potentially catastrophic downside. As the economy went into a tailspin in 2008, the Federal Reserve cut interest rates to the bone and has kept them low since; money became available for next to nothing in an attempt to keep banks from freezing up completely. This also served to drive the fair value of interest rate swaps through the roof. The worse the economy got, the more the fair market value of Georgetown’s debt hedges grew. A final insult: As the ARS rates locked up ever higher, the floating index rates that the swaps were indexed to went down, so Georgetown was losing money on every part of every deal.

And finally, finally, Lehman Brothers, which had sold swaps to so many different colleges and universities around the country, went out of business, which resulted in Georgetown having to pay Lehman more than $53 million to terminate the seven swaps it had on May 12, 2009—again, swaps that were meant to hedge against the risky ARS bonds that were also, in some cases, sold by Lehman.

Fast forward to 2012, and a lawsuit from Lehman Brothers appears on Georgetown’s financial documents. This lawsuit is only mentioned in the financial statements and has not yet gone public, so we cannot say with certainty that the story is the same as in St. Louis. However, it appears as if the disparity between the “fair market value” calculation of what the swaps were worth in 2008 and the eventual payment Georgetown made to Lehman is about the same as in the SLU case.

For those keeping score at home, this means that Georgetown was hemorrhaging money to Lehman Brothers in at least four different ways:

  1. ARS bonds marketed by Lehman cost the university $6 million in interest rates and $8.34 million in debt restructuring costs.
  2. Approximately $77.8 million in payments on the seven interest rate swaps terminated in May 2009.
  3. More than $53.4 million in swap termination fees.
  4. Though still unconfirmed, all signs point to a lawsuit from Lehman to recoup what it claims are underpayments on the “market rate” of its swaps.

The full cost is probably even higher, as these calculations do not account for the fees Georgetown paid each time it got into a bond deal, nor for other deals that Lehman did not underwrite. Still, the bill is already north of $140 million, and we’ve only been looking at publicly available records.

It certainly seems as though Georgetown was hard done by in this case, and we plan to continue our research until we can present a full tally of how much Georgetown has lost and is continuing to lose to Wall Street.

Why does this matter? After all, Georgetown is a stable institution—not like Sweet Briar or liberal arts schools, where losses in the hundreds of millions could mean the difference between solvency and closing their doors. Neither is this a public institution, where public tax dollars are being funneled into Lehman’s grave. But even a storied private institution like Georgetown is feeling the pinch of millions of dollars being extracted, and that pinch is being passed on to students.

Tuition and fees will increase 4 percent at Georgetown next year, contributing to a nearly 40 percent increase since 2006 that shows no signs of slowing down. While there are many factors in the rapid rise of education costs borne by America’s students, including the “amenities arms race” and administrative bloat, the massive debt private colleges like Georgetown have accrued and the unbelievably expensive financial engineering that has come with it deserve a lion’s share of the blame. Lehman Brothers, having already managed to scrape more than $140 million from Georgetown’s coffers, is audacious in asking for more from beyond the grave. We must be equally audacious in demanding that Wall Street pay some part of the bill it’s left students since 2008.

Is your college or nonprofit involved in an ongoing lawsuit with Lehman Brothers? Let us know!

*Interest rate swaps are a type of derivative that allows an institution to lock in a loan at a fixed rate by “swapping” its existing variable-rate loan with a bank, an idea that becomes particularly toxic when the market crashes and interest rates plummet like they did post-2008. It’s the equivalent of taking out a mortgage at 5 percent a year and then finding out the next day that mortgages are now available at 1 percent. But, unlike mortgages, swaps cannot be refinanced or even “paid off” at will. To do so, one must pay an expensive termination fee equal to the total amount the bank expects to make over the entire life of the swap. It was a lose/lose proposition for the school once its bet that interest rates would stay high didn’t work out. 

Alan Smith is the Roosevelt Institute | Campus Network's Associate Director of Networked Initiatives.

Aditya Pande is a freshman in the School of Foreign Service at Georgetown University, where he studies international economics.

