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A college degree is invaluable in today's world. Making it affordable is the challenge.

New parents have a lot to worry about. So the immediate needs of a young child usually take precedence over future concerns. But with the price of college skyrocketing, many new parents should worry about how they're going to pay for their baby's college education.

Families have a number of investment options, such as college savings accounts and prepaid tuition programs. But no matter how they choose to save, the earlier they start the better. college today costs twice as much as it did 20 years ago--even after adjusting for inflation. Over the last decade alone college tuition has gone up 50 percent.

At the same time, college degrees are becoming more important. sixty-two percent of all parents believe that a college education is absolutely necessary for their children to be financially successful adults, according to a recent survey from Public Agenda.

"A college education is now the sine qua non of full participation in the economic and civic life of the nation," says Pat callan, president of the National center for Public Policy and Higher Education.

Once a high school degree was sufficient for economic success, but there are fewer jobs now available to those without a bachelor's degree. And in many fields--such as science and engineering--you may need an advanced degree just to get started.

Students today pay about $3,510 a year in tuition and about $5,000 in room and board to attend a state public university, according to the college Board. If they want to go to an Ivy League school, they'll pay 10 times that amount.

A record number of students--more than 5.4 million or one in every three--now need loans to attend college. They can expect to be paying back those loans for five, 10, even 20 years, especially if they've pursued an advanced degree. To avoid huge college debt, there's a trend to work full-time and attend college part-time. As a result, many students are taking longer and longer to graduate; finishing a degree in four years is almost an exception.


Legislators are working to solve this problem, but they also have helped to create it. Even though most legislatures do not directly set rates, state fiscal policy significantly affects tuition levels. As one of the few discretionary items in state budgets, lawmakers can cut higher education appropriations more easily than they can other items, Medicaid, for example, or corrections. And legislators often are more willing to do it since higher education funding, unlike other budget items, has other sources of revenue available to it--specifically tuition. This has been the pattern over the past 20 years.

Higher education budgets and tuition are intimately related to the state of the economy. In good times, higher education does well, and tuition remains stable. But during an economic downturn, states tend to reduce higher education funding, and tuition rises. This occurred in the late 1980s and early 1990s when states dramatically reduced state budget allotments to higher education from an average of 13 percent in 1988 to less than 9 percent in 1996.

Another way of looking at it is to compare how the sources of revenue to higher education have changed. Although states have spent more on higher education overall, the state piece of the pie has been getting smaller. State appropriations made up 40 percent of all higher education revenues in 1988. In 2000, it was only 30 percent. During the same time, tuition rose from 15 percent to nearly 20 percent.

"As a society, we are disinvesting in higher education," says Randy Hitz, dean of the college of Education at the University of Hawaii at Manoa. "Instead of viewing higher education as a common good and providing an affordable college education, we are transferring the responsibility to the individual, and that is unfortunate."


At one time people could be financially successful without going to college or a trade school, but today's economy and changing times now make it almost necessary to participate in some type of education or training beyond high school. People with bachelor's degrees earn 81 percent more than those with high school diplomas, according to College Board figures. Over a lifetime, the gap in earning potential exceeds $1 million. Students from families at the bottom of the economic ladder tend not to finish college and are more likely to be minorities. Some 70 percent of whites go on to college after high school, but only 58 percent of black and about 53 percent of Hispanic students do.

As demographics change and minorities make up a larger percentage of the population, the effects of this disparity will become more damaging. States benefit, both economically and socially, from an educated population. They spend about $61 billion annually on higher education. And until now, there has not been a way to measure how well states have done to ensure that anyone who wants to go to college can and will succeed once there.

Measuring Up 2000, the first-ever report card developed by the National Center for Public Policy and Higher Education, grades states on several dimensions of higher education: affordability, completion, preparation, participation and economic returns. Utah scores the highest for preparing students for college; Delaware does the best job of ensuring participation; California is the most affordable; New Hampshire scores the best on student completion; and Maryland ranks the highest in terms of the economic returns to the state of a college-educated population.

