The Role of State Policy in Promoting College Affordability

Abstract

This article considers trends in state policies that determine college affordability, including trends in state general appropriations, institutional tuition and fees, and state student financial aid. Taken together, these trends demonstrate erosion in college affordability. This article also examines one recent federal policy intervention that has shaped state policy for higher education affordability, the American Recovery and Reinvestment Act of 2009 (ARRA). My analysis of ARRA shows that the “maintenance of effort” provision in the law was effective, as there was no drop in state general appropriations for higher education (including federal ARRA funds) following implementation. However, in a related analysis, I show that ARRA is negatively associated with state spending on student financial aid. Collectively, state policy trends and the ARRA analyses underscore the need for improved state policy in promoting college affordability, as an affordable college education is out of reach for an increasing proportion of students.

Keywords

higher education finance state policy American Recovery and Reinvestment Act

Today greater effort is required for families to send a child to college than was needed in prior generations. College is both more expensive and consumes a larger percentage of median household income for the average American family today than at any point in the previous four decades (Kirshstein 2012). Fitzgerald and Delaney (2002) and Perna and Li (2006) have also documented the erosion in college affordability over time. Table 1 illustrates the increase in the percentage of median family income needed to pay for average tuition and average cost of attendance at public four-year institutions between 1984 and 2011. At public four-year colleges average tuition constituted 5.5 percent of median family income and average cost of attendance constituted 16.4 percent of median family income in 1984; by 2011 these percentages had increased to 15.4 percent and 33.5 percent, respectively. These increases are driven in part by relatively slow growth in the median family income, but more strikingly by large increases in tuition and cost of attendance at public four-year institutions in the past 25 years.

Table 1

Tuition and the Total Cost of Attendance Absorb a Larger Proportion of Income at Public Four-Year Colleges or Universities

Year	Average Tuition and Fees (Current Dollars)—Sticker Price (No Aid)	Average Reported Cost of Tuition, Fees, Room and Board	U.S. Average Median Household Income (Current Dollars)	Average Tuition as a Percentage of Median Household Income	Average Cost of Attendance as a Percentage of Median Household Income
1984	$1,228	$3,682	$22,415	5.5%	16.4%
1985	$1,318	$3,859	$23,618	5.6%	16.3%
1986	$1,414	$4,138	$24,897	5.7%	16.6%
1987	$1,537	$4,403	$26,061	5.9%	16.9%
1988	$1,646	$4,678	$27,225	6.0%	17.2%
1989	$1,780	$4,975	$28,906	6.2%	17.2%
1990	$1,888	$5,243	$29,943	6.3%	17.5%
1991	$2,117	$5,693	$30,126	7.0%	18.9%
1992	$2,349	$6,020	$30,636	7.7%	19.6%
1993	$2,537	$6,365	$31,241	8.1%	20.4%
1994	$2,681	$6,670	$32,264	8.3%	20.7%
1995	$2,848	$7,014	$34,076	8.4%	20.6%
1996	$2,987	$7,334	$35,492	8.4%	20.7%
1997	$3,110	$7,673	$37,005	8.4%	20.7%
1998	$3,229	$8,027	$38,885	8.3%	20.6%
1999	$3,349	$8,274	$40,696	8.2%	20.3%
2000	$3,501	$8,653	$41,990	8.3%	20.6%
2001	$3,735	$9,196	$42,228	8.8%	21.8%
2002	$4,046	$9,787	$42,409	9.5%	23.1%
2003	$4,587	$10,674	$43,318	10.6%	24.6%
2004	$5,027	$11,426	$44,334	11.3%	25.8%
2005	$5,351	$12,108	$46,326	11.6%	26.1%
2006	$5,666	$12,797	$48,201	11.8%	26.6%
2007	$5,943	$13,429	$50,233	11.8%	26.7%
2008	$6,312	$14,262	$50,303	12.5%	28.4%
2009	$6,695	$15,014	$49,777	13.4%	30.2%
2010	$7,136	$15,918	$49,277	14.5%	32.3%
2011	$7,701	$16,789	$50,054	15.4%	33.5%

SOURCE: Author’s calculations based on the following data: U.S. Census Bureau, Current Population Survey, Annual Social and Economic Supplements. Table H-8. Median Household Income by State: 1984 to 2011 (Households as of March of the following year). Income in current and 2011 CPI-U-RS adjusted dollars, http://www.census.gov/cps/data/; Institute of Education Sciences, National Center for Education Statistics. Digest of Education Statistics. Digest Tables. Table 349. Average undergraduate tuition and fees and room and board rates charged for full-time students in degree-granting institution, by level and control of institution (1984 refers to the 1984-1985 academic year), http://nces.ed.gov/programs/digest/2012menu_tables.asp.