Thanks to Carrie Sloan and Alexandros Taliadoros for their contributions to this post.

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The Sweet Briar Dilemma: Will Predatory Lending Take Down More Colleges?

Mar 16, 2015Alan Smith

After 114 years of educating young women in rural Virginia, Sweet Briar College recently announced that the 2015 academic year would be its last. It’s closing its doors, administrators say, because its model is no longer sustainable.

After 114 years of educating young women in rural Virginia, Sweet Briar College recently announced that the 2015 academic year would be its last. It’s closing its doors, administrators say, because its model is no longer sustainable.

There are plenty of people coming out of the woodwork to explain Sweet Briar's problems. Dr. James F. Jones, the school’s president, claims that there are simply not enough people who want to attend an all-women's rural liberal arts school (though application numbers and some pundits disagree); he blames the discount that the school was giving to low-income students for the institutional budget shortfall. Billionaire investor Mark Cuban says that Sweet Briar has fallen victim to the student loan bubble and that students are unwilling to commit the money to attend, which sounds a lot like the blame-the-homeowner narrative that came out of the 2008 financial crisis.  Others are wringing their hands that small colleges in general are doomed.   

These takes are varied and complex, but they are all missing an important point: that predatory banking practices and bad financial deals played an important and nearly invisible role in precipitating the school’s budget crisis.  

A quick look at Sweet Briar’s audited financial reports (easily available in public records) reveals enough confusing and obfuscating financial-speak to last a lifetime, but a few days of digging did manage to unearth a series of troubling things.  

A single swap on a bond issued in June 2008 cost Sweet Briar more then a million dollars in payments to Wachovia before the school exited the swap in September 2011. While it is unclear exactly why they chose 2011 to pay off the remainder of the bond early, they paid a $730,119 termination fee. For a school that was sorely strapped for cash, these fines and the fees that accrued around this deal (which are hard to definitively pick out from financial documents) couldn't have come at a worse time.  

Just how big a deal are these numbers? The school has a relatively small endowment even among small liberal arts colleges: currently valued at about $88 million, with less then a quarter of that total completely unrestricted and free to spend. But in 2014, the financial year that appears to have been the final straw for Sweet Briar, total operating revenues were $34.8 million and total operating expenditures were $35.4 million, which means that the deficit the school is running is actually smaller than the cost of any of the bad deals it’s gotten itself into with banks. 

All of this puts in a very stark light the fact that the early retirement of debt (in other words, the losses the school suffered on the overall value of the bonds it had taken out because it decided to pay them back early) cost the school over $9 million in 2011 and more than $13 million in 2012. Why did the school accrue these costs? We have no way of knowing if it was bad advice from bankers, negligent trustee members covering a mistake, or a well-intentioned plan that hit at the wrong time.  

What we can say, though, is that a million dollars here and a million dollars there adds up to real money that was desperately needed as Sweet Briar fought to stay afloat.  

We know that Wall Street collects higher fees on risky and complicated deals involving variable rate debt and hedging instruments, like the ones found in Sweet Briar's last few decades of financials, than from fixed rate debt deals. We know that they add on things like credit enhancements, further driving up the costs. We know that those higher fees mean that there is a clear financial incentive to sell schools, municipalities, and pension funds on these risky deals. And we know that it works in Wall Street's favor that someone like me can spend days digging into this stuff and still not be totally sure what the exact costs of these deals are.  

What we don't know is how all these things were allowed to happen at this particular school in this particular timeframe.  

Sweet Briar appears slated to close because it is a small organization without the resources to counter the huge information imbalance that has helped precipitate the financialization crisis. It is closing because it signed some terrible deals to get what must have felt like "needed" money at the time. You can see the reasons: a $14 million bond (with swaps) in 2001 for campus improvements. A $10 million bond in 2006 to pay off other bonds that had revealed their ugly side and were costing the school too much to be allowed to fully mature. But, as has so often been the case in everything from municipal finance to personal home loans, there was a problem in the small print. Like many other colleges, what appeared to be vital and even beneficial deals turned out to be nothing of the sort. Unlike many others, Sweet Briar was already close enough to the financial brink that these ongoing debts made the difference between staying open and closing its doors.  

