Ever since the White House announced its Build Back Better proposal last spring, college and university leaders have closely followed its progress through Washington, given the potential transformative policies on the table. To help higher ed leaders navigate this uncertain but potentially landmark moment for the industry, EAB prepared a federal policy outlook and summary of the four legislative proposals we are watching most closely.
Fall 2021 federal outlook: At least part of Democrats’ bold plans for higher ed is likely to materialize
If enacted as envisioned, Build Back Better would constitute the greatest change in federal higher ed policy in a generation. As originally proposed, the Biden Administration’s plan would:
- Provide tuition-free community college in partnership with states
- Offer two years of subsidized tuition for families making less than $125K at designated Minority-Serving Institutions (MSIs) serving Pell populations greater than 35%
- Simultaneously increase the maximum Pell grant by $1400
- Expand federal research and development (R&D) spending to an unprecedented degree
- Create a federal student completion fund
- Invest in campus infrastructure
But the fate of Build Back Better is now in the hands of Congress as the proposal works its way through Capitol Hill, and its final passage is far from guaranteed. Currently, the Democrats are pursuing a two-track legislative and political approach to pass the Build Back Better agenda:
- The first track is the $1T Bipartisan Infrastructure Plan—this package contains no direct higher ed spending, although it does have a few passthrough and adjacent provisions.
- The second track is the $3.5T budget reconciliation package—the legislative vehicle that would contain higher ed provisions and could pass the Senate by a simple majority, permitting it meets budget reconciliation rules. Both the Senate and House passed budget resolutions that set up the reconciliation process and outlined policies to include.
Where’s the bill right now? Getting watered down in committees and subject to larger compromises. At present, higher ed provisions are being drafted by the key authorizing committees, mainly House Education & Labor and Senate Health, Education, Labor, & Pensions (HELP). Last week, the House released their draft legislative text, which would greatly reduce Pell grant increases (from $1400 to $500) and the student completion fund size in exchange for the tuition-free community college and subsidized tuition at eligible MSIs. Senate HELP is expected to release its draft in the coming days, likely making more significant cuts and compromises. It cannot be emphasized enough how important the details are as even tiny changes to the federal-state cost-share formula or MSI tuition subsidy will greatly impact program efficacy and institutional cost burden.
While the committees sort out details, the paramount constraint will be the package’s topline dollar amount and the extent it is paid for by new taxes or spending cuts. Senator Manchin made clear he will not support a $3.5T bill, and perhaps no more than a $1.5T bill. Other moderate Democrats also express reservations about the package size and specific measures. This downward pressure on the overall price tag will limit, if not curtail outright, higher ed proposals, especially if more expensive healthcare and pre-K provisions are prioritized (a classic conundrum for higher ed policy).
So, what then can higher ed leaders expect? Congress is an immensely unpredictable institution by nature, and our educated guess here is just that: a guess. In terms of timing, the package is unlikely to be ready for passage until later this fall, and delays should be expected. Our current assumption is that higher ed is likely to get something, but unlikely to get everything, with a modest bias towards transformational over incremental change.
Assuming the overall package size is the rate limiter and the best proxy for compromise between moderate and progressive contingents, we foresee four macro legislative scenarios:
|1. Full enactment||>$3T||
|2. High-end partial enactment||$1.5-3T||
|3. Low-end partial enactment||$0.5-1.5T||
|4. No deal/incremental spending||<$0.5T||
4 transformational policy proposals at a glance
Build Back Better contains numerous provisions that could directly and indirectly impact colleges and universities. While the details—much less the politics—are very much in flux, these four proposals would be the most consequential for the industry writ large. For each proposal, we summarize the policy-in-brief and offer macro implications for higher ed leaders.
- The proposal creates a new Title VII program that abolishes student tuition and fees at institutions whose highest or predominant degree is at the associate’s level, starting in 2023.
- The grant program works on a first-dollar basis, so students remain eligible for additional Title IV aid (e.g., Pell grants) stackable on top of $0 tuition and fees.
- Tuition and fees are zeroed for students through a per-student (based on full-time equivalent enrollment) grant shared between the federal and state government. The grant is indexed to median resident community college tuition and fees in all states (~$4500), unweighted based on enrollment. In the first year, the federal government will pay 100% of the grant with it prorated down to 80% by 2027 with states making up the remaining share. States must also cover the remaining balance after the cost-share grant is applied. The grant size annual increase is linked to the Consumer Price Index but will not exceed 3%.
