Financing Postsecondary Education: The Federal Role - October 1995
From across America on October 8 and 9, 1995, 60 prominent local, state, and Congressional leaders, representatives from the postsecondary education community, and senior officials from the U.S. Department of Education gathered in Charleston, South Carolina, to discuss the future of financing higher education. The Honorable Richard Riley, Secretary of the U.S. Department of Education, and the Honorable Nancy Kassebaum, Chair of the Senate Committee on Labor and Human Resources, U.S. Congress, led insightful discussions focusing on the appropriate goals for federal aid to America's college students, identification of problems in the current financial aid system for postsecondary education, obstacles to change, and proposed solutions to address identified problems. Because the U.S. Department of Education provides more than two-thirds of all financial aid for college students, making it work more efficiently and effectively is very important for this nation's students and families, and for our future.
This outstanding group of leaders represented a broad spectrum of interests, political views, and geographic regions. Participants included presidents of institutions in each sector of postsecondary education, education association leaders, education policy experts, elected state officials, congressional staff, state postsecondary education agency representatives, students, trustees, representatives of the business community, and parents. These participants enthusiastically shared their visions of the future and engaged in in-depth discussion and analysis of options for financing higher education. The discussions were enriched and informed by a set of excellent papers commissioned to analyze many of the key issues in finding the best ways for the federal government to help students and families finance postsecondary education across the United States.
The conference began with remarks from Secretary Riley and Senator Kassebaum and a plenary session led by a panel of experts. Later, conference participants broke into small groups led by professional facilitators for in-depth discussions. The small group discussions focused on the following questions: What components of the federal student aid program are working well and should be retained? What should be changed? How would you change them? Each group's priorities for change were presented to the full session for general discussion.
In light of these pressures, the Secretary asked conference participants to consider and discuss the following issues:
The Secretary reminded everyone that America's higher education system is the "jewel of the world." Therefore, we must find ways both to strengthen it and to help qualified students have access to it. The Secretary encouraged fresh thinking and bold ideas and asked the group to put aside the politics of the moment and to think ahead about the course of postsecondary education in order to better assist families and students and to build a stronger America.
Although the purchasing power of federal aid has declined, an increase in federal or state financial aid is unlikely. Therefore, the Senator asked participants to consider how to maintain an effective system of education without additional outside resources. As college costs continue to increase, institutions must review their costs and consider how to reduce them.
The Senator expressed particular concern over the debt burden students are incurring and expressed strong support for the Work-Study program. She also called for increased attention to quality and ways to measure quality, a greater respect for learning, closer cooperation between K-12 and higher education, and reexamination of the best ways to support short-term training. She also expressed concern about the role of the states in measuring performance of training programs and the level of remedial education occurring in colleges. Finally, she stressed the importance of graduation.
Social and demographic factors will increase budgetary pressures on the federal government. Over the next decade, the number of students graduating from high school will increase significantly, and these students will be more likely to have financial need than current students. At the same time, increasing numbers of adults are participating in postsecondary education, both because of their personal interest and because of public policies that encourage adult participation. Unless resources for financial aid are increased or programs are redesigned significantly, access to postsecondary education for deserving students will decrease. Participants agreed that decreasing access to postsecondary education is not the answer to balancing the federal budget. One of the small groups indicated that the federal government's commitment to access has already been eroded somewhat due to a number of factors, including: the expanded definition and population of eligible students; decline in the political will to help working low-income families; and a general resistance to change.
The Federal Work-Study program is an extremely successful program that has received too little attention. Work-Study jobs provide job experience, mentoring, and bonds to college campuses, as well as financial aid. Many participants advocated expanding this program, along with loan forgiveness and national service initiatives.
Virtually all participants thought that the federal government should move its guaranteed student loan funding entirely to Direct Loans or should sustain both the Direct Loans and Federal Family Education Loan (FFEL) programs. Many noted that institutions that participate in the Direct Loan program are able to process student applications more quickly than they were able to do under the FFEL program.
Some participants thought that the current political process should be changed to provide less regulation and more collaboration with associations, states, and institutions. It was suggested that a federal, state, and institutional commission on financial aid be established to make substantive recommendations about policies or process to the U.S. Department of Education and Congress.
Under the current system of annual appropriations, institutions cannot predict the availability of federal funds more than one year in advance. Better public understanding and support for higher education is necessary to obtain a strong federal commitment. Some participants believed that advocating for reallocation of limited funds instead of advocating for increased funding for federal aid is wrong. Others indicated that federal resources for postsecondary education are significant and are unlikely to grow in the future, particularly in the current budget environment, though more deserving students may become eligible.
Originally, the primary goal of federal financial aid was to help those that might not otherwise have had access to postsecondary education. Over time, however, the federal role has been expanded to include relieving the economic burden on middle-income students who would probably have obtained postsecondary education without federal support but with increasing personal and family sacrifice. Some participants believed that the federal government should return to its original objective of helping those with the largest need. Others noted that, when financial aid is focused more heavily on students with the lowest incomes, many middle-income and worthy students get priced out of certain colleges and universities. Others noted that stronger political support comes when middle-class students also benefit.
