Federal policy

College vs. Employment

In forming a strategy to deal with the severe economic downturn, President-elect Obama and his evolving brain trust of economic advisers should recall the largely successful and innovative efforts by federal and state governments to avoid a projected steep post-World War II recession -- in particular, the key role given to higher education.

Beginning in earnest in 1944, many leaders in Washington and in the state capitals throughout the nation worried about a return to Depression-era unemployment rates -- President Roosevelt included.

There are many reasons that the expected deep recession eventually turned into the beginning of an economic boom in the US after the war, including high saving rates during the war with the result of unanticipated and pent-up consumer demand. But another reason was proactive efforts to mitigate feared unemployment rates, to support industries with growth potential, and to fund yet another round of infrastructure development and expand public services.

One of the most important salves that came out of that era of policy making, one that provides a guide for our present predicament, was the embrace of large-scale investments and innovative policies by both federal and state governments to promote greater access to higher education.

The famed GI Bill, for example, was not simply an effort to open new opportunities for deserving returning veterans -- many of whom had delayed their education or needed new skills to enter the job market. The unprecedented investment by the federal government in providing grants for college had another important purpose: to reduce projected unemployment rolls and, at the same time, help restructure the U.S. labor market by producing a more skilled labor force.

State governments acted as a partner in that macroeconomic strategy. Under the leadership of Gov. Earl Warren, for instance, California expanded markedly the physical capacity of their public higher education systems by establishing new campuses, hiring new faculty, eventually creating their own scholarship programs to supplant the GI Bill, and subsequently reaping tremendous economic and social benefits from the investment in human capital.

The Role of Higher Education in National Economic Recovery Today

That basic strategy of expanding funding for individuals to attend a college or university and to get a degree, and funding the expansion of higher education institutions, is a key component thus far missing in the national debate over the route to economic recovery.

Expanding higher education funding and enrollment capacity may be as important as any other policy lever to cope with an economic downturn, including funding for infrastructure. Any new federal initiative to boost access could also be designed for an immediate impact on the economy.

The overall educational attainment of a nation is, in fact, much more important today than some 60 years ago. Broad access is increasingly viewed as vital for socioeconomic mobility and demand for higher education generally goes up during economic downturns. Individuals who lose their jobs, or fear low prospects for employment in declining economies, see a university or college degree as a means to better employment prospects.

In some significant measure, it is likely that enrollment demand will go up, particularly in the public higher education sector, because tuition costs are generally much lower than in the private independent and for-profit sectors. We are already seeing evidence that many students who had planned to attend private or out-of-state public colleges will turn to cheaper in-state options.

Yet most state and local governments are in the midst of wholesale cutting of their budgets, the initial rounds of large and succeeding cuts to their public higher education systems.

Some 75 percent of all students in the U.S. are in public institutions. Feeling the effects of repeated cuts in budgets, many multi-campus public systems are threatening to cap or event lower enrollment despite growing demand -- including the California State University system, one of the nation’s largest four-year university systems.

To make ends meet, places like CSU simply cannot afford more part-time, let alone full-time, faculty to teach the classes -- this despite a 20 percent increase in freshman applications over last year. In the face of this significant rise in demand, CSU plans to cut its enrollment by some 10,000 students. That would mean a net 10 percent cut in total freshman admitted for 2009-10 over this academic year. Most CSU undergraduates are in their mid-20s, meaning some sizable number of students will be displaced, forced into an eroding labor market.

CSU’s planned limit on enrollment is in reaction to successive years of major budget cuts, including a mid-year cut of some $66 million and probably larger cuts next academic year. CSU already took a $31.3 million cut earlier this year.

The ten-campus University of California system might follow suit. Adjusted for inflation and enrollment growth, state funding on a per-student basis at UC has fallen nearly 40 percent since 1990 -- from $15,860 in 1990 to $9,560 today in current, inflation-adjusted dollars. The UC president and the Board of Regents have made preliminary threats of a similar reduction to that of CSU in freshman admissions that would equate to a 6 percent overall reduction in the universities' system-wide undergraduate enrollment.

Admittedly, such threats in the past have acted as negotiating positions with the state legislature and governor. But these are not ordinary times, and this is not an ordinary recession.

The net effect of any enrollment caps in the public four-year institutions is a seemingly unrealistic expectation that California’s community colleges will act as a buffer, absorbing the spill-off of students denied admission at UC and CSU and the general rise in demand for higher education. That won’t happen.

