Financing Postsecondary Education: The Federal Role - October 1995
These discussions are frequently carried out amid a backdrop of self- and program-castigation. The programs are said to be ("as everyone knows") "a failure".... "unworkable"..."in need of total restructuring." This paper will argue an alternative viewpoint: that the programs are quite workable, and even quite sensible, given several fundamental assumptions about the American higher education system that seem not to be on the table. If something is genuinely and fundamentally wrong with the current pattern of programs, then there must be one or more things wrong with these fundamental assumptions. Conversely, if we are not to change any of these very fundamental assumptions, then it may be more productive to acknowledge the essential inevitability, if not necessarily the simplicity or the managerial elegance, of the current admittedly-complex pattern of programs, and to continue to perfect them "at the edges," with less distracting noise from those who would trash the whole process and have us begin again.
What are these fundamental assumptions of which the current "system" is such a logical (if complicated) outgrowth? I would propose the following seven:
1. Higher education is the province of the states, not of the federal government.
This point, like most that follow, might seem glaringly obvious. And yet, far too much of the time at this and dozens of other national conferences and congressional hearings will be taken up fussing about the proper workings of institutions that are simply not the federal government's to run--or even, other than the very important provision of financial aid to students (see #3 below) and the support of basic research, the business of the federal government. If it should be shown that the federal government's chosen role in the funding of higher education is having an unintended dysfunctional consequence, then the policy or procedure must be changed. But the most commonly alleged such consequence--that federal financial assistance to students contributes to profligate spending and thus to excessive tuition growth--is demonstrably nonsense. In short, although there may (or there may not) be serious managerial and other cost-side problems in higher education that are amenable to public policy solutions, these solutions are almost certainly not federal.
2. The costs of higher education are appropriately shared by taxpayers (both state and federal), parents, students, and philanthropists.
Other assumptions are possible, as attested by the experiences of other nations. In Scandinavia, for example, parents are not expected to contribute to the higher education costs incurred by their children. In the United Kingdom until only recently, students were not expected to contribute. In fact, for a system of highly accessible, mass higher education, the United States generates more revenue from other-than-taxpayer sources than any other nation.
By the U.S. assumption of shared costs, parents are assumed to be responsible, up to the limit of their ability to pay, for a portion of the costs of undergraduate education, or until the child-student has reached the age of 24 or 25 (give or take a few years). An upper limit is reached when parents are no longer willing to sacrifice, and when opportunities for their children are thus significantly curtailed. Students are also assumed to be responsible, through summer and term-time earnings and indebtedness, for a portion of the costs of their higher education, including the considerable costs of student living. An upper limit would begin to be reached on this share either when access begins to be significantly impaired, or when major life choices (e.g., marriage or choice of occupation) begin to be significantly impacted by indebtedness.
3. The role of the federal government/taxpayer in the financial support of the general instructional costs of undergraduate higher education has been to make up, through grants and loan subsidies, what low and low-middle income families can neither afford, nor are able or willing to borrow, in order to bring at least moderate-tuition, state-supported public education within reach of any student who is willing also to contribute himself or herself through term-time and summer earnings and loans. The federal government/taxpayer also makes student loans widely available, and in sufficient amounts, to bring higher-priced private education within reach for the student whose parents have contributed up to a reasonable limit, often with considerable indebtedness or depletion of assets, who are also willing to assume a substantial student indebtedness.
The federal government/taxpayer has thus chosen to support the principle of widespread access to undergraduate education through fully portable, need-based grants to undergraduates in sufficient amounts to bring low-tuition public higher education within reach of students who are also willing to contribute to their own college costs, through work and loans, but whose parents cannot reasonably be expected to contribute anything to the costs of their children's higher education. The only truly major alternatives for the federal government would seem to be either to leave the arena of basic undergraduate higher educational support altogether, or to revisit and reverse the profoundly significant decision of the early 1970s to not aid institutions directly, but to aid the enterprise of undergraduate higher education indirectly, through portable aid to students, and thus to support both institutions and access through the presumably benign workings of a competitive higher educational marketplace.
4. The extent of state support of publicly owned colleges and universities (and thus the level of public tuition charged to parents and students in order to lessen the state taxpayer burden), in addition to any decision to subsidize private sector alternatives, either directly to institutions or indirectly through additional portable aid to students, are public policy decisions appropriately made at the state level.
