STUDENT FINANCIAL ASSISTANCE

(Miscellaneous)

MONDAY, JUNE 24, 1974

HOUSE OF REPRESENTATIVES,

SPECIAL SUBCOMMITTEE ON EDUCATION

OF THE COMMITTEE ON EDUCATION AND LABOR,

Washington, D.C.

The subcommittee met at 10:10 a.m., pursuant to recess in room 2261, Rayburn House Office Building, Washington, D.C., Hon. James G. O'Hara (presiding).

Present: Representative O'Hara, Brademas, Gaydos, Lehman, Benitez, and Dellenback.

Staff present: Jim Harrison, staff director; Robert C. Andringa, minority staff director; John Lee, minority staff; Elnora Teets, clerk. Mr. O'HARA. The Special Subcommittee on Education will come to order.

This week the subcommittee plans to hear from distinguished spokesmen from four of the groups who have been looking at postsecondary education over the last several years and have issued recommendations which, whether we agree with them or not, form part of the context within which the subcommittee will have to deal with student financial assistance, and indeed, with most of the other issues we will have to deal with in the next year or so.

Today we will hear from four gentlemen who are involved in the studies that led to the issuance in October of 1973, by the Committee on Economic Development of a report entitled "The Management and Financing of Colleges."

Present with us today for the Committee for Economic Development are its president, Mr. Alfred C. Neal, Mr. William Eberle, the Special Assistant for Trade Negotiations for the President of the United States, Dr. Sterling McMurrin, former U.S. Commissioner of Education and now dean of the Graduate School of the University of Utah, and Dr. David Mundel of the J. F. K. School of Government at Harvard University.

Gentlemen, we would be very pleased to hear from you and are looking forward to a stimulating discussion this morning.

(133)

STATEMENTS OF ALFRED C. NEAL, PRESIDENT, COMMITTEE FOR ECONOMIC DEVELOPMENT; STERLING MCMURRIN, DEAN, GRADUATE SCHOOL, UNIVERSITY OF UTAH; DAVID MUNDEL, J.F.K. SCHOOL OF GOVERNMENT, HARVARD UNIVERSITY; AND WILLIAM EBERLE, THE SPECIAL ASSISTANT FOR TRADE NEGOTIATIONS, EXECUTIVE OFFICE OF THE PRESIDENT

Mr. EBERLE. Mr. Chairman, I am Mr. Eberle. If it is agreeable with you I would like to simply file this statement with you and to paraphrase it with some of the more important parts and then the four of us would be prepared to answer any questions.

Mr. O'HARA. Without objection, the statement will be entered in full in the record as will your original report, and you may proceed in whatever manner you please.

[The statement referred to follows:]

STATEMENT BY WILLIAM D. EBERLE, CHAIRMAN, SUBCOMMITTEE ON MANAGEMENT AND FINANCING OF COLLEGES COMMITTEE FOR ECONOMIC DEVELOPMENT Mr. Chairman, I am William D. Eberle and I am appearing here as chairman of the CED subcommittee which directed the studies and produced the policy statement on The Management and Financing of Colleges. My colleagues and I appreciate this opportunity to discuss the part of that statement which is concerned with issues of student financial assistance. Our discussion will be within a framework which is designed to provide adequate financing for the colleges.

If it is acceptable to you, I will deliver an abbreviated version of the written statement which you have before you. The four of us will then undertake to respond to any comments or questions that you may have. My colleagues are, from my right to left, Alfred C. Neal, President of the CED and at one time a college professor; Sterling M. McMurrin, project director of our study, Dean of the Graduate School of the University of Utah, and former Commissioner of Education; and Professor David S. Mundel, of the John F. Kennedy School of Government, Harvard University. This team represents, as did our subcommittee, experienced professional educators as well as business and college executives. The names of those responsible for our study are listed in the appendix to my testimony.

Let me say first that CED took on this project for what we consider good and valid reasons. Most of the CED trustees are in fact trustees of one or more colleges, and have a very sincere and dedicated interest in college education of the United States, in both private and public institutions.

As business people, the trustees know that the single largest ingredient that contributes to productivity in the business sector is education. Also we have a high regard for the contribution that higher education makes to society as a whole. For these and other reasons our purpose is to preserve and strengthen the colleges. I say "colleges" because our focus was on undergraduate education.

I might add that CED has done five previous statements on education, so this is no new field for us.