Affordability in this article is broadly conceptualized as the share of income required to pay the net price of college. The net price of college is listed tuition price minus student financial aid (from all sources).¹ This article examines college affordability by considering trends in state higher education finance related to state general appropriations for higher education, tuition, and fees in public four-year institutions, and state student financial aid, with an emphasis on grant aid (that is, student financial aid that is not required to be paid back). I focus on trends for public four-year institutions because this is the sector that is most directly within the purview of state policy. As this sector enrolls approximately 37 percent of students in the United States—a larger share than the public two-year, private nonprofit four-year, and for-profit sectors—the public, four-year sector also has the greatest impact on affordability (College Board 2012a). This article also considers the role of federal matching funds in incentivizing state support for higher education by examining the impact of the American Recovery and Reinvestment Act (ARRA) of 2009 on college affordability.

Reflecting this volume’s attention to state policy and higher education, this article focuses chiefly on the role of the states in promoting affordability of higher education. Because education is a reserved power of the states, states play the primary role in shaping public policy for higher education and, as such, play a vital role in shaping higher education affordability. The federal government also provides substantial funds to higher education, but these funds are almost exclusively limited to investments in research and student financial aid. Likewise, institutions themselves provide funds for higher education operations, capital, and student financial aid, although the level and form of these investments vary greatly by sector. While important, a detailed look at federal and institutional trends is beyond the scope of this volume’s focus. In general, states invest in higher education in three ways: through appropriations to institutions, capital expenditures for institutions,² and support to students in the form of student financial aid. State investment in all three of these areas is important for establishing the level of affordability of higher education in each state.³

College Affordability Trends

State general appropriations

State funding for higher education has been volatile over the past decade. Figure 1 shows trends in state support in constant 2012 dollars. In 2000, states collectively spent approximately $78.1 billion on public higher education. In 2012, states collectively spent approximately $69.5 billion, the lowest level since 2000. The high watermark was in 2008, when states collectively spent approximately $83.2 billion in constant 2012 dollars on public higher education. The nearly $13.7 billion drop in spending since 2008 has resulted in a destabilization of college affordability across the nation.

Figure 1

State Support for Public Higher Education including ARRA, Total Investment by All States

Showing this trend in a slightly different way and over a longer period of time, Figure 2 displays total FTE (full-time equivalent) enrollment, state educational appropriations, and net tuition revenues per FTE in inflation-adjusted dollars, over the last two and a half decades.⁴ Over this time period, total enrollments increased, as shown by the line in Figure 2. In 1987, more than seven million students were enrolled in postsecondary education. In 2012, this number had increased to nearly 11.8 million. The dark bars in Figure 2 show that state appropriations per FTE⁵ have varied over time. In 1987, average state appropriation per FTE was $8,497 in constant 2012 dollars; by 2012 this figure had fallen to $5,906—a decline of $2,591 per student or approximately 30 percent. Over this time period, the high watermark was reached in 2001 with a funding level of $8,670 per FTE; 2012 was the low point. Between 2001 and 2012, there was a $2,764, or a nearly 32 percent, decrease in appropriations per FTE. Increases in enrollments coupled with volatility in state support for higher education have resulted in a generally declining trend in state spending per student over the past decade.

Figure 2

Public FTE Enrollment, Educational Appropriations, and Total Educational Revenue per FTE, United States, Fiscal 1987–2012

State appropriations patterns and trends

State support for public higher education tends to be cyclical. In prior work (with William R. Doyle), we found that state appropriations tend to conform to a balance wheel model (Delaney and Doyle 2007, 2011, 2013). In this pattern of funding, states increase higher education funding at a faster rate than spending in other state budget categories during good budget times. In economic downturns, the reverse is true; states cut higher education appropriations more deeply and at a faster rate than spending in other budget categories. Higher education is particularly vulnerable to cuts due to its ability to raise nonstate revenues by increasing tuition, an ability that is lacking for most other state budget categories. The cuts in bad economic times tended to be larger than the increases in good economic times between 1991 and 1999 (Delaney and Doyle 2007). In addition, following cuts in state general appropriations, the length of time that it takes to return to prior higher funding levels has increased. Recoveries were swift in the 1980s, but slowed in the 1990s, and stagnated in the 2000s (Doyle and Delaney 2011). From the point of view of campuses, the balance-wheel phenomenon results in unpredictable state funding. The volatility of funding affects institutions in ways that may not always be best for their sustainability or student affordability. Although it is important to acknowledge the role of states’ economic health, the business cycle, and economic recessions in these trends, the general downward trend in state support per FTE raises important questions for the continued affordability of higher education (see Figures 1 and 2).

