A Strategic Investment in Higher Education

Evidence shows that the value of postsecondary degrees remains strong, but it is just unaffordable for many students and their families. Given that evidence, what could be done to encourage more students to enroll in and succeed in higher education? Certainly better preparation in high school is important. Equally important is making higher education affordable. In response to economic pressures, states have shifted the overall burden of paying for higher education to students. The State Higher Education Executive Officers reports that the percentage of educational revenues supported by tuition climbed steadily from 23.2 percent in 1986 to 43.3 percent in 2011. The recent slowing of enrollment, and decline in some states — particularly California, is most likely related to rising college prices.

Providing more need-based financial aid is one way to make higher education affordable. The federal government increased the Pell grant substantially during the last few years, but these increases were offset by rising tuition. States tried to maintain their investment in student aid (from $4.2 billion in 2006 to $6.2 billion in 2011 in current dollars), but enrollment increases meant aid dollars have been spread over more students.

Measuring Up, the state report card published from 2000-2008, monitored state investment in need-based aid compared to the federal Pell grants in each state. In 2000, when the National Center for Public Policy and Higher Education began Measuring Up, some states, such as Illinois, provided need-based aid that exceeded the total Pell dollars given to students. Today, New Jersey is the most generous state in the country. It provides 47.5 percent of Pell grants. Collectively state need-based aid is only 19 percent of the total Pell Grant funding.

How could the federal government encourage states to increase need-based financial aid? One solution is incentive programs that provide a dollar-for-dollar match to states above what they currently offer, thereby increasing a state’s need-based financial aid program to equal Pell grant funding it receives. In 2011, the federal government invested over $34 billion in Pell grants. In order to match the total Pell grant dollars, states must increase need-based aid by $28 billion.

Where would the money come from? One possibility is to consolidate the many federal programs for financial aid. A little over $35 billion is available for state matching purposes, coming from work-study, education tax benefits, and other grant programs supported by the federal government. The consolidation would better target federal dollars and offer more coherence to federal financial aid policies. If all states matched the Pell investment, another $28 billion would be available in financial aid – half of that coming from the states and half from the federal match. Furthermore, it would target students who need it the most.

Can it work?  Yes, but only if we establish ground rules. The first is to protect the purchasing power of need-based aid. Requiring states to limit future tuition increases to the growth in state median family income, for example, would provide students and families with some predictability in pricing so they can plan for higher education. Second, it may be possible to link a match in aid to state efforts to improve high school preparation, as long as the federal government is flexible in how states approach the issue. Finally, the federal government must understand its responsibility in continuing to invest in Pell as enrollment increases. The match would surely encourage states to do the same.

What are the benefits? If a match system is implemented properly, it’s likely we’d see a stabilization or decline in student borrowing, since prices would be more predictable. Colleges and universities would be encouraged to address productivity increases, since they could lose both state and Pell financial aid if they increased tuition beyond growth in family income.

Such a federal/state partnership in financial aid might result in one of the greatest national efforts to develop human capital: providing educated workers and opportunity to the next generation of students. It’s an important step in restoring state investment in higher education.

Photo Credit: AP/Jae C. Hong