The report card intentionally focuses on evaluating the states, not specific higher education institutions. Callan explains that the report card is intended to illustrate several things about state higher education policy. First, it gives states a picture of the aggregate consequences of individual policy decisions, for example, how budget decisions affect affordability. Second, it connects K-12 and higher education policy; for example, how K-12 policy decisions affect college preparation.

"Much of the state focus is on K-12, not higher education," says Callan. "States can't just work on one part of the assembly line."

Finally, the report card illustrates how states set their priorities for higher education. "No state received all As or Fs on the report card," says Callan. "All states have their strengths and weaknesses, and we hope the report card will help them focus their money and efforts."


Just because a state has relatively high tuition doesn't mean that it ranks low in affordability. High-tuition states rely on full tuition from those who can afford college and provide student scholarships and loans to those who can't. In fact, this has been a long tradition in this country--a college education should be available to all citizens, and those families who are able to pay the cost of college should. Government assistance, whether state or federal, helps students who can't afford college and would otherwise not go. This philosophy has characterized decades of student aid policy.

Federal Pell grants, other federal student aid and state student assistance have been awarded based on the family's income. But over the years as college costs have risen, middle class families became squeezed if they didn't qualify for student aid, but couldn't afford costly tuition. Making more state aid available on the basis of "merit" rather than strictly "financial need" has allowed state legislators to address some of these concerns.

Another motivator of merit-based student aid is the so-called "brain drain" or the flow of a state's best and brightest students to out-of-state schools, either because tuition is lower or scholarships are available. It was this perspective that pushed Representative Denise Merrill to first introduce legislation in 1995 to create a merit-based program in Connecticut. "Cost was a clear reason students were leaving the state," she explains. "We're a high-tuition state, and we were losing students to other lower tuition states."

Since the early 1990s, there has been a slew of activity around merit-based, rather than need-based, financial aid. During this new era of financial aid, the state rewards students for getting good grades, regardless of family income, and uses these scholarships to encourage them to go to college in the state. Merit-based aid programs now account for nearly 25 percent of all state expenditures for student aid, up from 15 percent in 1995. Legislators have also reached out to families-- largely the middle class--to help them save for college by creating college savings programs, tuition tax credits and prepaid tuition programs. These programs have been both successful and controversial.


The first and largest state merit program and perhaps the most famous is the Georgia HOPE Scholarship program. Established in 1993, the program is financed completely through the state lottery and costs about $200 million each year. Under this program, the state pays for tuition, fees and books at a state public college as long as the student graduates from high school with a B average and maintains a B average in college.

Georgia Representative Kathy Ashe is a strong proponent of the HOPE program. "HOPE says to all our kids that if you do a good job in high school, the state wants you to go to college and stay here at home." The steady stream of lottery money has enabled Georgia to prevent placing a family income cap on HOPE recipients, allowing the state to reward every qualified student with a scholarship, regardless of income or need. "If you only have a limited number of dollars to use on financial aid," says Ashe, "you probably need to target them based on financial need. But we have the ability to recognize both merit and need."

Impressed by the popularity of the HOPE program, about a dozen other states began experimenting with merit-based programs, although none have approached the size of Georgia's program. In each of these, students are eligible for the scholarships if they earn a minimum grade point average, generally regardless of financial need.

However, some states have included an income cap--partly in response to criticism about merit-only-based aid and partly in response to how expensive these programs are to maintain. The Georgia program originally had a family income cap that restricted eligibility, but it has such broad public support along with steady funding, the cap was lifted after its first two years.

Representative Ashe argues that HOPE is both good education policy and good politics. It's good policy because it rewards excellence, she says. "It tells kids they have to do well in school, and that's an important message." And she says that HOPE is "great" politics. "If somebody is going to college and you pay their tuition and books, they recognize that the state is doing something good for them--that's good politics."

