budget – Robert Kelchen

Budget Freezes Are Coming for Higher Education

During the last three weeks, I have thought a lot about the beginning of the coronavirus pandemic in March 2020. By the end of the first full week of March, it was clear to me that colleges would close their physical campuses for a while. I had stepped in as the department chair at Seton Hall just a few months prior, but I immediately stepped into action by trying to prepare my faculty and staff as much as possible for a period of remote operations.

We still had two faculty searches scheduled during March, and we went ahead and brought the first set of candidates to campus even though everyone began to realize that things were shutting down shortly. It was an awkward set of interviews because I had a strong sense that the positions would be cancelled on account of the financial losses coming from students being sent home. And although one search was able to proceed, the other search was scuttled as the effects of the pandemic became clear.

Fast forward five years. I’m now a veteran department head at a much better resourced university, but higher education is facing more uncertainty now than since March 2020 due to the bulldozer of the Trump administration’s attempted and proposed changes. While it does not appear that student financial aid will be affected in the short term, all federal grants and contracts are certainly up in the air even though some of them enjoy legal protections. It’s one heck of a semester to be teaching higher education finance, as I found out during class Monday night that the wrecking ball came for the legally mandated Institute of Education Sciences. (I had a sizable grant proposal under review there to study the woke topic of career and technical education, but I guess that isn’t happening.)

The higher education field still bears scars from the pandemic, and one key one is the need for financial liquidity. Colleges are scared about making long-term financial commitments in general, as they are concerned about future enrollment and cost trends. So throw in potentially massive cuts to research support and other federal grants to institutions, and there is a natural tendency to pull back funding.

I’m not the smartest person out there, but I would be shocked if research universities in particular are not having serious conversations about freezing unnecessary spending given the potential scope of federal funding cuts (which are currently paused per a court order, but it isn’t clear if the federal government will actually follow the order). Washington State University announced yesterday afternoon that they are starting to plan for budget cuts, and I would not be surprised if politically insulated blue-state public and wealthy private universities follow suit. Other institutions are also likely doing so, but it will stay behind the scenes due to the fear of potential political retribution. Either way, expect quite a few pauses or freezes in institutional budgets, and we will see how long they last.

Although my university has not made any public statements about the potential financial path forward and I am not involved in any university budget conversations, I am certainly nervous about the path forward given that my department has three open faculty searches. We are in outstanding financial shape overall, but there is no telling what will happen in the coming weeks and months. I’m going to do everything I can to move quickly on searches just in case.

Finally, two other thoughts about the current situation. The first one is that while the higher education industry cares deeply about the finances of our sector and potential budget or hiring freezes, this is not an argument that resonates at all among most of the public. Plenty of Americans see higher education as in need of going on a diet, so fighting budget cuts on fairness arguments will not be effective. But talking about what would be lost, such as medical and agricultural research, can be a lot more effective. Higher education needs to do much more to convince a skeptical public of its value.

Second, I am concerned about how the leadership pipeline will be affected by all of the uncertainty coming out of Washington. I often wonder why anyone would want to be a college president, but that is amplified even more given the near impossibility of the current situation. It’s much better for individuals (especially those who desire some kind of work/life balance or have dependents) to stay put in the short term and let things play out instead of jumping into positions where it may be impossible to succeed.

Which Colleges Always Lose Money?

It is safe to say that there is a lot of concern right now about the financial viability of higher education. And while I think fewer colleges are going to close than pundits predict (and check out my recent NBER working paper on factors associated with college closures), it is still going to be a bumpy ride as colleges try to cut costs after efforts to increase revenue are unsuccessful.

By far, the most popular piece on my blog in 2024 (representing nearly one-fourth of all traffic to my website) was a fairly quick look at which private colleges consistently lost money over the last decade. Now that a new year of data on institutional finances (through Fiscal Year 2023) came out through the Integrated Postsecondary Education Data System, I am revisiting this and also including public universities.

I looked at the operating margins (revenues minus expenses) private nonprofit colleges and public universities for the past ten years (Fiscal Years 2014 through 2023). This analysis included 938 private and 525 public institutions in the 50 states and Washington, DC and excluded colleges with any missing data, two-year institutions, or special-focus institutions based on the most recent Carnegie classifications.

You can download the dataset here, with highlighted private colleges having closed since IPEDS data were collected.