Tuition and fees

Institutions bear responsibility for managing affordability, even when states reduce their funding. Institutions can lobby the state for funds, raise nonstate revenues, cut internal costs, and become more efficient. However, many approaches commonly used by institutions have implications for the ability of students and families to afford postsecondary education. Net tuition revenue⁶ per FTE has fluctuated over time as shown in the light bars in Figure 2. In 1987, net tuition revenue was $2,588 per FTE; by 2012 this figure had increased to $5,189 per FTE. This increase represents more than a doubling in constant dollars of net tuition revenue per FTE.

Between 1982–83 and 2012–13, tuition and fees at public four-year institutions increased by 357 percent (College Board 2012a). Institutional price is an important element of college affordability, since, as tuition increases, college, in general, becomes less affordable. Although all states witnessed increases in average tuition and fees during this time period, tuition levels vary by state. In 2012–13 average published tuition at public four-year institutions for in-state students ranged from a low of $4,278 in Wyoming to a high of $14,576 in New Hampshire (Figure 3).

Figure 3

Average In-State Tuition and Fees at Public Four-Year Institutions, by State, 2012–13

Net tuition appears to replace declines in state appropriations (see Figure 2). In 1987, total educational revenues were $11,085 per FTE, with tuition accounting for approximately 23 percent of the total. In 2012, total educational revenues were also $11,085, but tuition revenues accounted for approximately 47 percent of total—an increase of approximately 24 percentage points. Figure 4 shows that, at all types of public four-year institutions, the percentage of expenditures covered by net tuition increased between 1999–2000 and 2009–10. This pattern indicates that the subsidy value provided by the state and other sources (such as federal grants, private donations, etc.) has decreased for nearly all students. At public doctoral institutions, students’ tuition covered 37 percent of educational expenses in 1999–2000, but 53 percent in 2009–10. At public master’s institutions, net tuition revenue composed 37 percent of total educational and related expenditures in 1999–2000 but 54 percent in 2009–10. At public bachelor’s institutions, the percentage covered by net tuition revenues increased from 35 percent in 1999–2000 to 51 percent in 2009–10. In short, students are not only paying higher levels of tuition at public four-year institutions but also a larger share of the total education costs.

Figure 4

Net Tuition Revenues, Subsidies, and Education and Related Expenditures per Full-Time Equivalent (FTE) Student in 2010 Dollars at Public Four-Year Institutions (and Percentage of Expenditures Covered by Net Tuition), 1999–2000, 2004–2005, and 2009

Literature on signaling considers sticker price (tuition) as an important deterrent for enrollment (e.g., Heller 1999; Immerwahr 2002). A long history of academic work illustrates the negative effect of increases in tuition prices on student behavior by estimating a student price response (e.g., Leslie and Brinkman 1987; St. John 1990). Although the results for different groups are complex and somewhat inconsistent across studies depending on the sample populations, Heller (1997) finds in his meta-analysis that, in general, price increases lead to lower enrollments, with larger effects on enrollment for minority and low-income students. Affordability as measured by tuition is not just an abstract concept but one that directly shapes an individual’s likelihood of enrolling in college.

State student aid

The second major area of funding by states for higher education is student financial aid. State student financial aid is intended to increase affordability by providing students with funds that can be used toward tuition and fee prices. In 2010–11, states awarded $11 billion in total in student aid (National Association of State Student Grant and Aid Programs [NASSGAP] 2012). Between 2000–01 and 2010–11, total state spending on student grant aid increased by nearly 57 percent, from $5.8 billion to $9.1 billion in constant 2010 dollars (NASSGAP 2012). Figure 5 shows the trend in state student grant aid per FTE over time. In 1990–91, states spent on average $374 per FTE. By 2010–11, spending had increased to $660 per FTE—an increase of nearly 77 percent over the time period. As seen in Figure 6, state grant aid per FTE varies across states, ranging in 2010–11 from $7 per FTE in Wyoming to $1,964 in Georgia. Eight states spent under $100 per FTE on state grant aid and twenty-six states spent under $500 per FTE. On the upper end of the scale, eight states spent more than $1,000 per FTE, but only two, Georgia and South Carolina, surpassed the $1,500 mark.

Figure 5

Need-Based and Non-need-Based State Grants per Full-Time Equivalent (FTE) Undergraduate Student in 2011 Dollars, 1970–71 to 2010–11

Figure 6

State Grant Aid per FTE Undergraduate Student in 2011 Dollars, 2010–11

In general, states award aid either based on need or nonneed.⁷ Examples of state grant programs are the need-based Tuition Assistance Program (TAP) in New York and the non-need-based Helping Outstanding Pupils Educationally (HOPE) program in Georgia. In 2010–11, the majority of state financial aid for undergraduates, 63.8 percent, was awarded in the form of need-based grants (NASSGAP 2012). However, Figure 5 shows marked growth in state undergraduate non-need-based grant aid. Non-need-based grants did not comprise a noticeable amount of state grant aid spending until 1981–82. In that year, non-need-based grants represented 9 percent of total state grant aid spending. In 1981–82, states spent, on average, $278 per FTE on need-based grant aid and $27 per FTE on non-need-based grant aid. State spending on non-need-based grants remained under 15 percent of total grant aid spending across states until 1997–98, when 17 percent of total state grant aid was in the form of non-need-based grants. By 2010–11, 29 percent of state grant aid spending was on non-need-based grant aid. In total dollar amounts, states spent more than $2.6 billion in non-need-based grants and more than $6.4 billion in need-based undergraduate grant aid (NASSGAP 2012, in 2010 constant dollars).

