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Implications of Changes in the Financing of Public Higher Education

SUMMARY

Public colleges and universities play a critical role in our nation’s integrated system of education, research, and innovation. They educate the majority of undergraduates and constitute many of the nation’s top research universities. They are training grounds for the people and ideas that drive innovation and improve our lives.

Yet even as public colleges and universities are becoming more important than ever in our knowledge-intensive society, many have come under intense financial pressure. Demographic changes in enrollments are driving up student enrollment in some places and reducing them in others, forcing institutions to adapt to new circumstances. The increasing costs of higher education have led to difficult tradeoffs affecting the quality of the education and services students receive. Extremely tight budgets in some states have reduced the relative appropriations to education in those states even as more students are looking to college as a means of personal advancement.

Though federal funding for student aid is up, more of this funding is going toward loans and tax benefits as opposed to student grants. Also, increases in funding have not been sufficient to match the needs of students.

This paper summarizes findings and recommendations from a variety of recently published reports and papers as input to the deliberations of the Committee on Prospering in the Global Economy of the 21st Century. Statements in this paper should not be seen as the conclusions of the National Academies or the committee.



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Implications of Changes in the Financing of Public Higher Education SUMMARY Public colleges and universities play a critical role in our nation’s inte- grated system of education, research, and innovation. They educate the majority of undergraduates and constitute many of the nation’s top research universities. They are training grounds for the people and ideas that drive innovation and improve our lives. Yet even as public colleges and universities are becoming more impor- tant than ever in our knowledge-intensive society, many have come under intense financial pressure. Demographic changes in enrollments are driving up student enrollment in some places and reducing them in others, forcing institutions to adapt to new circumstances. The increasing costs of higher education have led to difficult tradeoffs affecting the quality of the educa- tion and services students receive. Extremely tight budgets in some states have reduced the relative appropriations to education in those states even as more students are looking to college as a means of personal advancement. Though federal funding for student aid is up, more of this funding is going toward loans and tax benefits as opposed to student grants. Also, increases in funding have not been sufficient to match the needs of students. This paper summarizes findings and recommendations from a variety of recently published reports and papers as input to the deliberations of the Committee on Prospering in the Global Economy of the 21st Century. Statements in this paper should not be seen as the conclusions of the National Academies or the committee. 357

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358 RISING ABOVE THE GATHERING STORM The result has been a narrowing of educational choices for some students and concerns over deteriorating quality of public institutions. Some organizations have proposed that the federal government take several important steps to improve the funding of public higher education and to increase student access to these institutions: • Expand federal matching programs that encourage increased state appropriations for higher education. • Reform the Medicaid program to slow the growth of state commit- ments that crowd out spending on higher education. • Focus national resources on improving the purchasing power of Pell awards. • Offer matching funds to states based on their funding of means- tested grant aid. THE ROLE OF HIGHER EDUCATION IN THE KNOWLEDGE ECONOMY Higher education has been central to the strength of the US economy over the last half-century. Broadened access for students has created social and economic opportunities for millions of Americans. The integration of education and research has become a key pillar of our research and innova- tion system. And the new knowledge generated has provided a strong en- gine for innovation and economic growth. Public institutions are a particularly important component of America’s higher education system. They enroll and educate one-quarter of all 4-year undergraduates (see Figure PHE-1). When community colleges are included, public schools account for more than 70% of all undergraduate enrollment (see Figures PHE-2A and B). Many of the nation’s top research institutions, particularly in the Midwest and West, are public universities. A strong system of higher education is more critical now than ever. Global competition in the knowledge economy is growing. Developed and developing countries are working to create high-quality educational institu- tions, often using American colleges and universities as a model. They are developing their own pool of knowledge workers and knowledge-sector firms. For the United States to compete in this environment, American higher education needs to remain preeminent. It must continue to play a central role in the production of knowledge and innovation. It needs to create dynamic environments that will entice knowledge-based companies to lo- cate in this country. The United States should facilitate world leadership of its higher education system by continuing to invest where it counts most.