The first takeaway is that the share of private colleges with losses varies much more than the share of public institutions, and this is driven by a combination of investment returns at private institutions and the backstop that state funding provides for public universities. More than four in ten private colleges posted a loss in Fiscal Year 2023—twice the rate of public universities. Since the beginning of the pandemic, the percentage of public universities with revenues failing to match expenditures has been cut in half. Federal covid relief funds are now gone, however, and state budgets look wobbly.

The two figures below show the number of years in the last decade that both private and public universities posted losses. Most private colleges saw surpluses more often than deficits, with only 14 percent of institutions losing money in more than five years. Seventy-one private colleges never posted a loss during this period, and they are generally less-selective institutions such as Miles College in Alabama, Dordt University in Iowa, and the University of Northwestern in Minnesota (the better-known Northwestern in Illinois posted losses in three years when the stock market went down). A few better-known private universities that managed to stay in the black every year included Southern Methodist University, Liberty University, Southern New Hampshire University, and the University of Pennsylvania.

On the other hand, 27 colleges posted losses in eight or more years. Notably, five of these colleges (bolded) have closed or announced closures in the last year or so, and another one (Bacone College in Oklahoma) is not currently offering classes. While some institutions can withstand consistent losses through one-time donations or activities that are not well captured on balance sheets, it is difficult for most colleges. Take for example Judson Universitty in Illinois, which has lost money in eight of the last ten years. Their IRS Form 990 filings show that net assets have declined from more than $44 million in the early 2010s to just under $27 million today—not a good trend.

Name	State	Losses
Polytechnic University of Puerto Rico-Orlando	FL	10
Roberts Wesleyan University	NY	10
Trinity International University-Florida	FL	9
Cambridge College	MA	9
Fontbonne University	MO	9
Bethany College	WV	9
Golden Gate University	CA	8
Pacific Union College	CA	8
Polytechnic University of Puerto Rico-Miami	FL	8
Hawaii Pacific University	HI	8
Judson University	IL	8
Southwestern College	KS	8
Webster University	MO	8
University of Providence	MT	8
Drew University	NJ	8
Elmira College	NY	8
Hilbert College	NY	8
St. Francis College	NY	8
The College of Saint Rose	NY	8
Yeshiva University	NY	8
Antioch College	OH	8
Lourdes University	OH	8
Bacone College (on hiatus)	OK	8
Warner Pacific University	OR	8
Cabrini University	PA	8
University of Valley Forge	PA	8
Waynesburg University	PA	8

While a larger share of public universities than private colleges never posted a loss, more public universities (16 percent) lost money in at least five of the last ten years. In general, most flagship public universities did exceedingly well and many never lost money. But 22 institutions lost money in eight out of ten years, with 15 of them being located in New York. It is indeed a tough time for many regional public universities, even though they are at very low risk of closure.

Name	State	Losses
University of New Hampshire at Manchester	NH	10
SUNY College of Environmental Science and Forestry	NY	10
SUNY College of Technology at Delhi	NY	10
SUNY at Fredonia	NY	10
SUNY at Purchase College	NY	10
Rutgers University-Camden	NJ	9
SUNY Buffalo State University	NY	9
SUNY College at Geneseo	NY	9
SUNY College at Potsdam	NY	9
SUNY College of Agriculture and Technology at Cobleskill	NY	9
SUNY Maritime College	NY	9
SUNY Old Westbury	NY	9
University of Hawaii-West Oahu	HI	8
Northern Illinois University	IL	8
University of Illinois Springfield	IL	8
Northern Kentucky University	KY	8
CUNY Graduate School and University Center	NY	8
College of Staten Island CUNY	NY	8
SUNY Brockport	NY	8
SUNY College of Technology at Canton	NY	8
State University of New York at Oswego	NY	8
Shippensburg University of Pennsylvania	PA	8

In addition to new finance data, there are also new data on fall enrollments and staffing levels. I encourage researchers, policymakers, and practitioners to take a look through the data to learn more about the current (well, as current as possible given data lags) state of higher education.

Documenting the Growth of Responsibility Center Management Budget Models in Public Higher Education

As most of higher education is concerned about their financial position, a growing number of colleges are trying to encourage academic units to generate additional revenues and cut back on expenses. One popular way of doing this is through responsibility center management (RCM) budget models, which base a portion of a unit’s budget on their ability to effectively generate and use resources.[1]

Both universities that I have worked at (Seton Hall and Tennessee) have adopted variations of RCM budget models, and there is a lot of interest—primarily at research universities—in pursuing RCM. Having been through RCM, I am quite interested in the downstream implications of RCM on how leaders of institutions and units behave. There are a couple of good scholarly articles about the effects of RCM that I use when I teach higher education finance, but they are based on a small number of fairly early adopters and the findings are mixed.

