Experts Discuss How to Protect Higher Ed Funding During Recessions

By Maria Carrasco, NASFAA Staff Reporter

A group of higher education policy experts gathered for a webinar on Wednesday to discuss possible solutions to ensure higher education has stable federal and state funding during economic downturns, making them “recession proof.”

Hosted by the Bipartisan Policy Center (BPC), the webinar featured speakers Sophia Laderman, associate vice president of the State Higher Education Executive Officers (SHEEO), and Michele Shepard, senior director of college affordability at The Institute for College Access and Success (TICAS). Shai Akabas, director of economic policy at BPC and moderator of the webinar, began the session by introducing BPC’s new tool, the Rainy Day Fund (RDF) Calculator

BPC’s Task Force on Higher Education Financing and Student Outcomes in 2021 issued recommendations to rethink federal and state roles in higher education to improve affordability and accountability, a key one being the creation of flexible block grants from the federal government to states, which would go toward affordability initiatives and rainy day funds that protect higher education spending during economic downturns. The center’s newly created tool allows users to model such a system.

“In the wake of the COVID-19 economic downturn, and the federal government's massive emergency infusion of resources into the higher education system, there have been increasing conversations about rainy day funds that could avert such situations in the future, and protect taxpayer dollars,” Akabas said. “We know higher ed financing needs a paradigm shift. And the tool we're presenting today can help policymakers explore what that new design should look like.”

Natalie Butler, a research analyst for BPC, demonstrated how to use the tool and explained how the proposed grants would work. Specifically, the grant program would be an annual flexible matching grant program that would incentivize states to “reinvest in their higher education systems” and “accommodate state funding challenges during recessions.” To access the federal grant program, which is optional, states would be required to increase their funding for higher education, according to BPC. Every dollar a state invests in its higher education system above the three-year rolling average would be quadrupled through a federal match, which has a maximum potential allocation. 

“This is just one step in the policy development process,” Butler said. “However, the information we have gained from this model is essential to tackling higher education affordability. If we waved a magic wand and enacted all these policy changes, we could recession-proof state higher education funds within five years. Knowing the amount of money required and the time it will take today to build these rainy day funds, it gives policymakers an idea of where to start.”

Laderman and Shepard then moved on to discuss the history of higher education funding from federal and state governments and how it contributes to the affordability challenges for low- and middle-income students. Shepard noted that while 75% of students are served by public colleges, the cost has shifted from a public responsibility to a personal responsibility.

“We see the cost of attending what were once affordable — and meant to be affordable — public institutions, we see those costs continuing to rise,” Shepard said. “This includes costs beyond just tuition and fees and most families are not able to cover these costs out of pocket. So most students now take on debt to pay for college. And alongside this, many public colleges lack the resources to adequately support their students.”

Laderman added that higher education is seen as a discretionary item in state budgets because it has a revenue source through student tuition. And in times of recession, higher education has historically been cut more than any other budget area — and those cuts  have been getting steeper with each recession, Laderman said.

The most acute example was seen during the Great Recession in 2008, when steep enrollment spikes were coupled with the biggest declines in state budgets for higher education funding, resulting in the lowest levels of per-student funding in history, Laderman said. And while some states have recovered and increased their funding for higher education, such as California and Washington, 37 states have lower funding than they did in 2000-01 on a per-student basis. 

And when it comes to the COVID-19 economic downturn, Laderman said there wasn’t a decline in state funding for higher education, in part because of enrollment declines. Additionally, the federal government issued stimulus and relief packages, such as Higher Education Emergency Relief Fund, that gave aid directly to institutions and students. 

Both Laderman and Shepard spoke about the implications of higher education budget cuts during economic downturns on low-income students, who need support from state funding to enroll in and complete college. 

“There's the basic concern that families have fewer dollars in their pocket, and their budgets are, as well as the state budget … are in decline during downturns,” Shepard said. “And so students have fewer resources, they need to work more hours, they are often brought into positions where they have to take on additional responsibilities at home that can impede their ability to enroll in or stay enrolled in school.”

Laderman added increased state funding often means increases in student enrollment and retention at public institutions, particularly for low-income students, students of color, and first-generation students. 

But a key part of the solution in ensuring higher education has stable funding during times of recession is for the federal government to continue to incentivize states to keep up with higher education funding through a required match, Laderman said. 

“In the past, the federal government has sort of assumed that states will continue to invest in higher education,” Laderman said. “But this has not been the case. … It's really important to not continue to make assumptions like that.”


Publication Date: 3/16/2023

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