Free Higher Education

Once, financial aid was seen as a way to democratize universities and colleges. Today's financial aid policies are widening the gap between educational haves and have-nots. Free tuition will reverse this trend.

By Adolph Reed, Jr., and Sharon Szymanski

The crisis of affordability in higher education is intensifying. Illustrations of its resonance abound: from the frequent news articles describing and amplifying the crisis and its sources to legislators' and candidates' proposed responses. Republicans' responses tend to be mainly punitive toward institutions; Democrats' proposals are more complicated and expensive than they need to be, and less capable of garnering broad support from the American people.¹

There is, however, a clear, simple, and direct way to have a significant impact on this crisis of access. It begins from the assumption that higher education should be available as a right in our public colleges for all applicants who meet admissions standards regardless of their ability to pay. To make it so, the federal government should pay tuition and fees for all students, part and full time, who are enrolled in two- and four-year public institutions in the United States. (Eighty-three percent of undergraduates now attend public institutions.)

The AAUP's Collective Bargaining Congress has adopted the proposal, as have several individual collective bargaining chapters, state AFL-CIO bodies in Oregon and South Carolina, and dozens of other unions, academic organizations, and community and advocacy groups across the country. We believe that this proposal, which is modeled partly on the post-World War II GI Bill of Rights, is an idea whose time has come again.

For most of the post-World War II era, higher education was viewed as the vehicle for closing the gap between the top and the bottom of the economic ladder. It was seen as the key to opportunity and upward mobility—part of what defined the American Dream. There was no finer expression, or more effective engine, of this belief than the GI Bill, under which the federal government offered millions of returning veterans full tuition to college and a living-wage stipend while they were enrolled. The broad, positive impact of this one policy on our society is well recorded.

Today, however, higher education shows all the signs of following the disturbing trends that are fueling economic polarization in society in general. In fact, higher education is now part of this process of shifting income to the top. Here's how it works.

Rising tuition is not just a statistic. Together with the current structure of financial aid, it is furthering the transfer of money to wealthy families and the financial sector. Specifically, as tuition rises, access to college is limited to those who can afford increasing amounts of interest-bearing loans. As tuition rises, colleges are offering more merit-based aid, which tends to benefit wealthier families. As tuition rises, students and their families are taking on huge loan debt, which transfers money to financial and credit-card companies. As tuition rises, more pressure is put on financially strapped states and public colleges to fulfill the push to privatize public services, including higher education.

Thus not only is an entire financial sector growing and society's most affluent members personally benefiting from the income shift taking place in higher education, but concerns over rising tuition are also being used to promote the privatization of yet another public service—public higher education.

Financial Aid for the Wealthy

Huge increases in tuition and fees in our colleges and universities have become page-one news. Like health care costs, the price of a college education is skyrocketing. According to Trends in College Pricing 2003, published by the College Board, tuition and fees at public two- and four-year colleges and universities increased 14 percent compared with the previous year. When room and board and other expenses are taken into account, public institutions cost $20,879, on average, for an out-of-state student and $13,833 for an in-state student. Private colleges and universities cost an average of $29,500. The tuition increase at four-year colleges was the largest in twenty-five years.

The College Board reports in Trends in Student Aid 2003 and Trends in College Pricing 2003, however, that even though tuition and fees are high, most students do not pay the "sticker" prices, because financial aid, totaling $105 billion nationwide, is provided to almost 60 percent of undergraduate students. So perhaps the picture isn't as bleak as it seems. Or is it?

The most significant misconception is that financial aid makes college affordable for those who can least afford it. In fact, financial aid has undergone a repackaging that has hit hardest the students and families who need it most, and that has increased the financial burden for most working families. Today, families with incomes up to $25,000 can be asked to pay as much as 71 percent of their earnings to send a son or daughter to a public four-year college; families whose incomes range from $43,000 to $66,000 pay from 17 to 19 percent. Yet families with incomes over $99,000 pay only 5 to 6 percent of their income.

In the 1970s and 1980s, financial aid helped to increase access to college for those students who otherwise couldn't afford it. Over the last ten years, however, it has taken a dramatically different direction. Today, financial aid is climbing higher up the income ladder. In 1985, according to the Higher Education Research Institute at the University of California, 46 percent of first-year students attending 250 select public and private colleges came from the highest-earning quarter of households. Today, that share has jumped to over 55 percent.

