Kevin already has his reactions to last night’s State of the Union up here, but here are a couple of other observations about the parts of the speech with a bearing on higher education.

Help for Borrowers

As expected, President Obama proposed improvements to the income-based repayment program (IBR) that will cap monthly payments at 10 percent of discretionary income and forgive any remaining balances after 20 years. It’s a great move and his line that “no one should go broke because they chose to go to college,” was both a strong and concise way of summing up the plan.

Pressure on Colleges

Obama called for Congress to pass the Student Aid and Fiscal Responsibility Act (SAFRA) legislation that would take subsidies away from banks and redirect that money toward increased Pell Grants, better efforts at improving completion, and a host of other efforts.

But Obama also added an important caveat, acknowledging that “by the way, it’s time for colleges and universities to get serious about cutting their own costs — because they, too, have a responsibility to help solve this problem.” As Kevin noted, that’s a really important line, and one that acknowledges the partnership between colleges and the federal government in which the latter helps students pay for their education, but the former must ensure that aid increases are not eaten up by rising tuition.

There is, however, a third partner in this dynamic that went unmentioned: states. Plunging state appropriations can be a big driver of tuition increases at public colleges and universities, while the political attractiveness of tuition freezes without actual reform can lead to big cost jumps down the road. The recovery act tried to deal with this somewhat by including a maintenance of effort provision, which penalizes states that reduce their higher education support, but its success has been a bit of a mixed bag, helping some states keep funding up, while others have avoided it with waivers. Such provisions certainly look good politically and can help give leverage to colleges seeking funding, but the fungible nature of state budgets may mean that a stronger requirement is needed. No matter what though, serious cost reform cannot occur without acknowledging that the federal government, states, and schools all have their own roles.

Spending Freeze

Confirming another earlier report, Obama did indeed call for a three-year spending freeze on certain types of discretionary spending. But the prognosis looks pretty good for education. Because the cap only affects the top line number, rather than requiring each agency to keep spending flat, the U.S. Department of Education is actually projected to get about a 6 percent increase. The actual amount of money redirected elsewhere within the department will certainly be higher because some programs will probably be zeroed out. Ed Money Watch has a list of programs it expects to be eliminated here, to which I would probably add the Javits Fellowship, Byrd Honors Scholarship, and one other that I’ll discuss in the next heading. One interesting question is how the administration will treat the ACG/SMART program, which is supposed to expire anyway and seems to be one of the few federal programs without enough interest group support to continue. I am curious to see if not funding an expiring program that had no money attached to it for next year anyway will be treated as “savings.”

The second question about the freeze is the one I brought up on Tuesday about Pell Grants. The Chronicle of Higher Education reported that administration officials said the freeze “would not affect Pell Grants,” but it is unclear if this means they will be treated like an entitlement and excluded, or they expect that whatever amount of money budgeted should be enough. (If recent history is any suggestion, the latter tactic is likely to lead to some shortfalls.)

Earmarks

The other program I would expect to be cut in the 2011 budget is the earmark portion of the Fund for the Improvement of Postsecondary Education (FIPSE). This pot of money, which amounted to $101.5 million this year, provides an opportunity for elected officials to channel pork projects to various colleges and universities, and has been consistently targeted for elimination by presidents from both parties.

There are a couple of interesting things about FIPSE earmarks compared to the overall message about this type of spending. In general, earmarks get way more attention as a deficit-cutting measure than they deserve given that they comprise a tiny fraction of the overall budget. But with higher education, the story is a little bit different. In addition to its role as earmark vehicle, FIPSE is really the only existing pot of federal money that finances existing innovation projects in higher education. It has provided funds for the National Center for Academic Transformation to come up with innovative ways to reduce costs and simultaneously improve instruction at dozens of colleges across the country. FIPSE paid for similar work in Tennessee, which has run a number of pilot projects that dramatically changed and improved the way several colleges dealt with remedial education. Projects such as these are crucial for solving the barriers of cost and quality that are serious roadblocks in the quest to increase credential attainment. Given that FIPSE is a zero-sum game, every dollar taken away from these projects for an earmark is a direct hit to potential innovation in higher education.

As for the call to disclose all earmarks on a Web site, this sounds good, but amounts to little. FIPSE, in fact, already has its own site where you can search earmarks from the last several years. And if that weren’t enough, the Chronicle has its own database, here. As these sites show though, providing an online list is kind of meaningless. Neither of them contain assessment reports or details about what the money was supposed to be used for and if it was ever even spent. It seems like at least in this case, we would be better off axing the earmark portion of FIPSE entirely since actual oversight is probably too costly and time-consuming.

Tax Credit

Obama referenced a $10,000 tax credit for four years of education. This actually already came into being as part of the recovery act. Known as the American Opportunity Tax Credit, it provides recipients with a credit worth 100 percent of the first $2,000 they spend on higher education, plus 25 percent of the next $2,000. That’s $2,500 a year and $10,000 over the course of a four-year education. The proposal last night presumably entails making this credit permanent, as it is currently set to end after 2011. The American Opportunity credit is an improvement over the other options available, though tax-based higher education policy is still overly complex and does not play well with the rest of the federal aid programs.