Making College Affordable: Keep the Focus on Low-Income Students
By: Edward Byrne, NLC Boston
Introduction
Economic mobility and a strong middle class are hallmark virtues of American democracy. Education, especially higher education, is supposed to be the great equalizer. The notion that you’re not limited by what you’re born into, but instead, you can transcend constraints of social class through education is central to the American values of freedom, liberty, and fairness. This understanding is under threat, as the promise of a brighter future with higher earnings and more choices is eroded by limited access to higher education, the increasing and unsustainable costs of attending college, and a growing concern that postsecondary pursuits may never pay off.
While not every person necessarily requires a college credential to find employment and contribute productively to society, increasingly we are a knowledge-based economy, and the workforce will require advanced study and skill sets. Projections vary but virtually all analyses point to the need for more educated workers and a more highly educated workforce in order to maintain competitiveness in a global economy. The challenges are significant: 1) providing access to higher education for more people, 2) finding ways to make higher education affordable for everyone while costs increase and state and local discretionary spending decreases, and 3) balancing the cultural values of a shared investment and sense of fairness in developing a workforce and economy that everyone can participate in.
Background
The first challenge to consider is the increasing cost of higher education and the accompanying debt associated with these higher costs. Cost of attendance is up significantly at both private and public institutions. This has led to more student loan borrowing to cover the costs. Additionally, more students are attending postsecondary programs, which is also contributing to what some have called a crisis of student debt. There’s currently over $1.2 trillion in U.S. student loan debt which includes both federal loans and private loans.
The federal government and society as a whole have an interest in making sure people can go to college. Individuals with a college education earn more than those without college, and increasing the number of workers with college degrees has a positive effect on wages for workers without college degrees[i]. There are numerous other ways in which sending more people to college benefits society as a whole from increased economic output, higher tax receipts that can be used for public goods, and better health outcomes. Since the benefits of higher education are enjoyed by all, it is reasonable that the costs then should be shared by all too. Individuals surely reap the greatest benefit from their college education and thus pay a significant share of the cost. The debate on college affordability comes down to the percent of the cost of higher education that an individual should pay and balancing that cost against the societal contribution[ii].
Federal funding for student financial aid has actually grown significantly over the past three decades, however there has been a shift away from grants toward loans and debt financing[iii]. This shift is one reason for the ballooning of student loan debt in the country. Additionally, because the costs of college have increased over time, the remaining grant aid effectively “buys less” leaving students needing to borrow more to afford the increasingly more expensive college tuition.
Low-income students are hit particularly hard. Low-income students need financial aid equivalent to at least 100% of their family’s annual household income to attend one year of a four-year college, whereas high-income students on average only need financial aid for the equivalent of 15% of their family’s annual household income[iv]. The Pell Grant is a federal program created to support low-income students attending college. However, as the cost of attending college has increased, the Pell Grant does not cover nearly enough to make college affordable for the students in greatest need, dissuading many from attending. In fact, one study found that the maximum Pell Grant award today covers the lowest amount of college tuition since the Pell Grant was created[v].
The federal government also provides various tax benefits to make college more affordable (e.g. Student Loan Interest Deduction, Lifetime Learning Credit, American Opportunity Credit[vi]). These tax deductions and credits certainly are part of the affordability equation, but they typically do not factor into a student’s decision of whether they can afford to attend college because they do not reduce the term bill. These tax deductions therefore make college more affordable for middle-class students and families. If the federal government wants to address the dual affordability and accessibility problem faced by the students in greatest need, the Pell Grant has a stronger effect[vii].
State higher education systems aren’t immune from these cost increases. State education systems rely on tuition and state investment to make the cost of attendance affordable for all. Public colleges and universities have paved a critical pathway to higher education for students from low-income families, students who are the first in their families to go to college, and are at the forefront of providing educational opportunities and postsecondary degrees to nontraditional students. Four million students attend public colleges and universities in the United States.