There was some discussion of providing merit-based financial aid in addition to, or instead of, need-based financial aid. Most participants thought that the need-based emphasis of the current system should be continued. Others argued that there should be less focus on access and more focus on student success in higher education. One of the small groups suggested providing modest merit programs for low-income college and graduate students to provide incentives for student success. Some participants believed that students who do not have the aptitude for college studies or who lack the will to perform well are receiving financial aid, leading to increased costs, decreased credibility, and decreased productivity.
Several participants suggested that the federal govenment should create incentives for institutions and students to engage in certain behaviors. For example, the federal government could provide incentives to encourage schools to provide services to at-risk students in inner cities or could create incentives to encourage students to enter particular careers or to complete college.
Today, there is a societal expectation that the federal government will play a greater role in funding postsecondary education. Changes in the family structure, including higher divorce rates and the increasing number of single parents, have reduced the amount that parents are saving for their children's education. One participant noted that, given current financial restraints, federal and state governments are not likely to pay an increased share of college costs in the future. Therefore, the focus should be shifted to students, parents, employers, and institutions. Parents should be encouraged to save for their children's education and must be provided with realistic goals for doing so. Some participants suggested establishing tax policies and a need analysis formula that encourage saving for college.
The private sector should be encouraged to provide more scholarship money for higher education. One participant suggested that the federal government should provide monetary incentives to colleges and universities that raise private dollars for scholarships. Others suggested that tax incentives should be provided to businesses and communities that provide scholarship money.
Several participants noted that federal and state governments set their policies without working together and that they need to define clearly their respective missions to avoid overlap and conflicting policies. Some asserted that the federal government's role in financial aid should be pivotal, because each state has a different approach and many students migrate between states. Another participant, however, suggested that the federal government should provide block grants to the states for some programs.
Participants also noted that federal programs, including School-to-Work, Goals 2000, and student assistance, should be integrated better.
One group suggested reducing reliance on loans for certain groups -- low-income students, students taking remedial courses, and students enrolled in short-term training programs. Many suggested that remediation should be funded through grants rather than loans. Others suggested targeting grants to students with the greatest need and giving institutions discretion regarding whether to provide loans to students.
Others noted that the student loan volume has grown, because loans have become available to middle-income students who have not been saving for college. Some participants believed that these families could borrow money from commercial lenders.
Others, however, noted that middle-class families are a strong political force that believes federal financial aid should be available to their children.
Participants disagree as to whether lower loan limits should be established. One representative of a community college suggested that lower loan limits should apply to all students, including graduate students. She argued that society has a responsibility to provide access but cannot assume responsibility for subsidizing all forms of higher education. Others believed that access should be provided to any institution, and that a bright but low-income student should not be limited to a community college because he or she cannot afford to attend a more expensive institution. Another participant suggested limiting the amount of loans to tuition and fees.
Other participants noted that a higher priority should be placed on support services and outreach programs such as those currently funded through the TRIO programs (Student Support Services, Upward Bound, and Talent Search) and that more support should be provided for counseling and consumer information.
Some participants noted that the federal government is currently not able to measure the effectiveness of all institutions. There was disagreement, however, as to which measures of performance the U.S. Department of Education should consider. Some noted that the Department should not consider graduation rates, because many students leave school because of personal, financial, and family reasons rather than because of dissatisfaction with the education. Some also noted that measures of persistence, such as graduation rates, are particularly inappropriate performance measures for community colleges, where students may enroll for only a few courses. Additionally, if society invests in the most risky students, some will not succeed.
Some participants suggested that the Department of Education should continue to penalize institutions with high default rates. Some even suggested the creation of stronger penalties for institutions with high default rates. Others, however, argued that default rates are too simplistic and that measuring accountability with default rates has damaged the public perception of the system for financing higher education.
One participant suggested establishing sector-specific standards for institutional performance. A new accrediting process would be responsible for assessing educational performance with the Department of Education responsible for assessing administrative and fiscal performance.
Some participants believed that the criteria for institutional eligibility and for student readiness should be strengthened, and that aid to students should be marginally linked to institutional performance. It was also suggested that the Department should strengthen student eligibility requirements to incorporate the notion of readiness to succeed. One participant suggested adding institutional performance as a factor in determining an institution's eligibility to participate in Title IV programs.
Participants also suggested that the Department establish a better information system for consumers. This system would provide greater information about the availability of aid and the effectiveness of providers.
Although many issues were left unresolved and require more thought and discussion, there were several important areas in which consensus was reached at the conference. First, participants unanimously agreed that the federal government should play a significant role in financing postsecondary education. Because of the extensive economic and social returns of postsecondary education for both individuals and society, all participants agreed that decreasing access to postsecondary education is not the answer to balancing the federal budget. Participants did not reach agreement as to the precise role of the federal government in financing postsecondary education. However, there was general agreement that the Work-Study program is highly effective and has been underemphasized, and that the Direct Loan program should be continued either as the only loan program or in combination with the FFEL program.
Second, participants agreed that financing postsecondary education is the shared responsibility of students, families, the federal government, states, and institutions, and that these entities need to work more closely together to be more effective. Because it will be difficult for federal and state governments to pay an increased share of college costs in the future, students, parents, employers and institutions must be encouraged to play larger roles. In particular, all participants agreed that parents should be encouraged to save for their children's education.
Finally, participants agreed that there is a need for increased accountability and credibility in postsecondary education in order to maintain strong government support. Participants did not agree as to how to improve accountability but expressed willingness to consider the issue further and engage in a continuing dialogue with other members of the higher education community.