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359 APPENDIX D For-profit 7% Public 23% For-profit Nonprofit Public Nonprofit 70% FIGURE PHE-1 Distribution of BA-granting institutions, by sector. SOURCE: S. Turner. “Policy Implications of Changing Funding for Public Higher Education.” Presentation to National Academies’ Board on Higher Education and Workforce, April 2005. STRESSES IN THE FINANCIAL STRUCTURE OF PUBLIC HIGHER EDUCATION Public higher education is under severe financial pressures. The first source of pressure is increasing enrollments. The children of the baby boom are now reaching college age and will increase enrollments at some institu- tions over the coming decade (see Figures PHE-3A, B, and C). At the same time, the value of higher education as a means for students and society to achieve economic, social, and political goals also is boosting enrollments. Because public institutions typically do not charge students for the full cost of their education, the financial demands on these institutions are expected to grow significantly.1 A second stress on the system is the growing cost of higher education. Costs per student in higher education have grown consistently since the 1960s and steeply since the 1970s.2 Both internal and external factors ap- 1R. C. Dickeson. Collision Course: Rising College Costs Threaten America’s Future and Re- quire Shared Solutions. Indianapolis, IN: Lumina Foundation for Education, Inc., 2004. 2J. L. Dionne and T. Kean. Breaking the Social Contract: The Fiscal Crisis in Higher Educa- tion. Report of the Commission on National Investment in Higher Education. New York: Council for Aid to Education, 1997.

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360 RISING ABOVE THE GATHERING STORM Share of 1st time FT Distribution of students Undergraduate Enrollment in-state 1967 1996 1996 Community Colleges 21% 37% 92.7% Other Public 38% 33% 81.5% Flagship Public 13% 9% 72.0% All Private 28% 21% 54.2% Research I Private 3% 2% 23.6% Liberal Arts Colleges 4% 2% 43.2% FIGURE PHE-2A Distribution of undergraduate enrollment, by type of college, 1967 and 1996. SOURCE: S. Turner. “Policy Implications of Changing Funding for Public Higher Education.” Presentation to National Academies’ Board on Higher Education and Workforce, April 2005. Enrollment by type of institution 7,000,000 Research Liberal Arts Two-year Doctorate-granting 6,000,000 Comprehensive Other Number of Students Enrolled 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 65 70 75 80 85 90 95 00 19 19 19 19 19 19 19 20 FIGURE PHE-2B Enrollment by type of institution, 1965-2000. SOURCE: National Science Board. Science and Engineering Indicators 2004. NSB 04-01. Arlington, VA: National Science Foundation, 2004.

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361 APPENDIX D 18,000,000 Total Enrollment 16,000,000 Public Enrollment 14,000,000 12,000,000 Fall Enrollment 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 0 1920 1930 1940 1950 1960 1970 1980 1990 2000 FIGURE PHE-3A Number of 18- to 24-year-olds enrolled in college, total and public colleges, 1920-2000. SOURCE: S. Turner. “Policy Implications of Changing Funding for Public Higher Education.” Presentation to National Academies’ Board on Higher Education and Workforce, April 2005. 30,000 40 Number of 18- to 24-Year-Olds Percent Enrolled in College 27,500 35 Population (thousands) 25,000 30 Percent 22,500 25 20,000 20 17,500 15,000 15 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 FIGURE PHE-3B Number and percent of 18- to 24-year-olds enrolled in college, 1967-2001. SOURCE: T. J. Kane. “The Role of Federal Government in Financing Higher Education.” Presentation to National Academies’ Board on Higher Education and Workforce, March 21, 2005.

