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Stronger Federal-State Partnership Needed to Combat Pandemic-Induced Higher Ed Funding Turmoil, Report Argues

By Owen Daugherty, NASFAA Staff Reporter

With state budgets strapped and the country already facing an economic recession, the federal government must reimagine its role in the federal-state partnership and do more to support states in their higher education offerings, a new report argues.

The report from the Urban Institute outlines what is likely to be the biggest obstacle facing higher education in the coming years: rising tuition prices coupled with lagging state support, all while the federal government provides relatively stagnant funding at a crucial time when an economic downturn could push millions to obtain new degrees or certifications. The scenario may sound familiar — in the years following the onset of the Great Recession, tuition spiked, while states slashed their higher education budgets, leaving the federal government to step in and fill the void.

And though enrollment in higher education programs hasn’t increased the way it has with past economic downturns due to the pandemic, it’s possible the recession could outlast the spread of the virus.

While federal legislators can make incremental increases to the Pell Grant, “it may be time for a more involved partnership that would provide states incentives to adequately fund higher education and ensure more equity across states,” the authors contend.

Sandy Baum, a nonresident senior fellow at the Urban Institute and one of the paper’s two authors, said the goal of the paper was not to present a novel idea, but rather to add nuance to policy conversations with new ways to think about the federal-state partnership when it comes to higher education and outline strategies, such as providing federal funds to supplement states or requiring a state match to finance tuition-free college, among others.

“Particularly with [President-elect Joe] Biden and the policies that he's put forward, we would like people to think a little bit more carefully about how much the details matter in terms of how you do this,” she said.

Over the past 20 years, the federal government’s role in financing higher education has grown. In 1998-99, federal grant aid and tax credits and deductions to students were equivalent to 22% of what state and local governments provided to higher education, according to the report. By 2008-09, that ratio had risen to 40%, crescendoing following the Great Recession to a peak of nearly 80%. These federal subsidies to students have since plateaued to 53% of state and local funding in 2018-19, though that figure is still much higher than it was 20 years ago.

Currently, most of the funds the federal government appropriates for higher education are in the form of financial aid to students, while most of the funds states appropriate for higher education go to institutions to fund their operations.

How the federal government and states respond to the current pandemic with a reimagined partnership, coupled with new funding strategies, will chart the course for how the government chooses to support educational opportunity in the years to come, the report notes.

Notably, the authors stressed that the federal government does not have to choose one approach at the exclusion of others. As such, the federal government can both strengthen the Pell Grant — if not double it — as Biden has called for, and take up a new strategy to provide funding directly to states.

Eligibility for the Pell Grant program was expanded and the maximum award was increased slightly as part of the Consolidated Appropriations Act, 2021, which was signed into law at the end of December. While Congress will likely do more in response to the pandemic in the coming months, a doubling of Pell may not be high on the priority list.

“What happened during the Great Recession was a really dramatic, dramatic increase in both Pell Grants and the development of the American Opportunity Tax Credit,” Baum said. “Pell Grant funding doubled in a year or two. The idea that that's going to happen again in response to the pandemic seems unlikely to me.”

She added that proposals from Biden and other Democratic presidential candidates, along with the recent piece of legislation have generated increased conversation around funding for Pell — but it is only one of several different ways that the federal government could play a significant role in terms of helping make quality higher education accessible to students.

Other strategies include directing federal dollars to states or institutions in an effort to lower or eliminate the tuition students pay at public institutions. Biden proposed a federal-state partnership with the federal government covering 75% of the cost and states contributing the remaining 25% for students to attend two years of community college tuition-free.

“If there are ways to get the states to contribute more, it might be possible to get people on both sides of the aisle to be interested in getting more money out of the state,” Baum said, noting that it is important to drill down beyond the “free college” slogans to understand who would actually pay for the proposals.

It has been well documented, however, that states are struggling financially due to the pandemic. To have them reallocate funding to higher education, they will need an incentive, Baum said.

Furthermore, it's important to consider who would most benefit from free college plans and the chances of enacting ambitious legislation, though having a unified government controlled by Democrats is looking more likely with the apparent victories of two Democrats in the Senate runoff races this week.

Despite the coronavirus relief offered as part of the Consolidated Appropriations Act, many are saying it will not be sufficient to offset the economic impact on the nation’s economy through the next year, with the Center for American Progress referring to it as a “down payment” for higher education while noting “it is not a cure-all for the crises that remain.”

“Public colleges are in mounting financial peril because of the economic fallout from COVID-19, facing larger costs than relief funding,” the authors conclude.

With another coronavirus relief package potentially coming this year and the increased chances of comprehensive legislation getting passed with a unified government, Baum said the report should serve as a way to think about designing better public policy to ensure more students can obtain a higher education.

“The economic hardship generated by the pandemic makes it urgent that the federal government develop policies for a more active role in ensuring access to high-quality, affordable higher education for students across the country,” the report states. “The federal government should strengthen [the Pell] program but also develop a program for long-term support of public colleges and universities that will provide incentives and support for states to increase their funding for higher education.”

 

Publication Date: 1/7/2021


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