It follows from this assumption that federal financial aid is not meant to alter substantially the public-private sector balance that has emerged through the interplay of history, the preferences of students and families, and state public policies. This is why the Pell Grant has been essentially non-tuition sensitive, but why the federal government has increased unsubsidized loan limits, at minimal cost to the federal taxpayer, to be particularly accommodating to the higher-tuition private sector.
5. Federal aid to students is given without regard to academic promise or performance.
This assumption, qualified mainly by the federal aid requirement for "reasonable progress," is consistent with the primacy of need-based over merit aid, and also with the principle of encouraging very easy entry into the postsecondary system, but with considerable academic "weeding," as it were, taking place through almost continuous course-centered evaluations. The alternative would be federal aid that effectively denied aid, and thus denied (or at least discouraged) entry altogether to the children from low-income families who did not test well. The resulting differences or discriminations--by class, ethnicity, gender, region, or whatever--would be enormously divisive, as would any system of quotas or preferences erected to ameliorate against such distinctions.
6. Federal aid to undergraduates, with few exceptions, is given without regard to course of study or intended occupation.
In the United States the decision of major field of undergraduate study is left to the student and is assumed to be properly a function of his or her interest, aptitude, perception of job opportunities, and acceptance or aversion to uncertainty and risk. The alternative would be for the federal government to enact a national manpower policy, rewarding study only in those fields for which the federal government projected job opportunities or otherwise determined there to be a national need for graduates. However, manpower planning has proven to be so ineffective throughout the world, and so clearly contrary to the American fondness for individual occupational and economic freedoms, that it is not a likely course of U.S. policy, certainly not for the dispensing of general undergraduate student assistance.
7. lt follows from assumption #2 (that students are to bear a share of higher educational costs) and assumption #5 (that financial assistance is to be made available to all who might reasonably seem able to perform college-level work) that student loans must be made generally available, without requirements of collateral, co-signature, or risk-rating. It further follows, then, that government must be the guarantor against the risk of default.
All other terms and conditions of student lending--rates, terms, provisions for subsidization, methods of repayment (e.g., income contingent, graduated payment, equal installment, who or what entities originate and/or service the loans, etc.) are legitimate matters for the Congress and for groups like this one to consider and reconsider. The only variation of considerable policy significance, for two reasons, is the degree of interest subsidization. The first reason is that high subsidies cost taxpayers money and thus can be considered a trade off for other forms of taxpayer-born student assistance. The second reason is that excessive subsidies on student loans require expensive and complicated means-testing to prevent excessive borrowing and credit disintermediation.
This is not meant to argue for a Panglossian best-of-all-possible-worlds approach to our current complex and not-inexpensive Title IV federal financial aid programs. But the problems of our federal student assistance programs remain both large and complex in part because we have chosen to graft a program of federal aid onto a higher educational enterprise that features:
We have chosen as a nation to embrace mass higher education--and furthermore to attempt to compensate for a long history of insidious racial discrimination and also (for complex social and economic factors) for a very large number of children born not only into deep poverty but also into dysfunctional families and neighborhoods, and neighborhood schools.
So why are we surprised that our federal financial aid "system" is complicated? It is, I would argue, overwhelmingly a reflection of the size and complexity of the higher educational enterprise itself and of the multiplicity and complexity of the social and institutional objectives that the system tries legitimately and purposefully to serve.
All too frequently, we react to the fact that the last HEA reauthorization in 1992 failed to restructure fundamentally the Title IV programs with the conclusion that "we" (the Congress, or the Department of Education, the financial aid profession, or the policy analysts) failed. Perhaps, instead, we should conclude that the programs are neither so odd nor so unworkable after all.
In conclusion, even if we were building from scratch a system of federal financial support to higher education that would make higher education accessible at the point of entry to most of our youth, that would avoid the slippery slopes of institutional micro-management or national curricula, that would support institutions but only indirectly through the support of students, thus encouraging a lively and competitive higher education marketplace; and that would maximize the cost-effectiveness of the federal dollars used in pursuit of these multiple objectives, then we would devise a system that would look very much like our current array of Title IV programs--even to the point of subsidized and non-subsidized loans, direct lending, multiple repayment options, and some participation for state agencies.
Bruce Johnstone is professor of higher and comparative education in the Department of Educational Organization, Administration, and Policy in the Graduate School of Education, University of Buffalo. Previously he served as Chancellor of the State University of New York, and has written and taught extensively in the area of higher education economics and finance.