Although merit-based aid has been popular in the states during the last 10 years, the downturn in the economy has some people worried about the future. What happens if and when the money runs out? "A lot of states that have started these programs haven't yet had to confront this question because the economy has been so good," says Travis Reindl, director of state policy analysis for the American Association of State Colleges and Universities. "The real test is what their political will on college aid will be the next time revenues are sagging." As state economies begin to cool off, that answer is bound to come.

Recent events in Connecticut indicate that the good times for merit scholarships may be ending. Every year since 1995, Representative Merrill has introduced legislation to create a merit scholarship in Connecticut. This year she had 100 co-sponsors and strong public support, but the bill failed.

"The critical issue was the timing. Pure and simple, it was a victim of the economy," she says. "Just at the moment that it looked possible to finally pass the legislation, new revenue projections came out saying the budget was evening out. People thought the program would break the bank."

Discussions centered on whether the program would be strictly merit-based or include an element of need. "If it's a merit program, there should be no income cap. We won that motion, but that killed the bill," she explains. The cost of a strictly merit program was about $80 million, compared to about $20 million for one with an income cap.

The research on HOPE-like programs is only now beginning to emerge, so effects can't yet be measured. But these programs are keeping the best and the brightest students in-state and contributing to the state economy. Jason Whitt was born in Georgia, attended public school and stayed in-state for college. "I went to Georgia State University, and the HOPE scholarship made my life a lot easier," says Whitt. "Without HOPE, I would have probably had to work, go to school part-time or rely on my parents to get through school." Merit-based scholarships also provide an incentive for students to perform well academically, which many argue ought to be the criteria for awarding scholarships to students.


Yet critics argue that these scholarships fly in the face of long-held values about the proper role of state support in higher education.

They primarily reach students who already can afford college, not those who need help the most, and they reduce the amount of state money available for need-based aid, critics contend. The programs have been successful in keeping students instate, but there is so far no evidence that these scholarships help keep students in college. The Georgia Student Finance Commission estimates that anywhere from 50 percent to 67 percent of students lose their scholarship after the first year.

"The HOPE Scholarship is not hard to get, but hard to keep," says Laura Carter, a May graduate of Georgia State University who paid for four out of five years of college with the HOPE Scholarship. "In college, you are adjusting to a tougher schedule, new pressures, and one bad experience with one teacher can really put your scholarship at risk--that creates a lot of stress."

One program that has a lot of people talking is the recently revitalized Cal Grant program. California Governor Gray Davis called the 2000 legislation the "most ambitious financial aid program in America." Many say that it considers both factors that ought to be considered: merit and need. The law is expected to cost mote than $1 billion annually and would create the largest financial aid program in the country. Now, California is able to guarantee financially needy high school students with good grades full tuition to attend one of the state's public colleges or nearly $10,000 a year to attend one of the state's private colleges. "California is putting its cards on the table. It's making this an entitlement," Reindl says. "That's gutsy."

California has had a Cal Grant program for decades. In fact, many California legislators and legislative staff attended college on these grants. But many students who were eligible did not receive them because the money dried up. In the 1999-2000 academic year, 136,022 high school graduates were eligible, but only 57,254 received new awards. Unlike the old program, the state is now required to set aside enough money each year to finance all eligible students in the new Cal Grant programs.


In 1986, Michigan paved the way for a new method of saving for college when it launched the first prepaid tuition program. Parents, relatives or friends, regardless of family incomes, can buy units of tuition at the current day's price and later redeem them at full value, regardless of how expensive tuition has become. Twenty-two states now have prepaid college tuition plans, according to the State College Savings Plan Network, Critics say, however, that if you're a savvy investor, your money will do better in other places. Nevertheless, the regimen of contributing to a program specifically for college tuition is attractive to many families.

