paving the way through paid internships

8/9/2019 Paving the Way Through Paid Internships

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Paving the Way

throughPaid

Internships:

A Proposal to ExpandEducational andEconomic Opportunities

for Low-Income CollegeStudents

Kathryn Anne Edwards and Alexander Hertel-Fernandez


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About Dmos

Dmos is a non-partisan public policy research and advocacy organization. Headquartered in New York City,Dmos works with advocates and policymakers around the country in pursuit o our overarching goals: a moreequitable economy; a vibrant and inclusive democracy; an empowered public sector that works or the commongood; and responsible U.S. engagement in an interdependent world.

Dmos was ounded in 2000.

Miles S. Rapoport, PresidentTamara Draut, Vice President o Policy and Programs

About the Economic Policy Institute

Te Economic Policy Institute, a nonprot Washington D.C. think tank, was created in 1986 to broaden the dis-cussion about economic policy to include the interests o low- and middle-income workers. EPI was the rstand remains the premierorganization to ocus on the economic condition o low- and middle-income Ameri-cans and their amilies.

Bios

Kathryn Anne Edwards joined the Economic Policy Institute in September 2008 to work or the EconomicAnalysis Research Network, a network o state and regional multi-issue research, policy, and advocacy organiza-tions. She currently works on young adult economic issues and oversees the design and management o Econo-myrack.org, a website that provides an interactive look at the U.S. labor market. Prior to EPI, she taught Eng-lish in Eastern Europe and wrote or a satire magazine. Her areas o interest include state economic development,tax and budget policy, and public investment. She is a graduate o the University o exas at Austin with a de-gree in economics.

Alexander Hertel-Fernandez works on social policy and young adult economic issues at the Economic PolicyInstitute and is a visiting researcher at the George Washington University. Alexander was previously a Senior Fel-low or Social Insurance with the Roosevelt Institution. His research on social policy and the comparative politi-cal economy o social insurance has been published in Social Policy & Administration, the Bulletin o the WorldHealth Organization, Social Policy Reports, the Journal o Aging and Social Policy, and Health Aairs. He iscurrently investigating historical trends in young adult economic risk and recent shits in the politics o social in-surance reorm. Hertel-Fernandez holds a degree with honors in political science and public health rom North-

western University.

Nancy K. Cauthen is Director o the Economic Opportunity Program at Dmos. She brings two decades o ex-perience researching and analyzing public policies that promote opportunity and reduce economic hardship. Pri-or to coming to Dmos in February 2009, Nancy spent 10 years at the National Center or Children in Poverty

at Columbia University, where she served as Deputy Director and Director o Family Economic Security. Nan-cys recent work has ocused on expanding opportunity or young people, with an emphasis on ensuring that low-and moderate-income young adults have the chance to complete a postsecondary credential. Shes done a consid-erable amount o research on ederal and state work support policies such as earned income tax credits, child careassistance, and health insurance. Nancy received her PhD in Sociology rom New York University and also holdsdegrees rom the University o Michigan-Ann Arbor and the University o Wisconsin-Madison.

Copyright

2010 Dmos: A Network or Ideas & Action


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able of Contents

Preface by Nancy K. Cauthen, Dmos 1

Executive Summary

Introduction

Background: Te Haves and Have-Nots Among College Students 4

Background: Why Low-Income Students Need Access to Internships 5

Design and Implementation of the Student Opportunity Program 6

1) Grants to Colleges to Establish their Own Individual Internship Support Programs 7

2) Grants to Low-Income Interns in the Federal Government and Congress 8

Coverage of the Student Opportunity Program 8

Funding the Student Opportunity Program 9

1) Reorm o the ax reatment o Higher Education Spending 9

2) Limiting Section 529 Plan Contributions 10

Initial Program Implementation: Funding and Enrollment

Complementary Policies 11

Internship Database 11

Government Internships 11

Enorcement 12

Conclusion 12

Endnotes


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5/20Paving the Way through Paid Internships

Preface

byNancy K. Cauthen, Director of the Economic Opportunity Program, Dmos

A post-secondary education has become almost essential or getting a decent job and entering the middle class,

and increasingly, internships are a critical part o the college experience. Yet nancial constraints prevent many

low- and moderate-income young people rom seeking internships because such experiences are requently un-paid. In a tight labor market, college graduates who have gained experience through internships have an edge on

the job market. But the inequities go ar beyond internshipsa college degree itsel is increasingly nancially out

o reach or young people rom modest economic backgrounds.

Over the last 30 years, access to college has steadily improved. Nearly 70 percent o high school graduates enroll

in some kind o postsecondary education immediately ollowing high school. Importantly, access has improved

across racial and ethnic groups and across income levels, although whites and students rom higher-income am-

ilies have made the largest gains. But despite these gains in access, college attainment rates have been practically

at: over the last decade, the percent o young adults ages 25 to 29 years old with a bachelors degree has remained

just under 30 percent. In other words, more young people are enrollingin college but theyre notgraduating: as a

nation, were not producing a higher percentage o college graduates.