Spending on need-based grant aid is not consistent across states. Figure 7 shows the percentage of state grant aid that considers student need in the 2010–11 academic year. None of the grant aid spending in Georgia considered students’ financial circumstances. In addition, thirteen states and the District of Columbia awarded less than half of their state grant aid on the basis of financial need. In contrast, fourteen states awarded 100 percent of their state grant aid on the basis of financial need and twenty-seven states awarded more than 90 percent of their grants on the basis of need.

Figure 7

Percentage of Undergraduate State Grant Aid for Which Students’ Financial Circumstances Were Considered, by State, 2010–11

Implications of the Interaction between Tuition and Aid for Affordability

Because student aid reduces the net cost of tuition and other costs of attendance for students, together student aid and tuition are important determinants of college affordability. Although overall dollars spent on state student aid programs are increasing, if increases in state student aid do not keep pace with increases in tuition levels, undergraduate student aid loses its purchasing power for students and families. Net tuition revenue has increased per FTE from $3,486 in 2000 to $5,189 in 2012—an increase of more than 48 percent between 2000 and 2012 (see Figure 2). State grants per FTE increased from $598 in 2000–01 to $660 in 2010–11—an increase of approximately 10 percent (see Figure 5). Despite a large and increasing investment in state student aid, in general, state aid programs have not been able to keep pace with tuition increases. These trends have shifted the balance between tuition and aid, such that higher education has become less affordable.

State need-based aid

Historically, state need-based aid has been the largest area of state investment in student financial aid. States still award the majority of their grant aid on the basis of need; however, there has been an erosion of effort at the state level in supporting affordability for low-income students. Figures 8 and 9 show the total state student need-based aid investment as compared with the total federal investment in need-based aid awarded through the federal Pell Grant program. Although the Pell maximum award and eligibility requirements have changed over time, Pell grants remain targeted to low-income students. Hence, Pell grants serve as a useful benchmark for understanding state investment in needy students relative to the federal investment. The data in these figures do not indicate whether the same students received both a state award and Pell. However, states that offer more state need-based grant aid than Pell are doing more than the identified federal investment in needy students. Figure 8 shows the state investment compared with the federal investment in 2000. In this year, four states (Illinois, Pennsylvania, Minnesota, and New Jersey) offered more need-based aid to students in their state than did the federal Pell Grant program. Thirteen states offered more than 50 percent of the federal investment in Pell grants. In contrast, eleven states offered less than 10 percent of the federal investment in need-based aid. The data from 2010 show a noticeable drop in the relative state investment in need-based aid (see Figure 9). In 2010, no state offered more than 50 percent of the federal investment in need-based aid through Pell grants. Nearly half of states (twenty-two) offered less than 10 percent of the federal investment in need-based aid. These numbers show the extent of the erosion of support for need-based aid in the states, and these trends have troubling implications for college affordability.

Figure 8

Total State Student Need-Based Aid/Total Pell Awarded by State, 2000

Figure 9

Total State Student Need-Based Aid/Total Pell Awarded by State, 2010

State investment in need-based grant aid varies across the U.S. states. Total need-based grant aid ranges from a low of approximately $407,000 in South Dakota to a high of approximately $1.3 billion in California in 2010–11 (NASSGAP 2012). Figure 10 shows that twelve states provide less than $100 per undergraduate FTE in need-based grant dollars, while nine states provide more than $525 per FTE in need-based undergraduate grant aid. In fact, these nine states provide 72.6 percent of all need-based undergraduate grant aid in the United States in part because these states have both large populations and relatively generous student financial aid programs (NASSGAP 2012). This uneven distribution of state need-based grant aid shapes students’ prospects for college based on where students live. If students face similar tuition rates, then low-income students in the nine states that provide nearly three quarters of all need-based undergraduate grant aid may have better prospects of affording college due to the availability of student financial aid than their low-income peers in other states.

Figure 10

Estimated Need-Based Undergraduate Grant Dollars/Undergraduate FTE, 2010–11

Even students in these states are seeing erosions in state investment in need-based aid, however. For example, in 2010–11, Illinois offered on average $705 in need-based undergraduate grant aid per undergraduate FTE (as shown in Figure 10), which represents 6.3 percent of the total nationwide state investment in need-based grant aid (NASSGAP 2012). Nearly all (98 percent or approximately $405 million) of the state’s total investment in student aid was awarded based on financial need (NASSGAP 2012).