- For a hypothetical example of how it works: If tuition costs $2000 in a given state and the federal-state grant amounts to $1500 per student, the state must pay the 20% share of $1500 ($300) plus the remaining $500 it would take to zero out tuition and fees for a total of $800 per student in additional spending.
- States with above-median tuition will need to close an unfunded mandate. Accepting the grant requires them to zero out tuition and fees without double counting or reducing most existing state support. States with below-median national tuition will still need to meet their 20% cost-share requirement, but they can use any surplus federal grant to provide additional need-based aid, meet unmet need at 4-year institutions, invest in student success, and/or expand dual enrollment.
- Eligible students must attend an eligible undergraduate program, enroll at more than a half-time basis, qualify for in-state/in-district tuition (not factoring in immigration status), receive tuition-free benefits for no more than six semesters, not participate in dual enrollment, and complete the FAFSA if a U.S. citizen.
- The benefit is not means-tested based on family or individual income, expected family contribution, or student aid index.
- States must apply for the program and can opt out. As a condition of participating, states agree to charge $0 in tuition and fees, impose no restrictions on student eligibility outside of residency, align secondary education with community college entrance requirements, ensure full transferability of associate degrees, improve transferability of individual courses, and grant reverse transferability between community colleges and public 4-year institutions.
- States enter into a maintenance-of-effort provision that requires them to preserve public fiscal support on a per-student basis for both institutional and student financial aid based on the three prior years of funding. This also includes public 4-year operating budgets and capital support.
EAB’s initial assessment of industry impact: The policy would be a win for higher ed access, but institutions would face unfunded mandates to scale academic and student support
Federal tuition-free community college would significantly alter and disrupt enrollment patterns and institutional operations across the industry, not just community colleges. The size of the enrollment impact will depend on three variables:
- First, the number of new students brought into the market (i.e., the rate of nonconsumption).
- Second, changes in student enrollment preferences between community colleges and 4-year institutions.
- Third, student completion and success rates. These exact numbers are subject to tricky econometric and student behavior assumptions, but the best literature suggests this will result in a substantial increase in new students of around 500K to 1.2M at community colleges. This will likely be on the lower end of expectations and produce a slight, yet noticeable, shift from 4-years to 2-years.
As this program requires state buy-in and most likely more spending, some states will balk at the program and opt out—the exact number will depend on how generous the cost-share formula is and the state-level political reaction. There is some risk that state fiscal support for 4-years will be either constrained further or cut as a result of the added cost burden imposed by the program—despite the tough maintenance-of-effort—and supplement, not supplant provisions incorporated into the legislation. It will also take time for the Education Department to implement the tuition-free plan, and there will undoubtedly be significant uncertainty around rule interpretation and added administrative/compliance burdens for institutions to navigate.
For community colleges, this program presents an unprecedented mission opportunity to broaden their enrollment reach within their regions. However, it may also impose new unfunded mandates, especially when it comes to scaling academic and student support services. The success mission will become even more crucial, but it will require new investments to orient campus to drive success across a suddenly larger student population and build effective guided student pathways. For 4-year institutions, constructing integrated transfer pipelines will be paramount. More broadly, all regional institutions will experience downward pricing pressure and will need to prove and differentiate their value to many students and families.
- This policy creates a new Title VII program to provide undergraduate tuition assistance at eligible Historically Black Colleges and Universities (HBCUs), Tribal Colleges and Universities (TCUs), Native American-Serving Nontribal Institutions (NASNTIs), Asian American and Native American Pacific Islander-Serving Institutions (AANAPISIs), Hispanic-Serving Institutions (HSIs), and Predominately Black Institutions (PBIs), starting in 2021.
- The grant amount is equal to the number of eligible students multiplied by median resident community college tuition and fees in all states (~$4500). The grant size annual increase is linked to the Consumer Price Index but will not exceed 3%. The grant to institutions will also be adjusted to account for student enrollment status.
- Students are eligible for their first 60 credits and must be considered low-income (likely defined as Pell-eligible or equivalent). Eligible students also must have been enrolled for six or fewer semesters and filed a FAFSA if a U.S. citizen, although non-U.S. citizens are eligible for the tuition subsidy.
- Institutions who accept the grant agree not to raise first-year tuition and fees at a rate greater than their average increase over the prior five years.