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362 RISING ABOVE THE GATHERING STORM 170 160 Population Index 150 140 130 120 110 100 2000 2005 2015 2025 United States Texas California New York FIGURE PHE-3C Population growth projection for the United States, Texas, California, and New York, ages 18-24, 2000-2025. NOTE: Calculations based on US Census Bureau, Population Projections. SOURCE: T. J. Kane. “The Role of Federal Government in Financing Higher Education.” Presentation to National Academies’ Board on Higher Education and Workforce, March 21, 2005. pear to be driving up costs. Universities need to compete for high-quality faculty, staff, and students. Computing services, information resources, and other services for students and faculty have added financial burdens (see Figure PHE-4). To cut costs in other areas, institutions have increased student:faculty ratios, shifted toward lower-cost part-time and nontenure- track faculty, encouraged early retirement, capped or postponed faculty salary increases, and outsourced noncritical missions3 (see Figure PHE-5). A third and perhaps the most important stress on public higher educa- tion has been a changing paradigm for public support at both the state and federal levels (see Figures PHE-6A, B, and C). Public colleges and universi- ties—and even private ones that receive state support—have experienced strong competition for state resources over the last decade. Other state fi- nancial commitments—such as Medicaid payments—have continued to in- crease both in real dollars and as a percentage of state budget outlays, which has crowded out other spending priorities4 (see Figure PHE-7). 3R. G. Ehrenberg and L. Zhang. The Changing Nature of Faculty Employment. Working Paper 44. Ithaca, NY: Cornell Higher Education Research Institute, 2004. 4T. J. Kane and P. R. Orszag. Higher Education Spending: The Role of Medicaid and the Business Cycle. Policy Brief #124. Washington, DC: The Brookings Institution, 2003.

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363 APPENDIX D Plant Operation and Maintenance 7% Public Service Scholarships 7% and Fellowships 6% Mandatory Research Transfers 16% 2% Student Services 5% Instruction Administration 37% 20% FIGURE PHE-4 Expenditure of all public institutions, by type of expense, 2001. SOURCE: National Center for Education Statistics. Enrollment in Postsecondary Institutions, Fall 2001 and Financial Statistics, Fiscal Year 2001. NCES 2004-155. Washington, DC: US Department of Education, December 23, 2003. Table 29. Available at: http://nces.ed.gov/pubsearch/pubsinfo.asp?pubid=2004155. 23 22 Public 21 Students per FTE faculty 20 19 Private 18 17 16 15 77 78 79 80 81 82 83 85 86 90 91 92 93 94 95 96 97 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 FIGURE PHE-5 Student-faculty ratios, by academic institution sector, 1977-1997. SOURCE: T. J. Kane. “The Role of Federal Government in Financing Higher Education.” Presentation to National Academies’ Board on Higher Education and Workforce, March 21, 2005.

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364 RISING ABOVE THE GATHERING STORM FIGURE PHE-6A Revenue sources for all public degree-granting institutions, 1980- 1981 to 2000-2001. SOURCE: College Board. Trends in College Pricing, 2004. Washington, DC: College Board, 2004. P. 20. Available at: http://www.collegeboard.com/prod_downloads/ press/cost04/041264TrendsPricing2004_FINAL.pdf. FIGURE PHE-6B Federal funds for university research, total and by select agency, 1955-2000. SOURCE: S. Turner. “Policy Implications of Changing Funding for Public Higher Education.” Presentation to National Academies’ Board on Higher Education and Workforce, April 2005.

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365 APPENDIX D Current Fund Revenues Tuition State & Aux. Out-of- In-state Local Federal Private Endow. Tuition & Other State Community Colleges 57.5% 11.7% 1.0% 0.1% 20.2% 9.5% $1,814 $4,362 Other Public 36.3% 10.7% 4.0% 0.4% 18.3% 30.2% $2,725 $6,981 Flagship Public 29.0% 14.8% 6.4% 1.3% 17.2% 31.4% $3,493 $9,998 All Private 2.8% 10.3% 9.1% 5.1% 41.9% 30.8% $12,881 Research I Private 2.3% 16.1% 9.5% 5.7% 22.9% 43.5% $19,814 1.4% 3.0% 9.1% 10.5% 55.5% 20.5% $17,648 FIGURE PHE-6C Tuition and source of fund revenues, by academic institution type. SOURCE: S. Turner. “Policy Implications of Changing Funding for Public Higher Education.” Presentation to National Academies’ Board on Higher Education and Workforce, April 2005. .9 State Medical Expenses as Percent .8 of Gross State Product .7 .6 .5 .4 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 FIGURE PHE-7 Medicaid expenses as percent of gross state product, 1980-2001. SOURCE: T. J. Kane. “The Role of Federal Government in Financing Higher Education.” Presentation to National Academies’ Board on Higher Education and Workforce, March 21, 2005.

