Family Finan e. According to the Lumina Foundation, the United States needs. Strengthening the family through finance

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1 Family Finan e Strengthening the family through finance Family Finance Quarterly Volume 4: Issue 1 Spring 2012 Encouraging Higher Education Completion through a Focus on the Adult Learner By Cathy Brigham, PhD According to the Lumina Foundation, the United States needs to educate nearly 800,000 more college graduates each year until 2025 to meet the growing needs of the workforce. 1 Increased enrollment in and successful completion of postsecondary education is critical to achieving that goal. This has led many state leaders to adopt innovative ways of improving the educational attainment of their citizenry, the most successful of which focus on improved completion rates for both traditional-aged students and adult learners. The Council for Adult and Experiential Learning (CAEL) has worked for decades on improving the educational goals of adult learners and how to best connect this learning to the acquisition of meaningful work. Some of CAEL s impact include: expanding access to Prior Learning Assessment (PLA); advocating for legislative adoption of portable, employer-matched Lifelong Learning Accounts (LiLAs) that are similar to 401(k)s, but eligible for education and training; and shaping policy at the state and federal level to directly address the needs and challenges of adult learners. About Prior Learning Assessment (PLA) Prior Learning Assessment, or PLA, can help more workers complete training and degree programs sooner by evaluating an individual s existing knowledge and competencies for possible college credit. A recent national study on correlations between PLA usage and academic outcomes demonstrates that students who had used PLA offerings were 2 ½ times more likely to graduate on-time than those who had not. 2 In spite of this impact, the concept of PLA and earning credit for what was learned outside of the traditional classroom was largely unknown outside of higher education. Today, however, state leaders are increasingly aware of PLA s value in helping the nontraditional learner complete a degree faster and at a lower cost. They are also realizing how PLAs can be a more efficient and responsible use of federal and state education and training programs, such as Individual Training Accounts (ITAs) and even tuition benefits for returning military personnel. Access to PLA programs has historically been inconsistent, dependent largely on the awareness and support of individual campus leaders. However, with the launch of LearningCounts. org, an innovative, online PLA service operated by CAEL, access to PLA has literally become boundless. Individuals both matriculated and not, and regardless of campus affiliation have cont d on pg. 5 1 Found at 2 Fueling the Race to Postsecondary Success, CAEL, Formal resolution to encourage the use of PLA for WIA participants; see 4 Draft policy and procedural guidelines are available on-line for review at SBCTC+Policy+Guidelines 1

2 Does Foreclosure Counseling Help Troubled Homeowners? Part 2: Final Results from the Evaluation of the National Foreclosure Mitigation Counseling Program In the Fall newsletter, we discussed how housing counseling is providing critical help to many of the millions of homeowners who are facing loss of their homes because of foreclosure. Through an evaluation of the National Foreclosure Mitigation Counseling (NFMC) program, which is administered by NeighborWorks America, the Urban Institute set out to determine whether foreclosure counseling was producing measurable benefits for troubled borrowers. Our research focused on the first two years of NFMC funding, in 2008 (round 1) and 2009 (round 2). The final results of this evaluation were released in December The research demonstrated that the NFMC program was having its intended effect of helping homeowners by improving the quality of mortgage modifications, increasing the frequency and sustainability of cures of delinquencies and foreclosures, and reducing the number of foreclosure completions. In addition, the program helped build the nation s foreclosure counseling capacity. As detailed in a final report and research brief, the evaluation documented the positive impacts of the program, which are summarized below. 1 Improving Outcomes for Troubled Homeowners Counseling provided through the NFMC program yielded measurable and substantial improvements in client outcomes. One of the most commonly sought solutions for a homeowner who cannot afford his or her monthly mortgage payments is a loan modification, which involves changing the terms of the current mortgage, such as by lowering the interest rate. Ideally, these changes would reduce the monthly payment to make the loan affordable to the homeowner. Obtaining a modification typically involves frequent interaction and negotiation with the mortgage servicer, and counselors can provide a crucial level of support to clients during this process. The evaluation found that NFMC clients who had their loans modified paid $176 less per month, on average, than homeowners who received loan modifications without the benefit of counseling assistance. By Peter A. Tatian, Neil S. Mayer, Kenneth Temkin, and Charles Calhoun, Urban Institute Counseling also increased the frequency and sustainability of cures of delinquencies and foreclosures. The data showed that homeowners in serious delinquency (three or more months of missed payments) or foreclosure had 89 to 97 percent higher relative odds of bringing their loans current through a modification if they got counseling help, as compared to troubled borrowers who did not use counseling. Furthermore, NFMC