Guest Post: Towards a National Strategy for Financing Higher Education

By Patrick M. Callan

As I wrote yesterday, President Obama’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. As is the case with other complex areas of domestic policy (e.g., public assistance, health care, public education, and energy), policy solutions that do not recognize and incorporate the roles of states, institutions, communities, and other stakeholders are unlikely to succeed. Federal programs are necessary but not sufficient for the magnitude of improvement that is needed in higher education.

What are some of the elements of a national policy that could significantly improve higher education access and attainment consistent with the Obama goal? This will require strategies that are national in scope but that build upon commitment and buy-in from the states and from colleges and universities, as well as from students and families. Substantial gains in high school graduation rates and in the preparation of students for college are essential. But these gains in elementary and secondary education will be insufficient. In forging a nationwide strategy for higher education, policymakers must:

• Build the case for a national policy:

This includes setting explicit state-by-state targets and commitments for educational attainment that build toward the President’s 2020 goal. Inside the Beltway, developing national and state targets to meet national priorities is often considered an analytical problem—getting the definitions, metrics, and projections right. While it is important to establish goals and monitor progress, the analytics are the easy part. What is needed—and lacking—is political legitimacy, commitment, and a sense of urgency for educating many more Americans to college-level knowledge and skills. Beyond the federal government, a few national foundations, and a handful of states, there are few indications of public, state, or institutional commitment to the President’s goals or to significantly improved higher education attainment, however measured. This is apparent in state and institutional management of the financial crisis, including their use of federal funds, precipitous tuition increases, enrollment caps, etc.

One step toward building legitimacy and consensus might be a presidentially created taskforce—including governors, state legislators, and representatives of business, higher education, and other civic organizations—to establish, vet, and promulgate higher education access and attainment goals for the nation and for each state. The taskforce could help to create a sense of urgency about—and political commitment to address—the need to educate many more Americans to college-level knowledge and skills.

• Create a framework of public finance that supports, incentivizes, and leverages higher level of higher education participation and attainment:

Even with national and state goals, the country lacks financial strategies that would support ambitious aspirations for higher education. It is unlikely that improvements in public schools, in streamlined, more generous and more predictable student financial aid, and improvements in the economy and state appropriations that exceed current expectations will produce significant gains in college participation and attainment, though they could help. Even with a consensus around state and national goals, the country would lack a financial plan or framework that would support them.

More strategic government spending is one part of the solution. Even within the most optimistic scenarios, the nation cannot afford significant increases in college participation and attainment unless the cost trajectory of the past quarter century can be curbed. As a result, a framework for public finance must attend particularly to the costs of higher education. American higher education’s current share of the national GDP is about 3 percent—the highest among the OECD nations and double that of many nations that outperform us in degree attainment. While additional public and private investment will be needed to meet national goals, it is not realistic to expect significant increases in higher education’s share of the national economy.

The fiscal gap will need to be filled by public investment and better targeting of public dollars for public priorities, by greater cost-effectiveness and productivity in higher education, as well as by tuition. Currently, however, there is very little about public finance that encourages improvements in cost-effectiveness or productivity in colleges and universities. Instead, existing finance policies encourage the kind of gaming the system that is reflected in tuition increases that shift costs rather than improve college affordability. In addition, both state and federal dollars continue to support major inefficiencies by applying scarce resources to the inflation of institutional missions (“mission creep”) and by supporting a plethora of graduate and professional programs of problematic quality and little relevance to labor markets or economic development. These practices erode the financial capacity to support undergraduate education as well as graduate and professional education and research of the highest quality. With respect to research universities and advanced graduate and professional programs, more is often the enemy of better.

What is needed is fundamental rethinking of how much higher education the country wants and needs, what is expected from our colleges and universities, and how to pay for it. The last time the nation deeply engaged these kinds of issues was the late 1960s and the early 1970s in the debates that preceded the enactment of Pell Grants, and that included contributions such as the Carnegie Commission on Higher Education’s report—Higher Education: Who Pays? Who Benefits? Who Should Pay?

Whatever the specific goals for improving higher education attainment, a federal and state finance framework must build upon the demography and economy of the 21^st century. The framework should incorporate:

• National and state goals and the alignment of institutional capacities with societal needs.

• The contributions of all types of institutions, public and private, not-for-profit, and proprietary schools.

• The characteristics of current and prospective college students, particularly the need to enroll and serve students from low-income circumstances who would be the first in their family to attend and who are often resistant to taking on college debt. So far, we have prepared for the arrival of these students by raising tuition to unprecedented levels.

• The roles of the funding partners, particularly students, their families and governments—federal, state, and local.

• The appropriate role of institutional subsidies, student financial aid, and tuition—and of grants, loans, and tax subsidies—in financing college and boosting access and completion.

• The use of public finance to stimulate access, efficiency, educational productivity, innovation, and effective use of educational capacity.

The subtext of this rethinking of fiscal federalism in higher education must be the connecting of higher education funding to the public agenda, that is to core public purposes, including opportunity, equity, educational attainment, social mobility, and global competitiveness. This will only be achieved through broad political commitment and the willingness to reconsider current programs and the incentives embedded in them. It is not likely that the nation or the states can tweak or spend their way to substantially higher levels of educational attainment. The American public may be ready to support the leadership that is called for here: the proportion of Americans who believe college “is necessary to be successful in today’s work world” has grown dramatically in this decade—from 31 percent in 2000 to 55 percent in 2010.

For the half-century after World War II, the decentralized—some would say fragmented—character of American higher education, with its public and private sectors and with 50 state “systems” of governance, helped develop a better educated and prosperous American citizenry. This was made possible—witness the G.I. Bill and the development of community college systems—through strong federal and state policy leadership. With the economic and demographic transitions that face us now, it is time to find that leadership again.

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.