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366 RISING ABOVE THE GATHERING STORM As a consequence of this financial pressure, education funding as a share of state spending, the percentage of education dollars directed to higher education, and the percentage of higher education dollars going to institu- tions (as opposed to students) all have declined5 (see Figures PHE-8A and B). In brief, state support as a percentage of total revenue for public colleges and universities is down, and these institutions are adapting by restructur- ing costs and looking elsewhere (for example, to tuition) for financial sup- port (see Figures PHE-9A and B). At the federal level, spending for higher education appears on the sur- face to be strong. Spending on the Pell grant program, for example, increased 60% in real terms from 1999-2000 to 2003-20046 (see Figure PHE-10). However, hiding beneath the overall increases in federal support are important shifts in its distribution. The mix of federal support in 2003- 2004 was 34% grants, 55% loans, and 5% tax benefits, the latter two of which have been growing as a percentage of federal support (see Figure PHE-11). Thus, there hasbeen a shift away from grants to other modes of support (for example, subsidized loans, tax credits, and tax-sheltered edu- cation accounts) and a shift from need-based to merit-based aid (see Figures PHE-12A, B, and C). Together, these changes have tended to shift subsidies away from students from lower-income families and toward the middle and upper-middle classes. In addition, while there have been real increases in per student funding under the Pell grant program, they have not been adequate to offset larger increases in college prices. The size of the average grant has increased in real terms in recent years, but average tuition, fees, and room and board at public 4-year colleges and universities increased faster. As a result, the aver- age Pell grant in 2003-2004 covered 23% of the charges at a public 4-year institution compared with 35% in 1980-19817 (see Figure PHE-13). Mean- while, the Leveraging Education Assistance Partnerships (LEAP) program, which provides matching funds to states for providing need-based grant aid, has declined 31% in real terms over the last decade.8 IMPLICATIONS FOR AFFORDABILITY AND QUALITY These developments have important implications both for access to higher education and for educational quality. As tuition increases, the array 5M. Rizzo. “State Preferences for Higher Education Spending: A Panel Data Analysis, 1977- 2001.” Paper presented at Cornell Higher Education Research Institute’s Annual Conference, “Assessing Public Higher Education at the Start of the 21st Century.” Ithaca, NY, May 22-23, 2005. 6College Board. Trends in Student Aid 2004. Washington, DC: College Board, 2004. 7Ibid. 8Ibid.

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367 APPENDIX D .08 Higher Education Appropriations Share of State Expenses .07 .06 .05 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 FIGURE PHE-8A Higher education appropriations share of state expenses, 1977- 2002. SOURCE: T. J. Kane. “The Role of Federal Government in Financing Higher Education.” Presentation to National Academies’ Board on Higher Education and Workforce, March 21, 2005. 9 Higher Education Appropriations per $1,000 Personal Income 8 7 6 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 FIGURE PHE-8B Higher education appropriations relative to personal income, 1977-2003. SOURCE: T. J. Kane. “The Role of Federal Government in Financing Higher Education.” Presentation to National Academies’ Board on Higher Education and Workforce, March 21, 2005.

