Testimony of Dr. Donald E. Heller
Associate Professor and Senior Research Associate
Center for the Study of Higher Education
The Pennsylvania State University
Before the
Committee on Education and the Workforce
United States House of Representatives

Hearing on
“College Access: Is Government Part of the Solution, or Part of the Problem?”

April 19, 2005

Chairman Boehner, Congressman Miller, and members of the Committee:

Thank you for the invitation to address you on this important issue being discussed at today’s hearing.  As I am sure you are aware, this year marks the 40^th anniversary of the Higher Education Act of 1965.  This law, and its subsequent reauthorizations, has had an unprecedented impact on postsecondary education in the United States.  This year, the student aid programs authorized by this act will award $15 billion in federal grants to over five million students.  Many of these students, and millions more, will receive a total of over $55 billion in federal loans.  Approximately one million high school and college students – most of whom are from low-income, first generation families – receive vital assistance in preparing for college and being successful once there through the TRIO programs.[1]  In addition, hundreds of institutions receive direct assistance through Title III and Title V of the Act.

To best understand the role that the Higher Education Act has played in America, I will borrow from the words of President Lyndon Johnson when he signed the legislation into law on November 8, 1965, in San Marcos, Texas:

The President’s signature upon this legislation passed by this Congress will swing open a new door for the young people of America.  For them, and for this entire land of ours, it is the most important door that will ever open – the door to education.  And this legislation is the key which unlocks it.

So, when we leave here this morning, I want you to go back and say to your children and to your grandchildren, and those who come after you and follow you – tell them that we have made a promise to them.  Tell them that the truth is here for them to seek.  And tell them that we have opened the road and we have pulled the gates down and the way is open, and we expect them to travel it.

As this Committee is painfully aware, the cost of college today is much greater, in relative terms, than it was at the time President Johnson signed the legislation that November afternoon 40 years ago. The grandchildren of many of those first students who benefited from the Higher Education Act are today approaching college age.  Today’s students both need – and deserve –support from the federal government to be able to attend college.

In response to the provocative title of today’s hearing, I would answer the question by stating emphatically that both the federal government and the states are a vital part of the solution to ensuring college access for financially needy students.  While there are some problems with the way our college access programs are structured, and Professor Vedder has ably described some of these problems in his book, I differ with his conclusion that the solution is to remove government funding for higher education.  I will return to the problems shortly, but I first want to start by emphasizing the importance of federal and state funding for our nation’s colleges, universities, and students.

A vast body of research over the last three decades has confirmed two important points about the financial aspects of college access.  First, lower-income students are the most sensitive to rising tuition prices, and they are the first to be priced out of college as tuition goes up, or to drop out if already enrolled.  The price sensitivity decreases as you go up the income ladder.  Second, financial aid – grants, loans, and work study assistance – are particularly important in ensuring the college access needs of lower- and middle-income students.  Much of the discussion about the rising cost of college, both in the media as well as among policymakers, is focused on the sticker price of college, and ignores the fact that almost two-thirds of all undergraduate students today, and over three-quarters of full-time students, receive some form of financial aid.

In his book, Professor Vedder calls for the elimination of the subsidies that states provide for public colleges and universities, and for Congress to abolish the Title IV grant programs as well.  He justifies this radical proposal by presuming that state and federal support for higher education has little impact other than to enable colleges and universities to increase their prices.  Remove the public subsidy, he argues, and these institutions would have little capacity to continue to raise prices.

Professor Vedder’s assumption, I am afraid, is not supported by the available evidence.  In the last reauthorization of the Higher Education Act, in 1998, Congress required the Department of Education to conduct a study to determine the reasons behind the rising cost of college.  That study, which has been widely recognized as the most thorough and complete research on the issue, was issued by former Secretary of Education Rod Paige in December of 2001.[2]  The study specifically looked at the question of whether federal or state financial aid led directly to tuition price increases.

The study concluded that there was no relationship between either federal or state financial aid and tuition price increases.  This finding confirmed the bulk of the research on this topic that had previously been conducted, including that of the National Commission on the Cost of Higher Education in its 1998 report to Congress.  In fact, the only link between aid and rising prices in the Department of Education study was found among both public and private comprehensive institutions, those universities that award master’s but not doctoral degrees.  The study found that for these institutions, as they increased the proportion of students receiving institutional grants, prices tended to rise somewhat faster.  But let me emphasize again that this study found no relationship between federal and state aid and rising prices.