As costs have increased, state legislatures have disinvested in community colleges and state college and universities. This is due in part to flat or decreasing revenues and increasing mandatory funding liabilities such as Medicaid and pensions. A recent analysis by Moody’s Analytics found that state higher education funding over the next decade is likely to continue to be crowded out by non-discretionary funding liabilities[viii].
Community colleges serve an important role in the accessibility and affordability conversation. Typically, community colleges have the lowest tuition and fees of any type of higher education institution. Still, most community college students work while they attend school. The National Center on Education Statistics found that 60% of community college students work more than 20 hours a week. So while the cost of attendance is lower, many students choose community college because they have to work to live and/or support families. Unfortunately, research has shown that working more than 20 hours a week is a risk factor for not completing a degree program[ix].
Recently. some states have been experimenting with tuition-free state college programs that can address this affordability problem. For instance, New York has announced offering free tuition for public colleges for students whose family incomes are below $125,000 per year. It comes with stipulations that the student live and work in New York State for the number of years they received the free-tuition[x].
Policy Options
Federal Investment in Pell Grants
The federal government could expand its investment in higher education by increasing the Pell Grant. Doubling the maximum award of the Pell Grant would make it possible for low-income students to attend college. This would immediately make higher education more accessible and affordable to the students most in need of financial support. It would address the future workforce problem by getting a population of students facing the greatest barriers to postsecondary education and ready for future jobs. The federal government could pay for the Pell Grant expansion by increasing overall expenditure on student financial aid. It could offset the expansion by a gradual reduction in the American Opportunity Tax Credit and the Lifetime Learning Credit. This reduction would hurt middle-income families the most, but would likely have little effect on college accessibility or the ability of these families to afford higher education. One projection from the Congressional Budget Office has estimated that this reallocation could divert $195 billion to the Pell Grant program over 10 years[xi].
State Investment in State Colleges
States could prioritize higher education funding over other discretionary budget items. For example, state investment in jails, prisons, and other correctional expenditures have risen dramatically while investment in higher education has decreased or remained flat. A stronger investment in creating pathways for educational opportunities and participation in the state’s economy would benefit all.
States could also examine free tuition for low and middle-income students to attend state colleges. States that are experimenting with this approach are finding offsets in the projected economic growth and tax revenue from having a more educated workforce.
Federal and State Government Partnerships
The federal government could partner with states that increase investment in higher education for low-income students. One of the reasons that tuition increases at state and community colleges is state disinvestment. The federal government could match state-level, need-based financial aid for low income students, in theory bringing in more federal dollars to state higher education institutions. Incentivizing states to invest in higher education and, in particular, their low-income students, would result in greater access for low income students by lowering the net price of tuition and having the added benefit of keeping tuition prices stable because of the additional dollars.
Holding Colleges Accountable for Enrollment
The federal government could require that a student receiving Pell Grant dollars attend a particular institution and the institution would need to confirm that the student has enrolled and that the school has met a quota of enrolling low-income students. This approach would stave off the runaway tuition increases that the Pell Grant program will never be able to keep up with in the long run. It would incentivize colleges to keep their tuition stable to avoid needing to pay more in institutional aid for their students. Alternatively, when tuition prices increase, colleges would be highly sensitive to the needs of their low-income student population in order to guarantee continual flow of federal financial aid dollars. It’s unlikely a college would move away from serving low-income students all together because federal financial aid dollars are so important.
Conclusions
The accessibility of higher education and a college degree depends on many factors, but a prime one is financial and the college’s affordability for a student. More college educated citizens and workers benefit us all, and we all have a shared responsibility in making sure college is accessible especially for low-income students who at the highest risk of being left out. Policy approaches to college access and affordability should focus specifically on low-income students and families. The best tool that the federal government has in this endeavor is the Pell Grant. So long as the Pell Grant remains geared towards the neediest students, this program provides the best opportunity for the federal government to increase the number of low-income students who will be able to afford college. Expanding the Pell Grant by increasing the award amount would safeguard against low-income students starting college but being unable to finish a degree because the opportunity cost of attending college is too great. Expansion of the Pell Grant would also allow more low-income students to attend college. Reducing the net price of college for low income students provides the best return on investment of taxpayer dollars.
