For the Next Stimulus Package, Direct Aid to States for Public Higher Education

As Congress prepares for another round of stimulus legislation this summer, the unprecedented financial challenges confronting public colleges and universities remain a pressing issue facing lawmakers. There have been a host of disagreements on the best federal policy approach to help higher education, such as the appropriate funding levels and uses of the aid. These debates will likely continue in the weeks ahead. A more fundamental question that has emerged is whether federal aid for public higher education should be distributed directly to institutions through the U.S. Department of Education or given to the states, who would then distribute it to institutions.

Some think tanks have called for aid to states, while many higher education associations, including those representing college presidents, have called for direct federal aid to institutions. On Capitol Hill, the GOP-led Senate demonstrated a preference for aid to institutions in the previous stimulus package, while the Democrat-controlled House has been partial to distributing aid through the states (if only as a pass-through). Which one of these is the better approach for public higher education financing? Does it really matter?

Three major reasons justify providing flexible federal aid to the states, as opposed to directly to institutions, for public higher education in the next stimulus package: the inability of a federal formula to capture institutional nuances and need, the importance of preserving the long-standing financing compact between states and public higher education, and establishing a precedent for a state-federal partnership in the next iteration of the Higher Education Act.

Providing flexible aid to the states recognizes that there are important contextual and institutional factors that a “one size fits all” federal formula cannot capture. State higher education executives understand that some institutions are in a stronger financial position than others and know the most pressing needs within their higher education communities. Working in unison with state lawmakers and other stakeholders, they can target resources and make the most effective use of federal funds. The health of the state’s higher education system and economy remains their top priorities.

Federal allocation formulas affecting thousands of diverse institutions can also lead to unfair and counter-initiative policy outcomes. For example, the Department’s implementation of the CARES Act has led to windfalls of hundreds of thousands of dollars to institutions with a few dozen students. Meanwhile, public institutions serving large shares of low-income and minority students are expected to receive proportionally less aid. Empowering states in federal policy can allow for more nuanced administration and avoid these policy outcomes.

Beyond the limitations of federal formulas, federalism also matters. Public higher education is constitutionally a function of state government. Public colleges and universities have traditionally been funded by their states, while the federal government chiefly funds students. These institutions have long histories, accepted policy frameworks, and shared goals with their states. This relationship remains vital to state competitiveness and institutional success.

Unfortunately, this relationship has been strained in recent decades due to state budget reductions and competing visions on the purposes of these institutions. The pandemic promises to further fray this relationship and accelerate the privatization of public higher education. Through the stimulus packages, the federal government can use its spending power in a coordinated effort with states to preserve and strengthen this compact. Bypassing the state role in higher education finance could actually undermine policies and goals states have established in cooperation with their higher education institutions.

A coordinated state-federal effort on the stimulus could also advance plans to develop a more lasting state-federal partnership in the upcoming reauthorization of the Higher Education Act. SHEEO calls for aligning state and federal higher education financing structures to improve college affordability and ensure states and the federal government do not work at cross purposes. Bypassing states in the stimulus will only continue the disjointed financing relationship between states and the federal government.

While the stimulus is designed as a short-term funding fix in the pandemic-stricken economy, Congress’s decision this summer will have lasting ramifications for the future of higher education finance. It is essential that Congress recognize the limitations of federal formulas, respect the historical role of the states in funding higher education, and begin working toward longer-term higher education financing reforms by providing flexible state aid for higher education in the next stimulus package. Public higher education finance remains a shared responsibility, and by working in partnership with the states, the federal government can best stabilize institutions and lay the groundwork for meaningful policy changes and greater collaboration between institutions, states, and the federal government in the years ahead.