One of my current research projects is examining the growth of master’s degree programs (see our recent policy brief), and I have a strong suspicion that institutions adopting RCM budget models are more likely to launch new programs as units try to gain additional revenue. My sense is that there have been a lot of recent adopters, but the best information out there about who has adopted RCM comes from slides or information provided by consulting firms (which often are not under contract by the time the model is supposed to be fully implemented). This led me to spot check a few institutions commonly listed on charts, and some of them appear to have either never gotten past the planning stage or quietly moved to another budget model.

My outstanding research assistant Faith Barrett and I went through documents from 535 public universities (documents from private colleges are rarely available) to collect information on whether they had announced a move to RCM, actually implemented it, and/or abandoned RCM to return to a centralized budget model.[2] The below figure summarizes the number of public universities that had active, implemented RCM budget models for each year between 1988 and 2023.[3]

There has been a clear and steady uptick in the number of public universities with active RCM models, reaching 68 by 2023. Most of this increase has happened since 2013, when just 25 universities used RCM. Only seven universities that fully implemented RCM fully abandoned the model based on publicly available documents (Central Michigan, Ohio, Texas Tech, Illinois-Chicago, Oregon, and South Dakota), although quite a few colleges have backed off how much money flows through RCM.

Additionally, a number of universities publicly announced plans to move to RCM before apparently abandoning them before implementation. Some examples include Missouri, Nebraska, and Wayne State. This is notable because these are often included on consultants’ slide decks as successful moves to RCM.

Here is the list of universities that had fully implemented RCM by fall 2023. If you see any omissions or errors, please let me know!

Name	State
Auburn University	AL
University of Alabama at Birmingham	AL
University of Arizona	AZ
University of California-Davis	CA
University of California-Los Angeles	CA
University of California-Riverside	CA
University of Colorado Boulder	CO
University of Colorado Denver/Anschutz Medical Campus	CO
University of Delaware	DE
University of Central Florida	FL
University of Florida	FL
Georgia Institute of Technology-Main Campus	GA
Iowa State University	IA
University of Iowa	IA
Boise State University	ID
Idaho State University	ID
University of Idaho	ID
University of Illinois Chicago	IL
University of Illinois Urbana-Champaign	IL
Ball State University	IN
Indiana University-Bloomington	IN
Indiana University-Purdue University-Indianapolis	IN
Kansas State University	KS
University of Kansas	KS
Northern Kentucky University	KY
Western Kentucky University	KY
University of Baltimore	MD
University of Michigan-Ann Arbor	MI
University of Michigan-Dearborn	MI
Western Michigan University	MI
University of Minnesota-Twin Cities	MN
University of Missouri-Kansas City	MO
The University of Montana	MT
North Dakota State University-Main Campus	ND
University of North Dakota	ND
University of New Hampshire-Main Campus	NH
Rutgers University-Camden	NJ
Rutgers University-New Brunswick	NJ
Rutgers University-Newark	NJ
University of New Mexico-Main Campus	NM
Kent State University at Kent	OH
Miami University-Hamilton	OH
Miami University-Middletown	OH
Miami University-Oxford	OH
Ohio State University-Main Campus	OH
University of Cincinnati-Main Campus	OH
Oregon State University	OR
Southern Oregon University	OR
Pennsylvania State University-Main Campus	PA
Temple University	PA
University of Pittsburgh-Pittsburgh Campus	PA
College of Charleston	SC
University of South Carolina-Columbia	SC
East Tennessee State University	TN
Tennessee Technological University	TN
The University of Tennessee-Knoxville	TN
University of Memphis	TN
The University of Texas at Arlington	TX
The University of Texas at San Antonio	TX
University of Utah	UT
George Mason University	VA
University of Virginia-Main Campus	VA
Virginia Commonwealth University	VA
University of Vermont	VT
Central Washington University	WA
University of Washington-Bothell Campus	WA
University of Washington-Seattle Campus	WA
University of Wisconsin-Madison	WI

[1] This is also called responsibility centered management, and I cannot for the life of me figure out which one is preferred. To-may-to, to-mah-to…

[2] RCM can be designed with various levels of centralization. Pay attention to the effective tax rates that units pay to central administration—they say a lot about the incentives given to units.

