Higher Education: State Funding Trends and Policies on Affordability
Published: 2014-12-16T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: There is widespread concern that the rising costs of higher education are making college unaffordable for many students and their families. Federal and state support is central to promoting college affordability; however, persistent state budget constraints have limited funding for public colleges. GAO was asked to study state policies affecting affordability and identify approaches to encourage states to make college more affordable.
This report examines, among other things, how state financial support and tuition have changed at public colleges over the past decade. It also examines how the federal government works with states to improve college affordability and what additional approaches are available for doing so. In conducting this work, GAO analyzed trends in state funding for public colleges, tuition, and state student aid using data from the U.S. Department of Education for all public sector colleges from fiscal years 2003 through 2012, the most recent data available at the time of this study. GAO also identified academic studies on state higher education policies and affordability published since 2011 and interviewed 25 academic experts and organizations in the fields of higher education or state policy. Finally, GAO reviewed Education programs and proposals and obtained perspectives from experts and organizations to identify approaches the federal government could use to incentivize state action.
section_title: What GAO Found
paragraphs: From fiscal years 2003 through 2012, state funding for all public colleges decreased, while tuition rose. Specifically, state funding decreased by 12 percent overall while median tuition rose 55 percent across all public colleges. The decline in state funding for public colleges may have been due in part to the impact of the recent recession on state budgets. Colleges began receiving less of their total funding from states and increasingly relied on tuition revenue during this period. Tuition revenue for public colleges increased from 17 percent to 25 percent, surpassing state funding by fiscal year 2012, as shown below. Correspondingly, average net tuition, which is the estimated tuition after grant aid is deducted, also increased by 19 percent during this period. These increases have contributed to the decline in college affordability as students and their families are bearing the cost of college as a larger portion of their total family budgets.
GAO found that federal support for higher education is primarily targeted at funding student financial aid— over $136 billion in loans, grants, and work-study in fiscal year 2013—rather than at programs involving states. GAO identified several potential approaches that the federal government could use to expand incentives to states to improve affordability, such as creating new grants, providing more consumer information on affordability, or changing federal student aid programs. Each of these approaches may have advantages and challenges, including cost implications for the federal government and consequences for students.
section_title: What GAO Recommends
paragraphs: GAO does not make recommendations in this report.

section_title: Letter
paragraphs: The rising costs of higher education have led to widespread concern that  college is becoming unaffordable for many students and their families. To  help cover the cost of attending college, in fiscal year 2013, the U.S.  Department of Education (Education) provided over $136 billion in  assistance to students through loans, grants, and work study programs.  In addition to these forms of federal financial aid, states play a key role in  promoting affordability in higher education in that they provide a  significant amount of financial support to public colleges and universities.  However, persistent state budget constraints have limited funding for  public colleges.
We were asked to examine how state policies have affected college  affordability and explore how the federal government can encourage state  support to help make public colleges more affordable for students and  their families. Specifically, we examined: (1) how state financial support  and tuition have changed at public colleges over the past decade, (2) how  states’ higher education policies have affected affordability, and (3) how  the federal government works with states to improve college affordability,  and what additional approaches are available for doing so.
In conducting this work, we analyzed trends in state funding for colleges,  state student aid, and tuition using public sector data from Education’s  Integrated Postsecondary Education Data System (IPEDS), National  Postsecondary Student Aid Study (NPSAS), and the National Association  of State Student Grant and Aid Programs (NASSGAP) databases for the  fiscal year 2003 to 2012 time period (the most recent data available at the  time of our analysis). We assessed the reliability of these data by (1)  performing electronic testing of required data elements, (2) reviewing  existing information about the data and the system that produced them,  and (3) interviewing agency officials or organizational representatives for  more information when needed. We determined that the data were  sufficiently reliable for the purposes of this report. We also identified  academic studies published in approximately the last 3 years (January  2011 through April 2014, when we conducted the literature search) that  are based on original research and that discuss the relationship between  state-level higher education policies and college affordability. We  assessed the quality of these studies by evaluating their research  methods and determined that 23 studies were sufficiently reliable for use  in our report. In addition, we met with six academic researchers who had  recently published studies relevant to state higher education policy or  college affordability and were recognized as experts in their field. We also  met with a total of 19 organizations involved in higher education issues,  some of which focus on sponsoring and conducting policy research, and  others that represent public colleges—including community colleges,  state colleges and universities, and public land grant universities—and all  50 states, as well as organizations that represent students. See  appendix I for more information on our selection criteria and other aspects  of our methodology.
We conducted this performance audit from February to December 2014 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: Higher education provides important private and public benefits, and  multiple parties are involved in financing higher education costs. In terms  of private benefit, students may seek a postsecondary degree as a key to  a better economic future. In addition to providing such private benefits,  higher education has also been crucial to the development of the nation’s  cultural, social, and economic capital. In particular, higher education helps  maintain the nation’s competitiveness in a global economy by providing  students the means to learn new skills and enhance their existing  abilities. The federal government, states, students, and colleges, in turn,  all play important roles in financing higher education costs, thereby  influencing affordability (see fig. 1). Affordability is an important factor  affecting whether students access and complete degrees, and is  commonly thought of as the cost of higher education relative to student or  family income.
subsections: section_title: Federal Role
paragraphs: The Department of Education was created in part to strengthen the  federal government’s commitment to assuring access to equal  educational opportunity. To that end, the federal government offers  several forms of financial aid to students and families through multiple  programs authorized under Title IV of the Higher Education Act of 1965,  as amended. These programs include the William D. Ford Federal Direct  Loan program, the Federal Pell Grant program (Pell Grants), Federal  Perkins Loans, and Federal Work-Study, and they are available at all  eligible institutions of higher education, including both public and private  colleges. In fiscal year 2013, Education provided over $136 billion in  financial aid to students, including loans and grants. Some aid is targeted  toward low-income students based on their financial need. For example,  in fiscal year 2013, Education provided over $32 billion in Pell Grants to  eligible low-income students. In addition to funding for student aid,  Education provides higher education funding for states and colleges.  Funding for states includes two grant programs to support increased  access for low-income students: 1) the Gaining Early Awareness and  Readiness for Undergraduates Programs (GEAR UP) and 2) the College  Access Challenge Grant Program. The federal government also provides  funding to colleges for institutional development and grants and contracts  for research projects.
