Modeling State Investment in America’s College Promise

Written by Sophia Laderman, Jenna R. Sablan, Kelsey Kunkle

The education provisions of the FY22 budget reconciliation bill would fundamentally reshape higher education financing. The legislation could result in the most significant federal investments in higher education in over 50 years and would represent a new federal funding strategy for higher education. While the federal government has previously used federal-state partnerships to fund programs in other areas (like highways and health care), direct funding of higher education institutions has primarily remained the responsibility of the states. With some exceptions, federal investments in higher education are student-focused through grants, loans, and work-study aid.

America’s College Promise, the House Education and Labor Committee’s proposal for free community college, establishes a federal-state partnership that would change this dynamic and provide funding that guarantees tuition-free community college for eligible students. SHEEO’s analysis of this proposal has focused on two major components and their implications for students and states: 1) the level of state investment necessary to participate in the program under different state contexts and how states can meet their commitments, and 2) the complexity in defining community colleges across multiple state contexts. On average, states will have to increase their investment by 12% or $387 per full-time equivalent (FTE) student. This post outlines the program details, including the proportion of tuition covered by the federal match, the definition of a community college and an eligible student, and details of the required state contribution. We also share some initial modeling on the expected costs for states.

Major Provisions of America’s College Promise — Grants for Tuition-Free Community College

The federal-state partnership is a five-year, first-dollar program to make community college tuition-free for eligible students. The following analysis is focused on state-owned community colleges. However, it is important to note that the partnership has a different match and different requirements for Tribal Colleges and Universities and potentially the territories and outlying areas.

Table 1. Summary of Major Provisions of America’s College Promise Program in September 2021 House Version of Reconciliation Bill.

SHEEO Modeling of Tuition-Free Community College

Using 2019–2020 data — primarily from IPEDS and the State Higher Education Finance (SHEF) report — SHEEO estimates that 985 state-owned institutions will be eligible for the program, serving 9.4 million students (4.08 million FTE) across all 50 states (Figure 1). These numbers do not include eligible Tribally-owned institutions or eligible institutions in U.S. territories or outlying areas, entities that would have different match expectations than the states. Our estimates show that 13 institutions in eight U.S. territories and outlying areas would be eligible (including the District of Columbia), serving 17,000 additional students (8,600 FTE).[1]

Figure 1. Number of Eligible Community Colleges in Each State, Territory, and Outlying Area, 2019–20

Figure 1. Number of Eligible Community Colleges in Each State, Territory, and Outlying Area, 2019–20
Source: State Higher Education Executive Officers Association calculations using data from the Integrated Postsecondary Education Data System (IPEDS).

States would receive a per-student amount equal to the median resident tuition and fees per student in all states not weighted for enrollment. SHEEO’s interpretation of this language is to calculate the unweighted average published tuition and fees for eligible students in each state, territory, and outlying area and find the median of all states and entities. The median published in-state tuition and fee rate for these eligible institutions in 2019–20 is $4,586 (halfway between the average tuition in CT and OK). When analyzing 50-state investment data from SHEF, twenty-four U.S. states have average tuition and fees below the median (Figure 2). Because the program will use the most recently available data and begins in 2023–24, SHEEO’s modeling assumes a 3% increase in inflation each year leading up to the program. In the first year of the program, we estimate that U.S. median tuition will be $5,162.

Figure 2. Average Unweighted Published In-State Tuition and Fees for Eligible Community Colleges in Each State, Territory, and Outlying Areas, 2019–20

Figure 2. Average Unweighted Published In-State Tuition and Fees for Eligible Community Colleges in Each State, Territory, and Outlying Area, 2019–20
Sources: IPEDS published in-state tuition and fees 2019–20 and SHEEO list of eligible institutions. Tuition is estimated for institutions without published tuition and fees (see technical documentation for more detail).

The federal match is more generous at the start, but decreases over the course of the five-year program, asking states to contribute a larger match to the federal subsidy amount in later years (Table 2). States would also have to guarantee free tuition to eligible students at community colleges. States with above-median tuition rates would either need to increase state support to offset the loss in tuition revenue or eliminate tuition without a corresponding increase in state funding, thereby reducing total revenue at eligible institutions. Given that states must maintain total revenue at community colleges in order to use local funding or need-based non-tuition financial aid in their state contribution, we assumed in our modeling that states would maintain existing total revenue at eligible institutions and increase state funding to offset the loss of tuition revenue.

Table 2. Federal and State Matches for U.S. States by Award Year in House Proposal

Because it is not weighted for enrollment, the federal definition of median tuition is more generous than the average tuition paid by an FTE student in the U.S. (Figure 3). When using actual average tuition per FTE, 29 states are below the median amount. This means that in those 29 states, no additional funding would be required (beyond the federal and state match) to maintain existing community college revenues and completely eliminate tuition and fees.

Figure 3. Weighted U.S. State Tuition and Fees Per FTE in 2019–20 Compared to Median

Figure 3. Weighted U.S. State Tuition and Fees Per FTE in 2019–20 Compared to Median
Source: IPEDS published in-district tuition and fees 2019–20, IPEDS estimated full-time equivalent (FTE) undergraduate enrollment 2018–19, and SHEEO list of eligible institutions. Tuition is estimated for institutions without published tuition and fees (see technical documentation for more detail).