clients who got a delinquency-curing loan modification were 67 to 70 percent less likely to redefault on their mortgage payments nine months later. When these results are synthesized, they demonstrate that NFMC counseling nearly doubled the rate of curing and sustaining troubled loans. One of the most significant impacts of the NFMC program on the national foreclosure crisis was in increasing the number of foreclosures ultimately avoided. Between January 2008 and December 2010, the program reduced the number of foreclosure completions for counseled homeowners by 13,000. Put another way, the NFMC program prevented nearly one in seven foreclosure sales that would have been completed without counseling. Since foreclosure sales create social costs, avoiding foreclosures generates savings. Each foreclosure sale prevented by the NFMC program was estimated to have saved an average of $70,600 in avoided costs. These savings included $10,000 in moving costs, legal fees, and administrative charges for homeowners; $40,500 in deadweight lender losses; $6,500 in local government administrative and legal costs; and $13,900 in reduced neighboring property values. Assuming the 13,000 loans that avoided foreclosure because of counseling do not complete foreclosure at some point in the future, the NFMC program has helped save local governments, lenders, and homeowners $920 million, which is about $1,200 per client served by the program. When the full costs of providing counseling services to these clients are accounted for, the savings represented a total counseling benefit-to-cost ratio of 2.4 to 1. cont d on pg. 3 1 The summary research brief and final report are available on the Urban Institute web site at 2

3 Foreclosure cont d from pg. 2 Building National Capacity for Foreclosure Mitigation Counseling The NFMC program increased the funding available to counseling organizations, allowing them to hire more counselors and serve more clients. Before the national housing crisis, foreclosure counseling was a small share of the services provided by housing counseling organizations. The rapid rise in mortgage delinquencies meant that counseling organizations had to shift priorities and rapidly ramp up their capacity to provide foreclosure counseling. With NFMC funding, organizations increased the number of foreclosure clients served and expanded their service areas to respond to the increasing demand for help. To be effective, counseling organizations also had to improve their responsiveness to the challenges faced by their clients. The NFMC program evaluation gathered extensive information from counseling agencies on specific challenges, as well as on the strategies and best practices used to address them. Counseling organizations identified lack of servicer responsiveness and client financial difficulties (such as loss of income) as their two biggest challenges. Effective counseling organizations have developed several best practices to address these and other obstacles, including building contacts and relationships with servicers, assessing a client s situation in terms of proposals that a servicer will be willing to consider, working through a crisis budget with the client to prioritize expenses, and empowering clients to be informed advocates on their own behalf. The evaluation of the NFMC program has shown that counseling has been an important and successful tool in addressing the record number of troubled homeowners who have faced, and continue to face, loss of their homes because of foreclosure. While counseling cannot solve the foreclosure crisis by itself, it nonetheless has helped homeowners achieve better outcomes, which in turn has benefited the country by reducing the numbers of non-performing and failed mortgages, avoiding social costs associated with foreclosures, and allowing more people to retain their homes. n Reforming the Credit Counseling Industry in Florida By Lauren McKown, Graduate Policy Fellow During this time of financial uncertainty, state legislators are working to propose legislation which will support the financial security and well being of their constituents. In Florida, Representative Elizabeth Porter proposed House Bill (H.B.) 67 in January. H.B. 67 has several important components to protecting potential debtors and safeguarding their access to education concerning their financial options and well being. These main components include: requiring that debt management & credit counseling services be provided when formulating a debt settlement plan; requiring credit counseling agencies to make certain disclosures to a debtor before he or she consents to payment; prohibiting a credit counseling agency from making certain misrepresentations to a debtor; providing certain conditions that credit counseling agencies must meet before receiving payment; providing that a debtor may withdraw any account funds placed with credit counseling agency at any time without penalty; and authorizing a credit counseling agency to hold funds in order to allow funds to accumulate. Elaborating on these components, H.B. 67 has specific conditions when outlining what credit counseling agencies must disclose truthfully, in a clear and conspicuous manner, to debtors before he or she consents to payment for debt. This disclosed material information includes: the amount of time necessary to achieve the represented results; the anticipated time by which the credit counseling agency will make a bona fide settlement offer to each of the creditors or debt collectors; the amount of money or the percentage of the debt amount which a debtor may save by using such service; and when/if the debt settlement service will adversely affect the debtor s creditworthiness, or result in the debtor