Guest Post: A National Strategy is Needed for Financing Higher Education

By Patrick M. Callan

The importance of the recent federal legislation that shifted substantial public subsidies from financial institutions to college students should not be underestimated. But neither should it be thought of as more than a first step towards the restructuring of college financing that will be required if the nation is to significantly strengthen college access and affordability, close equity gaps, and raise national levels of educational attainment.

Because the “system” of public and private finance of higher education that served the G.I.s, the Baby Boomers, and their children is broken. The funding flows are unstable, the responsibilities of the partners are increasingly blurred, equity gaps persist, and students are leaving college with unprecedented levels of debt. The dysfunctional finance system accounts in part for the underperformance of American higher education as reported in the Measuring Up state and national report cards and in international comparisons. In my view, this underperformance is unlikely to be fixed unless the nation, the states, and our institutions of higher education reopen fundamental questions in a quest for a restructured policy and finance framework — one that is national in scope and designed for the economy and demographics of the 21^st century, not the last one.

A Challenging but Achievable Goal

Early in his administration, President Obama did establish a significant national goal: the U.S. should rank first in the world in the proportion of 25-35-year-olds with college degrees by 2020. Yet despite the financial aid reforms, the national higher education agenda has not been articulated and addressed in a way that is commensurate with the magnitude of our most pressing higher education needs, the President’s goals, and our growing educational deficits.

The National Center for Higher Education Management Systems (NCHEMS) estimates that reaching and surpassing the levels of attainment of the current world leaders would require approximately a 4 percent increase of young Americans achieving an associate and baccalaureate degrees annually through 2020, a challenging but creditable goal. But the nation lacks a realistic policy framework and a long-term financial strategy for achieving major increases in college access and attainment and for paying for it. Such a framework and strategy would necessarily encompass the roles of state, public and private higher education, and students and families. In the absence of a national framework, the federal government, states, and colleges continue to operate at cross purposes with little prospect of substantial gains in college participation, completion, and attainment.

Aspects of the Obama administration’s initial higher education proposals hinted at a partial national strategy—improving college completion rates and strengthening community colleges, but these initiatives and the $12 billion that would have supported them were casualties of the health care compromise. While I believe they merited support, new federal categorical programs bolted onto a broken model are not likely to significantly improve performance. Systematic attention to new models of state and federal financing of higher education is needed. As a case in point, $5.9 million in federal support that states allocated to higher education in 2009 and 2010 under the American Recovery and Reinvestment Act (3 percent of state and local support for higher education in 2008-2009) has not been invested in improved college access or completion rates; and increased federal funding of student financial aid has mostly been absorbed by higher tuition.

Since the early 1980s, state appropriations to higher education have suffered deep reductions in each recession. But contrary to the conventional wisdom among many college leaders, state financial support of colleges and universities has increased in each of the last three decades. State appropriations increased 24 percent from 2005 to 2008, followed by a decline of 1.7 percent from 2008 to 2010. Federal student financial aid also grew significantly over this period and partially buffered many students from the sharp tuition increases that have typically accompanied cuts to college budgets. Federal loan programs in particular have enabled colleges and universities to maintain and increase enrollments despite increases in tuition that have far outpaced family income and inflation.

Many state policymakers and higher education leaders seem to have drawn an unfortunate lesson from the current economic crisis: recessions can be managed by replacing public appropriations with tuition revenues and by adopting short-term policy and management strategies (e.g., freezing salaries, suspending hiring and recruiting for faculty and staff, imposing faculty and staff furloughs, across-the-board cuts, and other steps that have no basis in strategy) that assume the restoration of prerecession funding levels. Whether explicit or implicit, this assumption underlies the responses of most states and institutions to their present economic distress. However, in contrast to earlier recessions and recoveries, status quo ante may not be a plausible expectation and, even if feasible for some colleges and universities, will fall well short of meeting national and state needs for higher education.

Increasing funding for financial aid is necessary but not sufficient, because federal, state, and institutional policies often operate at cross-purposes. Student financial aid offers the most salient (and expensive) example of the limitations of federal programs within the current policy framework. Increases in federal financial aid enable the states and public and private colleges to shift costs to students, families, and the federal government by raising tuition.

No Gains Without Stemming Tuition Increases

In The Audacity of Hope, Obama advocated new federal investments in college affordability linked to state efforts to control “the spiraling costs of education,” specifically calling on state governments to “limit annual tuition increases at public universities.” In the previous administration, the Spellings Commission on the Future of Higher Education was even more pointed:

Even with significant additional federal investment, there is little chance of restoring the Pell’s purchasing power if tuition increases absorb most or all of the new money. This effort requires not only federal investment but also strategies by which colleges and universities contain increases in tuition and fees.

But these warnings have not been heeded. The College Board, a membership organization of schools and colleges, has documented the continued willingness of public and private colleges and universities and states to raise tuition in 2009 (at average rates of 6.5 percent and 4.4 percent respectively) even in the midst of recession and high unemployment. The increases far exceeded the 1 percent growth in median family income and the 0.4 percent decline in inflation from 2008 to 2009. Recent federal investments in student aid have been substantially, if not entirely, offset by tuition increases enacted by institutions of higher education and enabled by states. These investments have produced little net benefit, and in some cases could not stem major setbacks, in college affordability for students and families.

Similarly, federal support provided to the states for higher education under the American Recovery and Reinvestment Act has not been used by most states and institutions to shield students from steep tuition increases. Institutions were not asked to share in the funding solution through increased productivity. The U.S. Department of Education reports that only 24 states used stimulus funds to mitigate tuition increases and, in many of those states, only one or two institutions in the states were affected. In contrast, federal stimulus funding to the states for public K–12 education includes significant requirements and incentives for reform (“Race to the Top”) that have evoked state policy responses. However, the stimulus included no provisions for improved higher education productivity and performance or for protection of students and families from tuition increases or enrollment caps. This is not to argue that the federal interventions were unnecessary or inappropriate, only that students and families were seldom direct beneficiaries and that under the current policy and financial framework for higher education, federal initiatives are often checkmated by state and institutional policy.

Even the newly improved funding of Pell Grants, which adjusts grant amounts for inflation annually beginning in 2013, will not produce real gains for most students if tuition continues to increase at the rates of the last two decades. If the recently adopted policy had been in effect for the last 20 years, the Pell Grant maximum would be lower than the current authorized maximum of $5,800.

Conclusion

The President’s target of global leadership in higher education attainment by 2020 is a credible goal. But without a broad political consensus supporting this goal and seeking to improve college access and completion state-by-state, new federal investments will not get us there. Later this week, I will lay out some thoughts on what a new national framework for higher education would look like.

Stay tuned.

Patrick M. Callan is president of the National Center for Public Policy and Higher Education, an independent non-profit organization that provides analyses of pressing policy issues facing the states and the nation regarding opportunity and achievement in higher education. He has previously served as executive director of the California Higher Education Policy Center, the California Postsecondary Education Commission, the Washington State Council for Postsecondary Education, the Montana Commission on Postsecondary Education, and as vice president of the Education Commission of the States. His views are his own and do not necessary represent those of the New America Foundation.