[3] This excludes so-called “shadow years” in which the model was used for planning purposes but the existing budget model was used to allocate resources.

Will The K-12 Teacher Walkouts Affect Public Higher Education?

Perhaps the most interesting education policy development to this point in 2018 has been the walkouts by public school teachers in three states (Kentucky, Oklahoma, and West Virginia) that have resulted in thousands of schools being closed as teachers descended on statehouses to demand better pay. These job actions (which are technically not strikes in some states due to labor laws, but operate in the same way) have been fairly successful for teachers to this point. West Virginia teachers received a five percent pay increase to end their walkout, while Oklahoma teachers received a pay increase of about $6,000. Kentucky teachers had rather limited success, while Arizona is on the verge of a teacher walkout later this week.

Given the success of these walkouts in politically conservative states, it is reasonable to expect K-12 public school teachers in other states to adopt the same tactics to increase their salaries or education funding in general. But what might these walkouts mean for public higher education? I present four possible scenarios below.

Scenario 1: Future K-12 teacher walkouts are ineffective. It’s probably safe to say that legislators in other states are strategizing about how to respond to a potential walkout in their state. If legislators do not want to increase K-12 education spending and can maintain a unified front, it’s possible that protests die out amid concerns that closing schools for days at a time hurts students. In that case, expect no implications for public higher education.

Scenario 2: Public college employees join the walkout movement. Seeing the victories that K-12 teachers have scored, faculty and staff walk out at public colleges in an effort to secure more higher education funding. While this could theoretically work, public support is likely to be much weaker for colleges and universities than K-12 teachers. Republicans in particular now view college professors far more skeptically than Democrats, while the two parties view K-12 public schools similarly. So this probably won’t work too well in conservative states.

Scenario 3: Future K-12 teacher walkouts are effective—and paid for by tax increases. Oklahoma paid for its increase in teacher salaries by increasing taxes in a number of different areas, although teachers wanted a capital gains tax exemption to be eliminated. This probably reduces states’ ability to raise additional revenue in the future—which could affect public colleges—but the immediate effects on public colleges should be pretty modest.

Scenario 4: Future K-12 teacher walkouts are effective—and paid for by reducing state spending in other areas. This is the nightmare scenario for public higher education. Higher education has traditionally been used as the balancing wheel in state budgets, with the sector being the first to experience budget cuts due to the presence of tuition-paying students. Therefore, in a zero-sum budget game without tax increases, more K-12 spending may come at the expense of higher education spending. West Virginia paid for its teacher pay increase this year in part by cutting Medicaid spending, but don’t expect most states to take that path in the longer term.

To sum up, the higher education community should be watching the K-12 walkouts very closely, as they could affect postsecondary students and faculty. And there may end up being some difficult battles in tax-averse states between K-12 and higher education advocates about how to divide a fixed amount of funds among themselves.

Comments on the Trump Higher Education Budget Proposal

The Trump administration released its first full budget proposal for Fiscal Year 2018 today, and it is safe to say that it represents a sharp break from the Obama administration’s budget proposals. The proposed discretionary budget for the Department of Education is about $69 billion, $10 billion less than the Fiscal Year 2017 budget. Below, I offer brief comments on three of the key higher education proposals within the budget, as well as my take on whether the proposals are likely to be enacted in some form by a Republican-controlled Congress that seems fairly skeptical of the Trump administration’s higher education policy ideas.

Public Service Loan Forgiveness would no longer be available for new borrowers. Public Service Loan Forgiveness (PSLF) was first made available in 2007 in an effort to encourage individuals to work in lower-paying nonprofit or government jobs. This plan allows students enrolled in income-driven repayment plans who annually certified their income and employment status to have any remaining balances forgiven after ten years of payments of 10% of discretionary income. However, the plan has been criticized due to its likely high price tag to taxpayers and because it provides far larger subsidies to graduate students than undergraduate students.

The Trump administration’s budget proposal would end PSLF for new borrowers as of July 1, 2018—and require all people currently on PSLF to maintain continuous enrollment in the program to remain eligible. This is likely to be a difficult hurdle for many people to clear, as a large number of students have been tripped up by annual recertification in the past. I’m glad to see that the Trump administration didn’t completely end PSLF for current students (as people reasonably relied on the program to make important life choices), but otherwise saving PSLF in the current form isn’t at the top of my priority list because of how most of the subsidy goes to reasonably well-off people with graduate degrees instead of low-paid individuals with a bachelor’s degree in early childhood education.