Vast inequities exist in who gets a college degree and who doesntand the most striking dierence has to do

with economic privilege. Young people rom the most privileged backgroundsthat is, those with highly-educat-

ed parents and high amily incomesare eight times more likely to earn a bachelors degree in their mid-twen-

ties than their peers rom the least privileged backgrounds. And while there are a number o reasons or this, one

thing is cleargoing to college has become a lot less aordable.

Over time, states have slashed aid to colleges and universities and tuition and ees have risen dramatically. Whats

more, nancial aid policies have gradually moved away rom their original mission o making a postsecondary ed-

ucation accessible to those who can least aord it. Federal nancial aid has shited rom awards based on nancialneed to loans. Further, the purchasing power o Pell Grants, the nations largest source o need-based nancial aid,

has declined precipitously: thirty years ago, the maximum grant covered three-quarters o the cost o attending a

public our-year college or university. But now the maximum grant covers only cover a third o the cost and most

recipients dont receive the maximum.

rends at the state and institutional levels have urther added to the inaccessibility o higher education to low-

and moderate-income students: state nancial aid policies have shited rom need-based to merit-based student

aid, and colleges have increasingly used more o their nancial aid resources to attract the best-prepared students

regardless o nancial need.

Given these trends, the proposal by Kathryn Anne Edwards and Alexander Hertel-Fernandez o the EconomicPolicy Institute to provide paid internships to low- and moderate-income college students is particularly timely.

Te proposal addresses nancial need while recognizing that a college degree alone is no longer sufcient to se-

cure the best employment opportunities; employers increasingly expect college graduates to have real-world ex-

perience through internships. Paid internships or lower-income students would represent an important step to-

ward leveling the playing eld. Tis proposal could potentially make it more likely or such students to graduate

and to do so with valuable, career-oriented experience that will better prepare them or the uture. What a victory

this would be toward restoring opportunity in higher education.


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Executive Summary

Internships are no longer a rare added bonus or students, but now a standard component o the college experi-

ence. A national survey in 2006 ound that 84 percent o college students at our-year institutions had completed

at least one internship beore graduation. It is not hard to understand why so many students pursue these oppor-

tunities. Internships oer a myriad o benets: experience in an organization and industry that gives insight on

careers, new skill training, and exposure to a network o proessionals in a eld o interest.

In an increasingly competi-

tive labor market, internships

also provide important and

oten necessary credentials or

prospective job applicants. In

spite o their value, the oppor-

tunity to pursue an internship is oten limited by a students socioeconomic status. Te vast majority o non-prot

and governmental internships are unpaid.1 For a student o modest means, this price taghaving to meet living

expenses without an incomeis oten too great, particularly since some o the most prestigious unpaid intern-

ships are located in expensive cities.

In this brie, we outline the limitations o the current college internship system and lay out a proposal that would

enable low-income college students to pursue paidinternships at either non-prot organizations or in govern-

ment. We propose that the ederal government initially appropriate $500 million in spending or the Student Op-

portunity Program to support about 100,000 low-income college students per year. Tis would be unded initial-

ly by capping contributions to section 529 savings plans (a recent recommendation o the reasury Department

to the White Houses Middle Class ask Force) and consolidating

the currently disparate system o higher education tax expenditures.

Going orward, we envision increasing support or the campus-based

components o our proposal to provide expanded unding to moreuniversities and colleges.

o implement the program, we recommend using the existing in-

rastructure o the campus-based Federal Work-Study program, but

we also oer two alternative implementation mechanisms. Tese in-

clude having the ederal government administer competitive grants

to colleges and universities (particularly public institutions, including

community colleges) to establish their own campus-level paid internship programs or low-income students and

having the Ofce o Personnel Management administer grants to low-income students who secure internships in

ederal government agencies or Congress.

Te Student Opportunity Program will serve as a pipeline to college completion and employment or high-

achieving, low-income students, helping them to acquire the skills, contacts, and experience that will improve

their uture labor market potential and encourage them to pursue careers in public service.

Te Student Opportunity Program willserve as a pipeline to college completionand employment or high-achieving,low-income students, helping them toacquire the skills, contacts, and experiencethat will improve their uture labormarket potential and encourage them topursue careers in public service.

A national survey in 2006 ound that 84 percent o college students at our- year institutions had completed at least one internship beore graduation.o address the inaccessibility o internships to students o modest means, wepropose the creation o subsidies or low-income college students to pursue paidinternships at non-proft organizations or government agencies.



