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Governor Haslam, of Tennessee, has proposed using state lottery revenues to create an endowment to fund the tuition and fees for new high school graduates at community colleges within the state.

I’m guardedly optimistic.  The concept sounds good, but could easily become a Trojan horse.

First, though, credit to Governor Haslam for coming up with a smarter and more sustainable approach than simply making community college free.  As I understand it, the proposal would cover the tuition and fees for new high school graduates.  That means that tuition and fees will continue to exist, and to be charged in the traditional ways.  New high school grads -- as opposed to returning students, older students, and others -- would get scholarships. 

From an institutional perspective, that’s vastly preferable to just declaring it free for everybody.  It’s better in two major ways.  First, it maintains a connection between enrollment levels and funding levels.  When the two are completely disconnected, as in California, the institutional incentives get messed up during periods of enrollment growth.  (That’s why certain California systems had tens of thousands of students on wait lists.  For colleges founded on a mission of access, that’s total system failure.)  Second, it doesn’t make the mistake of leaving Federal dollars on the table.  Federal financial aid is figured, in part, based on tuition and fee levels.  Zero those out, and in effect you replace federal funding with state funding.  States can’t run deficits, so the next time you hit a recession -- and you will -- you could expect a catastrophic collapse in state support at the exact moment of greatest student need. 

An endowed scholarship fund gets around both of those issues quite cleanly. 

Making it an endowed fund, as opposed to a pay-as-you-go system, also helps with predictability.  I don’t know how volatile Tennessee’s lottery revenues are, but I wouldn’t be shocked to learn that they’re more volatile than overall tax revenues.  Going with an endowment structure makes it easier to smooth out the volatility. 

Endowed scholarship funds work by a large chunk of money throwing off a given percentage each year, ideally while also earning another percentage in interest or investment returns.  That means that if you want to fund, say, a million dollars in scholarships, you need about thirty million in the fund.  It’s not a one-for-one appropriation, like a budgetary line item.  In other words, the  startup costs are far higher than the initial benefits.  That requires a level of fiscal discipline that, um, isn’t always found in state legislatures. 

All of that said, I can’t help but wonder about some key details. 

- I assume that the scholarships will cover the “last dollars” after, say, Pell grants have been exhausted.  If not, they should look at that to ensure program sustainability.

- The speech refers to “two years.”  What, exactly, does that mean?  How does it apply to students who attend part-time, who need developmental coursework, who fail some classes, or who follow the twisty pathways that many community college students follow?  That probably sounds like nitpicking -- I’ve been accused of that -- but those issues are real, and ubiquitous.  If the program isn’t prepared for those questions, it will quickly get drowned by them.

- What if demand for the money exceeds supply?  (I can almost guarantee that this will happen.)  Is it allocated first-come, first-served, or is there some sort of pecking order?  Relatedly, what happens if colleges start raising tuition and fees more quickly than the endowment builds?  (I’ll admit not knowing the mechanism for determining tuition increases in Tennessee.  If the state sets them, this question may be moot.)  The program could quickly morph into de facto price controls.

- How long after graduation would high school students have?  Do new GED recipients count?  What about reverse transfers -- the students who went to a four-year college initially, but then, for whatever reason, switched to a community college?  (They’re far more common than the popular discourse assumes.)  And at a really basic level, what about people over the age of nineteen? 

I ask these questions because I like the idea and want it to work.  It’s easy for a program conceived as a broad-stroke solution to come to grief when it confronts the sheer heterogeneity of actual community college life.  For the program to be both successful and sustainable, it will need to reflect the messy realities of students who don’t follow the script. 

But if it’s done right, it could be a national model.  I’ll be keeping an eye on Tennessee.

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