section_title: State Role
paragraphs: The states’ role in higher education begins with establishing public  colleges. In addition, states have been a significant source of revenue for  public colleges through state appropriations for operating expenses.  States may also fund public colleges through grants or contracts for  activities such as research projects. In addition to state funding for  colleges, most states have grant programs that provide financial aid  directly to students. State grant aid can be allocated based on financial  need; merit, such as grades or test scores; or a combination of both.
section_title: Public Colleges
paragraphs: Public colleges charge tuition and fees, and may also provide aid to  students depending on the college’s financial aid programs. These  colleges are generally administered by publicly elected or appointed  officials and are supported primarily by funding from federal, state, and  local sources—in addition to revenue from tuition and fees. They can also  differ in type, length of degree programs, and mission. For example, while  some public colleges may offer 2-year associate’s degree programs,  others offer 4-year bachelor’s degree programs. As of the 2011-2012  school year, there were more than 2,000 public colleges that enrolled  over 11 million students, which represented 67 percent of total college  enrollment across all college types, including private nonprofit and for- profit colleges in the United States. Moreover, enrollment at public  colleges increased by almost 2 million students from school years 2002- 2003 through 2011-2012 (see table 1).
section_title: Students and Families
paragraphs: Aside from federal, state, and local funding, colleges also collect revenue  through tuition and fees charged to students. The published tuition and  fees can be referred to as the “sticker price” and do not necessarily reflect  what students and families actually pay once financial aid has been taken  into account. In contrast, net tuition and fees reflect the out-of-pocket  expenses for students and families in that they represent tuition and fees  net of all grant aid received by the student. Students may receive grant  aid from the state, the federal government, or the college they are  attending.
section_title: From Fiscal Years 2003 through 2012, State Funding for Public Colleges Decreased, while Tuition and Out-of- Pocket Costs for Students Increased
subsections: section_title: State Funding for Higher Education Decreased by 12 Percent Overall and by 24 Percent per Student
paragraphs: In the decade spanning fiscal years 2003 to 2012, state funding provided  to public colleges decreased, both overall and when measured per  student. Specifically, state funding for public colleges decreased by 12  percent overall, from $80 billion in fiscal year 2003 to $71 billion in fiscal  year 2012. Most of the funding that public colleges receive from states is  in the form of appropriations (funds provided by state appropriations acts  for current operating expenses), while the rest of the funding from state  sources is in the form of grants and contracts that are identified for a  specific project or program.
The reductions in state funding to public colleges are even more  significant when enrollment levels are taken into account. The number of  students enrolled in public colleges rose by 20 percent from school year  2002-2003 to school year 2011-2012. Correspondingly, median state  funding per student declined 24 percent—from $6,211 in fiscal year 2003  to $4,695 in fiscal year 2012. This trend has been driven mostly by 4- year colleges, which experienced faster enrollment increases and steeper  declines in median state funding per student than 2-year colleges.
State funding declines may be attributable, in part, to prevailing economic  conditions and competing state budget priorities. Likewise, 19 of 25  experts and organizations we interviewed cited the 2007 to 2009  recession as a factor that directed trends in state funding. Several of  these experts and organizations described public higher education as the  “balance wheel of state economies,” where states reduce higher  education funding during constrained economic times, in part because  public colleges can use tuition as an additional funding stream unlike  other program areas that do not have alternative sources of revenue. Our  analysis of funding trends corroborates this characterization by showing  that state funding for public colleges gradually increased between fiscal  years 2005 and 2008, but began steadily declining in fiscal year 2008  during the most recent recession until fiscal year 2012, while tuition  revenue began climbing at a faster pace to fill the gap. These reductions  may have been mitigated to some extent by the Recovery Act. Of the 19  experts and organizations we spoke with about the Recovery Act’s effect  on state support for higher education, 16 cited it as having influenced  higher education funding levels of which 7 believed the effect was short- term. In addition to economic conditions, 19 of 25 experts and  organizations we interviewed cited competing state budget priorities, such  as healthcare and K-12 education, as a factor in declining state funding  for higher education. State funding trends have contributed to shifting  public colleges’ share of revenue away from state sources and toward  tuition (see fig. 2).
From fiscal years 2003 to 2012, revenue from state sources shrunk from  32 percent of total revenue to 23 percent. Meanwhile, growth in tuition  revenue outpaced that of all other types of revenue over this period,  increasing from 17 percent to 25 percent and making tuition the top single  source of revenue for public colleges. In contrast, shares of federal, local,  and other revenue sources remained relatively stable. Total revenue  figures from each source are displayed in appendix II. By fiscal year  2012, tuition had overtaken state funding as a source of revenue for  public colleges (see fig. 3).
section_title: Median Published Tuition Prices Have Increased by 55 Percent and Average Out-of-Pocket Costs Have Increased 19 Percent since Fiscal Year 2003
paragraphs: Published tuition prices and out-of-pocket costs increased for students in  all income quartiles both at 4-year and 2-year public colleges, making  college less affordable for students and families. Median published tuition  prices for in-state students increased by 55 percent from about $3,745 in  school year 2002-2003 to $5,800 in school year 2011-2012 (see fig. 4).  Though tuition is typically higher at 4-year colleges than at 2-year  colleges, the increase over the period was similar between the two types  of colleges: both increased by about 54 percent. Median published tuition  also increased for out-of-state students during this period, though less  dramatically than for in-state students, rising by 31 percent from the 2002- 2003 school year to the 2011-2012 school year.
Published tuition prices do not necessarily indicate actual costs incurred  by students and families, in part because grant aid can help reduce out- of-pocket costs. Thus, when all grant aid is taken into account, out-of- pocket costs for students, or estimated average net tuition, increased by  19 percent across all public colleges from $1,874 in the 2003-2004 school  year to $2,226 in the 2011-2012 school year. The changes in estimated  average net tuition vary by student’s income quartile and college type  (see fig. 5). In particular, the increases in average net tuition are largest  for students in the higher income quartiles attending 4-year public  colleges.
