What would happen if federal financial aid went away?
Fog. Winston Salem, NC
Until Tuesday’s announcement that student financial aid was not included in the federal pause on loans and grants (and yesterday’s “de-pausing the pause” overall), I was getting reacquainted with a particular sort of nausea. I felt it in 2008 when the liquidity crisis led my college to realize that without access to federal dollars it could only stay open for a couple of weeks. It was the kind I felt at each of the threatened government shutdowns, the kind that lingered for months as the Biden administration botched FAFSA again and again. It is the sort of sickness you feel when you are powerless to respond to a crisis and responsible for its outcomes.
Then Ben Roberts, a smart man and a great friend, texted me and said “we need a blog post on what to do without federal funding.” He was right, of course. We do need to think about how to operate colleges and universities with less or no federal aid, not because it is likely to be the case, but because thinking wisely about the worst cases can help in merely difficult ones.
So, here are a few thoughts, brief and incomplete to be sure, about what schools might do to learn from an uncertain aid pipeline, and about how that uncertainty might affect the industry as a whole.
Learn from those who’ve done without
The year I was born is the year that student loan uncertainty first became a possibility. Though the GI Bill provided tuition benefits for World War II veterans, before the Higher Education Act of 1965 very few federal dollars flowed into college coffers as a result of loans to students. Or put another way, nearly all colleges and universities now functioning in the United States once operated without student loans. Of course, today’s colleges are different from colleges in 1965–they are more complex, host more activities, have different aspirations, and serve different students. But their core operations are the same. So if you want to see how to operate without federal aid, go into the archives, pull financial records from, say, 1958, and look at the budget.
Or, take a look at the operations of those colleges and universities who forego federal aid today. (Here’s a slightly outdated list.) A few years ago, I worked with Grattan Brown and Clifford Humphrey to get Thales College off the ground. Thales’ founder, Bob Luddy, mandated that the college not rely on federal aid. We built the business model to comply. My argument here is not that all schools can or should eschew federal aid. It is, instead, that if you expect uncertainty in federal aid flows, be sure you know about models that work without them.
Learn what things cost and what people will pay for them
I’ve argued elsewhere that American colleges and universities have an overdelivery problem. We provide many things to students that they do not participate in and which they do not value. But because we charge “tuition and fees” for all of the academic and co-curricular offerings we provide, neither we nor our students understand how much individual services cost, how much students will pay for them, and therefore whether we should continue offering them or not. Schools can respond most wisely to fluctuation in student revenues by being clearer about what students want to pay for with their money, and pricing those things in a way that reflects their value.
Figure out other ways for students to pay for their educations
When I joined Barton College as Provost in 2013, one of the first stories I learned was how, during the Great Depression, Barton’s president accepted cotton and tobacco as tuition payment. That story stayed alive as an emblem of Barton’s grittiness, but also its creativity. Before the HEA, Barton hosted loan programs sponsored by local churches, civic organizations, and employers. Students worked on campus in real jobs for real money (a practice maintained and slowly expanding among work colleges). Only since 2010 has the federal government provided nearly all student loans. Before then, private lending and federal aid were both legitimate sources of aid. Federal loan uncertainty should encourage schools to explore financial partnerships with all sectors of their communities–churches, civic organizations, banks, foundations, employers–who benefit from their graduates.
Examine key assumptions about what makes for a good education
When you look closely, many aspects of a traditional undergraduate education, strong or wobbly as they may be, rely on the availability of reliable federal financial aid. Here’s a list of key assumptions that might have to be reconsidered if federal air becomes more unreliable:
Accreditation–the system that emerged after the Higher Education Act vested responsibility in accreditors to certify that colleges qualified to receive Title IV (federal aid) funding. The past two decades have brought attacks on accreditors from all sides, with their sustenance being that their imprimatur makes federal funds flow. More uncertainty about federal funds, more uncertainty about the value of accreditation.
Restricted endowments–Without reliable federal aid, schools will turn to their endowments to maintain and guide their operations. Too many schools have built endowments around marginal parts of their operations, or permitted restrictions which make funding almost impossible to use. Challenges to endowment laws and appeals for relief from donor restrictions will expand.
Residential colleges–for many students, scholarships, grants, and savings just about cover tuition and fees. Loans cover the rest of their expenses, the major portion of which are room and board. Families already question the value of living on campus (that is, they wonder if it is worth the cost, rather than whether it is a good thing in the abstract). If loan dollars and other federal money are harder to come by, I suspect many more students will figure out how not to live on campus.
Four-year degrees–Already interest in certificates and sub-degree credentials is exploding among students attending traditional undergraduate institutions. The three-year bachelors degree is reappearing (for the third time, now, in my thirty years in higher education). The availability of federal aid for up to 150% of the time to complete a bachelors degree makes it possible for many students who might otherwise prefer a shorter time in college to stay in college and earn the full bachelors degree. Here, too, uncertainty about aid will likely encourage students to seek less-than-four year credentials. It should also push schools to offer more of them. (I would particularly like to see the return of associates degrees at bachelors granting institutions, both for the first half of the bachelors–a rigorous cohesive introduction to the liberal arts, say, and for the second half–a deep dive into a particular discipline, without appended general education requirements.)
Retention and graduation rates–As with the bachelors degree, the focus on retention and graduation rates depends on the assumption that the default model for higher education is a student staying continuously enrolled for four years and earning a degree. Financial concerns are already one of the top three reasons why students leave a school before graduating (fit, and poor academic performance being the others). If the reliability of funding becomes more uncertain, more students will stop out of undergraduate education. At some point, then, the focus on retention and graduation rates will need to be replaced by other measures of institutional value.
Closing thoughts
American higher ed would be worse off in the short term if federal aid became and remained unstable. School closures would increase, as would the number of students leaving college with debt and no degrees. Educational attainment would suffer. But just because that is a bad future doesn’t mean it won’t happen. It is wise to plan for such a future, and find the opportunities that lie hidden within it.