California’s community colleges are already facing initial cuts of $332.2 million. There will be no additional funding for expanding the community colleges, with one estimate that more than 250,000 students will be turned away -- the colleges will be cutting the number of part-time lecturers in the midst of unprecedented demand for classes. I sense that that number will be much larger without a proactive mitigation.

A similar cascading scenario will occur across the nation. Millions of students are already flocking to community colleges and public universities at a time of midyear cuts that are forcing colleges to lay off faculty members and cut classes; many higher education institutions are already freezing enrollment.

In New York, Gov. David Paterson faces a large budget deficit and plans midyear cuts of some $348 million in the budget for the State University of New York’s 64-campus system and the City University of New York. This comes on top of some $196 million in cuts made earlier in this fiscal year. All of this will have an impact on access and enrollment rates.

After a long period of declining public financing for higher education on a per student basis, most public universities and colleges have little room to yet again do more with less. State budget cuts for higher education already in the works will undoubtedly have a negative impact on student access rates for this academic year. But the largest impact will come in 2009-10 when tumbling state budget allocations will correspond with rising demand for higher education.

Beyond bonds for construction, most states, like California, have severe limits on borrowing. Most must provide balanced budgets under their state constitutions. Some may raise taxes to cover growing real and projected deficits; but most will cut deeply into public expenditures, including education.

Public university and college systems in California and other states are no longer interested in pitching in to expand enrollment without the resources; now they are pushing back under the rubric of self-preservation. Every institution is increasingly sensing that they are on their own, and not part of a collective effort to serve a state, to serve a nation. No one that I am aware of has modeled the potential impact of this cascading effect of the disparate actions of state governments, multi-campus systems, and individual institutions cutting budgets and cutting enrollment.

The traditional lever of public college and universities to help cope with declining state and local revenues is to raise tuition and fees. However, I sense that we are at a point where significant fee increases, matched by rising unemployment rates and continued constrictions in credit markets, will cause a huge, artificial downward pressure on the ability of students to enroll in all types of institutions -- from community colleges to major selective universities. Further, additional tuition revenue will likely not cover the added cost of expanding classes and campus infrastructure required to meet enrollment demand.

Would it be smart to constrict access to higher education just when unemployment rates are potentially peaking?

U.S. Lags Behind Other Nations

The U.S. is already lagging behind many international competitors in the number of students entering and, even more importantly, graduating with a college degree. Less than two decades ago, America had the highest rate not only of students who entered a college or university, but also of those who then actually earned a bachelor’s degree or higher. Now the U.S. ranks a rather meager 16th in the percentage of young people who get a degree – behind Australia, Iceland, New Zealand, Finland, Denmark, Poland, the Netherlands, Italy, Norway, the United Kingdom, Ireland, Sweden, Israel, Hungary, and Japan. Indeed, and sadly, the U.S. is one of the few OECD nations in which the older generation has achieved higher rates of education attainment than the younger generation.

Here is the gist of the problem: too few students who graduate from high school; too many part-time students; too high a proportion of students (nearly 50 percent) in two-year community colleges, most never getting a degree; too many part-time faculty; an absence of long-term goals at the national level and by state governments regarding higher education access and graduation rates; and to date no well-conceived funding models to assure quality.

This is a problem that needs national leadership. The U.S. continues to grow in population. Today, the U.S. enrolls about 19 million students in degree-granting colleges and universities. If current participation rates remain flat, and states and federal governments don’t cut further the budgets for higher education, we would grow by about 2.5 million students over the next 15 years. But if the U.S. were to match the progress of our economic competitors and expand access to its growing population, one study indicates it would need to grow by more than 10 million students.

The deleterious effects of further and large-scale cuts to higher education, combined with modest improvements to an already inadequate financial aid system for low- and middle-income students, would pose a triple hit for the U.S.

First, access and graduate rates would decline in the near and possibly long term, depending on the depth of the economic collapse and the actions of government. The U.S. already has the highest percentage of part-time students among those enrolled in higher education when compared to economic competitors -- not by choice largely, but a result of personal economic necessity. This indicates the fragility of current access rates.

Second, unemployment rates would climb higher and probably have disproportionate effects on working- and middle-class students

Third, depending on the actions of other economic competitors, most of whom have concrete national policies to expand higher education access and graduation rates (the U.S. has no such policy), the U.S. will accelerate its international decline in overall educational attainment.