While most state grant aid to students is need-based, our analysis shows  a gradual shift toward merit-based aid from school years 2003-2004 to  2011-2012 (see fig. 6). As a result, states are targeting a smaller portion  of their estimated available grant aid to students with the greatest  financial need. Some of the experts and organizations we interviewed  noted that the growth in merit-based aid may be related to its political  popularity, especially among state legislators. Appendix II shows state-by- state shifts toward awarding either more need-based aid or less, between  school years 2003-2004 and 2011-2012.
Students and their families are now bearing the cost of college as a larger  portion of their total family budgets. Across all students, the ratio of net  tuition to annual income has increased about one and a half times from  the 2003-2004 school year to the 2011-2012 school year, and was  greater for students in the lowest income quartile than those in the  highest quartile. Specifically, the ratio of net tuition to annual income was  about four times higher for students in the lowest income quartile when  compared to those in the highest quartile. Combined, these factors make  attending college less affordable for students.
section_title: State Policies Related to College Affordability Have Mixed Results
paragraphs: States, along with public colleges, have implemented various policies  related to college affordability, but their effects are mixed or unclear  according to the 23 studies we reviewed and the 25 experts and  organizations we interviewed. These policies include financial strategies  like investing in state grant aid and techniques aimed at reducing the time  it takes a student to complete their degree (see table 2).
As we noted previously, economic trends and competing budget priorities  can affect state funding for higher education, which in turn has  implications for affordability at public colleges. In addition, an individual  state’s budget policies may influence state spending patterns. One study  we reviewed tested whether certain state fiscal policies, such as balanced  budget requirements and debt limits, would reduce state spending on  higher education. That study suggests these policies did not have a  statistically significant relationship with state expenditures on public  higher education. However, the study did show a negative relationship  between another type of fiscal policy—tax and expenditure limits—and  the level of state spending on public higher education. Specifically, in  states with tax and expenditure limits in place, such as those that limit the  amount of revenue a state can take in from taxpayers, spending on higher  education was about 3 percent lower than states without these types of  policies.
There is wide variation in state policies related to setting tuition, as each  state has its own higher education governance system that may delegate  the primary authority to the governor, state legislature, governing boards,  individual public colleges, or a combination of these stakeholders. Several  experts and organizations who commented on this topic said that when  tuition is set centrally by the state and colleges have less authority, there  are positive effects on affordability for students. Given recent economic  conditions, some states have negotiated agreements with their public  colleges to curb tuition hikes, at times in exchange for more state funding.  Most experts and organizations we spoke with—11 of 15 who commented  on this issue—said these limits on tuition growth do not usually have long- term effects on improving affordability for students, or have negative  effects on affordability. However, in the case of Maryland, a few experts  and organizations said the state has successfully suppressed tuition  increases through cost efficiencies achieved by its public colleges, which  may result in more sustainable benefits for students.
Regardless of how tuition is set, it is clear that specific tuition levels  directly affect students. For example, two studies found that policies  allowing rising tuition negatively affected affordability for students at  public colleges in California, even when considering contributions from  financial aid. In addition, some studies found that tuition levels can also  affect student behavior and decision-making. For example, results from a  survey of students at about 15 large public colleges found that an  estimated 73 percent of students reported buying fewer or cheaper  textbooks, and 46 percent reported skipping meals in response to  increased college costs. Moreover, tuition levels may influence students’  decisions about whether to attend college at all. For example, two  nationwide studies of public colleges found that increased tuition levels  were associated with decreased enrollment.
Like tuition, state grant aid directly affects students in that it can reduce  their out-of-pocket expenses for college. In addition, evidence from five  recent studies we reviewed suggests that state grant aid, both merit- and  need-based, has positive effects on enrollment. For example, a study of  a state scholarship program in Washington suggests that receiving the  aid increased a student’s probability of enrolling in college by nearly 14 to  19 percentage points, depending on the cohort and controlling for other  factors. This positive effect on enrollment may indicate that students  enroll because they perceive college to be more affordable. Additionally,  a study of selected scholarships in four states shows that the aid helped  students stay in college. Specifically, an additional $1,000 in aid received  was associated with a 2 to 7 percent increase in persistence—the  likelihood that students will continue their education, on average.  Regarding state grant aid programs, there is general consensus among  experts and organizations we interviewed that investing in need-based  grant aid is a more efficient use of resources than merit aid in that the aid  is targeted to those students who need it most. Specifically, 20 of 25  experts and organizations we spoke with said that prioritizing need-based  aid over merit-based aid is important for improving affordability.
Many states have established or are considering policies that financially  reward public colleges for progress toward performance goals, which  most experts and organizations we spoke with—19 of 25—said could  improve affordability for students. The link between these types of policies  (called performance-based funding) and college affordability depends on  the specific goals being measured. For example, goals such as targeting  college-provided aid to low-income students or moderating tuition  increases are more relevant to affordability than to other performance  outcomes. While the studies we reviewed on existing performance-based  funding policies do not examine their effect on affordability, they show  mixed results on their effectiveness in incentivizing desired outcomes in  other areas. For example, a study on performance-based funding in  Washington, a state policy that was designed to incentivize degree  completion, suggests that the policy did not affect the number of  Associates’ degrees that public colleges produced. However, the number  of certificates completed rose after the policy was introduced. The authors  noted the possibility that colleges were encouraged to award certificates  that could be completed more quickly. In another case, a study of  performance-based funding in Tennessee suggests that the financial  incentive tied to the policy, even when doubled, was not associated with  increases in retention rates.  That is, the policy was not successful in  achieving the desired outcome, possibly because there was not enough  of a financial incentive to influence institutional outcomes. Recently,  however, Tennessee started channeling all of its higher education funding  through a performance-based system, and this level of financial  commitment may be effective in shaping colleges’ behavior. Time may  also be a factor in whether performance-based funding policies are  successful incentives. For example, a recent, nationwide study of  performance-based policies shows that there is little evidence tying  performance funding to positive outcomes, in part because so few states  maintain their policies long enough to change colleges’ behavior.  Nevertheless, the study did suggest a positive outcome of performance- based funding— increased degree completion in several states—but only  after states kept the policy in place for an average of 7 years. As of early  2014, 30 states were in the process of implementing performance-based  funding policies or had already done so, according to a national  organization representing state legislatures. For many of these policies, it  is too soon to know whether they will be effective at improving  affordability or achieving other desired outcomes.
