Can Maintenance of Effort Programs Fund Public Higher Education?

The American Association of State Colleges and Universities released a policy paper this week calling for the federal government to enact (and fund) a program designed to encourage states to increase their support for public higher education. The AASCU brief rightly notes that per-student funding for public higher education has fallen over the past three decades (the magnitude of which is overstated somewhat due to their choice in inflation adjustments), and they propose a potential solution in the form of a maintenance of effort provision.

AASCU’s proposal would give colleges a partial match of their higher education appropriations, as long as per-FTE funding to institutions is higher than 50% of the value of the maximum Pell Grant and did not decline from the previous year’s value. The value of the matching funds would go up as state appropriations to institutions increased. They estimate that their hypothesized program would cost something in the neighborhood of $10-$15 billion per year, which could be paid for by cutting waste, fraud, and abuse in current financial aid systems (particularly among for-profits) and by implementing some sort of risk-sharing for student loans—which I’ve written on recently.

However, I view the plan as having a fatal flaw. By only including state appropriations to institutions in the calculation—and not requiring that the matching funds be spent on higher education—states can game the system to get additional money from the federal government. States could reduce funding to their financial aid programs and direct those funds toward institutional appropriations in order to get federal dollars, which could be used for K-12 education, healthcare, or tax cuts.

If states followed the incentive to eliminate all grant aid and fund institutions instead, tuition would likely decrease (something that AASCU institutions would appreciate). The most recent NASSGAP survey of state aid programs found that states spend $9.4 billion per year on grant aid, two-thirds of which is allocated based on financial need. Putting this money into state appropriations would cost the federal government several billion dollars, with no guarantees of any additional funding for students or institutions.

I have a hard time seeing Congress approving this maintenance of effort plan, regardless of the merits. Lobbyists for the private nonprofit and for-profit sectors are likely to strongly oppose this measure, as are lobbying groups for K-12 education, healthcare, and corrections spending (behind the scenes) since higher education is often cut at the expense of higher ed. In addition, this is likely to be a nonstarter in the House due to its placing restrictions on state priorities.

I’m glad to see this proposal from AASCU, but I don’t see it becoming law anytime soon. I would suggest that they follow up with some more details on their proposed risk-sharing program, as well as how elements of this plan could be incorporated into the Obama Administration’s proposed college ratings.

Author: Robert

I am an a professor at the University of Tennessee, Knoxville who studies higher education finance, accountability policies and practices, and student financial aid. All opinions expressed here are my own.

2 thoughts on “Can Maintenance of Effort Programs Fund Public Higher Education?”

  1. Robert,

    Thanks for taking the time to read and weigh in on our proposal.

    A couple of observations on your points:

    We gave extensive thought to the impact our proposal might have on states’ funding of student aid programs. Despite the fact that more dollars are invested in need-based programs, the trend line is clear that more emphasis continues to be placed on states’ funding of merit-based programs, which does little for college access/affordability for low-income students.

    In our view, if the overall flow of monies resulted in less funding for states’ grant aid programs, but also led to an overall decrease in tuition price escalation—thus moving away from a high-tuition, high-aid model that is increasingly evident in many states—that would not a bad thing.

    Additionally, unlike past federal “maintenance of effort” provisions, this federal money comes with no strings attached. Given this added flexibility over the dollars, state lawmakers should have less incentive to “game the system.”

    At any rate, if this proposal gains traction, there will be plenty of debate on provisions that should be included that would hold states and even institutions accountable for how the federal matching dollars should be spent. We chose to frame the concept broadly in this first initial proposal.

    Thanks again for the feedback and the support.

    Best regards,

    Dan Hurley
    Report Co-Author and Associate Vice President for Government Relations and State Policy
    American Association of State Colleges and Universities
    Washington, D.C.

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