being subject to collection actions. Under the condition that debtors may withdraw account funds, the bill specifies that the debtor must receive all funds in Representative Elizabeth Porter, Florida, 11 th District the account, other than funds earned by the credit counseling agency, within seven business days after the debtor s request. This timeframe protects the credit counseling customer and ensures his or her funds will be readily available if need be. The legislation also states that debt management counseling services must not charge or accept from a debtor a fee or contribution greater than $50 for the initial setup or initial consultation. Credit counseling agencies may not receive payments of any fee or consideration for any debt settlement service until the agency has renegotiated, settled, or reduced at least one of the debts. In addition, the percentage charged may not change from one individual debt to another and may not exceed 30 percent of the amount saved by an individual. n 3

4 What is the Earned Income Tax Credit? The Earned Income Tax Credit (EITC), created in 1976, has grown over the past 30 years into the nation s largest program for the so-called working poor. 1 A state Earned Income Tax Credit supplements the federal credit and works as a rebate for state taxes paid by low-income working people. Research indicates that each year state EITCs lift approximately 6.6 million people, including 3.3 million children, out of poverty. 2 State EITCs raise employment among single parents and the resulting increase in earnings boosts economic activity within a state. 3 It is the refundable nature of the earned income tax credit (EITC) that makes it such a powerful, poverty-fighting tool. The EITC provides a considerable boost to low-income workers take-home pay, making each hour worked far more valuable to a struggling family. A nonrefundable credit allows taxpayers to benefit only to the extent that they owe taxes. Such a credit can reduce a family s taxes to zero, but if a family does not owe any taxes then they cannot benefit from the credit. 4 A refundable credit allows families to benefit from the full value of the credit they have earned even if they owe less in income tax than the amount of the credit. If the amount of the EITC exceeds the amount of income tax owed, the difference is paid back to the filer in the form of a rebate. At least part of the refundable credit offsets payroll and sales taxes, which, for low-income working families, are often larger than income taxes. 5 The cost of state earned income tax credits (EITCs) may be relatively modest because they are more specifically targeted to low- and moderate-income working families than many other major tax cuts. State EITCs are financed in whole or in part from funds available in a state s general fund - the same funding source typically used for other types of tax cuts. When an EITC is used to offset the effects of a regressive tax increase, such as a sales tax increase, a part of the proceeds of the revenue increase may be set aside for the EITC. A state EITC can complement a state s welfare program by assisting lowincome, working families with children. 6 The cost of a state EITC depends principally on four factors: the number of families in a given state that claim the federal credit; State Percentage of Federal Credit By Lauren McKown, Graduate Policy Fellow the percentage of the federal credit at which the state credit is set; whether the credit is refundable or non-refundable; and how many state residents who receive the federal credit also learn about and claim the state credit. 7 The below table, created by the Center on Budget and Policy Priorities, is a list of state EITCs based on the federal EITC. n Refundable? Delaware 20% No Yes District of Columbia 40% Yes Yes Indiana 9% Yes Yes Illinois 5% Yes Yes Iowa 7% Yes Yes Kansas 17% Yes Yes Louisiana 3.5% Yes Yes Maine 5% Partially Yes Maryland 25% Yes Yes Massachusetts 15% Yes Yes Michigan 20% Yes Yes Minnesota Average 33% Yes Yes Nebraska 10% Yes Yes New Jersey 25% Yes Yes New Mexico 10% Yes Yes New York 30% Yes Yes North Carolina 5% Yes Yes Oklahoma 5% Yes Yes Oregon 6% Yes Yes Rhode Island 25% Partially Yes Vermont 32% Yes Yes Virginia 20% No Yes Washington 10% Yes Yes Wisconsin 4% one child Yes No 14% two children 43% three children Workers Without Qualifying Children Eligible? 1 Brookings Institute 2 State EITC, 3 Center on Budget and Policy Priorities, cms/?fa=view&id=164 4 State EITC, 5 State EITC, 6 Center on Budget and Policy Priorities, cms/?fa=view&id=164 7 State EITC, 4

5 Adult Learner cont d from pg. 1 access to a rigorous PLA evaluation process that helps support them in developing the skills necessary to submit a prior learning portfolio and matches the portfolio against a roster of national faculty members, all trained in the internationally-recognized CAEL standards. With a network of over 120 participating institutions, LearningCounts.org has dramatically expanded the potential impact of PLA on college completion rates and workforce training nationwide. Incorporating PLA into State Action State leaders recognize that formal assessment and recognition of college-level learning through PLA can positively impact state system performance by moving adults more quickly to completion at a lower cost and by better preparing the region s workforce with more highly-trained, educated employees. Recent PLA-related statewide efforts include the establishment of an Indiana State Workforce Innovation Council (SWIC) that seeks a legislative way to promote PLA within the workforce system. 