In the last few years, it has become increasingly apparent that the nation's higher education system-including institutions, governments, parents, and students has had and still must face serious financial problems. The first public evidences of these problems were the reports of college budget deficits and expenditures of capital funds to cover operating costs. Subsequent developments indicate that the character of the financial crisis facing American higher education is both larger and more complex than the simple difference between college revenues and expenditures. During the course of our research and deliberations, we identified several dimensions of financial trouble that led us to recommend changes in the financing of undergraduate higher education. Among the more important dimensions were the following:

college costs have grown more rapidly than inflation and will probably continue to do so in the future unless very significant improvements in productivity

can be made. Our working assumption was that increased support for the colleges would be limited to (a) offsetting inflation in the economy, and (b) covering only increases in costs resulting from higher enrollment.

public colleges find it increasingly difficult to secure needed increases in funds from state governments that face growing demands from other sectors. private colleges find that tuition increases produce diminishing financial yields unless substantial changes in their student body characteristics are accepted. government support has not been as well directed as it might be toward high priority socially-desired goals.

Given these dimensions, we sought to develop the outlines of a financing system that would overcome or, at least, ameliorate the impacts of this continuing financial crisis. We sought to identify the social and private objectives that higher education has been seeking to achieve; the social and private objectives that can be more fully achieved by alternating the patterns of support; and the system of financing that government support should seek to establish in order to further agreed upon purposes.

Six general purposes are served by higher education. Each of them relates to individual, institutional, and societal objectives and consequently each therefore serves as a basis for both private and public support. Public support policies should be carefully designed to maximize the achievement of each of these programs. The six purposes that underlie the CED's recommended policy are:

1. Generating and stimulating knowledge and learning.—The primary functions of an undergraduate education are teaching and learning. The generation of knowledge and the discipline of the intellect should be the principal orientation of college and university undergraduate programs.

2. Providing education for the achievement of specific social objectives.-Not only does education itself produce publicly-desired outcomes but it creates important manpower capacities to achieve other public objectives.

3. Creating an educated citizenry.-The strength of democracy in the nation depends to an important degree on an educated citizenry. The development and implementation of public policy and the discriminating intelligence essential to civic leadership generally demand more advanced, collegiate education.

4. Supplying trained men and women.-An important aspect of undergraduate education is the training of young men and women in order to increase their career performance in business, industry, education and government.

5. Advancing economic growth and productivity.-Economic growth and productivity are important determinants of the quality of life available to the nation's citizens. Without the increasing resources that result from educationallyinduced growth and productivity advances, social and private wants will not be adequately fulfilled.

6. Increasing equality of opportunity.-Education beyond high school is an important factor in determining an individual's chances of achieving economic and social success. Equality of postsecondary educational opportunity, therefore, is essential if individuals are to have a fair chance of moving into the mainstream of Americn life regardless of their family circumstances.

Each of the six basic purposes can be achieved by a wide variety of public and private financing mechanisms. No one mechanism appears best suited for supporting the achievement of all of these goals and consequently we recommend a mixed system of funding for both institutions and students.

Three criteria proved useful in arriving at our recommended financing policies: appropriateness, effectiveness, and efficiency. A funding mechanism or system is appropriate if it directs resources toward agreed-upon goals. It is effective if it moves us toward those goals. It is efficient if, with the resources available, it uses the way that moves us farthest toward our goals. Because of the complexity of the higher education system, applying these criteria is often more difficult than defining them.

These criteria indicated that the direct funding of institutions is the correct method for furthering the achievement of many of our goals, especially the first two. Education is, and should be, the principal purpose of undergraduate institutions. The most appropriate means of stimulating more education—both in terms of quality and quantity-is direct government support of colleges and universities. The effective and efficient means of delivering this support from state and local governments appear to be direct grants or appropriations to public institutions based on undergraduate enrollments and programs and direct contracts with private institutions where the capacity of public institutions is inadequate and private capacity is underutilized.