The primary undergraduate need-based grant aid program in Illinois is the Monetary Award Program (MAP), which the Illinois Student Assistance Commission administers. MAP can be used at any approved Illinois college by Illinois residents. The grant award season begins in January, when students are first able to apply for MAP, by completing the Free Application for Federal Student Aid. Awards vary depending on a student’s financial circumstance, the cost of tuition at the school, and the maximum award allowed in that year. Awards are processed until the funds are exhausted, leaving some students who qualify for MAP unable to receive a grant if the funds are depleted.⁸ Table 2 shows the maximum (or effective maximum, which includes rescissions) MAP award, the total number of students eligible for MAP, the number and percent of eligible students who did not receive a MAP award, and tuition levels at three public four-year institutions in Illinois. In 2000–01, all of the 197,889 students who were eligible for MAP received the award. In this year, students who qualified for the maximum MAP award amount would have had all of their tuition and fees covered by the award. In the 2011–12 award year, 369,674 students were eligible for MAP, but 145,365 eligible students, or 39 percent of eligible students, went without awards. Moreover, for those who received an award in 2011–12, the maximum MAP award covered only 42.5, 48.3, and 54.4 percent of tuition at the University of Illinois at Urbana-Champaign, Chicago, and Springfield, respectively.

Table 2

Number of Eligible Students Denied Funds for MAP Awards and MAP Awards Relative to Tuition Levels in Illinois, 2000–01 to 2010–11

	MAP Award Amounts	Eligible Students Denied MAP Awards			MAP Awards Relative to Tuition Levels at Select Public Institutions
Year	Maximum Award or Effective Maximum	Number Eligible	Number Eligible Left in Suspension	Percent of Eligible Students Who Did Not Receive a MAP Award	University of Illinois at Urbana-Champaign Tuition Base Rate	Percent of UIUC Tuition Covered by Maximum MAP Award	University of Illinois at Chicago Tuition Base Rate	Percent of UIC Tuition Covered by Maximum MAP Award	University of Illinois at Springfield Tuition Base Rate	Percent of UIS Tuition Covered by Maximum MAP Award
2000–01	$4,740	197,889	0	0.0%	$3,724	127.3%	$3,232	146.7%	$2,873	165.0%
2001–02	$4,968	210,299	16,544	7.9%	$4,410	112.7%	$3,830	129.7%	$2,985	166.4%
2002–03	$4,720	214,179	44,144	20.6%	$5,302	89.0%	$4,664	101.2%	$3,285	143.7%
2003–04	$4,471	236,631	51,832	21.9%	$5,568	80.3%	$4,898	91.3%	$3,450	129.6%
2004–05	$4,471	241,024	26,453	11.0%	$6,460	69.2%	$5,682	78.7%	$4,005	111.6%
2005–06	$4,521	230,088	26,375	11.5%	$7,042	64.2%	$6,194	73.0%	$4,575	98.8%
2006–07	$4,968	236,168	34,798	14.7%	$7,708	64.5%	$6,780	73.3%	$5,580	89.0%
2007–08	$4,968	239,455	43,361	18.1%	$8,440	58.9%	$7,424	66.9%	$6,360	78.1%
2008–09	$4,968	259,333	59,846	23.1%	$9,242	53.8%	$8,130	61.1%	$7,215	68.9%
2009–10	$4,968	314,198	120,048	38.2%	$9,484	52.4%	$8,342	59.6%	$7,403	67.1%
2010–11	$4,844	351,188	151,367	43.1%	$10,386	46.6%	$9,134	53.0%	$8,108	59.7%
2011–12	$4,720	369,674	145,365	39.3%	$11,104	42.5%	$9,764	48.3%	$8,670	54.4%

SOURCE: 2012 ISAC Databook. Tables 2.0c Monetary Award Program - Maximum Award History Academic Year 1977–2013 and 2.0d MAP/IIA Suspension History FY1978-FY2012 https://www.isac.org/dotAsset/14943d2b-302a-4e9c-a555-53ccd12eacc7.pdf; University of Illinois Tuition Book, Table 1. Version 2013: http://www.pb.uillinois.edu/Documents/tuitionenrollment/FY-2013-Tuition-Book.pdf, Version 2011: http://www.pb.uillinois.edu/Documents/tuitionenrollment/FY-2011-Tuition-Book.pdf.