There are, of course, other very real pressures on Sweet Briar. Lower enrollment numbers do really hurt a school, and there are real questions about how to keep small, rural liberal arts institutions competitive in a higher education economy. None of these issues, however, compare to the fees, fines, penalties, and other losses that are all over Sweet Briar’s books. 

Is Sweet Briar the canary in the coalmine? Banks are certainly making obscene profits on the backs of the swap deals in the UC system, at the University of Michigan, and at American University — and those are the places that we’ve found in our first month of looking. While those schools are solvent enough that these swaps are not pushing them to the brink of closing, they are exacerbating budget shortfalls and passing debt on to students through increased costs. These deals are also clearly making money for many school trustees whose day jobs happen to be with the giant banks. Here I find myself agreeing with Mark Cuban, at least in part: these trends are a part of a vicious cycle of borrowing that is wholly unsustainable, and will eventually lead to a crisis.  

This is why the Roosevelt Institute | Campus Network is working to track the ways in which financial institutions are extracting wealth from our colleges and universities, and make a clear case for demanding our money back. I hope that the storied institution of Sweet Briar can find a way to keep its doors open in 2016, but even if it fails, that failure should wake us up to predatory practices at colleges and universities around the country.   

Questions? Concerns? Interested in my math? Drop me a line.

Alan Smith is the Roosevelt Institute | Campus Network's Associate Director of Networked Initiatives.

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Roosevelt Reacts: What Else Did We Need From the 2015 State of the Union?

Jan 23, 2015

Roosevelt Institute | Campus Network members and alumni weigh in on President Obama's sixth State of the Union address.

Brett Dunn, University of Alabama '17:

Roosevelt Institute | Campus Network members and alumni weigh in on President Obama's sixth State of the Union address.

Brett Dunn, University of Alabama '17:

In the face of strong Republican opposition, President Obama made his stance on many controversial topics quite clear. He outlined his views on topics such as the minimum wage, equal pay for women, LGBTQ+ rights, tax reform and more. These bold and somewhat ambitious goals for change in 2015 will require bipartisan compromise in Congress. It is likely, however, that there will be little correlation between President Obama’s bold vision for the future of the United States and Congress’ actions in the final two years of his presidency. No matter how wonderful or ambitious President Obama’s plans are for the country, the likelihood of any these issues being independently addressed by a Republican controlled Congress is very slim. Yet the president’s plans do not fall on deaf ears. President Obama’s speech gives Democrats in Congress and, more importantly, the American public, ammunition against the Republican’s inevitable inaction, which could potentially help set the stage for the 2016 election.

Chisolm Allenlundy, University of Alabama '16:

It was difficult to miss the amount of politics that happened on Tuesday at President Obama’s next-to-last State of the Union address. What might have been easy to miss, however, was the meaning of it all.

President Obama knows that his days of passing game-changing progressive legislation are over. This is a common position for 4th-quarter presidents to find themselves in, and Obama did exactly what such presidents do when they can no longer effectively push for policy change: they push for culture change.

But most Americans don’t watch the political process so much as they hear about it from media sources, which put their own spin on material. According to consumer watch company Nielson, 31.7 million people tuned in for the SOTU, and even that figure is at a 15-year low. While the president has attempted to set the direction for progressive politics for the next year, policy change will be a struggle, and he needs to reach many more Americans to steer the course on our political culture. 

Tarsi Dunlop, Middlebury College '09:

Middle class economics played a key role in the President’s 2015 State of the Union. He explained that middle class economics is about the policies needed for average American families to get ahead. These policies aren’t handouts, but they make daily life better, easier, more fulfilling. For example, what if students could graduate from K-12 with good grades and know they had the option of going to community college without the staggering cost of debt? Granted, there are certain investments that must be made to make sure that community colleges are, as an institution, prepared for the role the President wants them to serve for our nation’s youth.

