Posted on September 23, 2012
Looming federal cuts, tax credit expiration, Pell Grant reductions and an election have higher education leaders and advocates casting a worried eye to Washington.
"In the short run, things are going to be fine," said Terry Hartle, senior vice president for government and public affairs at the American Council on Education. "But, in the long run, there is much more uncertainty because there are so many unsettled fiscal and political issues jumbled together like a big plate of spaghetti."
That unpredictably is also part of another, ongoing national conversation about how to rein in the cost of a college degree.
In the next four months, two things are scheduled to happen: the sequestration cuts — a mandated $109 billion across-the-board spending reduction that passed in 2011 to encourage Congress to come to an agreement on the budget (which it hasn't) — will go into effect, and Bush-era tax cuts will expire.
Both of these will affect families paying for college — one by raising interest rates and fees on federal student loans, and the other by eliminating tax credits that allow students to do things like write off the interest paid to those loans, said Hartle.
Also in the pipeline? Next summer, student loan interest rates are set to double, and in April, Pell Grants are scheduled to take a 30 percent hit.
"We're about 49 days from the election — about a month and a few weeks — so obviously lots of things can change depending on whether there's a change in the administration," said University of Tennessee President Joe DiPietro. "It's all speculation, because who knows what things will happen in Congress."
Republican Sen. Lamar Alexander, onetime governor, president of the University of Tennessee and U.S. Secretary of Education, has pitched his own plan for easing higher education worry: Shift state finances from Medicaid to education.
Rather than requiring state governments to increase Medicaid spending each year, Alexander wants to let states decide how to spend that money — and most of them would choose to shift some of it back to education, he said.
"What happens now is the federal government orders the state on how much to spend on Medicaid," Alexander said. "It's called a maintenance of effort formula that says you can't reduce funding for Medicaid. So it limits the state's flexibility on how it can spend its own money. Most governors put higher education as a top priority, and it's not appropriate for those of us in Washington to tell the governor and the legislature what their priorities should be."
The idea, Hartle said, is a reasonable — if not politically charged — plan.
"Sen. Alexander put forward a thoughtful, analytically rational proposal, but it's one that's likely to be politically contentious if it were to advance," Hartle said. "No one likes cutting medical care that goes to low-income individuals."
It's a plan that Gov. Bill Haslam would be likely to support, said spokesman Dave Smith. Haslam has also recently dubbed higher education a top priority, spending the summer meeting with education and business leaders to evaluate the best way to graduate more, better prepared students.
"The governor agrees that the growing costs of Medicaid over the past three decades have squeezed out discretionary spending, and Higher Education has been impacted as a result," Smith said in an emailed statement. "He has advocated for more flexibility from the federal government to allow states to better manage Medicaid dollars. He has also said the state needs to be more intentional about how it funds post-secondary education."
Alexander insists the change in funding would not only keep tuition increases at a reasonable pace, but would also help solve the Pell Grant quandary. The program, which has been pumped up with temporary funding over the past five years, is set to be cut by a third in October 2013, Hartle said — which would affect students in the 2014-15 academic year.
That would likely lead to a reduction in the grant amounts or changes in who is eligible to receive them or both.
"If tuition is less, your Pell Grant buys more. So if tuition doesn't go up, the Pell Grant goes further," Alexander said. "The main reason Pell Grants go up ... is principally because federal Medicaid mandates causing states to reduce funding to colleges and universities. That's by far the biggest reason why Pell Grant doesn't buy more today than it did. It still buys quite a bit."
Nearly a quarter of all undergraduate students who attended UT-Knoxville in the fall of 2011 were eligible for Pell Grant funding, and about 36 percent of all Tennessee undergraduates attending public colleges and universities were eligible, according to data from the Tennessee Higher Education Commission.
Hartle said there is no movement to stave off the Pell Grant cliff or the pending student loan interest rate hike yet. However, he said, if Congress does decide to move on the issues, it would likely happen sometime next year.