Financial aid programs are now structured to influence students' choice of colleges, reward academic accomplishment at the expense of financial need, and reduce the financial burden of higher-income families. These student aid programs rely increasingly on interest-bearing loans rather than on need-based grant aid. A distressing result is that millions of qualified, lower-income students cannot afford college.

Moreover, the pressure to offset high tuition costs induces most students who do attend college to take on jobs and to work so many hours that their studies suffer. As faculty, we know the corrosive effects this circumstance has on the integrity of teaching and learning. Gradually, normative expectations about reading and other performance requirements of a course can erode to accommodate the realities of students' work commitments.

Many students wind up spreading out their undergraduate study over more years than they would prefer and still graduate with huge loan debt. Meanwhile, the holders of loans—Wall Street and credit-card companies—are having a field day.

Less Aid for Those Most in Need

Ten years ago, over half of financial aid was in the form of grants. Today, loans have surpassed grants, representing 54 percent of total aid. But today's "grant aid" is not what it might seem to imply. The Pell Grant program represents the federal government's greatest commitment to higher education. Yet it is paltry. Pell Grants are supposed to benefit the most financially strapped students. But an average Pell Grant is $2,421.

Moreover, legislators continue to dilute Pell Grants so that they now cover only 33 percent of the total cost of attending an average two-year public college, 25 percent of the cost at a four-year public college, and less than 10 percent of the cost at a private four-year school. Rather than strengthening the Pell program, the current administration has legislation pending that will further weaken Pell Grants. The new eligibility formula increases the amount of money the government says a family has available for college costs. As a result of this formula change, the Congressional Research Service, the research arm of Congress, estimated that 85,000 students could lose their Pell Grants entirely and hundreds of thousands will receive less aid. But the federal government will save hundreds of millions of dollars, and students will be forced to seek out more loans.

The administration has been trying to reduce the size of maximum Pell Grants. Accordingly, the president's fiscal 2005 budget proposal asks Congress to keep the maximum at the same level at which it was the year before. A Senate-approved amendment to the administration's proposal calls on Congress to increase the maximum Pell Grant, with the caveat that lawmakers would have to make cuts in other popular programs not related to higher education. Since the chances of their doing so are slim, the only real purpose of the amendment is to make it appear as if the administration and its allies in Con-gress are grappling with high tuition and, perhaps more impor-tant, to undercut a Democratic amendment to pay for raising the maximum Pell Grant by closing various tax loopholes.

More Aid for the Wealthy

The growth of merit-based aid further erodes the total amount of money available for aid based on need. Merit-based aid, which is also considered grant aid, is awarded for academic achievement rather than need. Since the 1970s, need-based grants have decreased from 61 percent of all federal student aid to 22 percent. In addition, a Harvard University report found that states set aside 25 percent of their financial aid for merit-based support in 2001, compared with just 11 percent in 1991.

Merit-based aid tends to go to students from families with the highest incomes. The College Board reports in Trends in Student Aid 2003 that students from families with incomes of $83,000 or more in 1999-2000 typically received larger scholarships from both public and private colleges than did students from families earning less than $31,000. Yet many of the wealthier students would have attended college even without such aid. Today, according to a joint report that the Institute for Higher Education Policy and Scholarship America released in May 2004, only 48 percent of students from low-income families go to college, compared with 77 percent of students from high-income families.

All students should be rewarded in some way for academic performance. But merit-based aid reduces the total amount of need-based aid available, not the number of students who require financial assistance to attend college. Merit-based aid is the primary competitive tool that colleges use to "discount" their tuition to lure certain, usually higher-income, students.

Some universities and states have tried to address increasing economic polarization. The University of North Carolina at Chapel Hill recently announced a plan to cover the full cost of education for poor students without forcing them to take on loans. The students will have to work in state and federal work-study programs for ten to twelve hours a week, which is manageable. It would be a mistake, however, to imagine that states can shoulder this burden on their own. Because of its budget crisis, Georgia, for example, may discontinue its decade-old scholarship program for students who maintain a B average.

Under a bill introduced by House Republicans, merit-based aid could encroach on need-based aid in an even more blatant way. The bill proposes awarding Pell Grants based on academic achievement. Specifically, full-time recipients of Pell Grants in states that have State Scholars Programs could receive an additional $1,000 in their first and second years of college if they have completed a rigorous high school curriculum designed partly by business leaders and if they maintain a 3.0 grade point average. The proposal, like much of the rhetoric supporting merit-based aid, purports to reward hard-working students from low-income families; in fact, however, the students who take the demanding courses are most likely already bound for college.