Although many reactions to the CED report have focused on its recommendation that tuition cover fifty percent of instruction cost in public institutions, the remaining fifty percent of instructional costs in public institutions would be provided largely by state and local government support of institutions. In fact, a majority of state and local funds would be supplied as direct institutional assistance within the CED-recommended financing scheme. The National Commission on the Financing of Postsecondary Education estimated that a financing proposal similar to that recommended by CED would result in 81 percent of state and local support being in institutional form by FY 1980.1

Both federal and state governments should support the expansion of programs designed to produce educated manpower necessary to meet specific social goals and solve particular social problems. These programs usually need to be developed prior to enrolling students and consequently government support of these programs should be directed to the institutions that provide them. The effectiveness and efficiency criteria point toward a recommendation for categorical grants for specific manpower development programs in higher education institutions. Minimizing the cost of producing additional manpower should be one criterion for awarding these grants; consequently, both public and private institutions should be eligible for such categorical assistance. Thus, the CED recommended: ... a system of federal and state categorical grants to both public and private institutions to fund special educational programs designed to meet particular social objectives where those programs cannot be financed from regular budgets or private grants.

The third, fourth, and fifth purposes of higher education are ones in which an individual's quest for education parallels society's interest in more education for higher citizenship, more skilled manpower, and greater economic growth. Given this mutuality of interest, the criteria of appropriateness point toward government support through direct assistance to students. Student assistance is also more appropriate for achieving these purposes because it is more likely to encourage colleges and universities to be responsive to the education goals and needs of individual students. Thus, student assistance is likely to complement, rather than compete with, the basic desires that motivate individuals toward education and result in higher achievement of these socially-desired outcomes.

2

The effectiveness and efficiency criteria for these three goals argue for forms of government financial assistance to students that are targeted toward students and families whose choices will be most influenced by support offered. Evidence presented by the National Commission shows that the impact of financial support on student decisions is greatest for those with low family incomes and diminishes at higher family income levels. Although they are not based on behavioral studies, the financial aid advisory services of both the American College Testing Program (ACT) and the College Scholarship Service (CSS) estimate that student and family capacities to pay for higher education increase with increases in family income.

Table 1 (below) shows that the current system of supporting students does not demand dramatically different proportional support from families at different income levels. Effectiveness and efficiency call for a government assistance policy which provides additional resources for higher education rather than one that simply replaces private resources that students and families would have provided in the absence of government support.

1 Financing Postsecondary Education in the United States, NCFPE, p. 265.

2 Financing Postsecondary Education in the United States, Chapter 8. Carlson, et al., "A Framework for Analyzing National Policies for Financing Postsecondary Education,' May 1974 (draft).

TABLE 1.-SOURCES OF DIRECT SUPPORT PER COLLEGE STUDENT (1971-72/1972-73)

1 Derived from "Student Resource Surveys" conducted by the College Entrance Examination Board. 2 Totals do not include allocation of indirect government support; e.g., through income tax deductions for dependents nor support through government benefit programs to families; e.g., social security.

The average awards resulting from current grant and scholarship programs shown in Table 1 are both small and relatively-weakly targeted. Approximately 95 percent of these grants result from government sources of support.

In order to be effective student grant programs need to be carefully designed and easily understood by prospective students and their families. The federal government's existing predominance in student assistance should make its programs the basis on top of which state student assistance programs are built. Because of the generally small and undeveloped character of state student assistance programs, we recommend that increases in tuition in public institutions be phased in over a period of five to ten years. This time period will allow the recommended state student assistance programs to be fully funded and operational, before the full impact of the recommended tuition increases is felt.

In order for student assistance to have a maximum effect on students from low income families and to have a minimum influence on decisions of unassisted students, students and families from all income levels must have access to loan funds. Table 1 shows that average support from loans is currently small and relatively constant across income groups. If middle- and upper-income students and families are to finance a greater share of their college costs, as we believe appropriate, the loan market must ensure that these families as well as low- and moderate-income families have access to capital. Consequently, the CED recommended:

. . an expanded federally operated student-loan system to provide students and their families access to supplemental funds.

The sixth purpose of higher education is equalization of opportunity. In spite of increasing discussion and agreement on this goal, and the frequent justification of current government financing policy on the basis of furthering it, the enrollment rates of low- and moderate-income students have remained far below those of students from higher income families and the disparities have not been reduced. This pattern, presented in Table 2 (below), shows that college enrollment rates of 18-24 year olds is more than three times higher for those from families with incomes of $15,000 or more than for those from families with $5,000 or less.

3 "Financing Postsecondary Education in the United States." NCFPE, page 9. The National Commission on the Financing of Postsecondary Education estimated that only $348.2 million of state resources was allocated to student assistance in 1972-73. "Financing Postsecondary Education in the United States," NCFPE, page 96.