Meshing Speechwriting and Budget Making

March 3, 2009

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First in his speech to Congress and then in his first budget, President Obama made his campaign rhetoric about higher education a reality. His speech laid out three ambitious goals for higher education. His budget would make Pell Grants an entitlement and would make permanent the tuition tax credit changes that were part of last month’s economic stimulus legislation. These and other changes in federal higher education policy would largely be paid for through a fundamental shift in how federal student loans are financed.

It is difficult to recall any prime-time presidential speech where higher education was spotlighted more as a domestic priority. But to examine the feasibility and advisability of this ambitious agenda, it is worth asking if the president’s goals for higher education are both consistent with one another and achievable. And whether the president’s budget proposals are the best way to achieve these lofty goals must also be considered.

Are the president’s three goals consistent with each other? Not entirely. First he called for increasing college graduation rates, then said every American should be able to try postsecondary education for at least one year. These two goals don’t mesh. Graduation rates are the share of enrolled students completing a degree. Giving more people a chance to go to college is why graduation rates in the U.S. traditionally have been modest when compared to other countries. Thus, any effort to produce more access now is likely to make it more difficult to increase graduation rates in the future.

The president’s third goal for higher education was that by 2020, the U.S. should again be the leader among OECD countries in attainment rates -- the proportion of the working age population that holds a postsecondary degree. Here the objective of increasing access is consistent with increasing attainment. The U.S., in fact, is a prime example of how more access has led to higher attainment even when graduation rates are modest.

The U.S. continues to have one of the highest bachelor's degree attainment rates among OECD countries. Associate’s degrees from community colleges are where the U.S. has had an average record of attainment; this remains the case. But if our work force surveys counted people with certificates and other short-term credentials as sub-bachelor's degree holders in the same way as Canada, which has the highest overall attainment rates among OECD countries, our attainment rate would be higher than Canada's and we already would rank as the highest in the world (so we don't need to wait until 2020!).

The president’s speechwriters picked up on a drumbeat sounded by many groups in this country in recent years. The argument is that the U.S. is falling behind when it comes to higher education and that the federal and state governments must increase their funding for both students and for institutions if the country is to remain globally competitive.

The statistics cited in this drumbeat include: college access is falling, graduation rates are low and declining, attainment rates also are declining, and the rate that younger workers attain their degrees is lower than older workers for the first time in our history. These assertions are based on OECD-reported statistics or on their interpretation.

Questionable Comparisons

But these assertions are often misleading and in several cases simply wrong. In higher education, and many other functional areas, the OECD indicators are often proxy figures because member countries simply do not collect data in similar ways. As a result, OECD reports may not accurately reflect reality in the individual countries. For example, the OECD version of participation rates – enrollment ratios -- make it seem that access in the U.S. is declining, but it is very hard to find any other evidence that this is so.

Enrollments in the U.S. grew by 3 percent per year in the first half of the 2000's -- a high rate of growth historically -- in reaction to the recession and other factors; 18 million students now annually enroll in the fall -- an all time high. And these figures do not include most career school students as well as those students in traditional institutions who don’t enroll in the fall.

The college graduation rates as reported by OECD are particularly problematic; they divide the number of students who graduate in a year by the population of traditional graduation age in that year. They are really more a bad measure of attainment than of graduation and they should not be used in any serious way. Based on other data sources, the U.S. probably has a below-average graduation rate that reflects the philosophy of a mass higher education system that aims to give people a chance to go to college.

The drumbeaters, and now the president, have made attainment a key national goal by combining our historically high bachelor’s degree attainment with average sub-bachelor’s rates to produce a mediocre OECD ranking for the combined rate. But as noted above, this ignores the fact that we don’t count career school programs in measuring attainment rates while others like Canada do. More importantly, looking at the combined rate can mask the very real challenges that community colleges face which need to be addressed.

Assertions about declines in the U.S. attainment rate also can be deceiving. They are based on comparing degree attainment of the youngest and the oldest workers; in the U.S. these rates are virtually the same. By contrast, higher education in most OECD countries is growing and younger workers are gaining degrees at much higher rates than older workers. But U.S. Census data confirm that our attainment rates, at least for those earning bachelor’s degrees, are growing, albeit more slowly than for many other OECD countries. The reason for this paradox: younger workers continue to attain degrees as they age and their attainment rate eventually will exceed that for current older workers.

Expanding a Flawed Status Quo?