With need-based grant aid deteriorating, most families must turn to interest-bearing loans. The American Council on Education reported in its 2003 Status Report on the Federal Education Loan Programs that loans now account for 75 percent of all federal student aid. Need-based government-subsidized loans, as a share of total loans, decreased from 33 percent in 1998 to 28 percent in 2003. In contrast, the more expensive, unsubsidized government loans available to all students and parents, regardless of need, have grown by 51 percent.

During the Clinton administration, the banking industry blocked a congressional initiative to expand government-subsidized direct student loans and Pell Grants by phasing out the federal unsubsidized loan program, which provides generous subsidies to banks guaranteed by taxpayer money. Although the amounts of loans are restricted for students, parents can borrow up to the total cost of education.

With insufficient federal loan funds available, students and their families have to turn to private loans, which have skyrocketed. Nonfederal loans through banks and private lenders amounted to $7.5 billion in 2003 and represented a 41 percent increase just from 2002. Also, students and their families rely increasingly on home-equity loans and high-interest-rate credit-card financing. Recent estimates suggest that as many as 25 percent of students depend on credit cards to help finance college costs. The result is that 64 percent of students graduate with a loan debt averaging close to $17,000—almost double the average amount in 1992.

Benefits for the Financial Sector

Deeper loan debt means more profits for the financial sector, particularly suppliers of student loans. Executives of SLM Corporation, the giant student loan company known as Sallie Mae, have said that the rising costs of education will swell its bottom line for some time to come. Sallie Mae, as a quasi-federal agency, was supposed to make money available so that college would be affordable. But under the Clinton administration, Sallie Mae became a private corporation, and it is profiting.

With the loan-based structure of federal financial aid, the federal government is effectively guaranteeing Sallie Mae's profits and success—its student loan portfolio rose 10 percent last year, and it now holds more than $85 billion in student loans for about 7 million borrowers. Its stock has risen 400 percent since 2000. SLM Corporation recently expanded its dominance by acquiring Academic Management Services, a loan origination and tuition payment business, which will give Sallie Mae another $1.4 billion in student loans.

This spring, Republican leaders in the House reintroduced a 2002 proposal whereby students who seek consolidation loans could no longer "lock in" fixed interest rates for thirty years. Rather, the rates would vary from year to year based on market conditions. The Congressional Research Service estimates that if students cannot bundle their loans at low fixed rates, they will pay an extra $3,115 to $5,484 in interest.

Loan consolidation is a very big business. Between 2001 and 2002, borrowers consolidated $17 billion in loans, twice as much as the year before. With dropping interest rates, refinancing is expected to grow. According to the July 19, 2002, issue of the Chronicle of Higher Education, the third largest loan consolidator, Collegiate Funding Services, made about $1.7 billion in refinanced loans in 2001.

The rationale for doing away with fixed interest rates on consolidated loans is that the loan-consolidation program costs the government billions of dollars in subsidies to keep the costs of loans cheaper for borrowers. Supporters of this measure say the money saved by declining to help graduates repay loans could be used to provide more benefits to current and future students. This argument makes sense from the profit-making point of view of the student loan industry. Why not have the government provide subsidies to the banks rather than to students? Why not increase the new pool of borrowers, who, in turn, will have to pay higher interest rates, permitting banks to wring still higher payments out of debt-ridden graduates? Those who want to dismantle public services claim that unless the consolidation program is "checked" (that is, tied to a variable interest rate), the government's cost will skyrocket, putting in jeopardy all student-aid programs. They make similar arguments about Medicare and Social Security.

Privatization

Public colleges and universities typically depend on state revenues for over one-third of their finances. Tuition and fees are increasing, and most likely will continue to rise, because states cannot afford to maintain public colleges without federal assistance. The Bush administration has already given away any additional federal money that might have been forthcoming by doling out tax breaks to the affluent and corporations and ratcheting up a huge deficit. And administration officials repeatedly have warned college lobbyists and leaders not to come begging for more student-aid money.

