Can Maintenance of Effort Programs Fund Public Higher Education?

The American Association of State Colleges and Universities released a policy paper this week calling for the federal government to enact (and fund) a program designed to encourage states to increase their support for public higher education. The AASCU brief rightly notes that per-student funding for public higher education has fallen over the past three decades (the magnitude of which is overstated somewhat due to their choice in inflation adjustments), and they propose a potential solution in the form of a maintenance of effort provision.

AASCU’s proposal would give colleges a partial match of their higher education appropriations, as long as per-FTE funding to institutions is higher than 50% of the value of the maximum Pell Grant and did not decline from the previous year’s value. The value of the matching funds would go up as state appropriations to institutions increased. They estimate that their hypothesized program would cost something in the neighborhood of $10-$15 billion per year, which could be paid for by cutting waste, fraud, and abuse in current financial aid systems (particularly among for-profits) and by implementing some sort of risk-sharing for student loans—which I’ve written on recently.

However, I view the plan as having a fatal flaw. By only including state appropriations to institutions in the calculation—and not requiring that the matching funds be spent on higher education—states can game the system to get additional money from the federal government. States could reduce funding to their financial aid programs and direct those funds toward institutional appropriations in order to get federal dollars, which could be used for K-12 education, healthcare, or tax cuts.

If states followed the incentive to eliminate all grant aid and fund institutions instead, tuition would likely decrease (something that AASCU institutions would appreciate). The most recent NASSGAP survey of state aid programs found that states spend $9.4 billion per year on grant aid, two-thirds of which is allocated based on financial need. Putting this money into state appropriations would cost the federal government several billion dollars, with no guarantees of any additional funding for students or institutions.

I have a hard time seeing Congress approving this maintenance of effort plan, regardless of the merits. Lobbyists for the private nonprofit and for-profit sectors are likely to strongly oppose this measure, as are lobbying groups for K-12 education, healthcare, and corrections spending (behind the scenes) since higher education is often cut at the expense of higher ed. In addition, this is likely to be a nonstarter in the House due to its placing restrictions on state priorities.

I’m glad to see this proposal from AASCU, but I don’t see it becoming law anytime soon. I would suggest that they follow up with some more details on their proposed risk-sharing program, as well as how elements of this plan could be incorporated into the Obama Administration’s proposed college ratings.

[Cross-posted at Kelchen on Education]

Robert Kelchen

Robert Kelchen, an assistant professor of higher education in the Department of Education Leadership, Management, and Policy at Seton Hall University, is data manager of the Washington Monthly College Guide.