The College Affordability Act (CAA)—House Democrats’ version of the long-overdue Higher Education Act reauthorization—includes a number of provisions designed to improve affordability, such as an increase to the maximum Pell grant award and expansion of Pell eligibility to DACA and TPS recipients as well as incarcerated individuals.
It also breaks new ground in proposing the creation of a federal-state funding partnership, seeded with enough dollars to support the first step toward a federal debt-free college program. The partnership’s design has some important features that could provide meaningful support for states and students.
State Buy-In Option
The federal-state matching structure created by the College Affordability Act provides $93 billion of federal mandatory funding for states that commit to providing free community college tuition to residents, as well as a $500 million fund that states can apply to in order to fund initiatives that support student success. In order to receive funds from the student success program, states must first report on the inequities in existing funding, enrollment, and completion, among other requirements. The CAA also includes a pathway to a free four-year degree by providing two years worth of grants to cover tuition at eligible HBCUs, TCUs, and other MSIs.
Beyond that, the CAA lays out affordability benchmarks that a state could receive federal matching funding to help reach: covering unmet financial need for Pell recipients, providing free tuition at public four-year institutions, and covering unmet financial need for all students. While the mandatory funding available in the CAA is only enough to cover the free community college tuition tier, future funding increases could allow states to opt-in to a higher tier of funding.
All existing federal free and debt-free college proposals rely on some form of a federal-state match, meaning that states have to come up with additional dollars and opt-in to participating. In providing a tiered approach for funding a debt-free guarantee through a federal-state partnership, the CAA makes it more likely states will participate and build local support to expand over time: it allows states that already invest heavily in higher education to quickly expand affordability beyond just community college tuition, while also allowing states further behind in their investments to make progress without having to immediately reach a full debt-free guarantee. Short of fully financing debt-free college solely from federal dollars, providing a tiered approach may be the most strategic way of having states opt in, as it creates meaningfully affordability benchmarks but avoids having some states choose “nothing” when given an all-or-nothing match option.
A State Match That Could Do More
Several existing federal legislative proposals envision a debt-free college pathway resting on a federal-state match. The CAA match has the federal government covering 75 percent of the cost of the new affordability guarantee, with states coming in to cover the remaining 25 percent.
For some states, CAA’s requirement that states spend enough to meet the 25 percent match would mean increasing their funding (in some cases) quite sharply. State reinvestment is a laudable and important part of the overall goal of a new federal-state partnership, but that goal must be balanced against the goal of reaching as many students as possible with affordable college options. If the match is set too high for states, it creates a risk that some states will not opt-in at the affordability benchmark tiers, particularly those beyond free community college tuition.
In this case, a 25 percent match may be too high to gain full participation in the higher tiers. This is in part because the increase required would be a large percentage of a state’s existing higher education budget in some places, and in part because some of the money, particularly that which is “ear-marked” for financial aid, may be politically difficult to reallocate. For example, a state that has already tied most of its financial aid spending to a merit program, such as Louisiana, may make welcome changes to the program to use some of those investments to reach the guarantee, but is unlikely to eliminate a popular merit-based program entirely. Instead, it will require states to generate significant revenue, which may be less likely in states with anti-tax legislatures.
Designing a match that encourages states to make new investments or pursue a more equitable reallocation of funds, but does not rest entirely on the assumption that states will bring their per student spending back to historical highs, requires finding a balance. It must ensure that new investments do not reward inadequate state financing but also do not punish students who happen to live in a state with low per FTE investment. Reconciling that tension and adjusting that match upward in the future may be critical to gaining state take-up more quickly.
Maintenance of Effort
The CAA creates a strong requirement that states do not merely use new federal dollars to supplant existing aid or operational dollars. The bill requires states to maintain the same financial support per full-time-equivalent student (FTE) at both two- and four-year institutions, maintaining steady per FTE levels of non-capital and research operational dollars and of need-based financial aid. It also requires the maintenance of the same aggregate dollars of support for operational support at four-year schools and of need-based aid.
State spending on higher education per FTE historically has plummeted during recessions: limited revenue tightens state budgets just at the time when people who cannot find work go back to school. After the past two recessions, however, states did not fully come back to the table when their economy rebounded (see Figure 1).
A new federal–state partnership provides a new avenue for the federal government to encourage states to do their part when times are good, while providing support for states when their economies tank. A funding stream that is responsive to economic downturns would make it far more likely that states would participate—and would solve a problem for states, most of which are barred from deficit spending (unlike the federal government). For example, a funding formula for such a partnership could increase federal funding for states that meet the maintenance of effort and also reduce the penalty if states did not maintain per FTE investments during a time period when a state’s unemployment rate hit a certain level, but require states reinvest quickly after economic recovery to maintain program participation. Building in recession protections would help mitigate reticence on the part of states to join the program in the first place.
Unfortunately, the CAA as currently written does not include any such provision; ideally, future iterations will incorporate those protections. Reforming federal higher education policy to address the harmful state policy responses during recessions should be a top priority for future legislative efforts, and may in fact be necessary for the success of a federal-state partnership.
From Down Payment to Debt-Free
The College Affordability Act creates a new statutory framework for a debt-free college program. While the largely positive structure will require further development, the key barrier is, unsurprisingly, a lack of funding. Even if the CAA were to pass as is, a new presidential administration and Congress would need to make an additional large investment to leverage the framework and create a truly debt-free higher education system.