A Happier Scenario

Another and much happier scenario, however, would be that the federal government, in partnership with state governments, view higher education as a vital component for economic recovery and long-term prosperity -- on par with new investments in infrastructure and stop-gap measures to stabilize housing and credit markets.

How to adequately assess options and their costs and benefits is a complicated question. For example, what would be the potential impact of greater, or lower, access to college on, for instance, unemployment rates?

At the same time, the incoming Obama administration must decide among a growing number of economic recovery initiatives, each with their own interest groups and heartfelt supporters. Everyone has his or her hand out. Weighing the benefits and costs of competing demands for federal tax dollars will be increasingly difficult.

An exploratory Commission on Higher Education, not unlike what President Harry Truman formed in 1946 but with more urgency, and possibly an initial budget overseen by the new secretary of education, could provide a larger vision and contemplate a range of options -- big-picture analysis that the myopic Spellings Commission simply ignored in its fixation with creating new accountability regimes. Accountability is not an end, but a means, and that was seemingly lost on Education Secretary Margaret Spellings, the commission’s leadership, and a cadre of higher education pundits.

President-elect Barack Obama has repeatedly noted the importance of raising educational attainment rates, and improving the quality of education in the U.S.. The Obama campaign did offer a number of important policy initiatives related to higher education. These included greater reliance on direct loans from the federal government (instead of subsidizing private bank loans), a long-overdue simplification of federal financial aid forms by linking applications to tax filings, marginal funding for community colleges to create more job- oriented programs, indexing Pell Grant maximum awards to the rate of inflation, and offering a one-time refundable tax credit of $4,000 to a student who agrees to 100 hours of public service over two years.

These are all good ideas. But they are simply not enough in light of mega-trends in the economy and America’s underperformance in education.

1. Short-Term

Short-term and immediate policies could include significant directed subsidization via state governments of their public higher education sectors relative to projected near term enrollment demand -- to essentially stop states or major public universities from capping enrollment or turning away large numbers of students. Federal Pell Grants for low-income students, already severely underfunded relative to demand, could be increased significantly in the amount awarded and the number of students receiving aid.

Resources for direct loans could be substantially expanded and made more generous with the possibility of a one-time grant for middle-income students to attend a participating public or accredited private institution that would also receive a small federal allocation. In return, these institutions would promise to reduce tuition for students enrolled in the federal program -- perhaps by 5 percent for publics, and 10 percent for selective privates. Such programs, like the GI Bill, helped to galvanize the higher education institutions in the nation, public and private, into understanding their distinct and significant role in real and anticipated hard times.

Another idea might be to tie federal unemployment compensation with access to an accredited higher education institution -- perhaps targeted to certain groups as an option.

Any infrastructure investment initiative should also focus a portion of its portfolio to support public college and university building programs that expand enrollment capacity, like classrooms, or meet research and faculty needs -- such as offices and research labs. Such a program would reflect the federal government’s brief but important investment in university and college building programs during the mid-1960s and could require matching funding from state governments or private enterprise.

There is always the question of whether to fund the individual students or institutions. Past federal policy has focused on funding of grants and loans to individuals. But there is urgency to venture, at least on a temporary basis, into funding key and largely public institutions -- the main providers who have explicit public purposes.

2. Long-Term

Long-term goals need to assess the overall health of the U.S.’s still famous, but strained, higher education system and what national and state goals might be conjured. In states with projected long-term and large population growth, like Florida, California and Texas, there has been no coordinated assessment of actual enrollment capacity. Can they grow to meet ambitious efforts to increase educational attainment levels? What would constitute a “smart growth” approach to capacity building?

Cost containment in higher education, particularly among selective institutions, and how to finance public higher education is also an important long-term policy issue that needs a macro-view. But the vast majority of public higher education, I would argue, is vastly underfunded, and not, as many critics like to crow, overtly inefficient.

What alternative models are there for financing public higher education? A national consideration of alternative funding models could help guide states, and public and private institutions, toward a funding scheme that aligns with a national goal for educational attainment. This could include providing states with guidelines and models of best practices. Issues related to fees and tuition in public colleges and universities, for instance, are almost hopelessly mired in state politics, and often misguided analysis on affordability.

For good and bad, the U.S. higher education system has been relatively stable over the past 50-plus years, subject to only marginal efforts at reform and reorganization. Stability is important for institution-building and focusing on the quality of what institutions are designated to do within their respective state network of public and private colleges and universities. But the lack of innovation and serious consideration of the overall fit of the current system with current and future economic and socio-economic mobility needs of society is already proving to be a significant problem for the U.S. -- one among many.