The President also touched on other elements of middle class economics: key policy proposals that will help young people, new families, and the elderly. He emphasized affordable day care (right now monthly costs can run higher than a mortgage payment), as well as paid family leave and sick leave. Families shouldn’t have to choose between time with new babies and paid work, nor between working and staying home with a sick child. We need a vision and a budget to help the middle class thrive and it was great to hear concrete proposals in the President’s speech.

Hayley Brundige, University of Tennessee, Knoxville '17:

Obama's State of the Union Address illustrated just how far we still have to go in the fight for gender equality. I was ecstatic when Obama asserted that the right to quality childcare and paid maternity and sick leave are not just “women's issues” — as they are often brushed aside as — but a “national economic priority.” But in the back of my mind, I was dismayed that this concept that is so obviously a human right is still so far from being obvious to our elected officials. 

Noticeably missing from the speech was any mention of preventing sexual assault, especially on college campuses. This was particularly surprising seeing as the administration has made this issue a point of focus recently, creating a White House task force on sexual assault and investigating colleges for Title IX violations. Obama even had a readily supplied anecdote, as campus activist and sexual assault survivor Emma Sulkowicz was literally in the audience. As a college student, I applaud Obama's efforts to make community college more accessible, but it's disheartening for him to not address the importance of keeping our campuses safe. No president on record has discussed sexual assault in a State of the Union address.

Zachary Agush, Wheaton College '12:

Over the years, President Obama has always integrated personal stories into his annual State of the Union addresses to paint a visual about the troubles individuals may be facing or to explain how a certain effort can help spark further growth and development for others. I have always considered that a major strength. This year’s speech focused in particular on young families. The President knows that the new generation is quickly becoming the majority of the nation's population and that the lingering inequalities and economic hardships will definitely make it increasingly difficult for them to have the quality of life they desire. This generation is also going to struggle to maintain Social Security and Medicare for those entering these safety net programs in the coming decade. I think those stories in particular hit some members of Congress, even those of the new Republican majority, that something needs to be done to at least give the next generation a chance at success. I am cautiously optimistic that something may happen - but it will only happen if this Congress can actually stop and think about how their gridlock is directly affecting the next generation. Maybe then, there can be progress.

Sarah Hilton, Wheaton College '16:

President Obama made huge strides for education policy on Tuesday night; even raising the issue of rising college tuition is a positive step forward. However, the President hardly mentioned the K-12 system. He praised rising graduation rates and higher test scores then ever before, but ignored the staggering inequality and lack of student performance when compared internationally. Obama’s two-year community college plan, while economically beneficial for the middle class, shows that our base expectations for education continue to require more time and expense.

The focus instead should be on improving the K-12 system we already have by creating more diverse programs that train students for a variety careers from academic to vocational. Today, about half of students begin community college in remedial classes. We should be making our high schools more effective at reaching students. Vocational training for profitable and interesting jobs can be done in high school, and academic programs should be strengthen to reduce the need for remedial classes in community colleges. Strengthening the underlying K-12 system and increasing vocational training would have an earlier impact on our students’ lives.

Jas Johl, University of California, Berkeley '08:

The main rhetorical touch point for the state of the union was 'middle class economics.' Throughout the address, Obama repeatedly turned to that concept, presenting policy ideas designed to bolster it.  Of paramount importance to the ongoing success of middle class, he argued, would be to make the first two years of community college free for all. This proposal does address some of the symptoms of growing economic inequality, namely rising student debt. Nonetheless, it overlooks the underlying, systemic issues at the core of the problem: the broken state of our current education system. 

As The Institute for College Access & Success and the Brookings Institute have both argued, the majority of those attending community college are already getting their tuition covered through Pell Grants and other means of financial support. I’d argue the more pressing issue is the fact that many of the students who enroll in community colleges are ill-prepared for 4-year universities, and spend the first two years of college taking remedial college (read: high school) courses that they didn't do well in or even pass the first time. Free college doesn’t help a student who isn’t ready for it.