Maryellen Vazquez has already bought four years of tuition for her 8-year-old son Nicholas and will have already paid for her younger daughter's tuition by the end of this year through Florida's Prepaid Tuition Program. "People have asked me why I didn't just invest in a mutual fund or some other type of investment, instead," says Vazquez. "I told them that this doesn't mean I am not investing in other ways to pay for additional college costs, but just that this lets me lock in the price of tuition and guarantees that Nicholas can attend college for four years without me having to worry about how we will pay for it."

Participants like Vazquez also like the fact that if Nicholas receives other financial aid, such as the Florida Bright Futures Scholarship, or if he decides not to go to college, the state refunds their money plus interest or they can transfer the amount to another child.

Although many states are turning to these types of plans, they have drawbacks. For example, most states guarantee the individual investment in the plans. So if the program should fail financially, the state is liable. In some cases, participation in these programs may eliminate a student's eligibility for future financial aid. Also most students in these programs are from middle- to high-income families, which means they have not been effective at making college possible for poor kids. And the programs are in many ways only a Band-Aid for the problem of high college costs; they do not deal with the fundamental issue of increasing tuition.


Forty-six states have college savings programs instead of or in addition to prepaid tuition programs. These accounts offer a guaranteed interest rate or provide tax benefits to investors through Section 529 of the Internal Revenue Code. New this year, the College Savings Plan of Nebraska is a tax-deferred investment program that allows participants to save up to $165,000 toward college in addition to providing an income tax deduction of up to $1,000 per return.

"These programs are excellent public policy and provide a way for people to set dollars aside for a loved one's education and help them obtain an important tool for success," says Nebraska Senator Don Pederson.

Tuition tax credits and deductions use the tax code to help students and families pay for college. At least two states provide for tax credits and at least five give tax deductions for some portion of tuition payments. Tax credits tend to provide a more significant benefit for individuals than deductions, but also cost the state more in terms of reduced revenues. Critics argue that relying on the tax code to provide tuition relief to students is beneficial only to those students and families who know enough about filing their taxes or who can afford a tax professional to help them take advantage of this opportunity. Likewise, tax credits don't help students who don't earn enough money to pay income taxes in the first place.

"The tuition tax benefits are a well-intentioned effort to address college affordability issues for middle-class families. However the complexity of the tax code and the challenge of coordinating these programs with state policies raise the question of just how efficient and effective they are in delivering real financial aid to students," Reindl says.


Congress passed the Taxpayer Relief Act of 1997, which included two programs to help people pay for college--the HOPE Scholarship and the Lifetime Learning Tax Credit. The HOPE Scholarship targets students in their first two years of college and provides up to a $1,500 federal income tax credit over two years. The Lifetime Learning Tax Credit is aimed at college juniors and seniors, graduate and professional students, and adults who are back in school.

Anne Cervino, a graduate student entering her third year at the University of Colorado at Boulder, chose to take advantage of the federal Lifetime Learning Tax Credit. By claiming the federal income tax credit (20 percent on the first $5,000 of tuition expenses), she could concentrate more on school and worry less about how she was going to pay for it. "During my first semester of graduate school, I didn't work for the university. Since I paid for school out of my pocket, the Lifetime Learning Tax Credit helped tremendously," she says. "And it's not hard to file for. I learned about it when another graduate student posted the information to the entire math department and basically explained how to claim it on your tax forms."

Many states are finding that the new federal credits overlap, duplicate or even contradict state benefits. For example, California's tuition at community colleges is lower than the full benefit of the federal HOPE Scholarship Tax Credit. Because Hawaii grants tuition waivers, rather than actual scholarships, to about 40 percent of the state's college students, they and their families are excluded from taking advantage of the federal HOPE Scholarship tax credit. "These tax credits are the most significant new federal investment in student financial assistance since the GI Bill--states would be foolish to not identify ways to make these dollars reach as many students as possible," says Kristin Conklin, senior policy analyst at the National Governors Association.