Introduction

Millions o college students around the country are now anxiously awaiting the results o their applications or

summer internships. Once a rare bonus or students, internships have become a standard component o a college

graduates resume. Although no ormal data exist regarding the prevalence o internships, numerous reports in

the media and rom university career service ofces document the increasing importance o these experiences. A

national survey in 2006 by Vault, a career advising consultancy, ound that 84 percent o college students at our-year institutions had completed at least one internship beore graduation.

Students and university career service specialists cite the numerous advantages that internships provide: an op-

portunity to learn new skills, try out a certain industry or occupation, network and meet proessionals in a eld o

interest, and get a oot in the door or uture employment in a particular eld. Internships provide a crucial bridge

rom being a college graduate to transitioning into the labor market.

Despite their value, the opportunity to pursue an internship is oten constrained by a students economic resourc-

es. Although or-prot rms are generally legally required to pay their interns, non-prot rms and government

agencies are not subject to this restriction (interns are considered to be donating their time). Tis means that

the vast majority o non-prot and governmental internships are unpaid.2 For example, in Washington, D.C., acity known or attracting many high-achieving college students, many o the internships in the White House,

Congress, and policy and research organization oer no compensation. In addition to orgoing wages or three

months, students must pay or travel, housing, and other living expenses. For a student o modest means, this price

tag is oten prohibitive, particularly since most o the internships with the highest payo are in expensive cities.

Moreover, students rom lower-income amilies are much more likely to have higher levels o student debt, mak-

ing it even harder or them to aord unpaid internships. For example, we conservatively estimate that a three-

month internship in Washington, D.C. would cost $4,050, excluding travel.

Non-prot organizations and governmental agencies oten jus-

tiy having unpaid internships by helping students secure schoolcredit, thereby osetting tuition. In practice, however, this is oten

not an even exchange. Because interns are typically not enrolled as

ull-time students, they may not be eligible or nancial aid. Al-

though they may be receiving class credit, unpaid interns must still pay or housing, ood, transportation and other

living expenses. Moreover, some universities require that students pay a ee or percentage o tuition to remain en-

rolled i they are not on campus and receiving academic credit. Lastly, most universities set limits on the amount

o credit that students may claim rom internships. A student with a semester internship may not be able to re-

ceive a ull semesters credit, so credits received rom an internship may be o limited useulness.

Although many elite and small liberal arts colleges provide grants or unpaid summer work, this aid is over-

whelmingly concentrated at private institutions with greater resources, and it tends to benet higher-income stu-

dents who already have greater access to internships.3 Also, the aid awarded is typically not sufcient to cover liv-

ing expenses, particularly in high-cost cities. And it is oten limited to specic sorts o opportunities. Further, the

recession has orced universities and charitable oundations to cut back on scholarships and aid or internships.

At the same time the recession, and greater competition in the job market, has made the experiences that intern-

ships oer all the more valuable to college graduates.

Grant aid or unpaid summer work tends tobeneft higher-income students who alreadyhave greater access to internships.


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o address the inaccessibility o internships to students o modest means, we propose the creation o subsidies or

low-income college students to pursue internships at non-prot organizations or government agencies. Not only

would this policy potentially improve academic and employment outcomes among low-income students, it would

also encourage students to pursue careers in public service and public policy, a key goal articulated by President

Obama and members o Congress.

In this brie, we rst outline the challenges that the current college internship system poses or low-income stu-

dents. We then lay out three alternative proposals or providing grants to low-income college students to enable

them to complete internships at either non-prot organizations or in government by: 1) building on the Federal

Work-Study Program, 2) having colleges and universities compete or institutional grants to design their own pro-

grams, or 3) administering grants to low-income interns in ederal agencies and Congress.

Background: Te Haves and Have-Nots Among College Students

Te American economic narrative has long been dened by opportunity. An increasingly necessary element o

opportunity is a college education. Evidence shows that Americans believe in the importance o higher educa-tion; the number o young people who are pursuing post-secondary education is increasing dramatically. In 2009,

68.6 percent o 18-24 year-old high school graduates were enrolled in institutions o higher education, an all time

high. By most measures, this is an excellent change in our labor marketcollege educated workers have a lower

unemployment rate, higher earnings, are more likely to have retirement and health benets, and are less likely to

be poor. Te most encouraging part o the increased enrollment in postsecondary education is that its benets are

shared across income tiers and ethnic groups. Low-income and minority students in particular have seen great

increases in college enrollment rates (although stark disparities still persist).4

While these gains in college enrollment are important, the rising cost

o education coupled with stagnant nancial aid has created an un-equal playing eld or college access and uture employment oppor-

tunities. In 1979, the maximum award amount o Pell grants covered

about 75 percent o the average total cost o attending a public our-

year college, while in 2009 it only covered 35 percent. However, only

25 percent o Pell recipients received the maximum in 2008, and as a result, 87 percent o Pell grant awardees

graduated with student loan debt in 2008. Te inadequacy o nancial aid and rising tuition has led to skyrock-

eting levels o debt among students. wo-thirds o students borrow money to pay or college, up rom just under

hal in 1993.5 Te average debt or graduating seniors with student loans rose to $23,200 in 2008. For students

attending private institutions, this number jumps to $27,650.6

Te broken nancial aid system generates a two-tiered structure o college students. On the rst tier are students

rom high income amilies with the nancial resources to pursue their studies, graduate, and leave college rela-

tively debt ree. On the second tier are students rom disproportionately low- and moderate income households

who become saddled with debt and must work long hours to und their education, compromising their ability to

graduate.