Obama makes the very valid point that making those colleges free would assuage the financial burden of a large number of young adults, and likely precipitate a better-prepared workforce. But a glaring absence in the president's speech was acknowledgement of the fundamental cracks in our institutions, namely, our already free K-12 educational system. Real middle class economics necessitate not just free education, but better education for all.

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Daily Digest - January 15: Free Community College Is "A Better Way" For Financial Aid

Jan 15, 2015Rachel Goldfarb

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The Daily Report (AM950 Radio)

Click here to subscribe to Roosevelt First, our weekday morning email featuring the Daily Digest.

The Daily Report (AM950 Radio)

Roosevelt Institute Fellow Mike Konczal discusses his recent article about the benefits of the president's free community college plan. Mike's segment begins at 28:00.

How Congress is Crippling Our Tax Collection System, in Charts (WaPo)

Catherine Rampell breaks down a report explaining how cuts to the IRS budget are impacting its ability to actually collect the taxes that are owed, with fewer staff to investigate tax evasion.

Republicans Use 'Death by a Thousand Cuts' Strategy to Deregulate Wall Street (The Guardian)

Republicans in the House have passed their first bill to weaken Dodd-Frank, and David Dayen says there are more to come as the GOP attaches deregulation to all kinds of unrelated must-pass bills.

Obama Stands At Crossroads On Financial Reform (ProPublica)

Jesse Eisinger says that with Republicans in control of Congress, it's time for the Obama administration to go big to protect the modest reforms created by Dodd-Frank.

As Profits Fall, JPMorgan Rejects Calls To Break Up The Megabank (Buzzfeed)

Matthew Zeitlin reports on recent suggestions that JPMorgan could be more profitable if it were split up. CEO Jamie Dimon instead blames regulators for drops in profits.

We Don’t Just Need ‘More Jobs’—We Need Higher Wages (In These Times)

Leo Gerard, President of United Steelworkers, says that the new jobs showing up on the jobs report aren't enough without higher wages for workers whose wages have been nearly stagnant for 35 years.

New on Next New Deal

Is Inequality Killing U.S. Mothers?

Roosevelt Institute Fellow Andrea Flynn ties the United States' embarrassingly high maternal mortality rates to economic inequality's broader impact on health and mortality.

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Daily Digest - January 12: Free Community College is Simpler Than Financial Aid

Jan 12, 2015Rachel Goldfarb

Click here to subscribe to Roosevelt First, our weekday morning email featuring the Daily Digest.

Did Obama Just Introduce a ‘Public Option’ for Higher Education? (The Nation)

Click here to subscribe to Roosevelt First, our weekday morning email featuring the Daily Digest.

Did Obama Just Introduce a ‘Public Option’ for Higher Education? (The Nation)

Roosevelt Institute Fellow Mike Konczal says free community college for all would be easier to run and more popular than means-tested financial aid models like Pell Grants.

Why Is the Financial Industry So Afraid of This Man? (Salon)

Sean McElwee and Lenore Palladino say blocking Roosevelt Institute Chief Economist Joseph Stiglitz from an advisory panel is just one sign of the financial industry's influence over its regulators.

December Caps Off a Year of Strong Job Growth But Stagnant Wages (Working Economics)

Elise Gould looks at the 2014 data and says that while the numbers are mostly positive, it's concerning that at this rate, we won't reach pre-recession labor market health until August 2017.

There's An Awful Side to the Jobs Report (Business Insider)

Shane Ferro says that while the December jobs report was largely good, the drop in average hourly earnings is a sign of trouble, especially with basically flat wage growth since early 2010.

Kicking Dodd-Frank in the Teeth (NYT)

Gretchen Morgenson breaks down the details of a Republican bill that claims to make "technical corrections" to Dodd-Frank, but would actually seriously weaken financial reform.

As White House Defends Unions, States Go on the Attack (AJAM)

Republican midterm victories at the state level will mean more anti-union "right to work" laws and other policies that weaken the labor movement, writes Ned Resnikoff.

New on Next New Deal

Can Community College Systems and Infrastructure Handle Free Tuition?