The price of college isn't the only thing that's changing in the world of academia. Traditional state and private colleges are facing dramatic new competition from many sources, and students now have more choices. They can attend one of the new for-profit institutions, such as the University of Phoenix, which caters to people's work schedules by allowing them to go to class in the evenings or on weekends. Students can now enroll in courses and obtain advanced degrees over the Internet inexpensively. Legislators are only beginning to consider the huge impact these new options will have on public higher education. As more choices become available, legislators will engage in a whole new set of questions about affordability, access and the appropriate state role in higher education.

Julie Davis Bell is NCSL's expert on higher education issues. Demaree K. Michelau specializes in K-16 issues at NCSL.


The new Cal Grant triples state spending on college aid and is expected to help about 100,000 students--or about half of all graduating high school seniors in California.

Students may qualify for the program in three ways:

* To be eligible for the Cal Grant A, a high school senior must have a B average and family income may not exceed $64,100 (for a family of four). Students who qualify will receive free tuition to any public university in California or $9,708 for tuition to a private university in the state.

* Students from families with income less than $34,000 who maintain a C average receive a Cal Grant B for $1,551. In the first year, this can be used for "access costs," such as books and transportation. In the second year, the grant would also pay for tuition and fees.

* For the state's top students, regardless of family income, California gives $2,500 and $1,000 scholarships to those who score high on math and science exams.

Students transferring from two-year community colleges to four-year campuses will be guaranteed grants if they meet the academic and financial requirements and enter community college directly from high school.


Following Georgia's lead, states are experimenting with merit-based scholarship programs using different approaches in terms of eligibility, awards and funding. Here are just a few examples:

* The Georgia HOPE Scholarship Program awards students who earn a 3.0 in college preparatory classes or a 3.2 in technical/career track classes full tuition and fees, plus a $150 book allowance. Funded by the Georgia lottery, there is no income cap on eligibility for students and their families.

* The Florida Bright Futures Scholarship has three levels of awards--the Florida Academic Scholarship, the Florida Merit Scholarship and the Florida Gold Seal Vocational Scholarship. There are no income caps. To become a Florida academic scholar, a student needs a 3.5 grade point average in college preparatory classes, a 1270 on the SAT or a 28 on the ACT and must have performed 75 hours of community service. Florida merit scholars need a 3.0 grade point average in college preparatory classes and a 970 on the SAT or a 20 on the ACT. Students wishing to earn the Florida Gold Seal Vocational Scholarship must have earned a 3.0 grade point average in their core classes, a 3.5 grade point average in at least three vocational classes, and a 440 on the verbal and math portions of the SAT or a 17 in English, an 18 in reading and a 19 in the math section of the ACT. Only the academic scholars receive 100 percent of tuition and fees, plus $300 for college-related expenses at public institutions, Merit scholars. and gol d seal vocational scholars get 75 percent of tuition and fees. Funded by the Florida lottery, awards made through these scholarships for the 1999-2000 academic year were just over $131.5 million.

* The Louisiana Tuition Opportunity Program for Students (TOPS) has four levels of awards--the TOPS tech (requires a 2.5 grade point average and a 19 on the ACT), the TOPS opportunity (requires a 2.5 grade point average and a 20 on the ACT), the TOPS performance (requires a 3.5 grade point average and a 23 on the ACT) and the TOPS honors (requires a 3.5 grade point average and a 27 on the ACT). Tuition is covered, but not technology and athletic fees. Students with performance scholarships get an additional $400 per semester, and those with honors get an additional $800. Funding comes from, the state general fund and there currently is no income cap. But if enough funds are not appropriated, a state statute will kick in to allow the awards to be made.
COPYRIGHT 2001 National Conference of State Legislatures
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Author:Michelau, Demaree K.
Publication:State Legislatures
Geographic Code:1USA
Date:Oct 1, 2001
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