Funding for state schools is the largest discretionary item in states' budgets and therefore one of the first items to experience cuts during a fiscal crisis. Historically, tuition and fees have risen when state appropriations have decreased. And this is exactly what is happening now. As the federal government depletes the public treasury, cash-starved states must pick up the slack. State support for higher education has declined substantially over the past two decades, as states have had to stretch their budgets to maintain funding for a range of social services—primarily expansions in Medicaid, health care, and unemployment services, according to a 2003 Brookings Institution report titled State Fiscal Constraints and Higher Education Spending: The Role of Medicaid and the Business Cycle. As a result, growth in state funding for higher education actually fell to near zero in 2003. The Rockefeller Institute on Government reports that states, and higher education in particular, will continue to face tight budget constraints for at least the next decade. As states grapple with falling revenues, neo-conservatives are demanding that public higher education become more cost-effective and less dependent on government subsidies. And so the seeds of privatization are sown.

Trying to appear as if they were responding to a public outcry over rising tuition, rather than attempting to seize a ripe moment to sow these seeds of privatizing public colleges, the Republicans recently introduced a bill, the Affordability in Higher Education Act, which would withhold millions of dollars of federal money in student aid from colleges that raise tuition much faster than inflation. At least 24 percent of colleges would be affected if the act became law today. Although the most punitive parts of the legislation recently have been withdrawn—the withholding of federal student-aid monies—the legislation still proposes to maintain a "watch list" of universities and require detailed accounting if they raise tuition above a prescribed amount. In addition, House Republican Howard McKeon, the author of the legislation, warned that financial penalties could be reinstated.

The potential result of this type of legislation, given hemorrhaging state budgets and inadequate financial aid, is twofold: (1) as federal money is withdrawn and diverted to interest-bearing loans, fewer and fewer low- and middle-income students will be able to attend public colleges, and (2) public colleges, unable to compensate for reduced state monies and the withdrawal of federal aid, will have no alternative but to privatize and deregulate their tuition. Only the more affluent students will be able to afford public colleges. Following the neoconservative's campaign, the government will have removed itself from guaranteeing higher education to all its citizens. The shared public priority of higher education for all as part of the American Dream will be dismantled.

As state budget deficits squeeze higher education, states are forced to consider financial changes that make their public colleges resemble private institutions. Public colleges in Virginia are debating whether to take less state money in order to raise badly needed tuition. A recent study indicates that Colorado could run out of money for higher education by 2009. In response, state lawmakers passed legislation to take most of the state aid that goes directly to public colleges and give it directly to students, including those at private institutions. South Carolina's Republican governor suggests that public colleges be allowed to become private and get out from under all state regulations. Washington State endorsed a plan that would, for the first time, allow private colleges to compete with public institutions for state money for students enrolled in high-demand programs like nursing and special education.

Recognizing the trend for all public colleges and universities, the president of the University of Colorado system told the Chronicle of Higher Education in 2004, "We are faced with the end to public higher education in Colorado."

Free Higher Education

This state of affairs is unacceptable and an affront to any reasonable notion of a fair and democratic society. We believe that the appropriate response is to articulate, and mobilize in support of, a clear vision of how a fair and just society should provide access to higher education. We propose that all academically qualified students who desire an education should be able to get one—without constraint by cost or the need to amass crippling debt. We believe this proposal crystallizes a clear, simple vision. And it is not outside the political mainstream.

Most Americans believe that a college education has become as important as a high school diploma used to be in attaining the American Dream. Unlike other needed social programs, such as national health care, free higher education does not require massive amounts of money or the creation of a huge new bureaucracy. Current tuition and fees for all students now enrolled—full and part time—in public two- and four-year colleges and universities total a little more than $30 billion. Even if expanded access doubled enrollments, only $60 billion of public money would be required. This expense could easily be covered by closing some corporate tax loopholes, eliminating some tax cuts to the very wealthy, or taking a slice from the $400 billion defense budget.

Making public higher education free is not only the right, rational, and just thing to do. It is also a goal that can be won in the foreseeable future. We urge AAUP members to contact the Collective Bargaining Congress or to visit the campaign's Web site—www.freehighered.org—for further information about the campaign and how to get involved.

Note

1. For examples of the proposals, see Mark Dudzic and Adolph Reed, Jr., "Free Higher Ed!" The Nation, February 23, 2004. Back to text.

Adolph Reed is professor of political science at the New School University and co-chair of Free Higher Education, a campaign for free tuition at public colleges and universities. Sharon Szymanski is an economist at the Labor Institute in New York City.

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