Te rising cost o education coupled withstagnant fnancial aid has created anunequal playing feld or college accessand uture employment opportunities.



Te leading reason that students cite or either dropping rom ull- to part-time enrollment or or leaving school

altogether is the difculty o balancing work and classes.7 Just 38 percent o community college students under

the age o 24 have a degree ater six years o enrollment. Te main reason, in turn, or students to work part- or

ull-time during college is that they cannot aord the cost o education63 percent o young community college

students said that they would not be able to attend school without working.8 Among these working students, 58

percent said their work was not related to their major or coursework.9

Te lack o adequate unding then, limits the choices o students in the second tier both during and ater their

undergraduate education. Te rst tier graduates can aord to orgo wages each summer to pursue unpaid work

experiences, while the latter is highly dependent on nancial aid and employment, and thereore oten cannot a-

ord unpaid internships, particularly those that require temporary relocation.

Unpaid internships themselves may also be a source o economic insecurity even or students who can aord to

pursue such opportunities. As the Chronicle o Higher Education describes in a recent article, [t]uition hikes, text-

book costs, student-loan rates, and credit-card marketing generate considerable public outrage, but graduates sad-

dled with debt may also have unpaid or low-paying internships to blame.10 Te pressure to complete an intern-

ship beore graduation backs many low-income students into a corner: they can either take a paying job during

the summer to earn money and not go urther into debt, or they can take out additional loans to nance a sum-

mer internship. Both options hurt them in the long-run, by either limiting their experience and thereore mar-ketability as a job candidate, or by accruing more debt.

Background: Why Low-Income Students Need Access to Internships

Most employers recognize the importance o internships as a orm o education and training and expect success-

ul applicants to have completed at least one previous internship or similar work experience beore attempting to

enter the labor market. In a representative survey, Michigan State University researchers ound that 50 percento new college graduate hires in 2007 had previously completed internship experiences at the rm at which they

were hired. Te National Association o Colleges and Employers (NACE) conducted a separate representative

survey o employers and ound that 76.3 percent o rms reported relevant work experience as the primary ac-

tor when making hiring decisions. Te increasingly competitive labor market makes previous work experience in

the orm o internships all the more valuableNACEs employment prospects survey or the class o 2009 ound

that only 14 percent o graduates without previous intern experiences had secured employment by April, com-

pared to 23 percent o graduates with at least one internship.

Although conventional wisdom states that one cannot put a price on

experience, this maxim is not preventing some new companies rom

trying. A recentNew York imes article highlighted the growing trend

o parents paying private companies to nd an internship or their chil-

dren. Te University o Dreams, or example, charges $8,000 per person

or the guarantee o an eight-week internship with housing in New York City. A similar service in Washington,

D.C. charges $5,195, on top o a $60 application ee, with an optional $3,395 or housing. Although unethical to

make students pay or the right to unpaid work, the existence o these services shows the unequal access to these

opportunities and the subsequent inequalities they create or students who cannot aord them. Moreover, they

76.3 percent o frms reported relevant

work experience as the primary actorwhen making hiring decisions.


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are indicative o the changing burdens that college students today ace relative to previous generations. As an in-

creasing number o young adults pursue higher education, students must perorm ever more in order to distin-

guish themselves rom their peers.

Internships also help students better match their skill sets to uture jobs, both by exposing students early to di-

erent careers, and by providing them with a pipeline to employment ater graduation. Recent research rom the

Center or Labor Market Studies at Northeastern University shows that less than hal o all recent college grad-

uates are in a job that matches their education and skills.11 According to Andrew Sum o Northeastern Univer-

sity, it can take between six and nine years or graduates working in mismatched or low-skill jobs to catch up

with their well-matched peers.12

Many traditional college students have not experienced employment in a proessional workplace beore enrolling

in school. Internships thus provide the rst opportunity or many students o what uture employment in a eld

o interest will be like, giving them an opportunity to unction in a proessional environment.

Design and Implementation of the Student Opportunity Program

o address inequality in access to unpaid experiences in non-prot organizations and government agencies, we

propose a new initiativethe Student Opportunity Programthat would provide nancial support or low-in-

come college students who choose to pursue summer or semester-long internships. We highlight three potential

implementation mechanisms that could be used individually or in tandem with one another.