The study found that the primary driver of tuition price increases in public colleges and universities was the level of appropriations received from the states.  In those states where appropriations grew more slowly, or as happened most recently, were actually cut, prices in the public sector grew the fastest.  In simpler terms, as state support drops, public institutions have few options other than to increase tuition prices.

More evidence to refute Professor Vedder’s hypothesis and resulting policy recommendation can be found in the experience of the last four years.  Since 2001, the maximum Pell Grant has risen $300, or just 8 percent.  State grant aid has stagnated during this period, with many states offering no increases, or even cuts, in their grants because of the revenue constraints they faced.  There also has been no increase in borrowing limits in the federal loan programs.

During this same period, however, tuition prices have increased 16 percent at private colleges and universities, 36 percent at public 4-year institutions, and 29 percent at community colleges.  Clearly there have to be other factors driving these price increases than just the availability of state or federal aid, as the amount of aid available to individual students has not changed appreciably during this period.  While overall spending on aid programs has increased, that growth is almost entirely a factor of the increased eligibility of students and the number of students availing themselves of the aid, rather than increases in the maximum amounts that students can receive.

What has happened since 2001 is that the states have decreased the amount of funds appropriated for higher education by 1 percent, including two consecutive years of cuts in fiscal years 2003 and 2004, the first time in recent history that state appropriations were cut two years in a row.  The impact is seen quite clearly in the rapid rise in tuition prices I just described.  While private institutions generally do not receive state appropriations, they have been hurt by the drop in the stock market and other investments, which has led to a decrease in their endowment earnings and slower growth in private gifts, both of which are used to subsidize tuition prices.

I also want to make clear that public institutions have not simply passed the cuts in appropriations on to students in the form of higher tuition prices.  Let me use my own institution, Penn State, as an example.  The Commonwealth of Pennsylvania was hit particularly hard by the slowdown in the economy in the beginning of this decade.  Starting in fiscal year 2002, Penn State endured cuts in its appropriation – not slower growth, but actual cuts in the appropriation – for three years running.  Our current appropriation this year of $317 million is almost exactly the same amount we received from the Commonwealth five years ago, in fiscal year 2000.

While we have increased our tuition during this period, President Graham Spanier also formed a university-wide task force to identify ways to cut costs and make Penn State more efficient.  This task force, which brought together senior administrators, faculty, and staff, identified and implemented $15 million in budget cuts and income enhancements throughout the university.  This amount represented more than half of the funds lost from the state appropriation.  And these changes were made without decreasing the quality of the education provided to our 80,000 students.  Similar efforts can be found at many other higher education institutions around the country.

Even with the financial aid available from the federal government and other sources, these students are already finding themselves priced out of attending college.  The Advisory Committee on Student Financial Assistance, in its report titled Empty Promises, used data from the Department of Education to examine financial barriers faced by potential college students.[3]  This report found that over 400,000 high school graduates who were qualified to attend a four-year institution were unable to do so each year because of cost barriers.  Over 160,000 students were unable to attend any form of postsecondary education, not even a community college.

Professor Vedder’s proposal of moving to a voucher system is also fraught with danger.  He points to the state of Colorado’s decision to replace its general subsidy with vouchers for students, but this experiment is so new that we do not yet have the evidence to determine its impact on higher education.  A major argument against vouchers at the state level is that they are unlikely to keep pace with tuition price increases, so that over time the value of the voucher will be eroded, making it harder and harder for lower- and middle-income students to afford to attend college.  This is exactly what has happened with Pell Grants at the federal level.  Professor Vedder also recommends adding a merit component to the vouchers.  This too would funnel money away from financially needy students, as the research that I and others have done has demonstrated that merit aid is awarded disproportionately to students from higher income families.[4]

I believe that Professor Vedder’s assertions regarding the productivity of colleges and universities, and their faculty members, are also mistaken.  Based on his own estimates, the source of which he does not provide, he claims that the typical professor at a major university works only 1,200 hours per year over the course of a 9-month work year.  Yet data from a national study conducted by the Department of Education show that professors at these universities work an average of 58 hours per week, or a total of 2,100 hours during those nine months.  So his claim that the lack of productivity among faculty is a major reason for rising tuition prices simply is not substantiated by the Department’s own figures.

