The Recession, the Stimulus Act, and Higher Education Policy

I have had a few weeks to think about President Obama’s Stimulus Act and its impact on higher education.  During the same period of time, I have read the daily headlines covering higher education in The Chronicle of Higher Education, Inside Higher Education, and New Realities in Higher Education.  The news is not good. 

In a typical year, the federal government contributes approximately $20 billion to higher education and the states contribute about $80 billion. At the state level, funding for higher education is behind mandated priorities such as K-12 education and Medicaid.  Many governors and legislatures have relied on the public’s willingness to bear tuition increases and in times of budgetary crisis, have pared back funding to higher education assuming that the colleges can increase tuition to offset the state funding cuts.  Given the fall in real estate values and real estate foreclosures, the unprecedented level of job layoffs at companies reacting to the economic downturn, the lower income taxes paid by fewer people working, lower sales taxes paid by people forced to pare back on their discretionary expenditures; it is inevitable that most of the state budgets have to be reduced this year and next.  Some states like Maryland are using some of the stimulus funds to delay cuts to education.  Other states are unable to use stimulus funds to absorb all of the declines in tax revenues and are cutting higher education before K-12.  Among the more notable state cuts that I have read about include:

• Tennessee – $180 million in cuts over two years
• North Carolina – $175 million in cuts this year and $191 million next year
• Washington – $500 million in cuts
• Arizona – $388 million in cuts
• California – $1.1 billion in cuts
• Louisiana – $219 million in cuts

Public institutions are not the only ones tightening their belts.  Faced with endowment values that have plummeted due to the global stock markets declining in value by as much as 40 percent, private universities have implemented staff reduction plans as well.  The most notable of these was the plan that Harvard announced in February.  Most private institutions are not as financially secure as Harvard, and many have announced staff reductions, wage freezes, hiring freezes, etc., in order to prepare for reduced earnings on their endowment as well as lower charitable contributions. 

Meanwhile, families who find their college savings investments diminished by 40 percent or more due to lower stock values and interest rates are encouraging their children to apply to public four year and two year colleges resulting in higher application levels with fewer available spaces.  Several state institutions have announced that they will admit more out-of-state students in 2009-2010 in order to increase the tuition revenues paid to the institution.  The FAFSA applications for financial aid are up 20 percent over a year ago through February according to the National Association of Student Financial Aid AdministratorsThe Princeton Review released a survey last week of parents and students and the number who are considering a more affordable school have increased by more than a third.  Because of these concerns of families about affordability, several private institutions have announced that they have admitted more applicants than usual as they are hedging their bets on whether or not students choose to attend more reasonably priced public institutions next year.

All of this points to a crisis in the funding of higher education.  The Spellings Commission, the Measuring Up reports, and numerous papers published by other policy commissions indicate that America has fallen behind on the percentage of working adults who hold a college degree and that America will need an additional 15-16 million more college degree holders by 2025 in order to meet President Obama’s goal of returning America to its position of pre-eminence in the percentage of adults with college degrees.  The Measuring Up 2008 report indicates that a college education is unaffordable for those in the lowest quintiles of household income.  Other data indicates that the lower income population of the United States is not successful in completing or even attending college.  Affordability and access were two of the four tenets of the Spellings Commission.  The National Center for Public Policy and Higher Education measures preparation, participation, affordability, completion, benefits, and learning for each of the states in their Measuring Up reports.  Unfortunately, California is the only state with a passing grade on affordability.

In the last 50 years, states have funded the majority of the costs of higher education.  Given the importance of an educated citizenry in our quest for global competitiveness in the 21st century, we need to examine whether or not the current system is working.  Increasing the amount of Pell Grants available to low income students will not solve this problem.  If the President were to create a National Commission on the Future of Higher Education that could bring together representatives of students and families, policy organizations, the state governors and legislatures, and Congress, a meaningful dialogue could be established to address the most fundamental obstacles to the future of higher education.  The problems are systemic, the solution is not nigh, and many different factions have to align.  The major higher education initiatives at the federal level; the Morrill Land Grant Act of 1862, the G.I. Bill of 1944, and the National Defense Education Act of 1958; spurred higher education and the country to action.  Perhaps President Obama’s stimulus package and its shortcomings in relation to higher education, and the economic crisis facing higher education and our nation, will be the impetus for another call to action.

Subjects of Interest


Higher Education

Independent Schools


Student Persistence