Prognosis of happening: Low to medium. This will generate howls of outrage in The New York Times and The Washington Post from groups such as the American Bar Association and the National Education Association, but there is a reasonable argument for at least curtailing the amount of money that can be forgiven under PSLF. A full-fledged ending of the program may not happen, but some changes are quite possible as quite a few members of Congress are upset with rising costs of loan forgiveness programs.

Subsidized loans for undergraduates would be eliminated, and income-driven loan repayment periods would change. Undergraduate students can qualify for between $3,500 and $5,500 per year in subsidized student loans (meaning interest is not charged while they are in school), with the remainder of their federal loans being unsubsidized (with interest accumulating immediately). The Trump administration would end subsidized loans, with the likely rationale that the interest subsidy is not an efficient use of resources (something that is hard to empirically confirm or deny, but is quite plausible).

The federal government currently offers students a menu of income-driven loan repayment options, and the Trump administration proposed to simplify these into one option. Undergraduates would pay up to 12.5% of the income over 15 years (from 10% over 20 years for the most popular current plan), while grad students would pay up to 12.5% for 30 years. Undergraduate students probably benefit from this change, while graduate students decidedly do not. This plan hits master’s degree programs hard, as any graduate debt would either trigger a 30-year repayment period for a potentially small amount of additional debt or push people back into a standard (non-income-driven) plan.

Prognosis of happening: Medium. There has been a great deal of support for streamlining income-driven repayment plans, but the much less-generous terms for graduate students (along with ending PSLF) would significantly affect graduate student enrollment. This will mobilize the higher education community against the proposal, particularly as many four-year colleges are seeking to grow graduate enrollment as a new revenue source. But potentially moving to a 20-year repayment period for graduate students or tying repayment length to loan debt are more politically feasible. The elimination of subsidized loans for undergraduates hits low-income students, but a more generous income-driven repayment program mainly offsets that and makes that change more realistic.

Federal work-study funds would be cut in half and the Supplemental Educational Opportunity Grant would be eliminated. The federal government provides funds for these two programs to individual colleges instead of directly to students, and colleges are required to provide matching funds. The SEOG is an additional grant available to needy undergraduates at participating colleges, while federal work-study funds can go to undergraduate or graduate students with financial need. Together, these programs provide about $1.7 billion of funding each year, with funds disproportionately going to students at selective and expensive colleges due to an antiquated funding formula. Rather than fixing the formula, the Trump administration proposed to get rid of SEOG (as being duplicative of Pell) and halve work-study funding.

Prognosis of happening: Slim to none. Because funds disproportionately go to wealthier colleges (and go to colleges instead of students), the lobbying backlash against cutting these programs will be intense. (There is also research evidence showing that work-study funds do benefit students, which is important to note as well.) Congressional Republicans are likely to give up on changing these two programs in an effort to focus on higher-stakes changes to student loan programs.

In summary, the Trump administration is proposing some substantial changes to how students and colleges are funded. But don’t necessarily expect these changes to be implemented as proposed, even if there are plenty of concerns among conservatives about the price tag and inefficient targeting of current federal financial aid programs. It will be crucial to see the budget bill that will go up for a vote in the House of Representatives, as that is more likely to be passed into law than the president’s proposed budget.

How Should State Higher Education Funding Effort Be Measured?

The question of whether states adequately fund public higher education has been a common discussion over the last few decades—and the typical answer from the higher education community is a resounding “No.” This is evident in two recent pieces that have gotten a lot of attention in recent weeks.

The first piece is a chart put out by the venerable Tom Mortensen at the Pell Institute that shows that higher education funding effort (as measured by appropriations per $1,000 in state personal income) has fallen to 1966 levels, which was then picked up by the Washington Post with the breathless headline, “How quickly will states get to zero in funding for higher education?” (The answer—based on trendlines—no later than 2050.) The second piece is from Demos and claims that state funding cuts are responsible for between 78% and 79%¹ of the increase in tuition at public universities between 2001 and 2011.

Meanwhile, state higher education appropriations are actually up over the last five fiscal years, according to the annual Grapevine survey of states. In Fiscal Year 2010 (during the recession), state funding was approximately $73.9 billion, falling slightly to $72.5 billion by FY 2013. But the last two fiscal years have been better to states, and higher education appropriations have risen to nearly $81 billion. Higher education has traditionally served as a balancing wheel for state budgets, facing big cuts in tough times and getting at least some increases in good times. However, this survey is not adjusted for inflation, making funding increases look slightly larger than they actually are.

