APPAM 2014 Paper Proposal

Preserving Access or Not? What Happens to State Student Aid Funding During Downturns and Why

William Zumeta, Jose Hernandez, and Amy Li

University of Washington, Seattle

            This paper seeks to understand the financial behavior of states in regard to financial aid to undergraduates over the past three decades, with a particular focus on periods of state fiscal stress.  State student aid programs provide more than $10 billion annually over and above federal aid such as Pell grants. Depending on how state policymakers treat them during fiscal stress periods, they could provide a significant buffer for student access policy goals during hard times.

Over time, states as a group have gradually (but modestly) increased the proportion of their higher education (HE) support that goes through students, at the expense primarily of appropriations to public institutions. We seek to understand whether this general trend is altered, i.e. boosted or not, during periods of fiscal stress, which generally lead to reductions in state support of public institutions and sharp tuition increases. If policymakers prioritize mitigating effects of tuition hikes in hard times, they would favor student aid programs over institutional appropriations in the budgetary competition for scarce state resources, perhaps particularly so in states with strong commitments to need-based aid.  On the other hand, decision-makers might be influenced by institutional loyalties and lobbying, which apply less strongly to student aid programs, and thereby favor institutional support when deciding on cuts. A third possibility is that in hard times the two types of HE support will be treated roughly equally following general norms of budgetary equity.

            We therefore investigate how state trajectories in terms of shares of HE funding going to student aid have varied from trend during periods of fiscal stress (defined at the individual state level) over the four most recent major downturns: those of the early 1980s, early 1990s, early 2000’s, and the Great Recession and its aftermath.  First, we ask which of the above state postures toward student aid appears to predominate across the four downturns. Also, how stable is individual states’ treatment of the two broad types of HE claimants across these downturns? Finally, what factors determine which of the three budgetary policy postures characterize particular states? Briefly, we hypothesize that wealthier states, those with proportionally larger private HE sectors (this sector is a major beneficiary of state student aid), those with a high percentage of HE funding committed to aid (especially need-based aid), and those where public tuition has increased more will tend to prioritize student aid funding above public institutional funding in downturns. We expect that states with greater party competition and those dominated by Republicans will tend to favor student aid above public institutional appropriations, the latter because it fits better with a market-oriented policy approach. We expect that this latter tendency may be particularly pronounced in states whose student aid programs are primarily “merit”-based rather than need-based.