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368 RISING ABOVE THE GATHERING STORM 20,000 18,000 16,000 Constant 2004 Dollars 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 7 9 1 3 5 7 9 1 3 5 7 9 1 3 5 -7 -7 -8 -8 -8 -8 -8 -9 -9 -9 -9 -9 -0 -0 -0 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 FIGURE PHE-9A Average published tuition and fee charges, enrollment-weighted, by institution type, in constant 2004 dollars, 1976-77 to 2004-05. SOURCE: S. Baum. “Changes in Funding for Public Higher Education: College Prices and Student Aid.” Presentation to National Academies’ Board on Higher Education and Workforce, April 2005. Data are from College Board. “Trends in Higher Education Series 2004.” 15 % Change Tuition % Change Appropriations/FTE 10 Percentage Change 5 0 –5 –10 1 3 5 7 9 1 3 5 7 9 1 3 -8 -8 -8 -8 -8 -9 -9 -9 -9 -9 -0 -0 80 82 84 86 88 90 92 94 96 98 00 02 19 19 19 19 19 19 19 19 19 19 20 20 FIGURE PHE-9B Percent change in public 4-year institution tuition and appropriations, 1980-81 to 2002-03. SOURCE: S. Baum. “Changes in Funding for Public Higher Education: College Prices and Student Aid.” Presentation to National Academies’ Board on Higher Education and Workforce, April 2005. Data are from College Board. “Trends in Higher Education Series 2004.”

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369 APPENDIX D 6,000 5,000 Number of Recipients 4,000 3,000 2,000 1,000 0 2 4 6 8 0 2 4 6 8 0 2 4 98 98 98 98 99 99 99 99 99 00 00 00 -1 -1 -1 -1 -1 -1 -1 -1 -1 -2 -2 -2 81 83 85 87 89 91 93 95 97 99 01 03 19 19 19 19 19 19 19 19 19 19 20 20 14,000 Pell Expenditures ($ millions) Maximum Pell Grants 12,000 Average Pell Grant per Recipient 10,000 Constant 2003 Dollars 8,000 6,000 4,000 2,000 0 2 4 6 8 0 19 992 4 6 8 0 2 4 98 98 98 98 99 99 99 99 00 00 00 -1 -1 -1 -1 -1 -1 -1 -1 -1 -2 -2 -2 81 83 85 87 89 91 93 95 97 99 01 03 19 19 19 19 19 19 19 19 19 20 20 FIGURE PHE-10 Pell Grants: Number of recipients and total expenditures, maximum grant, and average grant, in constant 2003 dollars, 1981-1982 to 2003- 2004. SOURCE: S. Baum. “Changes in Funding for Public Higher Education: College Prices and Student Aid.” Presentation to National Academies’ Board on Higher Education and Workforce, April 2005. Data are from College Board. “Trends in Higher Education Series 2004.”

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370 RISING ABOVE THE GATHERING STORM FIGURE PHE-11 Total higher education student aid, by source, in billions of current dollars, academic year 2003-2004. SOURCE: S. Baum. “Changes in Funding for Public Higher Education: College Prices and Student Aid.” Presentation to National Academies’ Board on Higher Education and Workforce, April 2005. Data are from College Board. “Trends in Higher Education Series 2004.” of educational choices for students may be constrained unless the availabil- ity of financial aid can compensate. Especially for low-income students, the real and perceived cost increases for college education can limit access and lifetime opportunity (see Figures PHE-14A and B). The second implication is for the quality of teaching and research. Re- ductions in funding for public education combined with constraints on tu- ition increases appear to be causing deterioration in the quality of public colleges and universities compared with private institutions.9 Private uni- versities benefit from larger endowments, have constrained enrollment growth to control costs, and have steadily increased tuition to offset infla- tion and provide new resources for qualitative improvement. Public institu- tions are less able to use these measures for fiscal control and as a result are falling behind private colleges and universities, in endowments, faculty salaries, student:faculty ratios, student services, and facilities (see Figure PHE-15). Also, to the extent that changes in faculty composition—such as increases in part-time and nontenure-track staff—affect the quality of teach- ing and mentoring and the availability of tenure-track faculty as role mod- 9J. Kissler. Why It Is in the Interest to Address the Growing Gap Between Public and Private Universities. Oakland, CA: University of California, 2005.

