New America's Plan for Higher Education Financing

February 18, 2016

In most states, public funding for higher education has not recovered in the wake of the last recession. And odds are that state disinvestment will get worse after the next economic downturn, according to New America. That, in turn, means more picking up slack by the federal government.

The think tank this week proposed a broad set of fixes to what it says is an "irreparably broken" financial and regulatory bargain between the federal government, states and colleges. New America's report, dubbed "Starting From Scratch," described the group's plan to change the current federal higher education funding structure from behaving like a voucher program, where aid follows students, to one based on formula-funded grants. It would eliminate federal student aid programs and replace them with grants to states.

To participate and receive federal funding, states would have to agree to maintain their higher education funding levels, to provide a 25 percent match for the federal grant and to play a more "active role" in holding colleges accountable for their performance. All types of colleges -- public, private and for-profit -- could participate. To receive grant money, institutions would need to have enrollments with at least 25 percent of students being low income, to meet student financial needs and to adhere to performance standards, such as graduation rates and labor-market outcomes for students.

"Imagine a world where all student financial need is met. There are no federal loans, no Pell Grants and no higher education tax credits," the report said. "Instead, states receive formula funds for colleges that enroll a substantial share of low-income students and serve all students well."

Some of the group's ideas only work in the context of the full plan, said Kevin Carey, who directs the education policy program at New America. Yet the funding structure of higher education has become a hot-ticket issue, he said. Presidential candidates, for example, are talking about their own ambitious plans -- like free college on the Democratic side. The plan would cost about $39 billion annually in additional federal funding, compared to current spending levels. That's a similar amount to the cost of the higher education plan proposed by Hillary Clinton.

"This is a proposal that's very much in the mainstream in 2016," Carey said.

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