Rachel Kanakaole, New Chapters Coordinator for the Western Region of the Campus Network, questions whether community colleges can handle the increased enrollment that will come with free tuition.

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Can Community College Systems and Infrastructure Handle Free Tuition?

Jan 9, 2015Rachel Kanakaole

The President's proposal for free tuition is exciting, but some parts of the plan may need revision if community colleges are going to be able to execute it.

“We don’t expect the country to be transformed overnight, but we do expect this conversation to begin tomorrow.”

The President's proposal for free tuition is exciting, but some parts of the plan may need revision if community colleges are going to be able to execute it.

“We don’t expect the country to be transformed overnight, but we do expect this conversation to begin tomorrow.”

The conversation President Obama’s domestic policy chief, Cecilia Munoz, is referring to is one that we are all familiar with: access to quality education. This extended conversation, which continued today with the president's speech at Pellissippi Community College in Knoxville, Tennessee, includes President Obama’s new proposal to make the first two years of community college completely free for students looking to transfer, or to get an associates degree or technical job training.

The president’s proposal, America’s College Promise, is looking to build a shared responsibility between the federal government, states, colleges. and students across the country to reexamine and reinvest in our education systems. Modeled after similar plans currently being adopted by states such as Tennessee, community colleges offering programs that fully transfer, or provide a degree or job training would be eligible for funding from the federal government to help make tuition free for students. The program would apply to half- and full-time students who maintain a minimum 2.5 GPA and make “steady progress” towards their goals. What exactly “steady progress” means remains to be clearly defined, along with many other details, such as where the federal funding will come from. President Obama says he will release those details in his State of the Union address on January 20.

Even without all of the specifics, I can say that as a current community college student, access to and affordability of classes is crucial in determining whether or not I will graduate in a timely manner. However, it is not solely lack of money that hinders us students from being able to complete a program in two years, but a combination of multiple infrastructural issues such as course offerings, classroom space, and most importantly, proper guidance to navigate the complex systems that are the basis of the college itself. America’s College Promise is not only aiming to provide the always-needed financial assistance, but also requiring colleges to adopt “promising and evidence-based institutional reforms to improve student outcomes,” such as the successful Accelerated Student in Associates Program (ASAP) at the City University of New York.  Programs such as ASAP provide much needed resources such as guidance, counseling, and schedule planning, which are all crucial components to graduating on time.

The Obama administration believes adopting research-backed programs, like ASAP, nationwide, will provide students with the additional help needed to successfully complete their education in two years. While in theory, the blanket adoption of specific programs such as these would benefit some students in some states, it most likely would not benefit all students in all states. Take my campus, San Bernardino Valley College, which is located in the bankrupt city of San Bernardino in Southern California. What works for the population in Knoxville, Tennessee will not necessarily address the needs of students 2,000 miles across the country that are from very different economic, social, and cultural backgrounds. It could also add extra pressure on already stressed community college systems by forcing college administrators, faculty members, and students to learn and navigate yet another assistance program on campus. It seems redundant to force a community college that already has counseling services, academic advisors, and multiple assistance programs of their own to adopt additional programs, instead of encouraging better technical and skills training for those already employed on their campuses in areas such as counseling, advising, and educational planning. Many schools already provide the pathways for that type of guidance and counseling to occur, they just need to be reexamined and reinvigorated instead of ignored and replaced.

Another major question this proposal brings up is one of capacity. Again, using my community college as an example, with close to 13,000 students enrolled full-time, classroom space is already extremely limited, financially and physically. Schools would be pressured to create additional course offerings to accomodate higher enrollment, which is already an issue colleges across the country have had great difficulty with.

So, can America’s College Promise truly be fulfilled? I believe so, but not until a few critical components are reexamined and rewritten. The intention is there, but thankfully this is not a final proposal and is continuing to undergo development.

Rachel Kanakaole is the Chapter Head of the San Bernardino Valley Community College chapter of the Roosevelt Institute | Campus Network and one of the New Chapters Coordinator for the Western Region.

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