So far, I’ve alluded to four different ways to measure state higher education funding effort:

(1) Total funding, not adjusted for inflation (the measure state legislatures often prefer to discuss).

(2) Total funding, adjusted for inflation.

(3) Per-full time equivalent student funding, adjusted for inflation (the most common measure used in the research community).

(4) Funding “effort” per $1,000 in state income (a measure popular with education advocates).

So which measure is the right measure? State legislatures tend not to care about inflation-adjusted or per-student metrics because their revenue streams (primarily taxes) don’t necessarily increase alongside inflation or population growth. Additionally, enrollment for the next year or two can be difficult to accurately predict when budgets are being made, so a perfect per-FTE funding ratio is virtually impossible. But on the other hand, colleges have to make state funding work to educate an often-growing number of students, so the call for the maintenance of funding ratios makes perfect sense.

I raise these points because policymakers and education advocates often seem to talk past each other in terms of what funding effort for higher education should look like. It’s important that both sides understand where the other is coming from in terms of their definition in order to work to find common ground. And I’d love to hear your preferred method of defining ‘appropriate’ funding effort, as well as why you chose that method.

———-

¹ I question the exact percentage here, as it’s the result of a correlational study. To claim causality (as they do in Table 6), the author needs to establish causality—some way to separate the effects of dropping per-student state support from other confounding factors (such as changing preferences toward research). This can be done by using panel regression techniques to essentially compare states with big funding drops to those without, after controlling for other factors that would be affecting higher education across states. But it’s hard to imagine a situation in which per-student state funding cuts aren’t responsible for at least some of the tuition increases over the last decade.

The FY 2016 Obama Budget: A Few Surprises

The Obama Administration released their $3.999 trillion budget proposal for Fiscal Year 2016, and the higher education portion of the budget was largely as expected. Some proposals, such as increasing research funding, providing a bonus pool of funds for colleges with high graduation rates, and reallocating the Supplemental Educational Opportunity Grant to be based on current financial need instead of an antiquated formula, were repeats from previous years. Others, such as the idea of tuition-free community college, had already been sketched out. And one controversial proposal—the plan to tax new 529 college savings plans—had already been nixed, but remained in the budget document due to a “printing deadline.”

But the budget proposal (the vast majority of which is dead on arrival in a GOP Congress thanks to differences in viewpoints and preferred budget levels) did have some surprising details. The three most interesting higher education-related details are below.

(1) “Universal” free community college isn’t exactly universal. Pages 59 and 60 of the education budget proposal noted that students with a family Adjusted Gross Income of over $200,000 would be ineligible for tuition-free community college. Although this detail was apparently decided before the program was announced, the Obama Administration for some reason chose to hide that detail from the public until Monday. As the picture shows below, only 2.7% of dependent community college students had family incomes above $200,000 in 2011-12 (data from the National Postsecondary Student Aid Study).

But in order to get family income, students have to file the FAFSA. Research by Lyle McKinney and Heather Novak suggests that 42% of low-income community college students didn’t file the FAFSA in 2007-08, meaning that something big needs to be done to get these students to file. Requiring the FAFSA also means that noncitizens typically would not qualify for free community college, something that is likely to upset advocates for “dreamer” students (but make many on the Right happy).

Additionally, as Susan Dynarski at the University of Michigan pointed out, the GPA requirements (a 2.5 instead of a 2.0) make a big difference. In 2011-12, 15.9% of Pell recipients had GPAs between a 2.0 and 2.49, meaning they would not qualify for free community college.

(2) Asset questions may be off the FAFSA. The budget document called for the following changes to the FAFSA, including the elimination of assets (thanks to Ben Miller at New America for the screenshot):

Getting rid of assets won’t affect most families, as research by Susan Dynarski and Judith Scott-Clayton shows. But it does matter more to selective colleges, more of which might turn to additional financial aid forms like the CSS/PROFILE to get the information they want. Policymakers should take the benefits of FAFSA simplicity as well as the potential costs to students of additional forms into account.

(3) Mum’s the word on college ratings. After last year’s budget featured $10 million for the development of the Postsecondary Institution Ratings System (PIRS), this year’s budget had no mention. Inside Higher Ed reported that ratings will be developed using existing funds and using existing personnel. Will that slow down the development of ratings? Given the slow progress at this point, it’s hard to argue otherwise.

