Sunday, February 21, 2016

States’ Rights and Means Testing? Um, no thanks…

New America issued a report last week suggesting a complete overhaul of the system we have for financing higher education in America.  (You can find the report here, and IHE’s initial coverage here.)  It’s an attempt to build an entirely new system for ensuring access to college across income levels, and it largely relies on ditching the voucher model of grants and loans -- in which money flows through students to institutions -- and replacing it with a model of institutional support, run through states.

It’s a mixed bag, as any overhaul would be, but largely unconvincing.  I’ll offer thoughts on some key points, and open it up to my wise and worldly readers to add more.

On the positive side, the report is correct when it notes that the only way for a college to capture funding from Pell is to charge students.  Colleges that charge less than the maximum Pell grant -- which would include almost every community college in the country -- leave money on the table.  When money flows through students, the only way for colleges to have access to it is to charge the students.  Moving from a student-based model to an institution-based model would get around that particular perverse incentive.  

It also notes, correctly, that the current system has established a perverse incentive for states to disinvest in public higher ed.  The New America plan includes incentives for states to step up.

The report doesn’t mention this, but the current financial aid system imposes all sorts of silly restrictions on college operations.  If colleges received bloc grants, rather than per-student aid, they could move much more quickly into competency-based programs.  Dual enrollment would be easier.  We could move much more aggressively into prior learning assessment, which is ineligible for financial aid in the current system.  Even the academic calendar could finally be up for serious discussion.

It also recognizes -- and this is less commonly recognized than it should be -- that many colleges “gap” students’ offers.  That means that although the FAFSA formula might suggest an EFC (expected family contribution) of $10,000, the school will expect the family to pay $15,000.  That extra $5,000 represents the “gap” between identified need and the aid they’ll receive.  This plan calls for eliminating those gaps, and requiring colleges not to exceed calculated EFC’s.

All of that said, though, I found the report disappointing.  It fell prey to the kinds of blind spots that tend to happen when you don’t have voices from the trenches in on the planning.

For example, at a really basic level, it assumes that “state funding” and “public funding” are the same thing.  They are not.  At my own college, for example, the county provides a much larger share of the budget than the state does.  In states with community college “districts” -- modeled on K-12 districts -- local funding comes from the district.  Some states have dedicated local property taxes (sometimes called “millages”) that are voted on directly in public referenda.  Creating a much larger role for states could create the same perverse incentives for localities that the plan is trying to prevent at the state level.  And imposing a maintenance-of-effort requirement on property tax referendum voters?  Good luck with that...

For that matter, community colleges are almost entirely absent from the report.  I only saw one reference to them, which was in the context of the Tennessee plan for free community college.  But the free plan relies on, among other things, the Pell grant, which the New America plan would liquidate.  Community colleges have long been the worst funded sector, serving the most diverse and economically challenged students, and they’ve consciously left Pell money on the table.  That suggests a basic flaw in the idea that the availability of aid has driven up prices.  In the sector that educates almost half of America’s undergraduates, it demonstrably has not.

Any proposal to run funding through states as bloc grants has to deal with several issues.  Most basically, states don’t always do what they’re “supposed” to do.  In the course of American history, “states’ rights” arguments always tend to lean in the same direction, and there’s a reason for that.  Arizona has zeroed out support for several of the larger community colleges there, including Pima and Maricopa.  Requiring maintenance-of-zero-effort doesn’t help.  Based on the ways that certain states have handled K-12, I’d be reluctant to hand them much more power.

It’s also unclear how the money would be allocated among states.  I’m guessing it would come down to some sort of per-FTE formula, which would put the higher-cost-of-living states in a rough spot.  Arkansas salaries with a New Jersey cost of living won’t work.

Decoupling college funding from enrollment levels could also lead to perverse incentives for campus administrators.  California largely did that, and it led to five-figure waiting lists in certain districts (and therefore to unprecedented business opportunities for for-profits).  When a college has a plurality or majority of students on Pell, and Pell goes away, there had better be an offsetting surge of funding; if there isn’t, the college will collapse.  If there is, but it’s decoupled from enrollment, I’d expect wait lists.

The report also relies on a form of means-testing for institutional aid.  As with the states rights’ component, I bristle at the misreading of history.  Means-tested programs get attacked in ways that universal ones don’t.  That’s why welfare is an easy target, but Social Security isn’t.  Yes, assuming infinite goodwill, one could make an efficiency-based argument for means-testing.  But in the real world, it’s a poison pill.  The fact that the sector with the neediest students gets the least funding now -- and always has -- stands as proof of that.  Wonks like means-testing because it sounds tough and efficient, but it’s a Trojan horse.  Leave it outside.

And that’s before even trying to deal with private colleges and/or HBCU’s.  I’ll defer to colleagues who are more conversant in those sectors to discuss the potential impacts there.

I’m a major supporter of increased aid to institutions as institutions.  If we want them to be less mercenary, we have to give them the means to be less mercenary.  But relying on states to do that -- and local voters not to follow incentives -- just isn’t convincing.  The diagnosis is largely correct, but the medicine would be deadly.  I’ve been sympathetic to much of the work that New America has done in the past, but this one is a misfire.