3 Recognizing that nearly all of Indiana s post-secondary institutions offered students some form of PLA opportunity and that many of the jobseekers served by the Work One centers could benefit from PLA, SWIC took legislative steps to endorse PLA, and thereby save jobseekers time and money as they progress in educational programs. Also endorsing a statewide approach to PLA, the Washington State Legislature passed a bill that required the State Board for Community and Technical Colleges to work with other stakeholders to develop policies for awarding academic credit for experiential learning. It was the intent of the legislature that transparent policies be developed and that PLA activities be consistently applied at all Washington institutions of higher learning. 4 Similar statewide efforts are also modeled in college completion initiatives in Minnesota and Arkansas which incorporate PLA into their approach. 5 What Can Your State Do to Encourage College Completion? States interested in advancing their completion rates through a promotion of PLA will adopt different approaches depending on what kind of stakeholders are best positioned to take the lead role. The above examples provide some roadmaps for states to consider. In addition, LearningCounts.org offers additional action steps to support the expansion and use of PLA throughout your state. Consider adopting state legislation that enables the adoption of LiLAs. Create a PLA Taskforce with representatives from higher education, workforce, economic development, business, and labor with the charge to assess the current status of PLA in the state and develop recommendations on how to create a more consistent and robust system. Include PLA in the state Workforce Investment Act Funds (WIA) plan. Establish state workforce policy that encourages the use of PLA for Individual Training Accounts and WIA-funded training. Train workforce center staff on how to identify candidates who would benefit from PLA. If there is a state financial aid program, ensure that PLA is a covered activity. Consider funding incentives for postsecondary institutions that pay for student outcomes as opposed to seat time. Develop communication and marketing strategies to attract adults back to school and features the availability of PLA to lower costs and save time. Consider expanding PLA offerings within the state with LearningCounts.org, a national online PLA service offered by CAEL. n 5 Leveraging college completion outreach activities to expand student awareness of PLA and promote the availability of PLA across the state system-level procedures for credit for prior learning that require each campus to implement a policy and procedure that included key components but allowed campuses to maintain some autonomy. procedure/335p1.html. Using PLA in Arkansas as a key activity to respond to the Governor s educational attainment initiative, 5

6 Encouraging Asset Building with Home Purchase Tax Incentives By Lauren McKown, Graduate Policy Fellow This year Senator Jennifer Beck of New Jersey proposed legislation aimed at encouraging asset building among her constituents. Senate Bill (S.B.) 594 establishes a tax incentive credit for up to $7,500 for qualified homebuyers. Under the New Jersey Gross Income Tax Act, this tax credit would apply to qualified home purchases made by certain firsttime homebuyers in the remaining portion of taxable years 2009, 2010, and The credit is for an amount equal to ten percent of a qualified home purchase price or $7,500, whichever is less. If two or more qualified taxpayers purchase a home jointly, the amount of the credit allowed will be allocated among the individuals purchasing the home. Qualified residential property that qualifies for the tax credit can be a dwelling house, or a condominium unit under the form of real property ownership. Those who qualify cannot have owned a principal residence in the three years immediately preceding the date of their new home purchase. Qualified persons do not include a taxpayer that has a gross income exceeding $245,000, and whose filing status is single, married or civil union filing separately. Senator Beck hoped this legislation would also serve to stabilize and spur the economy with consumers purchasing not only the property itself, but affiliated items associated with the property, such as furniture, lawn supplies, and home improvement tools. In addition research shows that families with assets: demonstrate an orientation toward the future; demonstrate a decrease in marriage dissolution; demonstrate an improved housing stability; experience improved health and well-being; experience increased civic and community involvement; and experience decreased rates of transfer of poverty to the next generation. 1 S.B. 594 is part of a larger trend of tax incentive home buying legislation. In 2011 the District of Columbia offered qualified home buyers up to an $8,000 tax credit for purchasing property. Similarly, first Senator Jennifer Beck, New Jersey, 11 th District time home buyers in California were qualified for a tax credit up to $10,000 in California set aside a fund for this tax incentive which consisted of $100 million dollars. Applications for the home tax credit were taken on a first come, first served basis until all the money allotted in the fund was utilized. While S.B. 594 did not pass this legislative cycle and was ultimately withdrawn, incentivizing constituents to build assets provides a policy option to help encourage financial stability in each state. n 1 U.S. Department of Health and Human Services, Office of Community Services, Asset Building, Women In Government 1319 F Street, NW Suite 710 Washington, DC Women In Government Foundation, Inc. is a national, non-profit, non-partisan organization of women state legislators providing leadership opportunities, networking, expert forums, and educational resources. 6