Does state and federal financial aid to colleges improve college access and affordability?

 There is a recent growing anxiety in America about higher education. The rising of tuition fee and increasing in student debt, plus the shrinking in financial and educational return are making the people and family started to question if university is a good investment. Statistics have shown that the cost of university per student has risen by almost five times that rate of inflation since 1983. The debt for both the universities and the students have increased. What makes the situation even worse is that the universities have been spending beyond their means. Now, the universities cannot look to government for help as the states have already cut back dramatically on the amount of financial aid they give to universities. President Obama already stated that he is not happy about the increase in tuition fee and has threatened the universities with aid cuts if they continue to do so. However, the question lies in the argument, whether state and federal financial aid to colleges improve college access and affordability?

 In 1962 one cent of every dollar spent in American higher education, nowadays the figure has tripled but despite the fact that America spent greater proportion of its GDP on higher education, it still only has 15^th largest proportion of young people with a university of education. From this people argues that the amount of money that we spend on higher education cannot necessarily improve college access and affordability. However, studies have shown that the reason of this phenomenon is that additional value has not been created to match this extra spending. For instance almost a third of students these days do not take any courses that involve more than 40 pages of reading over an entire term and try to get into the class where they can earn higher GPA. As a result, the grade point averages rose from about 2.52 in the 1950s to 3.11 in 2006. While people can argue that student can earn back the investment through getting a great premium for their degree, there are still an ample amount of graduates who cannot find a job. Therefore it is easy to overspend on one’s education. Another issue is that young graduates are now facing a declining in earning over the past decade (16% for women, 19% for men) and more debts. All of arguments above can contribute the reason to explain why the cost of higher education becomes higher.

             Recent statistics have shown that the complex relationship between the federal student aid and the state’s funding appropriate for funding for higher education. They are focusing on the increasing of cost that is shifting towards the public higher education, from states to students and families. This shifting of costs lead to the disinvestment from the states to the higher education. As a result, college officials have compensated for the loss of state dollars with a combination of cost-cutting measures, reductions in student enrollment, and an increased reliance on student tuition and fee revenues. We can see a decrease in the demand of higher education as the price of it goes up as well as a shrink in people who can get access to college. The reduction of investment from the states to the higher education has placed more pressure on federal lawmakers to expand existing student aid programs. In order to release these pressure, recent federal legislation has include financial incentives for public higher education to maintain a minimum funding level, these incentives are called “Maintenance of Effort” (MOE)

            According to an analysis of state applications for the American Recovery and Reinvestment Act (ARRA) of 2009, the maintenance of effort provision appears to have successfully limited the amount of disinvestment in higher education during the current recession. This shows that federal incentives and disincentives can help assure that states maintain adequate financial support to public colleges and universities. And as a result, can contribute to college affordability. Many stakeholder groups in higher education have supported MOE provisions. The main reason to including them in federal legislation that are most associate with the accessibility to college are that they can help mitigate rising tuition prices by encouraging states to invest adequately in their public higher education systems; provide a more predictable funding framework for state colleges and universities, thus, diminishing the fluctuation in state funding for higher education that has long been associated with the ebb and flow of economic cycles; and respect state and institutional sovereignty by providing financial incentives, but not legal mandates or tuition control.

However, MOE provisions have also received some criticism from groups representing state lawmakers and governors, such as the National Governors Association (NGA) and the National Conference of State Legislatures (NCSL). Some of the main criticisms are pointing out that there’s reluctance by state officials to substantially increase funding for higher education, due to ensuing commitments to provide funding at higher future thresholds, as is required by current MOE provisions. There’s also potential increase in fiscal inequities among states, given that those in stronger fiscal circumstances may be better positioned to meet MOE commitments during economic downturns, while the potential loss of federal funds resulting from the inability to meet MOE provisions may exacerbate budgetary constraints faced by less prosperous states. In addition, there’s objection by state lawmakers to federal intrusion into education policy, a power not specifically delineated to the federal government in the Constitution.

Even though MOE has these shortcomings, in the case of the ARRA, evidence shows that MOE requirements prevented many states from reducing financial support for public higher education even further. This helped prevent greater student tuition and fee increases at the nation's public colleges and universities. Therefore, state and federal financial aid to colleges do improve college access and affordability.

This debate contains a major economic concept, which is effect of subsidies in the free market. When a demand of certain services is elastic, the increase in price of it leads to the decrease in quantity demand of this service. This means ceteris paribus, at a higher price, less people in the market are willing and able to purchase the goods. When the government provides subsidies in the market, in this case it’s the state and federal financial aid to colleges, it shifts the demand curve of higher education up. As a result, the quantity demand of the higher education will increase, which means at the same equilibrium price, more people are able to purchase the service that was provided by higher education. Since public higher education is a merit good, it can increase the human capital of the people in labor market, the government is willing to subsidy it in order to improve the efficiency in the country’s market. Therefore it makes sense to argue the state and federal financial aid to colleges improves college access and affordability.

Work cited

Maintenance of Effort: An Evolving Federal-State Policy Approach to Ensuring College Affordability, Journal of Education Finance, v36 n1 p76-87 Sum 2010. 12 pp.

"Not What It Used to Be." The Economist. The Economist Newspaper, 01 Dec. 2012. Web. 11 Dec. 2012.