News in Brief

By AGB    //    Volume 30,  Number 6   //    November/December 2022

Biden’s Student Debt Cancellation Trains a Spotlight on the Future

The top concern among parents about their children entering college is affordability, according to a recent survey from EAB, a consulting firm specializing in education institutions. Thus, many were pleased when President Joe Biden recently announced that the federal government would cancel up to $10,000 in student debt for individuals earning up to $125,000 a year and up to $20,000 for students who received federal Pell Grants.

But Biden’s debt forgiveness decision has also provoked significant controversy. That “one-time step” to lower student debt is receiving widespread criticism as well as praise, and “shines a harsh spotlight,” as Higher Ed Dive put it, on the entire federal student loan system. And debate over not only Biden’s program but also what should be done about that system—in particular,
who pays for college and how much—will undoubtedly continue well into the future.

One of the most common arguments against the loan forgiveness program in particular is that it is a giveaway to higher education institutions and will allow them to raise tuition higher. In addition, many people who have worked hard to pay for college without borrowing much money question why others who’ve instead taken out large loans are receiving such a benefit.

As NPR reported, nearly half of the country’s governors have also condemned the loan forgiveness in a letter for being simply a handout to high-income families rather than help to those who are truly in need. “We fundamentally oppose your plan to force American taxpayers to pay off the student loan debt of an elite few,” the letter said.

Higher Ed Dive, in fact, has analyzed how much student debt forgiveness will go to high earners versus lower earners and estimates that the greatest percentage of student loan forgiveness dollars—36 percent—will be distributed to those making between about $51,000 and $82,000 a year. Those making less than around $29,000 will receive 14 percent of the dollars, while those making more than just over $141,000 will get 6 percent.

More broadly, critics say that the program will barely make a dent in the huge federal student loan debt that now reaches close to $1.6 trillion. As Higher Ed Dive characterized it, “The same student loans system that ultimately pressed the president to issue debt forgiveness remains intact.”

In an effort to hold down the cost of tuition for students and otherwise improve that system, members of the U.S. Congress have been putting forth various options for reform. The Democrats have called for doubling the size of the Pell Grant, simplifying income-based loans, and otherwise revising the federal student loans system, according to Higher Ed Dive. Legislation introduced by Republicans has focused on, among other items, allowing students to use Pell Grants to pay for short-term academic programs, cutting the number of loan repayment plans the U.S. Department of Education offers, and limiting or discontinuing borrowing programs for graduate students.

Outside of Congress, other observers are arguing in support of programs that will infuse more money in the system to lighten the financial burden of students and families after years of disinvestment in higher education, especially from state governments. Some people have recommended, for instance, that the federal government create incentives for states to raise their appropriations to colleges, allowing institutions to keep tuition relatively low and, ultimately, decreasing the need for students and their families to borrow to pay for college.

Yet collaboration on such issues on Capitol Hill, or between the federal and state governments, may be more challenging than not in the current political environment. Terry Hartle, the senior vice president of government relations and public affairs at the American Council on Education, voiced the views of many observers when he told Higher Ed Dive that the focus on Biden’s cancelling of student loans is encouraging policymakers across the spectrum to consider alternatives. “But,” he added, “some days, Congress can’t agree the sun will rise in the East tomorrow.”

Race-Conscious Admissions Policies to be Reviewed by Supreme Court

The U.S. Supreme Court will be taking up two cases concerning affirmative action in the coming months—one involving Harvard University and the other the University of North Carolina at Chapel Hill. The court’s decisions on those institutions’ admissions policies may end up prohibiting race-conscious admissions at public and private colleges and universities nationwide. Ten states
have already outlawed race-conscious admissions practices and other forms of affirmative action at their public higher education institutions. Those states are Arizona, California, Florida, Idaho, Michigan, Nebraska, New Hampshire, Oklahoma, Texas, and Washington.

In an effort to predict the impact on minority enrollment at colleges and universities if the Supreme Court rules to support a national ban, the Chronicle of Higher Education reviewed how the bans in each of the 10 states had affected flagship public institutions. The Chronicle collected data on the growth of enrollment of in-state underrepresented minority students and then compared it to the number of underrepresented minority people in each state. The data it reviewed in both cases were from the year of the state’s ban until 2020. The Chronicle reported that in almost all cases growth in the number of underrepresented minorities did not keep pace with that of the underrepresented minority population at large.