subsections: section_title: Time-to-Degree Policies
paragraphs: Experts and organizations also pointed to state policies that allow  students to make more efficient use of their time in college, which may  help them save on tuition costs. While much of the research we reviewed  did not specifically address state policies on timely degree completion, as  many of them are relatively new, there was general agreement among  those we interviewed that reducing the time it takes for a student to  complete their degree can help make college more affordable. Various  states have implemented policies or launched voluntary initiatives  encouraging students to take the appropriate number of credits for their  degree program—neither too few nor too many. For example, Hawaii’s  “15 to Finish” media campaign is designed to raise awareness that  students should take 15 credit hours per semester to graduate on time.
Several states have policies to limit credit accumulation so that students  do not take—and pay for—more courses than necessary to complete  their degree.
According to the experts and organizations we interviewed, states and  public colleges are also working to ensure students take and get credit for  courses that count toward their degrees. To that end, states play a role in  enabling credit transfer programs and articulation agreements between  public colleges to ensure that students do not have to re-take courses  they have already passed and paid for at another college. We have  previously noted that students taking additional credits as a result of  being unable to transfer credits would likely have to pay additional tuition,  though the extent to which these costs are borne by the student, for  example, would vary depending on the student’s eligibility for financial  aid.
There are also state policies that establish dual enrollment programs that  allow high school students to begin earning college credits early, as well  as college preparation programs—like Indiana’s 21st Century Scholars — that could help students avoid taking remedial college courses that may  not count toward a degree. State aid programs may also help with  college preparation by raising awareness of the academic requirements  to get into college. For example, in a study of merit scholarships offered  to high school graduates in Alaska who planned to attend selected  colleges in-state, eligible students were prepared for a more efficient  college experience. They took far fewer remedial courses and enrolled  in more total credit hours on average than did their non-eligible peers.  Specifically, the study shows that after one semester, the average  scholarship recipient would have accumulated 13.2 credit hours toward a  degree compared to 8.5 hours for a non-recipient, which brings them  closer to a full-time schedule of 15 credit hours.
Another state or public college policy to minimize students’ time-to-degree  focuses on granting credit for knowledge gained outside of the classroom,  which can ultimately reduce the overall cost of college. This can include  taking tests to demonstrate knowledge or skills developed through work  experience or prior learning. According to a survey of public college  students at about 15 large public colleges, 22 percent of students chose  to take tests for course credit instead of paying to take the actual  courses. Known as competency-based education, this effort has  recently gained traction at the national level, as Education recently invited  colleges to participate in a research study involving this type of policy.
section_title: Current Federal Higher Education Programs Engaging with States Are Limited, but Various Approaches Could Help Expand Federal Incentives to States to Improve College Affordability
subsections: section_title: Federal Higher Education Programs are Targeted More at Student Financial Aid than Programs Involving States on College Affordability
paragraphs: Current federal funding for higher education is primarily targeted at  supporting students rather than on collaborating with states on higher  education policies affecting affordability. In fiscal year 2013, for example,  Education provided over $136 billion directly to students through loans,  grants, and work-study to help cover the costs of higher education  through seven different federal programs. That same year, Education  spent a relatively small amount, $358 million, on two higher education  programs that we found could be related to college affordability and that  involve states: 1) the College Access Challenge Grant and 2) the Gaining  Early Awareness and Readiness for Undergraduate Programs (GEAR  UP). These two programs provide grants to states and are targeted at  increasing access and success for low-income students in higher  education:
The College Access Challenge Grant program was a formula  matching grant that provided funding to states based, in part, on the  relative number of state residents between the ages of 5 and 17 and  between the ages of 15 and 44 who are living below the applicable  poverty line. Funds could be used to provide information to students  and families on financing options for college, provide need-based  grant aid to students, and conduct outreach activities for students who  may be at risk of not enrolling in or completing college, among other  uses. To receive grants under the College Access Challenge Grant,  states were required to maintain their funding commitment to higher  education—at a level equal to the average amount provided over the  5 preceding fiscal years for public colleges—through a maintenance  of effort provision. States had the option to apply for a waiver from  this requirement. In fiscal year 2013, $142 million was appropriated  for the program, and of this amount, only $72 million was provided to  states because not all states met the maintenance of effort  requirements for receiving grant funding, according to Education  officials. Education’s authority to award grants under this program  expired at the end of fiscal year 2014, further limiting federal  incentives to states to improve affordability.
The GEAR UP program provides competitive matching grants to  states, as well as to partnerships composed of local educational  agencies, colleges, and other community organizations or entities.  The program is intended to encourage grantees to provide support to  assist low-income students prepare for and succeed in postsecondary  education. State grantees are required to use GEAR UP program  funds for a variety of required activities, including providing  scholarships and encouraging students to enroll in rigorous  coursework to reduce the need for remedial coursework at the  postsecondary level, and grantees are also permitted to use grant  funds for certain other purposes. These activities could improve  affordability by helping students obtain financial aid to cover higher  education costs or reducing the amount of time necessary to complete  a degree. In fiscal year 2013, $286 million was appropriated for the  program, and of this amount, almost $123 million was provided for 34  state grant awards and over $163 million was awarded to partnership  grants.
