Encouraging State Higher Ed Investments through Federal-State Partnerships

As the nation prepares for yet another attempt at reauthorizing the Higher Education Act, it is crucial to remember the history of this seminal legislation as well as the current plight of public higher education and the reality facing students across the nation.

In 1965, when Lyndon Johnson signed the original HEA into reality as part of his war against poverty, his intention was that no student with college or university aspirations would ever be denied the educational opportunities that accompany a college degree due to a lack of financial resources.

Contained within the voluminous act was Title IV or the federal direct student aid program, which accounts today for nearly $140 billion. Policy debates surrounding the adoption of these federal grant, loan, work-study and other programs continued for nearly a decade afterwards and culminated with the passage of the Higher Education Amendments of 1972. At this time proponents for private higher education asserted that the great diversity of the American higher education system was in substantial jeopardy because many privates could no longer compete with state-subsidized public colleges and universities. Federal direct student aid allowed federal dollars to follow a student to whichever institution they chose, rather than having the funding flow directly to colleges and universities to provide expanded access – thereby pacifying the private university lobby against the wishes of public college and university leaders.

It is important to note that, during this federal higher education debate, it was assumed that the states would always remain the primary revenue supplier to public colleges and universities, thereby subsidizing tuition cost, maintaining widespread affordability, and keeping college accessible to all. This seemingly logical assumption had unforeseen consequences for the nation’s public colleges and universities. In the early 1980s, states began abandoning their fiscal commitments and turning to student tuition and fees as a primary funding alternative resulting in an ongoing greater reliance on the tuition-based federal direct student aid grant and loan programs. This supplanting of state resources with federally supported student tuition dollars has resulted in states no longer being the primary funding source for higher education.

This leads us to today, when federal loans, grants, and tax credits contribute nearly $170 billion to higher education, nearly twice that of the $90 billion that our states contribute to their public colleges and universities in fiscal year 2019. In fact, in 2019 state fiscal tax effort per $1,000 of personal income for higher education once again dipped to pre-1970 levels after witnessing its highest points in 1979 and 1980. Another unintended consequence of this dramatic shift from the state to students has been that students now carry more than $1.6 billion in student loan debt while completion rates have not seen the anticipated changes once predicted, particularly for students of color or those from lower-income backgrounds.

Thus, this vicious cycle continues: states continue to disinvest from public universities depended upon that support. The decrease in state support results an in increase in tuition and/or fees, which leads to the need for loans and the increased lack of opportunity for more and more students and their families. Within the next fifteen years, it has been projected by Postsecondary Education Opportunity that if these trends persist that a number of states will completely abandon their fiscal obligations to their public colleges and universities and these states include Alaska, Colorado, Arizona, South Carolina, Pennsylvania, Massachusetts, and Illinois.

To further complicate this financial quagmire, we are spending a significant amount of federal money to provide only temporary, surface-level solutions and do nothing to address the root cause of rising prices for our public sector institutions. Consider the American Opportunity Tax Credit (AOTC), which grew out of President Clinton’s HOPE Scholarship Tax Credit and the Lifetime Learning Tax Credit. At its inception, these federal programs were capped at award amounts of $1,000 and $1,500 to families considered lower income of $60,000 or less. As concerns about college affordability continued to escalate, President Obama’s AOTC program expanded award amounts to $2,500 and extended eligibility to families with incomes of up to $180,000. According to the Department of the Treasury, this program – which enjoys widespread bipartisan support – can be used for most college expenses including tuition and fees, and impacts nearly 55% of American families with students in college. It has been estimated that the AOTC program now costs the federal government approximately $20 to $25 billion, yet it falls far short of alleviating the basic problem of uncontrolled rising costs.

If our nation is serious about solving the higher education crisis and remaining a beacon of social mobility, then any true attempt at reauthorization must include a federal-state partnership that uses federal dollars to incentivize better state investment and behavior. This effort isn’t an experiment – these types of partnerships have enjoyed incredible success as far back as the Morrill Act of 1862, the State Student Incentive Grant (SSIG) program in 1972, and as recently as the American Recovery and Reinvestment Act (ARRA) of 2009. In fact, it is also how we currently finance many of our larger public-use necessities such as national highways and healthcare. This method would allow public colleges and universities to control costs and maintain their roles as bastions of access and affordability. Without a policy of this kind, states will continue to disinvest, student tuition and fees will continue to increase, reliance on federal grant, loan and tax credits will expand, resulting in a perpetual cycle that will leave college out of reach for those who need it most.