In only one state—Nebraska, which ended race-conscious admissions in 2008—did underrepresented minority enrollment of first-time, full-time degree-seeking undergraduates increase at a greater rate (6.3 percent) than the underrepresented minority population (5.6 percent). In contrast, at the University of Washington, which banned affirmative action in admissions in 1998, underrepresented-minority enrollment grew only 6.3 percent from the ban until 2020, while the overall underrepresented minority population increased 10.3 percent. And at the University of Michigan at Ann Arbor, which outlawed race-conscious admission in 2006, underrepresented minority enrollment actually fell 2.2 percent between that time and 2020, compared to 3.1 percent growth in the state of underrepresented minority people.

Tying Tuition to Endowments

Proposed new federal legislation would require higher education institutions with endowments worth more than $1 billion to pay for up to 75 percent of every admitted student’s cost of attendance, Inside Higher Ed has reported. Senator Rick Scott (R-Florida) introduced the bill, which would also mandate that if any of those institutions raised tuition or otherwise increased the cost of attendance, they would have to explain why to the U.S. Department of Education.

According to Scott’s press release, the aim is “to hold university administrators accountable for the unacceptable skyrocketing price of higher education.” The legislation would mandate “any
university with an endowment to report to the secretary of education the size and growth of its endowment and provide a costmatch for a federal financial student aid award to pay for tuition,
educational costs (books, equipment, etc.), and living expenses charged to students based on the size of the endowment.”

Colleges and universities with higher endowments would have to provide higher matches. Those with endowments between $1 billion and $5 billion would have to pay 25 percent of the cost of attendance. Those with endowments between $5 billion and $10 billion would be required to pay 50 percent of the cost, and those with more than $10 billion, like Harvard University and the University of Texas, would have to provide 75 percent.

Higher education officials and analysts have criticized the legislation for not focusing on making college more affordable for the students and families who most need help. Institutions would have to pay the same amount of aid to their high-income students, who often attend in significant numbers, as lower-income ones. At Harvard University, for example, 67 percent of the students who attend come from affluent households, according to the New York Times.

In addition, the new bill ignores the fact that when it comes to endowment spending colleges and universities must follow stringent rules and are usually restricted by donor requests. As Inside Higher Ed noted, “A common misperception is that endowment funds work like bank accounts, where colleges can make money and spend it as they please. However, when colleges receive donations, they often come with a set of rules from a donor that the colleges must follow.”

Moreover, as the National Association of College and University Business Officers has reported, most of the well-endowed institutions that the bill targets already provide significant support from their endowments to help students pay tuition. Almost half, or 47 percent, of endowment spending in 2021 was used to cover student financial aid.

States Step in on Speech Issues

Attempts by state legislatures to ban the teaching of certain “prohibited” or “divisive concepts” more than doubled from 2021-2022, according to a report recently released by Pen America, an
organization supporting free expression. The number of bills introduced in various states that limit or prescribe how educational institutions can teach controversial topics like gender, race, religion, and sexuality have increased by more than 250 percent. While almost all the bills have been aimed at K-12 schools, as many as 40 percent have also included higher education institutions, and that number has been growing.

Pen America found that 36 states introduced 137 “gag order bills” in 2022 compared to 2021, when 22 states introduced 54 such bills. “Instruction related to race has been the most common category of speech to draw lawmakers’ attention,” the report said. “But this year has also seen a share increase in the number of bills targeting LGBTQ+ issues and identities.
Another notable development to date in 2022 has been the growing number of bills targeting higher education.”

The report also noted that the bills introduced thus far this year have been more punitive. As many as 55 percent “have contained some kind of explicit punishment for violations” and those
punishments “have tended to be more extreme, including private rights of action, large monetary fines, faculty termination, and loss of institutional accreditation. Some unsuccessful bills have even proposed criminal penalties.”

To date, seven of the bills introduced in 2022 have become law, and University Business has highlighted examples in three states. In Mississippi, colleges and universities risk losing state appropriations if they classify students by race. South Dakota does not allow public higher ed institutions to “teach so-called divisive concepts regarding anything in the Civil Rights Act of 1964—that is, race, color, religion, sex, and national origin.” And Florida has enacted the Stop WOKE Act, which threatens to deny state funding to colleges and universities that are found to have introduced “divisive concepts” to their students.

