Federal stimulus fails to protect college affordability, study finds

While state lawmakers honored provisions of the American Recovery and Reinvestment Act of 2009 by not slashing their appropriations for higher education during the recent economic crisis, a new analysis by higher education expert Jennifer A. Delaney indicates that the stimulus program may have failed to promote college access and affordability.

The federal government offered the stimulus funds to states as an incentive to promote access for low-income college students while the U.S. limped out of the global economic crisis.

Under the ARRA's "maintenance of effort provision," states accepting the stimulus funds were mandated to maintain their higher education appropriations at their fiscal year 2008 or 2009 levels, whichever was higher.

Many states responded by cutting their financial aid expenditures, an unintended consequence that negated the law's objective.

To examine the effects of the ARRA on college affordability, Delaney compiled a dataset that spanned all 50 states and included several markers of higher education expenditures during the six years prior to ARRA and all three years of ARRA spending. Delaney examined factors such as spending for public and independent higher education with and without the ARRA, total dollars disbursed for state student financial aid and the total number of aid recipients.

For every dollar that states accepted in federal stimulus money, state lawmakers reduced spending on student financial aid by approximately 12 cents, Delaney found.

"The ARRA only applied to general appropriations, not to financial aid," said Delaney, who is a professor in the department of education policy, organization and leadership at the University of Illinois. "So after the ARRA funds came in, states actually cut their student financial aid funds, which weren't covered by the law. While the ARRA worked as intended, it is a little bit of a sleight of hand that states maintained what they needed for general appropriations but cut student financial aid when they had severe budget constraints."

State support for higher education in the form of tax appropriations has been volatile over the past two decades, with deep cuts in bad economic times that have been larger than the increases provided during periods of economic prosperity.

This budgetary unpredictability and general downward trend in state support has prompted institutions to rely increasingly on tuition to fill budgetary gaps.

Between 1987 and 2012, the amount of total revenue in institutions' budgets from tuition rose from about 23 percent to 47 percent.

During that time, tuition and fees at four-year public institutions increased 357 percent, and the average cost of tuition as a percentage of median household income nearly tripled, increasing from 5.5 percent to 15.4 percent.

However, state spending on student financial aid has lagged far behind the tuition increases, rising about 57 percent – from $5.8 billion to $9.1 billion. The average state grant per full-time-equivalent (FTE) student rose just 10 percent – from $598 in 2000, to $660 in 2010.

Delaney found that geography could be a key factor in affordability because states vary widely in the amounts of need-based financial aid they provide, which ranges from less than $100 per undergraduate FTE in 12 states to more than $525 per FTE student in nine states.

More than 72 percent of the total need-based aid available to undergraduates in the U.S. is disbursed by just nine states - California, Illinois, Indiana, New Jersey, New York, North Carolina, Pennsylvania, Texas and Washington.

Low-income students also have to compete harder for need-based aid because lawmakers are investing greater amounts of money in politically popular merit-based aid programs that award financial aid based on academic performance rather than financial need. Between 2000 and 2011, state investments in merit-based aid programs soared more than 137 percent, while spending on need-based aid programs increased by 84 percent.

"Having separate legislative decision-making and administrative bodies set policies on tuition, state general appropriations or student aid on their own tends not to produce the best policy outcomes," said Delaney, who is a past chair of the Council for Public Policy in Higher Education, an organization within the Association for the Study of Higher Education. "There may be something quite useful about having state policymakers think about all of these things together."

Delaney's study is available online and in the September issue of Annals of the American Academy of Political and Social Science.