In addition to the programs listed above, Education officials said that they  currently draw attention to college affordability through consumer  information and ad hoc communication such as letters to state governors,  speeches at conferences, and speaking with state officials at other  venues.
section_title: Several Potential Approaches Were Identified That Could Be Used to Incentivize States to Improve Affordability
paragraphs: Based on interviews with experts and organizations as well as our review  of Education documents and relevant literature, we identified three  approaches that could be used to incentivize states to improve college  affordability. While not mutually exclusive or exhaustive, our research  identified these possible approaches to incentivize state action: the  creation of new grant programs, informational activities, or changes to  federal student aid programs. Lessons learned from current or past  programs can be instructive in identifying potential advantages and  implementation considerations associated with these approaches.  Moreover, some experts and organizations cautioned that the approaches  could have cost implications for the federal government and  consequences for students.
subsections: section_title: Grants
paragraphs: A majority—18 out of 25—of experts and organizations we interviewed  cited federal grant programs, such as providing grants for state student  aid, as an approach that could be used to encourage state policies that  improve affordability. The federal government uses grants to stimulate  or support a variety of activities at the state level, and our prior work has  shown that these grants represent a significant component of federal  spending. Grants may have a matching component that requires the  grant recipient to provide funding along with the federal government.  Furthermore, grants have already been used in several higher education  programs, such as Leveraging Educational Assistance Partnership  (LEAP), GEAR UP, College Access Challenge Grant, as well as in K-12  education through programs such as Title I funding and Race to the  Top.
Grants can help spur innovation or state-level investment, and they can  be a useful tool when states do not have sufficient resources to fully  support a certain activity that has public benefits. Both competitive and  formula grants have been used to support current and past state-level  education programs. In K-12 education, there are several grant programs  to support state and local education efforts. For example, Education spent  almost $14 billion on Title I grants to school districts in fiscal year 2013,  and our prior work has found that funds have supported a variety of  initiatives related to instruction in selected school districts. We have also  found that competitive Race to the Top grants have supported the  development of teacher evaluation systems in 12 states. For higher  education programs, the LEAP program provided formula matching  grants to states to fund state need-based student aid grant programs prior  to fiscal year 2011. According to a 2006 report, the LEAP program  provided almost $66 million in federal funding, and states provided $840  million in funding, which exceeded the amount they were required to  match, for need-based grant programs in fiscal year 2005. When the  LEAP program was discontinued in fiscal year 2011, all states had a  need-based grant program for students, up from only 28 when the  program was first authorized as the State Student Incentive Grants in  1972. To help ensure that federal funding does not replace state  spending, some grant programs have maintenance of effort provisions,  which generally require that states maintain a certain level of funding.  According to Education officials, maintenance of effort provisions are one  lever the department has for certain grant programs it administers to  directly influence state spending. They stated, for example, that these  provisions in the College Access Challenge Grant program contributed  toward affordability goals because they incentivized some states to  maintain their funding commitment to higher education with a relatively  small investment from the federal government. Maintenance of effort  provisions were also used in Recovery Act funding for higher education,  and 16 out of 19 experts and organizations said that this funding helped  states alleviate budget cuts to higher education during the recession. Of  this group, four attributed this trend specifically to the maintenance of  effort provision associated with the funding.
In creating grant programs, it is important to consider how the program  would be monitored and administered. Our prior grants management  work has identified several challenges associated with grants to state and  local governments, such as difficulty in ensuring grant funds are used  appropriately and lack of agency or recipient capacity. There could be  additional challenges for grant programs with maintenance of effort  requirements. For example, Education officials also observed that states  may be more responsive to maintenance of effort provisions when larger  amounts of federal funding are associated with the provision, and funding  for the College Access Challenge Grant program was not large enough to  influence states to a significant degree. In addition, our prior work found  that maintenance of effort provisions have often been difficult to monitor,  and in 2009, we recommended that Education take further action to  enhance transparency associated with maintenance of effort provisions in  the Recovery Act. Creating new grant programs would also have cost  implications for the federal government and could have consequences for  students. Three experts and organizations we spoke with cited limited  funding as a challenge associated with this option, and one organization  indicated that the matching requirements for grant programs could create  incentives for states to increase funding in some higher education  programs while reducing it in others, which could affect students.
Education proposed a new grant program in its fiscal year 2015 budget  request, the State Higher Education Performance Fund, as a possible  way to incentivize states. This competitive grant program would reward  states that have a strong record of investment and states that show a  commitment to increasing support for higher education. States would be  required to match federal grant funds, and resources would be allocated  to institutions based on performance formulas developed by states. This  program has not been authorized by law. As mentioned previously, state  funding can be a significant source of revenue for public colleges, and  increased state support may have positive effects on affordability if public  colleges do not have to rely as much on revenue from tuition. However,  the ultimate effect of increased state support or maintenance of effort  requirements on college affordability depends on the extent to which  states or public colleges limit or refrain from increasing tuition.
section_title: Information
paragraphs: Providing information for consumers or on best practices is another  approach to influence behaviors, thinking, or knowledge in certain areas.  Information can be provided through a variety of methods, including  public communication or training. Education has undertaken efforts to  disseminate information on affordability to current and prospective  students which could help them make decisions on which colleges— including those that are state-supported—would provide a good value.  Education provides multiple sources of information, including the College  Navigator and College Scorecard websites, which help students compare  colleges based on various measures, such as costs. Additionally,  Education is currently developing a college ratings system to provide  students with information on the affordability of individual colleges.  Depending on its design, a ratings system could encourage colleges to  improve on measures associated with affordability to garner a higher  rating. One consideration with implementing this initiative may be  concerns about protecting student privacy. For example, we reported in  2010 that states were unclear whether they could disclose data on  individual college graduates to assess program performance without  violating requirements related to student privacy. In particular, student  privacy could be a concern when linking a student’s education record to  their employment records even if earnings and other employment  outcome data could help assess college affordability.