Statistics aside, though, we all recognize that all facets of our postsecondary pipeline -- preparation, participation, and persistence as well as attainment -- must improve if we are to remain globally competitive, particularly for the most disadvantaged students. The problem with the president’s proposals is that current programs and policies to some extent have contributed to the current challenges; expanding them thus may not be the best solution. It also is not clear whether the president’s budget proposals as presented will lead to higher graduation rates and levels of attainment.

For example, putting more money into Pell Grants and expanding tuition tax credits should help improve access, at least in open-enrollment community colleges and for-profit colleges, but there is little evidence this will help improve graduation rates.

Moreover, some of us believe these policies may not achieve more access if steps are not also taken to prevent the additional funds from fueling higher tuitions – this is the “health care cost problem” in higher education caused in part by growing loan availability that we haven't been willing to address directly. There is also reason to worry that past expansions in Pell Grants may have led many institutions to rely more on federal funds for access so that they could use discounts for marketing to middle income students who can pay a bigger portion of the bill. Thus, we should be wary of “substitution effects,” as well as possible price effects, as unintended consequences of federal policies.

One effect of the president’s proposals to make Pell Grants a federal entitlement, index its future growth to inflation, and make tax credits refundable is that this will increase the degree of overlap between these two largest forms of non-repayable aid. We should aim instead to reduce that overlap in the future by focusing Pell Grants more on students from the lowest income families who pay no or little taxes and rely on tuition tax credits as the primary vehicle for helping students from families who pay income taxes as well as growing numbers of older workers enrolling in college.

The president’s budget also picks up on a campaign promise that would represent another form of integration between federal aid and the tax system: allow families and students to permit their income tax information to be used to determine aid eligibility. This proposal would simplify the system and increase access by doing away with the dreaded FAFSA form. A further form of integration would base eligibility for Pell Grants and loan subsidies on how much taxes families and students would pay under the 1040A tax rules.

For those of us who have long advocated relying more on federal financing of student loans than subsidizing banks, the president’s direct loan proposal is certainly welcome. But it makes the mistake, as others have before, of focusing too much on when students borrow and not nearly enough on when repayment begins and heavy loan burdens become a reality. Democrats demonstrated this foible when assuming leadership of the House in the previous Congress. They made higher education one of their top legislative priorities and their major accomplishment was to halve the interest rates for borrowers for whom the federal government already pays the interest while they are in school. For the many millions of borrowers already repaying their loans, much less help was provided.

What is really needed in this country with respect to student loans is a seamless system so that it does not matter whether the federal government or the private sector initially finances the loans. In such a system the principal focus would be on providing all borrowers with viable options that allow them to make their repayments manageable relative to their incomes once they complete their education. For such a system to work it would also be necessary for institutions to become an active partner by reducing their sticker price for those students who must borrow, thereby reducing debt burdens.

The president’s budget does include one proposal that could make a real difference with respect to improving graduation rates. It would pay states and institutions based on the numbers of low-income students who graduate. This kind of supply-side approach to get states and institutions more involved in improving attainment, particularly for the most disadvantaged students, is much needed and a welcome addition to the debate. But the president proposes this new fund be layered on top of longstanding federal programs that fund states and institutions to provide aid. Instead, the new fund should replace the existing programs and thereby do away with anachronistic funding formulas that favor wealthier states and institutions because they traditionally have provided more aid.

What is missing in the president’s budget is a much more aggressive early intervention strategy that reaches out to at-risk students well before they arrive in college. This gap is surprising given that Secretary of Education Duncan cut his teeth professionally on such a program in Chicago. There is evidence that federal programs like Gear Up and private efforts such as I Have a Dream often can be more effective than traditional student aid in getting at-risk students onto the college track and keeping them there. These efforts deserve big increases in funding and attention before we limit our future options by making Pell Grants another federal entitlement.

It would be beneficial if the president’s speech and budget stimulated a thoughtful debate in this country about how we pay for college and other postsecondary training. This debate should use real statistics in comparing us with other countries as well as drawing on the experience of those other countries. We should also be examining closely what states and the private sector here are accomplishing.

This debate should also include a hard look at the mix of academic and vocational training we provide in this country and produce a strategy that will maximize our ability to compete globally and to rebuild the infrastructure that we all know needs repair. The answer ultimately may well be found more in policies that produce better-prepared high school graduates, more effective community colleges, a network of well-run career schools, and much greater use of apprenticeships that are all tied to current and emerging labor force needs than in any large-scale expansion of our universities.

Bio

Arthur M. Hauptman is a public policy consultant specializing in higher education finance issues. He is based in Arlington, Va., and can be reached at Art.Hauptman@yahoo.com.

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