The State of Funding

By Darcie Harvey    //    Volume 26,  Number 5   //    November/December 2018

As public higher education continues to grapple with flat or declining funding per student, governors and state legislators are using a variety of strategies to tackle tuition sticker shock and achieve educational attainment goals.

All states value educational attainment, but they take different approaches to higher education and their fiscal support varies. While state funding for higher education has recovered from the Great Recession in actual dollars, inflation-adjusted funding has not yet returned to pre-recession levels. Funding per student remains well below 2008 levels, and tuition levels continue to outpace gains in family income. A larger percent of family income is needed to pay for college than in years past; this includes both the public and private nonprofit sectors and both two- and four-year institutions. Given the past decade of spending declines and tuition increases, it is not surprising that higher education cost and affordability issues continue to dominate the postsecondary policy agenda. States are concerned with affordability issues and increases in student debt, including students leaving college without a degree.

According to the National Association of State Budget Officers (NASBO), state spending in 2018 grew an estimated 4.6 percent. The strongest spending growth was reported in the Far West (8 percent) and the Southeast (5.5 percent). However, Medicaid spending continues to outpace any other budget area: a 4.8 percent increase compared with a 3.5 percent increase for higher education.

A State Higher Education Executive Officers Association (SHEEO) report on higher education funding trends showed that in 2017, states saw a moderate increase in support for higher education, nearly flat enrollment, and a slight increase in tuition revenues. According to NASBO, 11 states are projecting that revenues will come in below target levels in 2019; most of these are in the Northeast and Midwest. Higher education analysts remain cautious about pressures on spending from such areas as correctional systems, Medicaid and retiree benefits, and any future downturns in the economy because higher education is often the first budget sector affected when state coffers run short. A recent analysis from Moody’s finds that in 32 states, the current rainy-day reserve funds are insufficient to cushion against even a mild recession.

States are pursuing a variety of strategies aimed at making college more affordable. Among the most popular are “Promise”—sometimes called “free-college”—programs, which eliminate tuition at public colleges, most commonly at two-year community colleges. In 2014, Tennessee started a statewide Promise program, bringing national attention to the issue, and in 2015, President Obama fueled the movement by proposing free community college for two years—an idea that was embraced by prominent philanthropies and equity activists. Since that time, the Promise movement has flourished: 16 states have one or more statewide programs, and many communities, sub-state regions, or institutions have implemented their own programs. For example, the Kalamazoo Promise is one of the oldest community programs. Eligibility is restricted to high school graduates from Kalamazoo public schools, and the funding can only be used at public colleges and universities in Michigan. Eleven other states have pending legislation for Promise programs. While they vary in design and requirements, the vast majority operate on a “last dollar” basis: students must use all federal, state, and private financial aid before the Promise program provides the remainder of the tuition funding.

Recent studies by the Education Trust and the Institute of Higher Education Policy have questioned the efficacy of these programs. The findings indicate that Promise programs often subsidize students from higher-income families and do little to ease affordability issues for low-income students, who still face substantial non-tuition costs. Other analyses have found that some Promise programs have eligibility rules that diminish access. For example, only 32 percent of applicants were admit-ted into New York State’s Excelsior Scholarship program in its first year. Critics point to, among other things, the 30-credit-per-year requirement, which can be burdensome for low-income students.

Proponents of Promise programs argue that the message of  “free college” encourages enrollment of students who previously may have thought a college education was impossible. For example, a 2017 report from the Tennessee Higher Education Commission found that enrollment at community colleges increased by more than 24 percent after the state implemented the Promise program.

The cost of books and supplies creates yet another hurdle for college students. States have chosen to address this challenge by pursuing open educational resources (OER), materials that are free to students. OER legislation has been proposed in about half the states, but most programs are adopted by individual colleges and are not statewide. A recent report from Achieving the Dream, which has invested in programs in 13 states, found that OER not only saves students money but also is associated with improved student learning, potentially increasing college completion. The study found that students can save between $66 and $121 per course by using OER, and low-income students who were part of the study reported that the courses had a significant impact on their ability to afford college.

The federal government in January 2018 gave $5 million for an OER pilot program. Colleges are also tackling student supply expenses by using “inclusive-access” models for providing digital course materials to students at a reduced rate, sometimes as much as 60 percent. However, in this model, students are essentially renting the material for the length of the course and require a Wi-Fi connection to access the materials. Inclusive access also relies on colleges to make individual arrangements with publishers, often on a per-course basis.

One highly publicized program from the City College of New York addresses both tuition and non-tuition costs for students. The Accelerated Study in Associate Program (ASAP) offers an affordability guarantee that not only waives tuition and provides free textbooks but also includes a transportation stipend and other services such as advising and tutoring. The results have been staggering: ASAP doubled the three-year graduation rate and lowered student costs. Researchers at Columbia University found that ASAP student costs were $13,100 compared with $21,000 for non-ASAP graduates. In light of ASAP’s success, other state programs aiming to address the full-cost of college through a holistic approach are likely. In 2014, three community colleges in Ohio adopted an ASAP approach. A 2018 review of the outcomes from the nonprofit organization MDRC found the colleges were continuing to see improvements in enrollment, retention, and completion. The Ohio program even exceeded ASAP in terms of degrees earned after two years. In 2017, Skyline Community College in California and Westchester Community College in New York began implementing an ASAP model. Early results from Skyline College show increased retention of students.