According to Education officials, the department has used training to  disseminate best practices to state grantees for GEAR UP programs. If  certain state policies are shown to be effective in promoting affordability,  the federal government may be able to use similar methods of providing  information to encourage the adoption of promising practices across  multiple states. However, as mentioned previously, various state policies  on college affordability show mixed results and others have only recently  been implemented, limiting the extent to which best practices may be  available.
section_title: Changes to Federal Student Aid Programs
paragraphs: Nearly half —11 out of 25—experts and organizations identified modifying  federal student aid programs as an option for improving affordability, but  modifications could also potentially have negative consequences for  students. Such changes could affect multiple parties, including public  colleges that must meet certain eligibility requirements before they can  receive and disburse federal funds to students. These suggestions  generally fell into two categories:
Tie a public college’s eligibility to participate in federal student aid  programs or the level of federal student aid its students receive to  certain state activities or the state’s level of investment in higher  education. For example, Pell Grant funding could be increased for  students attending public institutions in states that achieve certain  goals related to investment in higher education.
Create incentives for students to complete their degrees on time, for  example through changing Pell Grant eligibility requirements, which  Education officials said would require a change in statutory  authorization.
Education officials, experts, and organizations noted a number of  challenges associated with modifying federal student aid programs. One  such concern is inadvertently reducing students’ access to federal  financial aid. Because students are the ultimate recipients of financial aid,  restricting the aid flowing through states or colleges that do not meet  certain requirements could have the unintended consequence of reducing  aid for some students. Moreover, one organization indicated that this type  of policy change could face resistance from states or colleges. Similarly,  tying financial aid to students’ progress toward a degree could also have  negative effects on students. Education officials noted that changing the  definition of full-time enrollment from 12 to 15 credit hours per semester  could disadvantage students who have difficulty handling an increased  course load, such as students who need to work during the school year to  pay for college costs.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of the report to the Department of Education for  review and comment. Education provided technical comments, which we  incorporated as appropriate. We are sending a copy of this report to the  Secretary of Education. In addition, the report is available at no charge on  the GAO website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (617) 788-0534 or emreyarrasm@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix V.
section_title: Appendix I: Objectives, Scope, and Methodology
subsections: section_title: Overview
paragraphs: This report examines: (1) how state financial support and tuition have  changed at public colleges over the past decade, (2) how states’ higher  education policies have affected affordability, and (3) how the federal  government works with states to improve college affordability, and what  additional approaches are available for doing so.
In conducting this work, we analyzed trends in state funding for public  colleges, state student aid, and tuition using public sector data from  Education’s Integrated Postsecondary Education Data System (IPEDS),  National Postsecondary Student Aid Study (NPSAS), and the National  Association of State Student Grant and Aid Programs (NASSGAP)  databases. We assessed the reliability of IPEDS, NPSAS, and NASSGAP  data by (1) performing electronic testing of required data elements, (2)  reviewing existing information about the data and the system that  produced them, and (3) interviewing the managing organizations where  additional information was needed. We determined that the data were  sufficiently reliable for the purposes of this report. Data from all types of  public colleges were included in the analysis, including 2-year, 4-year,  and less than 2-year colleges. However, when analysis is provided by  college type, less than 2-year colleges are included only in the totals.  Private and for-profit colleges were excluded from this analysis. To  account for inflation, all monetary data are presented in school year 2011- 2012 constant dollars. In the report, we describe this inflation adjustment  as presenting data in constant 2012 dollars.
We also identified academic studies published in approximately the last 3  years (January 2011 through April 2014, when we conducted the  literature search) that are based on original research and discuss the  relationship between state-level higher education policies and college  affordability. We assessed the quality of these studies by evaluating their  research methods and determined that 23 studies were sufficiently  reliable for use in our study. In addition, we met with six academic  researchers who had recently published studies relevant to state higher  education policy or college affordability and were recognized as experts in  their field, as well as 19 organizations involved in higher education issues.  We also reviewed relevant federal laws, regulations, and agency  documents, including the Higher Education Act of 1965, as amended, and  selected Education budget requests. Lastly, we reviewed Education  documents on current higher education programs and policy research on  tools the federal government has used to incentivize states.
We conducted this performance audit from February to December 2014 in  accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Data Analysis
paragraphs: To provide information on sources of college revenue and state support  per student we analyzed institutional data from the finance component of  IPEDS for fiscal years 2003 through 2012. We used the institutional  characteristics component of IPEDS to obtain data on published tuition  prices for school years 2002-2003 through 2011-2012. We chose these  time periods because they were the most recent available data at the time  of our analysis and cover a 10-year span. IPEDS gathers data from every  college, university, and technical and vocational institution that  participates in federal student aid programs and therefore the data cover  the entire population of interest for this study.
NPSAS data were used to analyze trends in the amount of need-based  grant aid compared to non-need-based grant aid and to show net tuition  levels over time. As NPSAS compiled data at 4-year intervals during the  time frame of the data used in our report, data were used for school years  2003-2004, 2007-2008, and 2011-2012 to present the most recent  available data. NPSAS compiles student-level records on financial aid  provided by the federal government, states, colleges, employers, and  non-profit organizations. It also captures student demographic and  enrollment data for a nationally representative sample of all  undergraduate students, regardless of enrollment type, who are enrolled  in Title IV eligible programs during the relevant school year. Student data  are collected through Web-based self-administered surveys and  computer assisted telephone interviews.
Because NPSAS data are based on probability samples, estimates are  formed using the appropriate estimation weights provided with each  survey’s data. Because each of these samples follows a probability  procedure based on random selection, they represent only one of a large  number of samples that could have been drawn. Since each sample  could have provided different estimates, we express our confidence in the  precision of our particular sample’s results as a 95 percent confidence  interval (e.g., plus or minus 2.5 percentage points). This is the interval  that would contain the actual population value for 95 percent of the  samples we could have drawn. Unless otherwise noted, all estimates  cited in this report from NPSAS have 95 percent confidence intervals of  within +/- 8 percentage points for percentage estimates, and within +/- 8  percent of the estimate itself for other numerical estimates.