We recommend using the existing Federal Work Study (FWS) program to screen students and administer in-

ternship grants. FWS provides aid or higher education that is earned through part-time employment. Approxi-

mately 3,400 colleges and universities participate in FWS. Eligibility is determined through the Free Application

or Federal Student Aid (FAFSA), but nancial aid administrators at each school have substantial exibility todetermine award amounts and dene qualiying employment. Employment is largely located on university cam-

puses, although schools also allow or work at certain local non-prots as well. In act, at least seven percent o

the positions that colleges oer must be in community services organizations.

Te benet o using FWS is that it already exists at many schools and is amiliar to hundreds o thousands o

students. A key challenge in creating new aid initiatives is building the capacity to administer them. Using FWS

would capitalize on existing resources already present on campuses.

Under the new initiative, the ederal government would provide individual institutions with unding to operate

Student Opportunity Programs. Individual schools would receive unding based on the proportion o their stu-

dents who are low-income students and receiving nancial aid. Each university would thus have considerable dis-cretion in the creation and administration o their own Student Opportunity Programs so long as their selected

students met the income eligibility requirements established by the ederal government. Using FAFSA, which

students are required to ll out or nancial aid, Student Opportunity Programs would set the eligibility limit at

300 percent o the Federal Poverty Line, which in 2009 was $66,150 or a amily o our. Students would apply to

the program through their nancial aid ofce, either choosing rom internships identied by their institution or

presenting their own proposal or an internship. Student Opportunity Program grants would be paid to interns

through each individual school. Ater the income requirement, selection to the program would be let to individ-



ual universities, but we recommend that university-level selection criteria be based on academic perormance so

that the program awards high-achieving students.

FWS ofces at some campuses may not be able to handle the new responsibilities associated with screening in-

ternships, and thus, we propose including a clause that allows universities to develop their own mechanisms or

administering Student Opportunity Program grants should they eel that their FWS ofce would be ineective

(or example, through a Career Services ofce instead). Nevertheless, the majority o schools ought to be able to

use their FWS ofces to administer the internship grants. In our calculations o the proposed coverage, we assume

that the costs o administering the Student Opportunity Program would be hal that o FWS.

However the program is implemented and students selected, the award amount or students should be uniorm

(or at least relatively similar) across dierent schools. We propose setting Student Opportunity Program und-

ing equal to $3,500 or three month (summer) grants and $7,000 or six-month grants. Other amountssay or

quarters or semesterscould be administered to students so long as they adhered to the same monthly payment

amount. Depending on the location o the internship, recipients could be eligible or up to an additional $1,000

cost-o-living adjustment. Te ormula or geographic adjustment will be determined by the Ofce o Federal

Aid in the Department o Education. o keep up with changes in the cost o living, grant amounts would be in-

dexed to the average working wage or non-supervisory production workers, a superior method to indexing to in-

ation.13 In order to ensure airness, schools would be required to und all eligible new applicants to the programbeore administering grants to students who have already participated.

ime restrictions on the length o the internship would prevent students rom working or less than the ederal

minimum wage i the employers adhere to a 40-hour work week schedule. Each internship award will require an

entry and exit letter rom a previously designated supervisor at the host organization to conrm that the intern-

ship was completed and to certiy that the intern works or 40 hours per week, a standard or students receiving

private awards today.

Although we recommend delivering internship support through the FWS system, we highlight two other com-

plementary options or administering grants. Te rst would oer competitive grants to schools (especially public

colleges and universities serving disproportionately low-income student populations) to establish their own indi-

vidual internship support programs. Te second would use the Federal Ofce o Personnel Management to ad-

minister grants to low-income students who have secured internships in ederal agencies or in Congress.

1) Grants to Colleges to Establish their Own Individual Internship Support Programs

A new ofce within the Department o Education would be charged with administering competitive grants to

colleges and universities who would in turn implement internship support programs or low-income students

(dened as amily income less than three times the poverty line) on their own campuses. Tese sorts o support

programs are already present at many private, elite universities but are lacking in the majority o public or com-

munity colleges. Tereore, the institutional grants program would relate the size o grants to the share o low-in-

come students present at an institution, and would avor small and low-income public and community colleges.

Internship programs could be used only to support work at non-prot organizations, or independent work or re-

search experiences by students as monitored by aculty members. While a small share o each grant could be used

to cover administrative costs, the majority o the unds would be used to directly und low-income students. In-

ternship programs could only support work at non-prot organizations or in the ederal government.