States should not be left on their own to reinvigorate and use their higher education systems to mitigate the economic downturn or to, essentially, chart the future labor force and, ultimately, competitiveness of the US. Simply stated, they are not now capable of charting aggressive and enlightened policies related to higher education like they did in the now very distant past. As noted, they are hampered by growing and competing demands for the tax dollar including health care, prisons, and they face significant limits on their ability to launch a spending program suitable for meeting rising enrollment demand.

Further, states generally lack a broad understanding or concern regarding issues related to national competitiveness and the larger problems of growing social and economic stratification. Arguably, now is the time for strategic period of federal government investment, targeted to individual students and supporting colleges and universities.

What will other nations do with their network of universities and colleges in the midst of the unprecedented turn in the global economy? The jury is out. Perhaps a few nations, and in particular their ministries of education, have grasped the role of higher education for mitigating the severe economic swing we are experiencing now. They will redouble their efforts to expand the role of higher education during the economic downturn, or at least protect that sector from large cuts in funding.

Those nations that resort to uncoordinated and reactionary cutting of funding, and reductions in access, will find themselves at a disadvantage for dealing with impact of the worldwide recession, and will lose ground in the race to develop human capital suitable for the modern era.

Like the Roosevelt and later Truman presidential administrations, the incoming Obama administration should more fully integrate higher education policy into its economic recovery strategy. The U.S. is at a critical juncture in effectively combating the severity of the economic downturn, and higher education will either be an important mitigation, or a large-scale drag on economic recovery. What is missing thus far is the national leadership that can do something proactive.

John Aubrey Douglass
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John Aubrey Douglass’ most recent book is The Conditions for Admissions: Access, Equity, and the Social Contract of Public Universities (Stanford Press). He writes about global trends in higher education. A version of this paper was published by UC Berkeley’s Center for Studies in Higher Education in its on-line Research and Occasional Paper Series.

We Need a New Kind of Institutional Aid

In a February address to Congress, President Obama stated that by 2020 our nation would need to regain its prominence as the world’s higher education leader if we are to enjoy the same kinds of economic success and stability that we have experienced during previous decades. This marked the first real admission by a U.S. president that we are no longer the global leader in higher education access and educational attainment. Furthermore, this statement indicates that we can no longer continue business as usual in the world of higher education policy, and that we must do more than simply argue at the federal level every two to four years about how much to increase the Pell Grant maximum or the aggregate subsidized loan cap for undergraduates. This limited discourse has resulted in stagnant progress for our nation while much of the rest of the world has developed new and more innovative policies. For us to get back on track and reach President Obama’s higher education objective by 2020, we need much higher levels of educational attainment for lower-income and underrepresented students.

Instead of promoting the same old arguments, we recommend a new direction – one that, ironically, has been excluded from federal policy dialogue for over 30 years, despite being an important component of the original Pell Grant or BEOG legislation in 1972.

In the early legislative history of what is now the Pell Grant program, Congress developed federal student aid grants to help economically disadvantaged students attend higher education institutions of their choice. In recognizing the educational disadvantage and substantially higher cost for educational services that accrue to the colleges and universities where many lower-income students enroll, the originally authorized Pell Grant or BEOG legislation envisioned direct institutional grants to colleges and universities that would accompany Pell Grant recipient students. These institutional grants were designed to provide the appropriate educational services necessary for these students to succeed and eventually graduate.

This original program, which was authorized in 1972 but never funded, was known as the “cost of education allowances” and was based on a similar concept advanced in the Elementary and Secondary Education Act (ESEA) in 1965, known as Title I. At the heart of this concept is the widely accepted premise that economically disadvantaged students cost more money to educate than students from wealthier backgrounds. Title I was created to provide supplemental federal funding to those elementary and secondary schools with above-average numbers of lower-income students. In 1972, the cost of education allowances program was authorized to achieve the same objective by providing supplemental resource support to colleges and universities in order to provide essential educational assistance to Pell Grant recipient students.