- Eligible institutions must meet all the statutory requirements of their MSI designation, be a 4-year public or private nonprofit, and serve a student population that is 35% Pell-eligible or the equivalent. Institutions can only receive one grant, even if they hold multiple MSI designations, and their eligibility will be assessed annually.
- Any additional grant funds left over may be used to award further student financial aid.
EAB’s initial assessment of industry impact: The policy would drive demand at MSIs, but broader enrollment pattern alterations remain unknown
This would be an unprecedented federal action to promote equity in post-secondary education, helping to provide further federal student aid to low-income students and institutions that serve large populations of historically underrepresented and disadvantaged students. Much of this policy will need to be defined by the Education Department as the legislation gives substantial room for regulatory interpretation. For recipient institutions, there will be added administrative complexities and burdens associated with managing this grant, but it would provide significant enrollment and fiscal support.
More broadly, this has the potential to alter enrollment markets as the federal government will for the first time be subsiding student demand at specific institutions rather than the universal voucher that Title IV aid offers. The exact number of eligible colleges and universities is unclear, but likely between 150 to 300 institutions will be eligible, potentially ranging from large flagship research institutions to very small privates. Even within public systems, some institutions will be eligible while others will not, creating new interinstitutional and enrollment dynamics.
The grants are indexed to community college tuition and fees, not 4-year tuition and fees, so that will reduce their subsidy power. Nonetheless, the grants work on a first-dollar basis allowing other Title IV, state, and institutional aid to be stacked upon the tuition grant, providing significant additional aid to the students who need it the most. As the grants are clocked out after the first 60 credits, this may inadvertently create a “financial cliff” where students face a significant cost increase for their final 60 credits, potentially creating a retention challenge and requiring institutions to cover the remaining unmet need.
- The White House proposed increasing the maximum Pell grant award by $1400 (20%), from $6495 to $7895. However, the House Ed & Labor draft legislation offered only a $500 increase to $6995.
- Title IV aid eligibility would be extended to DACA students.
- Some higher ed associations and lobbying groups have proposed doubling maximum Pell grant award, but neither the White House nor congressional leadership has pushed for its inclusion in Build Back Better.
EAB’s initial assessment of industry impact: Incremental changes to Pell will not meaningfully change access for underserved students
The changes to existing Title IV programs are far more incremental than transformational as the focus has largely been on new programs like America’s College Promise rather than existing programs. This will likely remain true unless moderate Democrat pushback on tuition-free community college results instead in larger increases to Pell. For many institutions, an incremental increase in Pell will be a disappointment as it will do little to restore Pell’s purchasing power while continuing to underserve lower-income students and families, especially at 4-year institutions.
- The White House proposed a new federal fund to invest in the student completion and retention mission at under-resourced institutions that serve low-income students. The Biden Administration’s original $62B proposal is unlikely to be matched by Congress, who are likely to appropriate no more than $9B for retention and completion grants under Title VII per House Ed & Labor draft legislation.
- Grants would be competitively awarded to states and tribes to fund initiatives that improve outcomes for underserved and low-income students.
- States, territories, and tribes determine where investments are made within federal guidelines, but they have to opt in, match funds in some cases, and gather data. Funds operate on a supplement, not substitute basis.
- The proposal and statutory language are thematic around student success best practices. Key enumerated areas are:
- Holistic student support services
- Advising and mentoring
- Emergency and success grants
- Dual enrollment
- Diverse faculty recruitment
- Improved 2-year to 4-year transfer
EAB’s initial assessment of industry impact: The policy would be funded at levels too low to support greater student success needs arising from tuition-free community college
If enacted as proposed, this would federalize the student success mission and provide new pathways for states to build critical support infrastructure and success initiatives across public institutions. However, there doesn’t appear to be enough political and fiscal room within Build Back Better to fund it at the necessary level. $9B would still be significant but, given the added success imperatives associated with tuition-free community college, woefully inadequate. This could result in a situation where the necessary success investment costs fall to cash-strapped institutions in the form of an unfunded mandate.
Moreover, states control the grants, not institutions, which could lead to a mismatch of priorities, added bureaucracy, and coverage gaps. There is the potential that more success funding would be bundled into future discretionary budgets, perhaps through TRIO and SIP grant programs, but that will remain to be seen.
Need guidance on future legislation?
If the legislation passes, we will hold a webinar to tackle the implications and discuss financial strategy with higher ed leaders. Email us to join our webinar pre-registration list.