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2) Grants to Low-Income Interns in the Federal Government and Congress

Under this option, low-income students (with amily income less than three times the ederal poverty line) who

have secured an internship in the ederal government or Congress would be eligible or support in the orm o

a stipend administered through the Ofce o Personnel Management. We conservatively estimate that there are

22,000 ederal interns eligible or income assistance each year (that is, who have amily incomes below three times

the ederal poverty line). Family income would be veried through the Free Application or Student Aid (FAF-

SA). Along with this option, we propose that an additional one-time payment o $5 million be dedicated towards

helping ederal agencies either implement or improve their internship programs. Tis support would be adminis-

tered through a competitive grant program run by the Ofce o Personnel Management.

For both o these implementation mechanismscompetitive grants to individual institutions and support or

ederal and congressional internswe recommend the same award levels discussed previously: $3,500 or sum-

mer (three-month) internships and $7,000 or six-month internships and annually indexing these awards to the

average wage o non-supervisory production workers. Internship support must not be lower than the ederal min-

imum wage given the number o weeks and hours that a student works in an internship.

Coverage of the Student Opportunity Program

Figure 1 shows the distribution o ull-

time college students ages 16 to 24 in

2009 by amily income as a percent o

the ederal poverty level (FPL). Stu-

dents ages 16 to 24 make up about three

quarters o all college students, and 86

percent o these young students are en-rolled ull time.14 O the approximate-

ly 9 million ull-time college students

aged 16-24 in 2009, just under hal o

these students (46 percent)or about

4.14 millionhave amily incomes be-

low three times the FPL. Tese students

would be income-eligible or the Stu-

dent Opportunity Program.

Figure 1:Distribution of Enrolled Full-ime College Students

Aged 16-24 by Family Income (Percent of FPL)

500%

andabov

e

Below100%100-199%

200-

299%300-399%

400

-499%

30%

14%

16%

16%

12%

12%

Source: Authors analysis o CPS-IPUMS data or 2009.15



Funding the Student Opportunity Program

We identiy two possible sources or unding a new Student Opportunity Program: consolidating the currently

disparate system o higher education tax credits and administering a cap on beneciary contributions to section

529 college savings accounts.

1) Reform of the ax reatment of Higher Education Spending

Funding or the Student Opportunity Program could come rom consolidating tax expenditures currently oered

or higher education. Tese include the Hope credit, the Lietime Learning credit (LLC), and the student loan

interest deduction. Tis is a policy option reviewed by the Congressional Budget Ofce in its annual Budget Op-

tions report as a potential source o revenue or the ederal government.

Te Hope credit allows people to subtract up to $1,800 (2008 rate, amount indexed or ination) or higher ed-

ucation expenses (tuition and ees) rom the amount o income tax they owe. Te credit can be claimed or each

student in the household; the student must be the taxpayer, the taxpayers spouse, or taxpayers dependent. Te

credit applies only to expenses incurred or the rst two years o a degree. Only households with a modied ad-justed gross income less than $58,000 (or $116,000 or joint lers) are eligible.

Te Lietime Learning Credit allows people to subtract up to $2,000 (up to 20 percent o rst $10,000) or high-

er education expenses rom the amount o income tax they owe. Te LLC applies i the student is the taxpayer,

the taxpayers spouse, or the taxpayers dependent. Unlike the Hope credit, it can be used or expenses beyond the

rst two years. However, a taxpayer cannot claim both credits or the same student.

Lastly, there is a maximum income tax deduction o $2,500 or interest paid on student loans. In order to claim

this deduction, the student in question must be enrolled at least hal-time in a degree-seeking program and the

ler must have a modied adjusted gross income less than $70,000 ($145,000 or joint returns).

In its most recent volume oBudget Options, the Congressional Budget Ofce outlined a plan to combine the tax

benets outlined above into a single tax credit or higher education.16

For students in their rst two years o postsecondary school, the rst $10,000 o tuition and ees

would qualiy or a 20 percent nonreundable subsidy. For students more than two years into their

postsecondary education or or those attending school less than hal-time, the credit would have a

15 percent subsidy rate. Te current deduction or interest on students loans would be eliminated,

the rst $2,500 o such interest would count as a qualiying tuition expense under the new plan. Te

credit could be claimed or each student in each household.

Under this option, the starting point o the phase-out range or the tax credit would be $60,000 or single l-

ers and $120,000 or joint lers, both indexed or ination. Beyond that point, each additional dollar o adjust-

ed gross income would reduce the credit by 5 cents until the credit was completely phased out (around $90,000).

CBO estimates that it would provide higher average benets to households than current law and raise revenues

by $16.4 billion over the ten-year window.