American Association of State Colleges and Universities. 2015. Public Policy Agenda. American Association of State Colleges and Universities.
Baum, Sandy, and Michael McPherson. 2011. “Is Education a Public Good or Private Good?” The Chronicle of Higher Education, January 18: Innovations Blog. http://www.chronicle.com/blogs/innovations/is-education-a-public-good-or-a-private-good/28329.
Congressional Budget Office. 2016. Options for Reducing the Defecit. Washington, D.C.: Congressional Budget Office. https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/52142-budgetoptions.pdf.
Crandall-Hollick, Margot. 2016. HIgher Education Tax benefits: Brief Overview and Budgetary Effects. Congressional Research Service.
Institute for College Access & Success. 2016. Pell Grants Help Keep College Affordable for Millions of Americans. Fact Sheet, Institute for College Access & Success. http://ticas.org/sites/default/files/pub_files/overall_pell_one-pager.pdf.
Moretti, Enrico. 2002. Estimating the Social Return to Higher Education: Evidence from Longitudinal and Repeated Cross-Sectional Data. National Bureau of Economic Research. https://www.nber.org/papers/w9108.
Orozco, V., and N.K. Cauthen. 2009. “Work Less, Study More, and Success: How Financial Supports Can Improce Postsecondary Success.” Demos.
Post, Kyle C. 2013. “Higher Education Tax Incentives: Why Current Reform Is Necessary.” The Southern Law Journal XXIII (73): 73–98.
Poutre, Alain, Jamey Rorison, and Mamie Voight. 2017. Limited Means, Limited Options: College Remains Unaffordable for Many Americans. White Paper , Institute for Higher Education Policy.
Seltzer, Rick. 2017. “New York’s Tuition-Free College Program Sparks Debates and Defenses.” Inside Higher Ed, April 17.
White, Dan, and Sarah Crane. 2015. Crowded Out: The Outlook for State Higher Education Spending. White Paper, Moody’s Analytics.
[i] Moretti, Enrico. 2002. Estimating the Social Return to Higher Education: Evidence from Longitudinal and Repeated Cross-Sectional Data. National Bureau of Economic Research. https://www.nber.org/papers/w9108.
[ii] Baum, Sandy, and Michael McPherson. 2011. “Is Education a Public Good or Private Good?” The Chronicle of Higher Education, January 18: Innovations Blog. http://www.chronicle.com/blogs/innovations/is-education-a-public-good-or-a-private-good/28329
[iii]American Association of State Colleges and Universities. 2015. Public Policy Agenda. American Association of State Colleges and Universities..
[iv] Poutre, Alain, Jamey Rorison, and Mamie Voight. 2017. Limited Means, Limited Options: College Remains Unaffordable for Many Americans. White Paper , Institute for Higher Education Policy.
[v]Institute for College Access & Success. 2016. Pell Grants Help Keep College Affordable for Millions of Americans. Fact Sheet, Institute for College Access & Success. http://ticas.org/sites/default/files/pub_files/overall_pell_one-pager.pdf.
[vi] Crandall-Hollick, Margot. 2016. HIgher Education Tax benefits: Brief Overview and Budgetary Effects. Congressional Research Service.
[vii] Post, Kyle C. 2013. “Higher Education Tax Incentives: Why Current Reform Is Necessary.” The Southern Law Journal XXIII (73): 73–98.
[viii] White, Dan, and Sarah Crane. 2015. Crowded Out: The Outlook for State Higher Education Spending. White Paper, Moody’s Analytics.
[ix] Orozco, V., and N.K. Cauthen. 2009. “Work Less, Study More, and Success: How Financial Supports Can Improce Postsecondary Success.” Demos.
[x] Seltzer, Rick. 2017. “New York’s Tuition-Free College Program Sparks Debates and Defenses.” Inside Higher Ed, April 17.
[xi] Congressional Budget Office. 2016. Options for Reducing the Defecit. Washington, D.C.: Congressional Budget Office. https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/52142-budgetoptions.pdf.