To provide state-by-state analysis of grant aid in appendix II, the  NASSGAP survey was used to show changes in the ratio of need-based  to non-need based aid for each state. The NASSGAP survey is  administered to states every year through an online instrument to collect  data on state-funded student financial aid programs administered during  the previous school year. NASSGAP reports that the data are collected  over a period of approximately 5 months. During this period, NASSGAP  follows up with any non-respondent state officials to ensure that data are  received from each state. In occasional instances where state officials do  not respond, NASSGAP creates expenditure estimates. Once the survey  is closed, the data are then checked for accuracy and consistency. We  downloaded the survey data directly from the NASSGAP website since its  online database is continually updated as errors and inconsistencies are  detected.
For this analysis we used data from school years 2003-2004 and 2011- 2012. This time period was chosen to provide the most recently available  data at the time of our analysis and to ensure data were consistent across  time periods, as the instrument was redesigned for the 2003-2004  collection cycle and earlier data may not be directly comparable. Since  data from each state are entered by a different representative, this  dataset has potential for reporting errors and inconsistency among states.  One such inconsistency is that not all states provided a breakout of aid  between graduate and undergraduate students, requiring NASSGAP to  estimate these data for some states. We therefore elected to present  combined graduate and undergraduate data in our state-by-state analysis  of grant aid in appendix II to avoid potential inaccuracies. With these  exceptions, limited use of the data was deemed appropriate for purposes  of our analysis.
subsections: section_title: Literature Review
paragraphs: To examine what is known about state higher education policies affecting  affordability, we conducted a literature search to identify relevant  academic studies. We searched various databases, including the  Education Resources Information Center (ERIC), ProQuest Education  Journals, ProQuest Research Library, and EconLit, as well as specific  websites of the higher education organizations we interviewed. We  selected academic studies published in the last 3 years (2011 onward) to  obtain the most recent research on relevant programs and policies. We  also included only studies that were based on original research and that  discussed the relationship between college affordability and higher  education policies led by states and publicly-funded colleges. We typically  did not include dissertations or conference presentations. Of the 145  studies our literature search returned, 25 met our initial criteria for review.  We then assessed the quality of these studies by evaluating the methods  used in the research, as well as any limitations, and verified this  assessment through a secondary review. Ultimately, we determined that  23 studies were sufficiently reliable for use in our study. We reviewed the  findings of these studies and presented the points most relevant to our  report, as appropriate.
section_title: Interviews of Experts and Organizations
paragraphs: To obtain a range of perspectives on all three of our research objectives,  we conducted semi-structured interviews with a non-probability sample of  25 experts and organizations. We selected these experts and  organizations based on their recognition in the higher education field,  relevance of published work, and professional affiliations with groups  applicable to our study. Specifically, we selected experts and  organizations that met at least one of the following criteria: 1) published  recent and relevant empirical work or data analysis of higher education  finance issues, 2) are leaders of active higher education or state policy  associations, 3) are implementers or sponsors of policies or experiments  related to college affordability, or 4) were recommended by Education. In  addition to these primary criteria, we also considered whether the experts  or organizations were recommended by other parties, represented a  unique perspective on the topic, or served as a Congressional witness at  hearings on college affordability in recent years. We prioritized experts  and organizations that met multiple criteria. Of this group, 19 were  organizations involved in higher education issues, including those that  that represent public colleges, states, or students, and others that  sponsor or conduct research on higher education finances. We also met  with six academic researchers who recently published studies relevant to  our research objectives. The perspectives of these experts and  organizations cannot be generalized to represent the views of all  stakeholders involved in college affordability issues; however, they offer  perspectives from diverse and wide-reaching areas of the higher  education community.
section_title: Identification of Approaches for Incentivizing States
paragraphs: For our third objective, we examined how the federal government  collaborates with states on affordability issues and potential approaches  to incentivize states to improve college affordability. First, we reviewed  information on Education’s higher education programs, literature on  higher education funding, and interviewed Education officials, academic  experts, and organizations to understand the current relationship between  the federal government and states on higher education issues. We also  reviewed Education’s FY 2013 Annual Performance Report and FY2015  Annual Performance Plan and fiscal year 2015 budget documents to  identify the agency’s goals and proposals related to college affordability.  We then examined which general mechanisms are available to the  federal government to incentivize states by reviewing a widely recognized  public administration framework used in prior GAO analyses: The Tools of  Government: A Guide to the New Governance. Based on this analysis  and our review of proposed education programs, perspectives from  experts and organizations, and relevant GAO work on these topics, we  identified the approaches that were most applicable to our research  objective and their potential advantages and implementation  considerations.
section_title: Appendix II: Trends in State Grant Aid to Students and Sources of Revenue for Public Colleges
paragraphs: The map below illustrates how states have shifted toward awarding either  more need-based grant aid or less by depicting the percentage-point  change in need-based aid between school years 2003-2004 and 2011- 2012. Among the states with the largest percentage-point increase in  need-based aid were Massachusetts, Nevada, and Michigan while those  with the largest decrease were Wyoming, Utah, and New Hampshire.
To provide more context on trends in revenue for public colleges over  time, the following table shows total public college revenue as well as  revenue from each source from fiscal year 2003 through 2012.
section_title: Appendix III: Bibliography
paragraphs: Baldassare, Mark, Dean Bonner, Sonja Petek, and Jui  Shrestha.”Californians and Higher Education. PPIC Statewide Survey.”  (San Francisco, Calif.: Public Policy Institute of California, 2011).
Baum, Sandy, Kathleen Little, Jennifer Ma, and Anne Sturtevant.  “Simplifying Student Aid: What It Would Mean for States.” (New York,  New York: College Board Advocacy and Policy Center, 2012).
Chatman, Steve. “Wealth, Cost, and the Undergraduate Student  Experience at Large Public Research Universities.” (Berkeley, Calif:  Center for Studies in Higher Education, University of California at  Berkeley, 2011).
Domina, Thurston. “Does Merit Aid Program Design Matter? A Cross- Cohort Analysis.” Research in Higher Education, vol. 55, no. 1 (2014):1– 26.
Dougherty, Kevin J., Rebecca S. Natow, and Blanca E. Vega. “Popular  but Unstable: Explaining Why State Performance Funding Systems in the  US Often Do Not Persist.” Teachers College Record, vol. 114, no. 3  (2012): 1-41.