Finally, the budget document also contained details about the “true” default rate for student loans, using the life of the loan instead of the 3-year default window used for accountability purposes. The results aren’t pretty for undergraduate students, with default rates pushing 23% on undergraduate Stafford loans. But default rates for graduate loans hover around 6%-7%, which is roughly the interest rates many of these students face.

What are your thoughts on the President’s budget proposal for higher education? Please share them in the comments section.

Quick Thoughts on the Ryan Higher Education Budget Discussion Draft

Representative Paul Ryan (R-WI) released a proposal called Expanding Opportunity in America this morning, which covered topics including social benefits, the Earned Income Tax Credit, education, criminal justice, and regulatory reform. My focus is on the higher education section, starting on page 44.

First of all, I’m glad to see a discussion of targeting federal funds right at the start of the higher education section. Ryan notes concerns about subsidies going to students who don’t need them (such as education tax credits going to households making up to $180,000 per year) and the large socioeconomic gaps in college completion. This is important to note for both economic efficiency and targeting middle-income voters.

The policy points are below:

Simplify the FAFSA. Most policymakers like this idea at this point, but the question is how to do so. The document doesn’t specify how it should be simplified, or if it should go as far as the Alexander/Bennet proposal to knock the FAFSA back to two questions. Ryan supports getting information about aid available to students in eighth grade and using tax data from two years ago (“prior prior year”) to determine aid eligibility, both of which make great sense. I’ve written papers on both early aid commitment and prior prior year.
Reform and modernize the Pell program. Ryan is concerned about the fiscal health of the Pell program and is looking for ways to shore up its finances. He raises the idea of using the Supplemental Educational Opportunity Grant (SEOG)—a Pell supplement distributed by campuses—to help fund Pell. I’ve written a paper about how SEOG and work-study allocations benefit very expensive private colleges over colleges that actually serve Pell recipients. It’s a great idea to consider, but parts of One Dupont just may object. Ryan also suggests allowing students to use their Pell funds however they want (effectively restoring the summer Pell Grant), something which much of the higher education community supports.
Cap federal loans to graduate students and parents. This will prove to be a controversial recommendation, with the possibility of interesting political bedfellows. While many are concerned about rising debt and the fiscal implications, there are different solutions. The Obama Administration has instead proposed capping forgiveness at $57,500, while letting students borrow more. I’m conflicted as to what the better path is. Is it better to shift students to the private loan market to get any additional funds, or should they get loans with lower interest rates through the federal government that may result in a fiscal train wreck if loan forgiveness isn’t capped? The Ryan proposal has the potential to help slow the growth in college costs, but potentially at the expense of some students’ goals.
Consider reforms to the TRIO programs. TRIO programs serve low-income, first-generation families, but Ryan notes that there isn’t a lot of evidence supporting these programs. I admittedly don’t know as much about TRIO as I should, but I like the call for additional research before judging their effectiveness.
Expand funding for federal Work-Study programs. The proposal increases work-study funds through allowing colleges to keep expiring Perkins Loans funds instead of returning them to the federal government. This is the wrong way to proceed because Perkins allocations (and current work-study allocations) are also correlated with the cost of attendance. I would rather see a redistribution of work-study funds based on Pell Grant receipt instead of by cost of attendance, as I’ve noted previously.
Build stronger partnerships with post-secondary institutions. Most of this is empty platitudes toward colleges, but the last sentence is critical: “Colleges should also have skin in the game, to further encourage their commitment to outcome-based learning.” There seems to be some support on both sides of the aisle for holding institutions accountable for their performance through methods such as partial responsibility for loan defaults, tying financial aid to outcomes, or college ratings, but an agreement looks less likely at this point.
Reform the accreditation process. Ryan supports Senator Lee (R-UT)’s proposal to allow accreditors to certify particular courses instead of degree programs. This is a good idea in general, but the political landscape gets much trickier due to the existence of MOOCs, for-profit colleges (and course providers), and the power of the current higher education lobby. I’ll be interested to see how this moves forward.

Overall, the tenets of the proposal seem reasonable and some parts are likely to get bipartisan support. The biggest questions remaining are whether the Senate will be okay with the House passing Higher Education Act reauthorization components piecemeal (as they are currently doing) and what funding levels will look like for particular programs. In any case, these ideas should generate useful discussions in policy and academic circles.

Exploring Trends in Pell Grant Receipt and Expenditures

The U.S. Department of Education released its annual report on the federal Pell Grant program this week, which is a treasure trove of information about the program’s finances and who is receiving grants. The most recent report includes data from the 2012-13 academic year, and I summarize the data and trends over the last two decades in this post.