States are also addressing affordability through a number of debt relief strategies: creating a borrower’s bill of rights, refinancing debt, and forgiving student loans. Thirteen states have proposed or passed legislation to create a borrower’s bill of rights, which prohibits loan servicers from misleading or defrauding students. States are creating student loan ombudsman offices to advocate for borrowers. According to the Pew Charitable Trusts, five states and the District of Columbia have such an office, and legislation is pending in 10 additional states. At least 35 states have a statutory loan forgiveness program that offers relief if students meet requirements such as working in the state for a certain number of years or working in a specific field such as health care, social work, or teaching. In addition, seven states have either introduced or enacted legislation to refinance student loans, allowing borrowers to repay loans at a lower cost.

States have also been active in trying to improve higher education completion rates, with many implementing educational attainment goals. Policies to advance these goals include outcomes-based budgeting, Guided Pathways, competency-based education, and dual enrollment.

Outcomes-based funding (OBF)—commonly known as performance funding—finances public higher education institutions based on successful student out-comes. Currently, 35 states have developed OBF policies or are in the process of doing so. The policies vary in design and in funding level. The premise of the OBF model is the idea that funding outputs, not inputs, provide institutions with the right incentives to make student success a priority.

The efficacy of OBF in increasing student success is the subject of vigorous debate. Some states have seen positive results, especially when the program is designed to increase completions for underrepresented populations, while studies of other states show that OBF resulted in the proliferation of short-term certificates instead of degrees. A recent Research for Action survey of OBF in Tennessee, Ohio, and Indiana found that OBF policies had a positive impact on full-time student certificate and degree completion in both Tennessee and Indiana. In Tennessee, OBF also was associated with positive outcomes for full-time Pell grant students. However, part-time students did not experience outcome gains under OBF in either state.

A report from the Ohio board of regents illustrates the problem with trying to isolate the effects of OBF policies on student outcomes. In the initial years after the state implemented more robust OBF polices in 2009, there was an increase in the number of degrees awarded and degrees per enrollment. However, after 2012, enrollment in the system, along with the number of successful outcomes, declined. This relationship between enrollment and outcomes indicates that OBF policies cannot be judged without taking the wider statewide context into account. The Ohio report, along with reports in Tennessee and other states, demonstrates that it is difficult to assess the impact of OBF when it is implemented with other policies aimed at improving completion. In Tennessee, OBF was one of a suite of student success policies, including the Tennessee Promise. In Ohio, OBF was implemented at the same time the state was involved in the national Achieving the Dream project.

Another policy strategy that has gained popularity is the use of Guided Pathways, which primarily has been implemented at community colleges and funded through state budgets. More than 250 community college systems have committed to some kind of Guided Pathways reform. Related programs seek to increase student success in higher education by creating a clear path from initial enrollment to completion. By streamlining the pipeline, these programs have been shown to decrease student confusion about academic planning and diminish the likelihood that a student will take courses that do not count toward his or her degree.

Several four-year public systems have used a Guided Pathways approach, although none use this label specifically. For example, Georgia State University employs Freshman Learning Communities, grouping new students by program of interest—or “meta-majors”—to determine their program path. Florida State University uses academic “mapping” to provide an eight-semester plan for each major that leads to completion of a bachelor’s degree in four years. The mapping program has helped the system reduce the number of students graduating with excess credits. Given the success of Guided Pathways in the two-year sector, we may well see these programs expanding to more four-year college systems in the future.

States not only are trying to help students take the right courses but also are increasing educational efficiency by allowing students to move through course sequences if they have already obtained the relevant skills or knowledge. This competency-based education (CBE) approach allows students, especially adult students and veterans, to receive academic credit for knowledge or skills that are relevant to their course of study. Allowing students to demonstrate mastery of a subject through assessments enables some students to rapidly move through course sequences and complete a degree or certificate with fewer courses and at a lower cost. States and institutions have expanded the use of CBE in the last five years; however, hurdles remain. For example, these programs are not aligned with federal definitions of completion, which rely on seat time. Governors are currently working with the U.S. Department of Education to make sure the next reauthorization of the Higher Education Act has a more inclusive definition of student outcomes.

While states are aiming competency-based education policies at adult students, they also are trying to enhance educational productivity by targeting high school students. Nearly all states use some type of dual enrollment program in which high school students can simultaneously obtain credit for both high school and college courses. By utilizing the students’ time more efficiently, these programs reduce time to degree and the costs for students. Moreover, studies have shown that dual enrollment students are more likely to graduate from high school and enroll in college. However, critics argue that these courses should only be taught by college professors because K-12 teachers often do not have the same level of qualifications. In 2015, an accrediting body for 19 states passed a requirement that all dual enrollment courses be taught by faculty with a master’s degree and at least 18 graduate credit hours in the subject they are teaching. Another criticism is that many of these programs limit enrollment to high-achieving students, resulting in underrepresentation of students of color and low-income students. Recent state legislation has moved to address these issues not only through requiring advanced credentials for dual enrollment teachers but also by changing enrollment rules. For example, the Illinois legislature recently passed a law that allows high school students to take an unlimited number of dual-credit courses.

Looking ahead to 2019, state legislatures are likely to continue grappling with difficult policy choices as they balance finite funds with competing spending areas. States will need to be strategic as they pursue policy solutions to increase both educational attainment and affordability. As legislatures try to think outside the box, they will continue to show interest in pro-grams that improve student outcomes and affordability. Programs such as dual enrollment, competency-based education, and open educational resources could be among the strategies under consideration.

A recent report from the Georgetown Center on Education and the Workforce shows that two out of three jobs demand education and training beyond high school and 56 percent of “good jobs” go to those with a bachelor’s degree or higher. Higher education is not only a path to the middle class but also an avenue for states to stay economically competitive. These concerns are bound to be foremost in the minds of state legislators as they approach the new session.

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