Building Fences

There are not too many things that make state policy makers wring their hands more than seeing their college graduates migrate to other states. Across the nation, officials in states such as California, Indiana, Iowa, Maine, New York, and Wisconsin have been especially pained of late by the reported flight of their graduates.

Thankfully, the Interstate Commerce Clause of the U.S. Constitution prevents governors and legislatures from levying duties on skills (or on anything else) that cross the state line. By promoting the free flow of labor and goods, we allow the best uses of our resources and maximize our productivity as a nation.

But states dont like to see those graduates leave, so they have been getting more creative in their efforts to keep graduates from jumping the fence. Some states, for example, are considering, proposals that are modeled after the Georgia Hope Scholarship Program, which provides free tuition to top students who stay in state for college. Others are debating plans to award scholarships that would be rescinded if a graduate decided to cross the border for a job.

The current debate in Washington on immigration underscores just how backwards and wasteful these state strategies are. Corporate America is concerned that the immigration bill does not allow for enough visas for immigrants to fill jobs that Americans do not have the skills to fill. This cries out for a domestic policy response that focuses on increasing the number of young people who go on to college and complete degrees.

States themselves are sounding that alarm, essentially asking to be saved from their own myopic actions. A blue ribbon commission named by the National Conference of State Legislatures (NCSL) declared in October that states are not making the most of their $70 billion investment in higher education. Among the findings from the report, Transforming Higher Education: National ImperativeState Responsibility:

• “Too many students are falling through the cracks. As a result, U.S. citizens are not achieving their full potential, state economies are suffering, and the United States is less competitive in the global economy.”
• “The states and federal government have not ensured that low-income students have access to higher education. Governments primary responsibility in higher education is to guarantee post-secondary education and/or training to all citizens.”
• “The poorest individuals have only an 8 percent chance of obtaining a college degree compared to a 70 percent chance for the wealthiest individuals.”

Certainly one critically important step is for the federal government to do its part. A significant increase in the maximum Pell Grant will help the nation regain some of the ground that has been lost in financial aid over the past several years. But expanding the Pell Grant program will not be enough if states dont do their part.

At The Institute for College Access and Success, we believe that Congress, as part of the upcoming reauthorization of the Higher Education Act, should create a College Opportunity Incentive Fund to send a strong signal to states about the national imperative to improve college access and success rather than to build fences between states. The Fund would essentially provide a bounty to the state for every student from the lower half of the countrys family income distribution. In addition, the Fund would offer a double bounty for every degree conferred on a lower income student. The states could use the money to provide much-needed financial aid and to implement other strategies to expand access and to improve retention to graduation.

The hazard with proposing a program like this is that it wont be seriously considered for lack of a funding source. Of course, when a funding source is suggested, it can often engender fervent opposition that prevents the proposal from getting due consideration in the first place.

In this case, I am going to hazard a plan: the money for the new Fund should come from ending the state authority for tax-exempt student loan bonds that the federal government grants to states. These pools of loan funds are no longer needed to ensure an adequate supply of capital for student loans, and they have cost the federal government more than was ever anticipated . Eliminating the program would save the Treasury an estimated $2.3 billion over five years, as well as additional savings to states that also exempt the bond interest from taxation. Some discounted loans will no longer be offered, but those are limited and dwindling, and there is no evidence they have ever been distributed fairly or efficiently.

It would make for a good trade, and would establish the shared agenda for college access and success that so many are urging upon the federal and state governments.