Pell Grant expenditures decreased from $33.6 billion in 2011-12 to $32.1 billion in 2012-13, following another $2.1 billion decline in the previous year. After adjusting for inflation, Pell spending has increased 258% since the 1993-94 academic year.

Part of the increase in spending is due to increases over the maximum Pell Grant over the last 20 years. Even though the maximum Pell Grant covers a smaller percentage of the cost of college now than 20 years ago, the inflation-adjusted value rose from $3,640 in 1993-94 to $5,550 in 2012-13.

The number of Pell recipients has also increased sharply in the last 20 years, going from 3.8 million in 1993-94 to just under 9 million in 2012-13. However, note the decline in the number of independent students in 2012-13, going from 5.59 million to 5.17 million.

Recent changes to the federal calculation formula has impacted the number of students receiving an automatic zero EFC (and the maximum Pell Grant), which is given to dependent students or independent students with dependents of their own who meet income and federal program participation criteria. Between 2011-12 and 2012-13, the maximum income to qualify for an automatic zero EFC dropped from $31,000 to $23,000 due to Congressional action, resulting in a 25% decline in automatic zero EFCs. Most of these students still qualified for the maximum Pell Grant, but had to fill out more questions on the FAFSA to qualify.

The number of students receiving a zero EFC (automatic or calculated) dropped by about 7% from 2011-12, or about 400,000 students, after more than doubling in the last six years. Part of this drop is likely due to students choosing a slowly recovering labor market over attending college.

UPDATE: Eric Best, co-author of “The Student Loan Mess,” asked me to put together a chart of the average Pell award by year after adjusting for inflation. Below is the chart, showing a drop of nearly $500 in the average inflation-adjusted Pell Grant in the last two years after a long increase.

I hope these charts are useful to show trends in Pell receipt and spending over time, and please let me know in the comments section if you would like to see any additional analyses.

College Accountability and the Obama Budget Proposal

The Fiscal Year 2015 $3.9 trillion budget document from the Obama Administration includes a request of $68.6 billion in discretionary funds for the Department of Education, up $1.3 billion from 2014 funding. This excludes a great deal of mandatory spending on entitlements, including student loan costs/subsidies, some Pell Grant funding, and some other types of financial aid. (Mandatory spending is much harder to eliminate than discretionary funding, as illustrated by this helpful CBO summary.) The budget is also a reflection of the Administration’s priorities, even if many components are unlikely to be approved by Congress. For a nice summary of the Department of Education’s request, see this policy brief from the New America Foundation.

On the higher education front, the Obama budget implies that accountability will be a key priority of the Department of Education. The Administration made two key requests in this area: $10 million to fund continued development of the Postsecondary Institution Ratings System (PIRS) and $647 million for a fund to reward colleges that enroll and graduate Pell recipients. There was a holdover request for $4 billion in mandatory funds for a version of Race to the Top in higher education, but few in the higher education policy community are taking this plan seriously.

The $10 million for PIRS would go toward “further development and refinement of a new college rating system” (see p. T-156). This request is a signal that the Administration is taking the development of PIRS seriously, but the $10 million in funds suggests that large-scale additional data collection is unlikely to happen in the near future. It is also unlikely that the federal government will work to audit IPEDS data for the rating, something that I called for in my recent policy brief on ratings. Even if the specific $10 million request for PIRS is not acted upon, the Department of Education will use other discretionary funds to move forward.

The $647 million request for College Opportunity and Graduation Bonuses, if approved, would provide bonuses to colleges that are successful in enrolling and graduating large numbers of Pell recipients. I view this as a first attempt to tie federal funds to college performance using metrics that are likely to be in PIRS. I would be surprised if any Pell Grant funds get reallocated through college ratings except for perhaps a handful of very low-performing colleges, but it is possible to get some additional bonus funds tied to ratings.

I had a poll on a blog post a couple weeks ago asking for readers’ thoughts of the likelihood that PIRS would be tied to student financial aid dollars by 2018. The majority of the respondents gave this less than a 50% chance of happening, and I am inclined to agree as well. The Administration’s budget priorities suggest a serious push toward tying some funds to performance, although it is worth emphasizing that a future Congress and President must agree.

What are your thoughts of the Obama Administration’s higher education budget, particularly about accountability? If you have any comments to share, please do so and continue the conversation!