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371 APPENDIX D Federally Supported Programs (millions of constant 2003 dollars) 1993-1994 2003-2004 Grants Pell Grants $7,196 $12,661 Supplemental Educational Opportunity Grants (SEOG) 742 760 Leveraging Educational Assistance Partnership Grant (LEAP) 91 64 Veterans 1,518 2,365 Military 515 981 Other Grants 245 353 Subtotal 10,308 17,184 Federal Work Study 982 1,218 Loans Perkins Loans 1,169 1,201 Subsidized Stafford 18,018 25,291 Unsubsidized Stafford 2,029 23,105 Parent Loan for Undergraduate Students (PLUS) 1,943 7,072 Supplemental Loans for Students (SLS) 4,415 — Other Loans 580 125 Subtotal 28,780 56,794 Education Tax Benefits — 6,298 Total Federal Aid 39,998 81,494 State Grant Aid 3,022 6,017 Institutional Grants 11,852 23,253 Total Federal, State Institutional 54,872 110,764 Nonfederal Loans — 11,271 FIGURE PHE-12A Federal aid awarded to students (expenditures), in millions of constant 2003 dollars, 1993-1994 and 2003-2004. SOURCE: S. Turner. “Policy Implications of Changing Funding for Public Higher Education.” Presentation to National Academies’ Board on Higher Education and Workforce, April 2005. els, they may affect undergraduate persistence, graduation rates, and the propensity to continue to graduate school. The consequences include a more stratified, less dynamic society and a more limited workforce available for generating knowledge and innovation in the economy. Issues of attainment also have come to the fore. With a growing num- ber of postsecondary students starting out at community colleges and in- tending to transfer, 2- and 4-year institutions need to work to improve transfer and articulation agreements and processes to facilitate smooth transfers.10 Colleges and universities must make a commitment to the stu- 10National Academy of Engineering and National Research Council. Enhancing the Com- munity College Pathway to Engineering Careers. Washington, DC: The National Academies Press, 2005.

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372 RISING ABOVE THE GATHERING STORM 500 Merit-Based/FTE 450 Need-Based/FTE Grant Aid per Full-Time Student (FTE) 400 in Constant 2003 Dollars 350 300 250 200 150 100 50 0 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 FIGURE PHE-12B Merit and need-based state grant aid per full-time student, by type of grant, 1971-2002. SOURCE: S. Baum. “Changes in Funding for Public Higher Education: College Prices and Student Aid.” Presentation to National Academies’ Board on Higher Education and Workforce, April 2005. Data are from College Board. “Trends in Higher Education Series 2004.” Stafford Subsidized 1996-1997 Stafford Unsubsidized PLUS 1997-1998 Nonfederal 1998-1999 1999-2001 2001-2002 2002-2003 2003-2004 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 Loan Dollars (in billions) FIGURE PHE-12C Higher education loans, in billions of dollars, by type, 1996-1997 to 2003-2004. SOURCE: S. Turner. “Policy Implications of Changing Funding for Public Higher Education.” Presentation to National Academies’ Board on Higher Education and Workforce, April 2005.

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373 APPENDIX D of Attendance at Public and Private 4-Year Colleges 0.70 Max Pell/Private Maximum Pell Grant as Percentage of Cost Max Pell/Public 0.60 0.50 0.40 0.30 0.20 0.10 0.00 2 4 6 8 0 2 4 6 8 2 4 0 -8 -8 -8 -8 -9 -9 -9 -9 -9 -0 -0 -0 81 83 85 87 89 91 93 95 97 01 03 99 19 19 19 19 19 19 19 19 19 20 20 19 FIGURE PHE-13 Maximum Pell Grant as percentage of cost of attendance at public and private four-year colleges, 1981-82 to 2003-04. SOURCE: S. Baum. “Changes in Funding for Public Higher Education: College Prices and Student Aid.” Presentation to National Academies’ Board on Higher Education and Workforce, April 2005. Data are from College Board. “Trends in Higher Education Series 2004.” Total High Income Low Income (bottom 20%) (top 20%) 1972 49.2% 26.1% 63.8% 1981 53.9% 33.6% 67.6% 1996 65.0% 48.6% 78.0% FIGURE PHE-14A Enrollment by income, 1972, 1981, and 1986. SOURCE: S. Turner. “Policy Implications of Changing Funding for Public Higher Education.” Presentation to National Academies’ Board on Higher Education and Workforce, April 2005.