Florida has, in fact, been the site of continuing controversy over academic freedom and free speech issues, following the passage of a 2021 law that, among other things, mandates the distribution each year of an “intellectual freedom and viewpoint diversity survey” to students and employees at public universities in the state. According to Inside Higher Ed, faculty members have fought against the legislation since it was first proposed, calling it a “political litmus test for classroom teaching” and arguing that it is trying to encourage the public perception that colleges are “intellectually repressive” and “strongholds of leftist and socialist thought.”

The state faculty union, United Faculty of Florida, has been suing the state about the law, including the survey, alleging that it “violates students’ and faculty members’ First Amendment rights and encourages colleges and universities to “police the speech inside, and outside, of their classrooms to avoid having to litigate cases.” After the survey was issued in April, the union also actively discouraged students and workers at public colleges and universities from participating, and those efforts seem to have been successful. Only about 2 percent of the students and 12 percent of the employees who received the survey responded to it.

What’s the Forecast for Higher Ed Finances?

First the good news: Philanthropic giving to higher education institutions has continued to be robust over the past months. While it varies from institution to institution, many colleges and universities have reported receiving record donations in fiscal year 2022, which ended on June 30.

Pennsylvania State University, for example, saw its donations rise from a previous high of $381 million to $437 million this fiscal year, Inside Higher Ed reported, and the University of Oklahoma broke last year’s record of $237 million, bringing in $317 million in pledges and gifts. Even smaller regional institutions have experienced unprecedented giving, such as Fayetteville State University (close to $8 million) and Wittenberg University ($14.7 million).

Those results are on top of the significant growth in overall donations to higher education over the previous fiscal year—from $49 million in 2020 to almost $60 billion in 2021, according to the Council of Advancement and Support of Education’s latest Voluntary Support of Higher Education Survey.

But despite such philanthropic gains, a growing consensus is that going forward the financial picture for colleges and universities will probably not be all rosy. To cite Higher Ed Dive, “The financial outlook for individual colleges is muddled.” Continuing inflation, a volatile stock market, and declines in student enrollments are some of the threats to a positive financial outlook for higher education institutions.

When Fitch Ratings, one of the leading credit rating agencies, examined 63 private institutions and 51 public institutions in its portfolio, it found that cash flow and operating margins improved at those institutions in fiscal year 2021, despite a drop in net tuition revenue, according to Higher Ed Dive. The median ratings remained the same—A- for private institutions and AA for public ones—as colleges and universities trimmed costs and received high returns on their stock market investments. Moody’s Investors Service, another rating agency, also released a report showing similar results and evaluations, with operating revenue at colleges and universities in its portfolio growing more than 3 percent.

But the outlook is not as positive for fiscal year 2022 and beyond, as costs rise and revenue growth becomes increasingly challenging. According to Jim Hundrieser, the vice president for consulting services at the National Association of College and University Business Officers, employee compensation is especially a growing pressure, as colleges and universities that cut worker pay at the beginning of the pandemic must not only restore salaries to their previous levels but also raise them to attract and retain employees. Deferred maintenance expenditures may also be quite costly, as colleges and universities put off capital spending on facilities projects over the past several years due to the pandemic—adding to an already large backlog.

Meanwhile, as Emily Wadhwani, the senior director for U.S. Public Finance at Fitch, forecast to Higher Ed Dive, enrollment—and enrollment revenues—will probably not return to pre-pandemic levels at many institutions. Another not insignificant factor is that colleges and universities will no longer benefit from pandemic-related government relief funding, which has provided, on average, an estimated $13.2 million per college since 2020, according to S&P Global Ratings.

Ultimately, the financial challenges in the higher education sector may result in greater consolidation through mergers. Since 2016, more than 86 colleges have already closed or merged, research by the James G. Martin Center for Academic Renewal has found. And Martin Kurzweil, the vice president for educational transformation at Ithaka S+R, which provides research and strategic advice to institutions, observed to Higher Ed Dive, “I would expect to see a wave of reorganizations, consolidations, and mergers that may have been delayed or held off by federal relief funding.”

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