Fethke, Gary.”A Low-Subsidy Problem in Public Higher Education.”  Economics of Education Review, vol. 30, no. 4 (2011): 617–626.
Goldrick-Rab, Sara and Nancy Kendall. “Redefining College Affordability:  Securing America’s Future with a Free Two Year College Option.”  (Madison, Wisconsin: The Education Optimists, 2014).
Hemelt, Steven W. and Dave E. Marcotte. “The Impact of Tuition  Increases on Enrollment at Public Colleges and Universities.” Educational  Evaluation and Policy Analysis, vol. 33, no. 4 (2011): 435–457.
Hillman, Nicholas W., David A. Tandberg, and Alisa Hicklin-Fryar.  “Evaluating the Impacts of ‘New’ Performance Funding in Higher  Education.” Forthcoming.
Jacobs, Christine, and Sarah Whitfield. “Beyond Need and Merit:  Strengthening State Grant Programs.” (Washington, D.C.: Brookings  Institution, 2012).
Jones, Jessika. “College Costs and Family Income: The Affordability  Issue at UC and CSU.” (Sacramento, Calif.: California Postsecondary  Education Commission, Report 11-02, 2011).
Mendoza, Pilar and Jesse P. Mendez. “The Oklahoma’s Promise  Program: A National Model to Promote College Persistence.” Journal of  College Student Retention: Research, Theory & Practice, vol. 14, no. 3  (2013): 397-421.
O’Brien, Colleen. “Expanding Access and Opportunity: The Washington  State Achievers Scholarship.” (Washington, D.C.: Pell Institute for the  Study of Opportunity in Higher Education, 2011).
Patel, Reshma, Lashawn Richburg-Hayes, Elijah de la Campa, and  Timothy Rudd. “Performance-Based Scholarships: What Have we  Learned? Interim Findings from the PBS Demonstration.” (New York,  New York: MDRC, 2013).
Poliakoff, Michael, and Armand Alacbay. “Best Laid Plans: The Unfulfilled  Promise of Public Higher Education in California.” (Washington, D.C.:  American Council of Trustees and Alumni, 2012).
Rae, Brian. “2013 Alaska Performance Scholarship Outcomes Report.”  (Juneau, Alaska: Alaska Commission on Postsecondary Education,  2013).
Sanford, Thomas and James M. Hunter.”Impact of Performance-funding  on Retention and Graduation Rates.” Education Policy Analysis Archives,  vol. 19, no. 33 (2011).
Scott-Clayton, Judith. “On Money and Motivation: A Quasi-Experimental  Analysis of Financial Incentives for College Achievement.”The Journal of  Human Resources, vol. 46, no. 3 (2011): 614-646.
Serna, Gabriel R. and Gretchen Harris. “Higher Education Expenditures  and State Balanced Budget Requirements: Is There a Relationship?”  Journal of Education Finance, vol. 39, no. 3 (2014): 175-202.
Tandberg, David A. and Nicholas W. Hillman. “State Higher Education  Performance Funding: Data, Outcomes, and Policy Implications.” Journal  of Education Finance, vol. 39, no. 3 (2014): 222-243.
Titus, Marvin A. and Brian Pusser. “ States’ Potential Enrollment of Adult  Students: A Stochastic Frontier Analysis.” Research in Higher Education,  vol. 52, no. 6 (2011):555–571.
Welbeck, Rashida, John Diamond, Alexander Mayer, and Lashawn  Richburg-Hayes. “Piecing Together the College Affordability Puzzle:  Student Characteristics and Patterns of (Un)Affordability.” (New York,  New York: MDRC, 2014).
Zhang, Liang, Shouping Hu and Victor Sensenig. “The Effect of Florida’s  Bright Futures Program on College Enrollment and Degree Production:  An Aggregated-Level Analysis.” Research in Higher Education, vol. 54  (2013): 746–764.
section_title: Appendix IV: Related GAO Products
paragraphs: Federal Student Loans: Impact of Loan Limit Increases on College Prices  Is Difficult to Discern. GAO-14-7. Washington, D.C.: February 18, 2014.
Community Colleges: New Federal Research Center May Enhance  Current Understanding of Developmental Education. GAO-13-656.  Washington, D.C.: September 10, 2013.
Higher Education: Improved Tax Information Could Help Families Pay for  College. GAO-12-560. Washington, D.C.: May 18, 2012.
Postsecondary Education: Financial Trends in Public and Private  Nonprofit Institutions. GAO-12-179. Washington, D.C.: January 26, 2012.
Federal Student Loans: Patterns in Tuition, Enrollment, and Federal  Stafford Loan Borrowing Up to the 2007-08 Loan Limit Increase.  GAO-11-470R. Washington, D.C.: May 25, 2011.
Postsecondary Education: Many States Collect Graduates’ Employment  Information, but Clearer Guidance on Student Privacy Requirements Is  Needed. GAO-10-927. Washington, D.C.: September 27, 2010.
Recovery Act: Planned Efforts and Challenges in Evaluating Compliance  with Maintenance of Effort and Similar Provisions. GAO-10-247.  Washington, D.C.: November 30, 2009.
Federal Student Aid: Highlights of a Study Group on Simplifying the Free  Application for Federal Student Aid. GAO-10-29. Washington, D.C.: Oct  29, 2009.
Higher Education: Tuition Continues to Rise, but Patterns Vary by  Institution Type, Enrollment, and Educational Expenditures. GAO-08-245.  Washington, D.C.: November 28, 2007.
section_title: Appendix V: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Meeta Engle (Assistant Director),  Charline Gay, Amy Moran Lowe, Jean McSween, John Mingus, Katherine  Morris, Amrita Sen, and Jack Wang made significant contributions to this  report. Also contributing to this report were James Bennett, Deborah  Bland, Jessica Botsford, David Chrisinger, Peter del Toro, Ashley McCall,  Sheila McCoy, Susan Offutt, Michelle Sager, Stephen Sanford, Anjali  Tekchandani, and Greg Whitney.