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374 RISING ABOVE THE GATHERING STORM Public Two-Year Colleges Public Four-Year Colleges and Universities FIGURE PHE-14B Net tuition and fee and net cost of attendance as a percentage of family income, by family income quartile and institution type, 1989-1990 and 1999- 2000. SOURCE: S. Baum. “Changes in Funding for Public Higher Education: College Prices and Student Aid.” Presentation to National Academies’ Board on Higher Education and Workforce, April 2005. Data are from College Board. “Trends in Higher Education Series 2004.” dents they admit by supporting retention efforts so that students do not drop out of college with high debts and no degree. ENSURING ADEQUATE FUNDING FOR PUBLIC HIGHER EDUCATION The federal government has a number of options that could help public institutions receive revenues that reflect the true costs of higher education:

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375 APPENDIX D 1.05 Assistant Professors 1 Ratio of Public Salary to Private Salary Associate Professors 0.95 Full Professors 0.9 0.85 0.8 72 73 75 76 77 78 79 80 81 82 83 85 86 90 91 92 93 94 95 96 97 98 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 FIGURE PHE-15 Ratio of public institution salary to private institution salary, by faculty rank, 1972-1998. SOURCE: T. J. Kane. “The Role of Federal Government in Financing Higher Education.” Presentation to National Academies’ Board on Higher Education and Workforce, March 21, 2005. • Design or expand federal matching programs that encourage in- creased state appropriations for higher education. For example, to encour- age states to expand means-tested grant aid, the federal government could offer matching funds to states based on their funding of such programs. • Reform the Medicaid program to slow the growth of state commit- ments that crowd out spending on higher education.11 • Create “Learn Grant Universities” through a federal “Learn Grant Act” as significant as the Morrill Act of 1862 and the GI Bill of 1944. • Enact a “Higher Education Millennium Partnership Act” that would integrate technology into the curriculum, create more flexible educational opportunities for part-time and nonresidential students, and develop new partnerships with schools, businesses, and local communities.12 11Kane and Orszag, 2003. 12J. J. Duderstadt and F. W. Womack. Beyond the Crossroads: The Future of the Public University in America. Baltimore, MD: Johns Hopkins University Press, 2003.

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376 RISING ABOVE THE GATHERING STORM • Create a “Millennium Education Trust Fund” using the sale of un- used communications spectrum over the next few years (with proceeds pos- sibly greater than $18 billion) to provide students with the skills necessary for an age of innovation. IMPROVING ACCESS TO HIGHER EDUCATION In addition, the federal government can help the states improve access to higher education for all Americans through several actions: • Focus national resources on improving the purchasing power of Pell awards.13 • Increase flexibility for states to buy more subsidized loan eligibility from the federal government.14 • Expand and restructure the LEAP program to allow private-sector matches from such organizations as Scholarship America and community foundations.15 • Institute a voucher program that would give more money to students from low-income homes.16 • Mandate that both public and private institutions use the average “net price” of attendance instead of the stated “sticker price” in all federal grant and loan programs to determine who qualifies for student-aid awards and how much they should be awarded. Using sticker prices as the official institutional “cost of attendance” misrepresents the actual average cost of attendance in most federal and state student-aid programs.17 • Consider eliminating the Free Application for Federal Student Aid. Changing laws to permit the use of Internal Revenue Service data to assess qualification for financial aid can simplify processes, save hundreds of mil- lions of dollars, and remove bureaucratic barriers to postsecondary access.18 13Dickeson, 2004. 14Ibid. 15Ibid. 16R. Vedder. Growing Broke by Degree: Why College Costs Too Much. Washington, DC: AEI Press, 2004. 17A. F. King. “Policy Implications of Changes in Higher Education Finance.” Presentation to the National Academies’ Board on Higher Education and Workforce, April 21-22, 2005. 18Dickeson, 2004.