NOTE: Tuition values are shown to illustrate the decline in purchasing power of MAP grants only. Currently MAP award amounts are calculated on 2003–04 tuition and fee levels as a method of rationing the award funds. Program rules restrict students to being awarded the lessor of the program maximum, 100 percent of academic year 2003–04 tuition, or the student’s maximum eligibility, which is based on an Illinois-specific needs analysis formula (ISAC MAP Award Calculation/Maximum Award History, http://www.isac.org/dotAsset/527a366e-8c42-4d0b-ba17-934bc37e7b2c.pdf). Because of these program rules, students were never able to accept more than 100 percent of tuition and fees in MAP funds and not all recipients received the maximum award amount.

Because MAP is awarded on a first-come, first-served basis, not all eligible students have equal odds of being denied an award. This approach to distributing aid is particularly problematic for students who decide to enroll in community colleges close to the start of the fall semester or students who otherwise are not informed about the early suspension date. Prior research has shown that receipt of MAP can affect postsecondary outcomes. Feeney and Heroff (2010) show that low-income students who receive MAP are significantly more likely to enroll in college and more likely to enroll in a four-year college compared with nonrecipients. The amount of MAP awards also positively impacts student enrollment and persistence (Feeney and Heroff 2010).

State non-need-based aid

Non-need-based aid programs are defined by what they are not; they are not granted on the basis of financial need. Non-need-based aid programs most commonly take the form of merit aid programs in which aid dollars are granted based on past high school academic performance.⁹ Between 2000–01 and 2010–11, state investments in need-based aid programs increased by 84.8 percent, whereas non-need-based aid programs increased by 137.2 percent (NASSGAP 2012). Undergraduate aid with a merit component increased from approximately $2.9 billion in 2005–06 to approximately $3.9 billion in 2010–11 (NASSGAP 2012). The political popularity of non-need-based aid programs makes them likely to continue in the future (Delaney 2008).

Merit aid has been shown to positively impact the academic performance of students in high school (Henry and Rubenstein 2002), during their undergraduate careers (Cornwell, Lee, and Mustard 2005; Dee and Jackson 1999; Dynarski 2004), and the probability of continuing onto graduate study (Delaney 2011). Studies of non-need-based aid as a state policy are broad and encompass a number of approaches including event history models (Doyle 2006), the interaction of state and institutional policy (Doyle, Delaney, and Naughton 2009), analysis of enrollment effects and eligibility requirements (Dynarski 2000; Cornwell, Mustard, and Sridhar 2006; Perna and Titus 2004: Ness and Noland 2007), and interstate migration (Dynarski 2004; Orsuwan and Heck 2009; Zhang and Ness 2010). Much of the literature points to the “negative social consequences” of non-need-based aid programs (Heller and Marin 2002, 2004; St. John and Chung 2004), although some of the literature (e.g., Perna and Steele 2011) suggests that non-need-based aid programs, such as Georgia HOPE, may have benefits in terms of their simplicity and transparency.

Federal Stimulus Funds and Maintenance of Effort

In recent years, few policies have reversed or tempered the trend of declining affordability for higher education. One exception is the ARRA of 2009 (Public Law 111-5). With the ARRA law, federal funds were provided to incentivize state spending on higher education.¹⁰ ARRA contained a “maintenance of effort provision” that required states to maintain certain levels of spending such that federal funds would not be substituted for state funds. With ARRA funds, governors were instructed “to provide, in each of fiscal years 2009, 2010, and 2011, the amount of funds to public institutions of higher education in the State that is needed to restore State support for such institutions (excluding tuition and fees paid by students) to the greater of the fiscal year 2008 or fiscal year 2009 level” (Public Law 111-5, 166). As such states were not able to cut spending to higher education below 2008 or 2009 levels and receive ARRA funds. Although little has been written on ARRA to date, some (e.g., Alexander et al. 2010) claim that federal stimulus funds with the “maintenance of effort provision” have tempered the severity of cuts to public higher education in the states, and, as a result, have promoted college affordability.

To examine the effects of ARRA on higher education spending, I compiled a dataset spanning 2003–2011, a period that includes six years prior to ARRA and all three years of ARRA spending (2009–2011). With nine years and fifty states, the dataset includes 450 observations and four different measures of state spending on higher education (SHEEO 2012). Table 3 shows that, on average, states spent $21.4 million dollars of federal ARRA funds on higher education between 2009 and 2011.