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2) Limiting Section 529 Plan Contributions

Funding or the Student Opportunity Program could also come rom limiting contributions to section 529 col-

lege savings accounts. Section 529 reers to a section o the U.S. tax code that permits the creation o qualied

tuition payment and savings programs that receive preerred tax treatment (equivalent to a Roth Individual Re-

tirement Account). Currently, 49 states and the District o Columbia oer such plans, along with a consortium

o 127 private colleges that operate their own independent plan. Tere are two kinds o 529 plans: prepaid tu-

ition and college savings accounts. In the ormer, an individual can purchase uture tuition credits or a designat-

ed beneciary. Te payments or educational expenses are invested by the plan sponsor, and are then later used

to pay or uture college attendance by the beneciary. In a college savings plan, payments are made into an in-

vestment account or a specic beneciary to use towards educational expenses. In both types o plans, payments

into the accounts are made with ater-tax dollars, returns to investments are not taxed, and payments rom the

account are not taxed so long as they are used towards a beneciarys qualied higher education expenses, includ-

ing tuition and ees, as well as room and board. Te majority (nearly 90 percent) o Section 529 assets are in col-

lege savings accounts.

Section 529 plans have grown in popularity in recent years. Because o the distribution o investments and assets,

these accounts tend to convey disproportionately more benets to higher income individuals.17 According to the

2007 Survey o Consumer Finance, households in the top ve percent o income with education savings plansheld an average balance o $106,250, an amount more than ten times the balance or the 50th-75th income per-

centile.18 Although states limit the amount o contributions into Section 529 accounts (generally pegged to the

cost o our years o undergraduate education at a private institution or three years o graduate training), limits

are designated per beneciaryper state. As 43 states permit non-residents to open Section 529 accounts, it would

be possible or an individual to open plans in 44 states. Given this potential inequity, a 2009 report by the rea-

sury Department or the White House Middle Class ask Force recommended making Section 529 contribution

limits per beneciary, thus limiting the tax benets that could accrue to high-income amilies and reeing ederal

unds or additional educational spending on disadvantaged students and their amilies. Te unding generated by

such a cap on contributions could be used towards nancing the proposed Federal Work-Study initiative.

Initial Program Implementation: Funding and Enrollment

Initially, we propose $500 million per year to be spent on the Student Opportunity Program. I this unding were

delivered through the Federal Work-Study program, we estimate it would provide support or about 100,000 in-

ternships per year (or about 4.3 percent o income-eligible college students) I this money were split between in-

stitutional grants to colleges to start their own campus programs and between the ederal government to support

all low-income interns, we estimate the program would support 80,000 internships per year (or about 3.5 per-cent o income-eligible college students). Going orward, we propose that the program increase unding each year

with the goal o supporting a th o all income-eligible students, or about hal a million internships per year. We

estimate that this would require between $1.5 and $2 billion in spending per year.



Complementary Policies

Although the central goal o the Student Opportunity Program is to provide nancial support or low-income

students, there are several other initiatives that could complement and enhance the operation o the program and

benet all students, regardless o income.

Internship Database

Te success o the Student Opportunity Program depends on connecting participating students with the best in-

ternship possibleinternships that provide meaningul work experience, preerably in the students eld o study.

Yet internship searches are oten constrained by the lack o readily accessible inormation. Moreover, it is inef-

cient to require individual students to research and compile an exhaustive list o all the internship possibilities in

their eld. Students need to know where to look.

We propose that the new Student Opportunity Program ofce at the Department o Education create and man-

age a comprehensive, centralized database or internships, with the ability to search by location and eld. Most

university career service ofces already compile internship opportunities based on the experiences o prior stu-dents. Moreover, there are already a number o private companies that provide similar database services or a ee.

A centralized database would combine the resources already available and make them accessible to all students,

thereby simpliying the process o nding the best internship possible. Although unding can only target a lim-

ited number o students, a database would provide a universal benet.

Beyond the direct benets to individual students, a centralized database could acilitate implementation o the

initiative. It would require all internship providers to register, making the verication process easier or campus

administrators. Lastly, a central database is a natural draw or students and could thereore be used to publicize

Student Opportunity Programs, other scholarships, or general resources or interns.

Government Internships

Unpaid internships can only be legally oered by non-prot institutions or the government. Te Student Op-

portunity Program only supports unpaid internships, and thus will be channeling a number o qualied and hard

working students to government ofces on all levels. o meet internship demand and ensure quality internships,

$5 million in competitive grants should be awarded to ederal and state governments to revamp their internship

programs. Tis initiative oers several benets. First, it would ensure that there will be a supply o internships

available in a wide array o elds. Second, it would expand the geographies represented with internships and could

easily be directed to target low-density states. According to the Vault Inc.Annual Guide to op Internships , a survey

o over 1,000 internship providers, there is a stark geographic disparity in internship opportunities. Te numbero employers who provided internships in Washington, D.C., or example, was 150 percent more than the num-

ber o employers who provided internships in the 25 smallest states combined.19 Tird, and perhaps most impor-

tantly, it would encourage qualied and successul students to pursue a career in public service.