The time has come to resurrect this idea. If we are going to change the way colleges and universities approach economically disadvantaged students, we need to provide actual federal funding for these “cost of education allowances.” Currently, there are no fiscal incentives for colleges and universities to attract and graduate lower-income students. In fact, current federal direct student aid programs in their totality encourage colleges and universities to pursue more free market agendas by providing incentives for tuition-based financial strategies. This essentially means that higher cost institutions, both public and private, have disproportionately benefited from federal student aid funding due to the cost sensitivity embedded in the system. Additionally, by supporting tuition and fee-based strategies, the federal government has allowed state legislatures to more readily opt out of their funding responsibilities, resulting in continuous reductions in state tax support of public higher education. An indirect result of this existing system is that there are no incentives for lower cost institutions that serve the masses or states that strive to keep higher education affordable. One important, but unanticipated, outcome has been that as states increasingly withdraw their public support of public institutions, many universities have found other alternatives to educating more costly lower-income students, such as increasing out-of-state enrollments in exchange for less wealthy in-state students.

Also working against colleges and universities enrolling more lower-income students are current national ranking systems and the use of very simplistic institutional measurements by state authorities. Rankings such as the popular U.S. News & World Report indirectly encourage universities to reduce their lower-income student enrollments by rewarding higher graduation rates, admissions selectivity, and other variables that are aimed at promoting institutional prestige above common purpose. This is just wrong. Many state authorities have also begun prioritizing very simplistic institutional measurements such as graduation rates without any regard for the aggregate numbers of graduates or the socioeconomic status of the students educated at the various institutions.

In light of the many fiscal and cost-related disincentives for enrolling more lower-income students, it should not come as a surprise that we continue to see four-year public and private universities decrease their commitments to larger numbers of lower-income students. In fact, from 1972 to 2006 the nation has witnessed an overall decline in Pell Grant-eligible students as a percentage of the total student population. At public universities, the drop was from 41 percent to 34 percent, and from nearly 22 percent to 14 percent on all private four-year college and university campuses. These significant declines have occurred despite the nearly $100 billion in federal direct student aid grants, subsidized loans, and tax assistance currently available. We think this becomes a civil rights question.

However, for the colleges and universities that have maintained their commitment to lower-income and economically disadvantaged students, which have primarily been state comprehensive universities like the California State University and community colleges, the fiscal disincentives remain problematic. Over the last 30 years, public comprehensive universities and community colleges have seen a substantial decline in fiscal competitiveness when compared with higher tuition public and private institutions. The irony, of course, is that those institutions that serve the broader public good are increasingly fiscally disadvantaged for maintaining these critical missions.

To attempt to change this ominous direction to focus on the new generation of students with the greatest educational needs, it is imperative that we revisit the “cost of education allowances” program and develop a federal Title I type program for higher education institutions. This policy would provide a specific flat “capitation” institutional grant per lower-income student to every college and university that meets a minimal enrollment threshold of 20 percent. To ensure that these funds are properly devoted to student enrichment, this current proposal could be shaped to require that federal funds must be used to support campus-based academic and student service programs specifically designed to assist Pell Grant-eligible students. Such a program could also create important and much needed fiscal incentives for public and private institutions to not only enroll, but to retain and graduate more lower-income and lower-middle income students. Also, the amount of the federal flat grant award to institutions could be moderately increased or decreased, based on state support for higher education. This would provide incentive for maintaining certain levels of public funding of higher education, similar to the non-supplanting provision found in Title I of ESEA. This additional maintenance of state effort provision could help better stabilize higher education funding, and thus better stabilize student tuition and fees as well.

This recommendation advanced by the California State University has earned support from numerous higher education economists and leaders, as well as from national organizations, such as the American Association of State Colleges and Universities (AASCU) and in the College Board’s recent report “Rethinking Student Aid” where a similar concept was advocated. Developing new federal policies that encourage states to maintain their commitment to financing widespread access and completion in higher education is essential if our nation is to reverse the relative international decline that we have experienced over the last few decades.

For nearly four decades, the federal government has prioritized an individualistic and market-oriented approach to funding higher education by simply putting resources in the hands of students. While this approach has been worthwhile, it has created a series of perverse fiscal and institutional incentives that could be remedied by the implementation of a new policy already authorized as part of the original 1972 legislative strategy. Creating financial incentives for institutions to remain committed or to recommit themselves to the public needs of society should be among the federal government’s highest priorities.

If we are ever going to reach President Obama’s goal of 2020, America is going to have to invest in our most needy students, who are disproportionally students of color, while also investing in those institutions that will serve them.

Charles B. Reed and F. King Alexander
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Charles B. Reed is chancellor of the California State University System. F. King Alexander is president of California State University at Long Beach.

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