Table 3

Descriptive Statistics for ARRA Analysis

Variable	Obs	Mean	Std. Dev.	Min	Max
ARRA funds for the operations of higher education	450	$21,400,000	$86,500,000	$0	$1,430,000,000
State support for public and independent higher education	450	$1,430,000,000	$1,700,000,000	$75,100,000	$11,600,000,000
State support for public and independent higher education including ARRA	450	$1,450,000,000	$1,720,000,000	$75,100,000	$11,600,000,000
State support for public higher education including ARRA	450	$1,400,000,000	$1,660,000,000	$64,900,000	$11,300,000,000
Total dollars disbursed for state student financial aid	450	$182,000,000	$227,000,000	$0	$1,270,000,000
Total number of recipients for state student financial aid	450	82,599	90,518	0	416,355
Net tuition	450	$797,000,000	$756,000,000	$42,100,000	$4,090,000,000
FTE enrollment net of medical students	450	206,627	242,363	16,843	1,606,986
Median household income	450	$48,204	$7,723	$32,002	$68,876
Unemployment rate	450	6.09	2.21	2.50	13.80

My analyses are structured to answer two questions. First, did ARRA help to maintain state spending on general appropriations for higher education? I hypothesize a negative relationship between state-only support for higher education including both public and private institutions¹¹ and the ARRA funds measure, since states only had to maintain 2008 or 2009 spending levels to receive ARRA funds. However, state spending on public and private higher education including the federal ARRA funds is not hypothesized to change during the years 2009–2011. Likewise, state support for only public institutions including ARRA funds is not hypothesized to change during the ARRA years.

I also test the effect of this law on another type of state spending for higher education—student financial aid—a category of state spending not specifically mentioned in the “maintenance of effort provision” of ARRA.¹² This analysis addresses a second research question: Under ARRA, did states reduce funding for other areas of state higher education spending? To answer this question, I test two measures from NASSGAP (2012): total state spending on student financial aid and total number of students who receive state financial aid each year.

The dataset is identified by state and year, and the general estimating equation is:

H i g h e r E d_{s t} = β A R R A_{s t} + X_{s t} γ + μ_{s} + δ_{t} + ε_{s t}

where HigherEd = state spending on higher education defined as one of the following (such that five distinct models are run): (1) state support for public and independent higher education, (2) state support for public and independent higher education including ARRA, (3) state support for public higher education including ARRA, (4) total dollars disbursed for state student financial aid, and (5) total number of recipients for state student financial aid. ARRA = ARRA funds for the operations of higher education; X = a vector of control variables that includes the following: (a) net tuition, (b) FTE enrollment net of medical students, (c) median household income, and (d) unemployment rate; s = state; t = year; $μ_{s}$ = state fixed effects; $δ_{t}$ = year fixed effects; and $ε_{s t}$ = error term.

State fixed effects control for all unobserved state-specific trends and produce within-state estimates. Year fixed effects control for common time trends. Because the panel model incorporates state and year fixed effects, control variables are included only to increase the precision of the estimates. Each year under ARRA, states were required to report public in-state tuition and fee increases and enrollment changes of in-state students at public institutions (Public Law 111-5). In addition, institutions were instructed to use ARRA funds “for education and general expenditures, and in such a way as to mitigate the need to raise tuition and fees for in-State students” (Public Law 111-5, 167). Because of these requirements, I include net tuition collected by all public institutions within a state each year (SHEEO 2012) and total FTE enrollment, excluding medical students (SHEEO 2012), as controls. To control for the income of residents of each state and provide a distal measure of state funding capacity, I include a measure of median household income by state.¹³ I also include the state unemployment rate¹⁴ as a control. State unemployment rates are used to measure the health of the state economy and control for the relationship between unemployment and enrollment demand for higher education, as in prior literature (Betts and McFarland 1995).

Table 4 shows the results of the state and year fixed effects panel analysis. In model 1, state support for public and private higher education without ARRA funds, I find a negative effect, indicating that state funds decreased in response to ARRA. This finding is in the hypothesized direction, since ARRA only required states to maintain 2008 or 2009 funding levels. Models 2 and 3 find no significant effect for state support for public and private higher education with ARRA and state support for only public higher education with ARRA funds, respectively. In other words, in the years of ARRA funding, total spending (including ARRA funds) was not statistically different than in the years with no ARRA funding. This result suggests that states kept to the maintenance of effort requirement; and it is the hypothesized result and answers the first research question. It appears that ARRA funds for higher education were used for their intended purpose and the federal stimulus funds resulted in no significant decrease of state general appropriations for higher education. ARRA funds seem to have enabled states to provide stable total funding levels for higher education general appropriations.

Table 4

Panel Models for State Spending on Higher Education Appropriations and Student Financial Aid Considering ARRA, 2003–2011

