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Executive Summary
The Context: State Budgeting and Higher Education's Vulnerability
The Continuing Battle to Sustain Current Support for Higher Education
Recent Experience: The Recession of the Early 1990s
What's Different?
Unprecedented Enrollment Growth
The Tuition Conundrum
Student Support
Concluding Observation
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Executive Summary

The current recession, which coincides with a surge in college enrollments, will test our nation's values and priorities. If state budgets remain tight or become even tighter--at a time when college has become the gateway to full participation in American life--will the states and colleges maintain college opportunity for Americans?

No one can answer that question today. But a look at the recession of the 1990s brings some tough lessons for state policymakers seeking to preserve opportunity for their residents:

  1. When revenue shortfalls are allocated among state services, higher education is likely to absorb larger cuts than other sectors. Public higher education must compete with KŠ12 schools, welfare, Medicaid, corrections, and other services for state funding. Relative to these other services and agencies, colleges and universities are perceived by state policymakers as having more fiscal and programmatic flexibility. For instance, many higher education institutions have separate budgets, revenue streams, and reserves.

  2. When higher education faces cuts in state funding, the state and higher education institutions are likely to shift shortfalls to students and their families by raising tuition. Formulas for setting tuition are early victims of tight budgets. The steepest tuition increases in the public sector have occurred during recessions as states shift their costs to users, including students and their families.

  3. During a recession, states are unlikely to make new or additional investments in student financial aid that will offset increases in tuition. Indeed, student aid may be reduced. For example, in California over the first three years of the 1990s' recession, state support for public higher education was reduced. The higher education institutions raised tuition, while state-funded student financial aid was decreased by 15%. One result of these and related policies: California's public institutions served some 200,000 fewer students.
What's Different about the Current Recession?

One difference is "good news": the robust financial condition of higher education. National averages can conceal unevenness among sectors, institutions and states, but in general the decade of the 1990s was the best of times for public higher education. After accounting for inflation, average revenues per student increased to an all-time high during the decade. But there are three significant challenges:

  1. Enrollment Growth and Diversity. States that experience budget shortfalls in this decade will face a situation quite different from that in the last recession: the new fiscal constraints will come during a period of growing enrollment demand. Over the next 10 years the student body will also become increasingly diverse. It will include larger proportions of students from low-income families and from historically underrepresented ethnic groups.

  2. The Dilemmas of Tuition Policy. Tuition for public higher education is on a roller-coaster pattern: When state funding is sufficient, tuition tends to remain stable or is even reduced. But when higher revenues are needed or when state support falls below expectations, tuition is increased. One generation of students coasts downhill with stable or even declining real tuition charges; the next labors uphill with the increased price. And it's the students who enroll during difficult economic conditions who face the uphill climb.

  3. The Mismatches Between Public Policies of the 1990s and the Needs of the New Decade. During the next decade, the cohort of prospective students will include larger proportions of students from low-income families and underrepresented ethnic groups. Yet the major policy initiatives of the 1990s in higher education did not focus on the needs of these groups. Many states established or increased support of non-means tested ("merit") student aid programs. At the federal level, establishing the tuition tax credits was the major initiative of the 1990s. Both merit-based student aid and tuition tax credits are likely to have at most a marginal impact on the enrollment of underserved populations; these programs generally benefit those with middle- and upper-middle incomes.

The Stakes Have Never Been Greater

The current recession coincides with the third great wave of college enrollments. This generation of students will be the most ethnically heterogeneous--and the poorest--ever to seek higher education. It will require extraordinary effort for states and colleges and universities to meet the needs of these students, even if the economy avoids a prolonged downturn. The public policy initiatives of the 1990s did not position the states to meet the demands of the coming decade. Nevertheless, the assets that states and their colleges and universities bring to this new era should not be underestimated. What will the states and colleges choose to protect during a time of difficult choices? The stakes in maintaining and enhancing college opportunity have never been greater.


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© 1998 The National Center for Public Policy and Higher Education

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