Professor Vedder also provides some basic calculations he claims demonstrate that the public investment in higher education actually works against the interests of the state.  But his work uses a very narrow measure of the impact this investment can have on states and the nation as a whole, and it suffers from measuring economic growth rates over a single time period.  More rigorous studies have found that the public investment in higher education earns a positive social return, as measured by higher rates of economic growth for the nation, increased tax revenue received by states and the federal government due to the increased earnings of individuals who attend college, and a decreased reliance on government assistance programs, such as Food Stamps, TANF, Medicaid, and housing assistance.[5] 

The method used by Professor Vedder also ignores the non-monetary benefits society receives from its investment in higher education.  Studies have documented that those who attend college are less likely to commit crimes, give more generously to charity and community service, and are more engaged and informed regarding their civic responsibilities.[6]  It is difficult to believe that the states would provide the $65 billion on higher education that they will spend this year collectively if they did not believe, and have evidence, that this public investment earns a positive return for each state.

As I stated earlier, I believe there are some problems with the way public support for higher education is currently structured.  When I testified before the Subcommittee on 21^st Century Competitiveness in 2003, I encouraged the Subcommittee to examine ways to simplify the process of applying for and receiving federal student aid.  Congress went ahead and mandated that the Advisory Committee on Student Financial Assistance conduct such a study, and the Advisory Committee issued its report earlier this year.  This report has a number of excellent recommendations for ways to improve the processes of applying for and delivering Title IV funds, and eight of the ten recommendations would require no increase in the costs of these programs.  While I do not have enough time to describe them here, I encourage this Committee to consider their implementation.

Pell Grants are the foundation of student aid for low- and moderate-income students, and I encourage the Committee to strengthen Pell by increasing its purchasing power.  Pell Grants are the most well-targeted student aid program for these students.  Data from the Department of Education indicate that 94 percent of Pell Grant dollars awarded to traditional-aged college students go to those from families with incomes below the national median of approximately $45,000 per year.  In contrast, only 60 percent of state aid is awarded to students from the bottom half of the income distribution, 35 percent of institutional aid, and 33 percent of private scholarships.[7]  These two actions – strengthening Pell, and making it easier for students to apply for and receive federal grants, will help to promote access to college for academically qualified and financially needy students.

I know that this Committee is concerned with promoting competition among the various types of higher education institutions in the nation.  The diversity of choices available to students is one of the strengths of our system, and Congress should not eliminate these options.  Student choice is well supported by the federal student aid programs, which allow students to use their grants, loans, and work study assistance at any of the more than 6,000 Title IV eligible institutions in the nation. 

There are proposals in front of the Committee to eliminate the 50 percent rules, which restrict access to the Title IV programs for institutions who enroll a majority of their students or offer a majority of their courses via distance education.  While the Department of Education has shown some positive results in the Distance Education Demonstration Program, I think it is important to note that this five year program included only two dozen institutions, many of whom were part of or affiliated with traditional, campus-based institutions.  The Secretary of Education, in her report on the Demonstration Program issued earlier this year, noted some concern regarding the student loan default rates of institutions participating in the program.  I recommend that before Congress eliminates the 50 percent rules in their entirety, that it move cautiously and heed the recommendations in a GAO report on distance education issued last year.[8]  A key recommendation, one with which Secretary Spellings concurred in her report, is that continued oversight of distance education providers is indeed “critical.”[9]

In closing, I want to return to the Higher Education Act to highlight the key objective established by President Johnson and the 89^th Congress.  Title IV opens with these words:

It is the purpose of this part to provide, through institutions of higher education, educational opportunity grants to assist in making available benefits of higher education to qualified high school graduates of exceptional financial need, who for lack of financial means of their own or of their families would be unable to obtain such benefits without such aid (§ 401).

I hope that this Congress, in its reauthorization of the Act, can stay true to this objective.

I want to thank the Committee again for the opportunity to address these important issues.  I would be happy to take any questions you may have.