	(1)	(2)	(3)	(4)	(5)
Variables	State Support for Public and Independent Higher Education	State Support for Public and Independent Higher Education Including ARRA	State Support for Public Higher Education Including ARRA	Total Dollars Disbursed for State Student Financial Aid	Total Number of Recipients for State Student Financial Aid
ARRA funds for the operations of higher education	−0.818***	0.182	0.207	−0.115***	−1.37e-05
ARRA funds for the operations of higher education	(0.133)	(0.133)	(0.128)	(0.0350)	(1.34e-05)
Net tuition	0.0154	0.0154	0.0284	−0.0281*	−2.32e-05***
	(0.0570)	(0.0570)	(0.0550)	(0.0150)	(5.75e-06)
FTE enrollment net of medical students	5,944***	5,944***	5,735***	1,839***	0.320***
FTE enrollment net of medical students	(695.3)	(695.3)	(671.3)	(183.4)	(0.0702)
Median household income	2,457	2,457	2,912	615.5	0.865*
Median household income	(4,912)	(4,912)	(4,742)	(1,296)	(0.496)
Unemployment rate	−2.557e+07**	−2.557e+07**	−2.633e+07**	3.779e+06	2,550**
	(1.240e+07)	(1.240e+07)	(1.197e+07)	(3.271e+06)	(1,252)
Constant	2.436e+08	2.436e+08	2.016e+08	−2.328e+08***	−21,559
	(3.109e+08)	(3.109e+08)	(3.002e+08)	(8.202e+07)	(31,403)
State fixed effects?	Yes	Yes	Yes	Yes	Yes
Year fixed effects?	Yes	Yes	Yes	Yes	Yes
Observations	450	450	450	450	450
R-squared	.442	.512	.516	.432	.202
Number of states	50	50	50	50	50

NOTE: Standard errors in parentheses.

p<.1. **p<.05. ***p<.01.

Models 4 and 5 test possible unintended consequences of ARRA by considering changes in the amount of state financial aid and number of students who received state student financial aid, respectively. Model 4 shows a negative effect of ARRA on state spending for student financial aid, indicating that states decreased funding for student financial aid in response to ARRA. For every dollar received in federal stimulus funds, states reduced spending on student financial aid by approximately 12 cents. Model 5 shows no significant effect on the number of state student aid recipients.

On one hand, these results indicate that federal matching funds through ARRA worked as intended. States respected the maintenance of effort provision and did not cut general appropriations to higher education beyond the requirements in the law. On the other hand, states appear to have reduced student aid—a category of spending not specified in the legislation. This finding suggests that state investment in institutions was protected through ARRA funds, but that students were not protected as seen in the reductions in student financial aid. More investigation of this finding and other potential unintended consequences (e.g., for capital outlays for higher education) is needed as more data on ARRA become available.

Although federal matching funds are a promising policy approach for incentivizing state support of higher education, the details of how the matching funds are shaped are important. Recent U.S. congressional testimony asked for “maintenance of effort provisions” in new legislation (e.g., Howard 2012; Morgan 2012; Preus 2012), suggesting that at least some national higher education organizations recognize that the maintenance of effort provision served to temper state cuts to higher education. This also indicates concern about states’ ability to continue to support higher education without federal incentives. Future federal matching fund programs should consider all types of state spending for higher education if these programs are going to work to promote affordability in higher education. Policy levers for improving college affordability are too often considered separately by policy-makers. In fact, the most meaningful improvements in college affordability will likely be derived when state general appropriations, student financial aid, tuition, and changes in family income are considered simultaneously.

Conclusion

This article highlights the importance of considering all components—appropriations, tuition, student aid, and family income—to better understand college affordability and its meaning for states, students, and families. Tuition levels are increasing at a rate that outpaces growth in median household income and will continue to increase if current trends hold. Although state student aid reduces the impact of increases in tuition for students, state student aid has not maintained its purchasing power over time. In addition, not all types of aid are equally beneficial to all types of students. Need-based aid programs target needy students to reduce the price of college, whereas non-need-based or combination grants are awarded to students based on nonneed or mixed criteria, most commonly students’ past academic achievement, regardless of financial need. Taken together, these trends in appropriations, tuition, student aid, and family income combine to restrict college affordability.

The ARRA law, or federal matching funds generally, is one promising type of policy for addressing issues of college affordability in the states. Although states appear to have honored ARRA’s maintenance of effort requirement by not unduly reducing funds for general appropriations, states also appear to have reduced funds for student financial aid in response to the law. These results show that more attention needs to be paid to the details of federal matching programs to protect affordability for students and families. Including all types of state spending for higher education in federal matching grants is one approach to ensure that these programs do not encourage states to trade off one type of funding for higher education for another. Attention to the role of multiple policy levers in ensuring college affordability is vital, given the negative consequences that the erosion of affordability has on educational access.

Footnotes

Note:

I would like to thank Erica Harwell and Leah Peoples for their research assistance on this article. I also appreciate comments on an early draft from Tyler Kearney, Patricia Yu, and Sarah Zehr. Earlier versions of this article were presented at the Association for the Study of Higher Education annual meeting in November 2012 and at the Law and Society annual meeting in June 2013.

Notes

Jennifer A. Delaney is an assistant professor in the higher education program at the University of Illinois at Urbana-Champaign in the Department of Education Policy, Organization and Leadership. She is also past-chair of the Council for Public Policy in Higher Education with the Association for the Study of Higher Education.

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