Attending college in the United States has gotten more expensive over time, making education harder for many Americans to obtain and contributing to soaring federal student loan debt. The exact causes of the increase in cost are hotly debated, but many experts agree that a pattern of inadequate state support for higher education has been a major factor. This trend is exacerbated by economic recessions, which can lead to long-term negative impacts on state spending on higher education, and by the rising cost of living, which makes it harder for students to afford housing and other essentials.
To combat this trend, the Bipartisan Policy Center has called for a major federal investment in college affordability via block grants to states. By tying federal funding for higher education to a required state match and maintenance of effort requirement, the federal government can incentivize states to invest in higher education, thereby improving access and completion, especially for low- and middle-income students. BPC estimates that a decade of federal investment via such block grants (with partial state match) could generate $170 billion in additional personal income due to increased educational attainment, which in turn would generate over $20 billion in new federal revenue and a similar amount of new state revenue, partially offsetting the program’s up-front cost. (For more on these estimates, see A New Course for Higher Education.)
Another major goal of a federal investment in state higher education should be to prepare states to weather future economic recessions so that investments in higher education affordability are not lost to budget cuts and inefficient emergency federal infusions of funds are not necessary. BPC has proposed using a flexible federal block grant program to split funding between new affordability dollars and rainy day funds for state higher education that would automatically fill gaps in state budgets caused by a recession.
This raises serious questions about how such rainy day funds should be crafted: how large do they need to be? How quickly can they be filled? Should funds be drawn solely from federal block grant funds or also from state matching dollars? BPC set out to shed light on these questions by creating a financial model of higher education rainy day funds. An explanation of our modeling is available here.
See what this means for each of the 50 states:
Using the above model, BPC proposes allocating $6 billion annually to states, with $4 coming from the federal government for every $1 in new state spending (i.e., a 25% state match requirement). If federal funds are split evenly between new affordability spending and rainy day funds, BPC estimates that most states would fill rainy day funds (set at a size equivalent to 15% of each state’s recent annual spending on higher education) within five years, though some would take longer. The remaining $3 billion in federal funding and $1.5 billion in state spending would go to state-directed affordability investments such as decreasing tuition at public institutions, boosting state aid for students, or increasing funding for programs like College Promise.
BPC’s proposed funding level and allocations to the rainy day funds are only one way that a flexible federal block grant for college affordability might work. Soon, BPC will publish an interactive tool that will allow users to see various parameters of the modeling and experiment with alternative funding levels or allocations.
Funding for this project was generously provided by the Bill & Melinda Gates Foundation. Additional funding was provided by the Kresge Foundation.
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