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Solutions to State Higher Ed. Disinvestment Are Complicated but Possible

It’s a story that has become far too familiar in higher education policy: The Great Recession led to a decrease in subsidies for higher education in most states. This decrease in appropriations is evident both overall as well as at the per-student level. As a result, costs have been largely transferred to students, their families, and the federal government, in terms of paying more up front and in taking out private and federal student loans.  Although there is some evidence that states are beginning to reinvest in higher education, it is at a much slower pace than following previous recessions--and reinvestment is not happening everywhere. There are, however, promising reports and legislation that have offered solutions to encourage states to reinvest.

This past Thursday, Senator Tom Harkin released the Higher Education Affordability Act, a plan to reauthorize the Higher Education Act. Title IV, section 499 describes a State-Federal College Affordability Partnership, which focuses on incentivizing states to reinvest in higher education by offering a separate pot of money in addition to what the federal government already provides directly to public colleges and universities in exchange for more state money. The purpose of this plan is to lower the costs of tuition or prevent increases in tuition while emphasizing the enrollment of low-income students. This bill may have been informed by the work of two organizations that released their own solutions to the problem of state disinvestment.

The Center for American Progress recently released a report detailing its solution for providing incentives to states to reinvest in higher education. The report joined another, published earlier this year by the American Association of State Colleges and Universities. Both organizations agree that state disinvestment is a problem that is driving prices up for students and families, and that providing incentives to states to match any new federal funds is key. However, they differ in important ways on the specifics of an appropriate policy solution.Comparing the two reports can prove instructive for federal policymakers looking to provide incentives for states to reinvest. Check out the details of the two reports below:

Table 87 

CAP’s report calls for a Public College Quality Compact. This new federal grant program would be added to existing federal grant aid, with the goal of encouraging states to match federal grants. To receive these new taxpayer dollars, states must commit to enacting reforms, such as using Compact funds to cover the cost of college for low-income students and requiring that states hold institutions accountable for improving student performance, for example, improving graduation rates. States would determine how to allocate the dollars to institutions. The Compact would be funded primarily through savings from a bipartisan tax reform.

AASCU’s proposed Federal-State Affordability Partnership is a matching program totaling up to $15 billion, aimed at directly addressing the per-student subsidy disinvestment problem. States would be awarded an annual block grant from the federal government, based on how much they currently spend for public higher education specifically per full-time equivalent (FTE) student—in comparison with the maximum Pell Grant award. The tiered system they proposed encourages states to increase how much they spend per student. In other words, the more a state spends per student, the higher the federal match. A similar tiered system has also been included in Harkin’s recent bill. AASCU proposes to fund the Partnership by reallocating the existing federal higher education budget—specifically, they propose to limit fraud and waste by for-profit colleges to afford the reforms.

While CAP’s Compact requires states to commit to reforms aimed at both getting states to reinvest and in improving the public institutions that will receive these funds, its primary funding mechanism—bipartisan tax reform—is likely not feasible in the current political climate. With Republicans soon to be in control of both houses of Congress, controversial tax reform is not likely to be at the top of their agenda. Moreover, if tax reform is achieved, there is no way to ensure that the savings will be allocated toward higher education. AASCU’s Partnership is similar to CAP’s Compact in that states are asked to increase how much they allocate for public higher education operating support based on per full-time equivalent (FTE) student. This is a more precise way to address the impact of state disinvestment. On the downside, states and public institutions would not be required to make any other reforms, nor would they be required to use these funds for higher education. Additionally, the Partnership’s funding source is also questionable given that it is politically difficult to target for profit colleges.

Both reports address the ongoing concern of state disinvestment, with different solutions for those plans. But they highlight important considerations for federal policymakers looking for viable solutions to increase state reinvestment. In the push for greater state investment in higher education, much work needs to be done. As state investment in higher education has come under scrutiny we’ve learned that solutions are complicated. But as more ideas enter the higher education policy landscape that try to marry the federal and state role in a more iterative way, we are starting to see new possibilities that will help lead to a needed re-envisioning of federalism in higher education. Senator Harkin’s new bill is an indication that policymakers are actively concerned about state disinvestment and willing to adopt viable policy solutions.