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Enforcement

It is generally illegal or or-prot companies to have unpaid interns; however, this is commonplace practice.20

Companies take advantage o lax enorcement, combined with an ample supply o willing students, to sidestep

regulations. A new government internship initiative aimed at properly compensating students or internships

would be remiss i it were not coupled with a concerted eort by the Department o Labor to identiy and penal-

ize companies exploiting unpaid workers.

Conclusion

Internships provide an increasingly important experience or college students and their uture employment pros-

pects. Yet the nancial obligations presented by unpaid internships are an obstacle or many low-income students

who may already ace high levels o student debt, reinorcing the divide between the haves and have-nots. Te

government thus has an important role to play in democratizing access to internships. We call or the implemen-

tation o a new system o grants or low-income, high achieving college students to pursue internships with gov-

ernmental agencies and non-prot organizations. Tese initiatives would oster opportunity or low-income stu-

dents, aording them a better chance to compete with their higher-income peers.

As Matthew Segal, ounder o the youth advocacy organization 80 Million Strong, notes: [a]t its core, this is an

issue o representation. Representative democracy depends on the input, perspective, and experience o all o its

citizens, not just the privileged ew. I the majority o young America is saddled with debt in order to work pro-

bono, or prevented rom the active citizenship experience o serving government because o nancial hardship,

then we are condoning a discriminatory system.21 Opening the halls o government and other non-prot orga-

nizations to all students would encourage uture employment in public policy and public service, an essential part

o our democracy.



Endnotes

Based on authors analysis o: Wise, Carolyn C. Te Vault Guide to op Internships, 2009. Vault, Inc.1.

In act, the Congressional Accountability Act passed in 1995 amended the Fair Labor Standards Act to explicitly2.exempt Congressional interns rom minimum wage and overtime protection.

See or example the prevalence o Pell Grant recipients in elite versus non-elite institutions: Wei, C.C. and Horn,3.L. (July 2009). A Prole o Successul Pell Grant Recipients. National Center or Education Statistics.Washington,D.C.

Conditions o Education, Section 5, Contexts o a Postsecondary Education, pg 94. Washington, D.C., Department o4.Education.

In the 2004-2005 school year, students borrowed $14 billion in loans, a 734 percent increase rom 1994-1995.5.

(2009). rends in Student Aid. Princeton, N.J., Te College Board.6.

(2009). With Teir Whole Lives Ahead o Tem. Washington, DC, Public Agenda and the Gates Foundation.7.

Viany Orozco and Nancy K Cauthen. (2009).8. Work Less, Study More & Succeed: How Financial Supports Can ImprovePostsecondary Success, Dmos.

Ibid.9.

Yagoda, B. (March 21, 2008). Will Work or Academic Credit. Te Chronicle o Higher Education. Washington, D.C.10.

Recessions toll: Most recent college graduates working low-skill jobs. McClatchy News Service, June 2511. th, 2009.

Ibid.12.

Shierholz, H. (2009). Fix it and Forget it. Index the Minimum Wage to Growth in Average Wages. Economic Policy13.Institute. Washington, D.C.

See College Enrollment and Work Activity o High School Graduates. Bureau o Labor Statistics. April 2814. th, 2009:http://www.bls.gov/news.release/hsgec.htm.

King, M., S. Ruggles, et al. (2009). Integrated Public Use Microdata Series, Current Population Survey: Version 2.0,15.Minneapolis, MN: Minnesota Population Center..

(2009) Budget Options, Volume 2.: page 212. Washington, D.C, Congressional Budget Ofce.16.

(2009). An Analysis o Section 529 College Savings and Prepaid uition Plans. Washington, D.C., Department o the17.reasury or the White House ask Force on the Middle Class.

Kevin Carey, Tats Rich! Te reasury Department on 529s18. Te Chronicle o Higher Education, Brainstorm Blog,9-9-09, http://chronicle.com/blogPost/Tats-Rich-Te-reasury/7983 .

Tose states are: Alabama, Alaska, Arkansas, Delaware, Hawaii, Iowa, Kansas, Kentucky, Louisiana, Maine, Mississip-19.pi, Montana, Nevada, New Hampshire, New Mexico, North Dakota, Oklahoma, Rhode Island, South Dakota, Utah,Vermont, West Virginia, Wisconsin, and Wyoming.

(2009). Wise.20.

Segal, M. Ensuring Economic Opportunities or Young Americans. estimony beore the Committee on Education21.

and Labor, U.S. House o Representatives. October 1, 2009.
http://www.bls.gov/news.release/hsgec.htmhttp://chronicle.com/blogPost/Thats-Rich-The-Treasury/7983/http://chronicle.com/blogPost/Thats-Rich-The-Treasury/7983/http://www.bls.gov/news.release/hsgec.htm


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