Notes: Tuition and fees are enrollment-weighted averages for all states to obtain a true measurement of the per-student cost to eliminate tuition and fees at eligible institutions. The U.S. tuition figure is an unweighted median (per the legislation).

The increase in state investment necessary to meet the requirements of the proposal (and maintain total revenue) in the first year ranges from 8% to 142%.[2]

The state contribution consists of two components, assuming that states will not allow a major reduction in total revenue at community colleges: 1) the required share in each year of the program to match the federal subsidy, and 2) the remaining amount necessary to bring community college tuition for eligible students down to $0. This has different implications for states depending on their tuition prices:

In the first year of the program and assuming full state participation, 5% enrollment growth, and 3% inflation, SHEEO estimates that, on average, states will need to increase support by 12% or $387 per FTE (Figure 4). Twelve states would need to increase funding by more than 15%, and seven of those states would need to increase funding by more than 25%. In the fifth year of the program, again assuming full state participation, SHEEO estimates that, on average, states will need to increase their support by 9% or $527 per FTE. These state investment increases include both the amount states will have to match to the federal government and the remaining amounts for tuition elimination, if applicable.

Due to the first-dollar nature of this program, states cannot apply existing financial aid to their match until they have covered all tuition and fees. After tuition and fees reach $0 for eligible students, states may apply existing need-based financial aid to their portion of the federal-state match. Merit-based financial aid cannot be included in the state match at any time. Figure 4 assumes that after eliminating tuition, states would use existing state financial aid when possible to meet their required match.

Because the state match can include local funding, local governments could increase their funding to help cover the cost to states in those states with local funding for community colleges.[3] Of the 21 states with above median tuition, 10 fund community colleges at least in part with local appropriations. In Figure 4, we assumed that local appropriations would remain constant in all states and would not contribute toward the match.

Figure 4. Estimated Percentage Increase in Total State Support (2023–2024), Including Enrollment and Inflation

Figure 4. Estimated Percentage Increase in Total State Support (2023–2024), Including Enrollment and Inflation
Sources: State Higher Education Executive Officers Association, State Higher Education Finance Dataset (www.shef.sheeo.org); IPEDS Published in-district tuition and fees 2019–20; IPEDS Estimated full-time equivalent (FTE) undergraduate enrollment, 2018–19.

Notes: Assumes all two-year state financial aid is based on need. Financial aid is applied to the state match after tuition reaches $0. A percentage increase of 8% means the state would not need to increase their investment beyond enrollment growth and inflation.

SHEEO also modeled how local appropriations could be used to reduce the additional state investment needed to eliminate tuition, maintain total revenues, and meet the state match. If the current ratio of state to local appropriations for community colleges remains constant, a proportional increase in local appropriations would reduce the additional state investment in several states, particularly Iowa, New Jersey, New York, and Pennsylvania (Figure 5).

Figure 5. Estimated Percentage Increase in Total State Support Assuming Local Appropriations Increase Proportionally (2023–2024), Including Enrollment and Inflation

Figure 5. Estimated Percentage Increase in Total State Support Assuming Local Appropriations Increase Proportionally (2023–2024), Including Enrollment and Inflation
Sources: State Higher Education Executive Officers Association, State Higher Education Finance Dataset (www.shef.sheeo.org); IPEDS Published in-district tuition and fees 2019–20; IPEDS Estimated full-time equivalent (FTE) undergraduate enrollment, 2018–19.

Notes: Assumes the current ratio of local appropriations to state appropriations is maintained and both increase funding proportionally. Assumes all two-year state financial aid is based on need. Financial aid is applied to the state match after tuition reaches $0. A percentage increase of 8% means the state would not need to increase their investment beyond enrollment growth and inflation.

Defining Community Colleges and State Plans

There is currently no consistent federal definition of a community college. The lack of definition can pose challenges in identifying those institutions that generally fit the idea of a community college, particularly across unique state systems. To address this, the bill has to propose a definition of community college, which can include or exclude institutions depending on interpretation.

In the current iteration of the bill, a community college is defined as an eligible Tribal College or University or a degree-granting public institution if it meets any of the following criteria:

The definition of a community college could greatly influence which institutions qualify for the program. For example, technical colleges that do not meet these definitions (i.e. those that do not offer associates degrees) would not be included in the program. For our modeling, we assumed that predominant refers to the most common degree awarded and that certificates should not be counted when determining the predominant degree. Institutions with a nearly even mix of associate and baccalaureate degrees only qualify if they awarded a higher number of associate degrees in 2019. If an institution only awarded certificates in 2019, we assumed they would not be eligible.

The base data used to calculate our estimates and a complete list of the institutions that meet SHEEO’s interpretation of the eligibility criteria are available here. For additional details and technical information regarding our modeling and assumptions, see here.

States would have to submit a plan which would include the list of each community college operated or controlled by the state. There would be other requirements of states’ plans, including the submission and implementation of a plan to align high school diploma requirements with credit-bearing course requirements at community colleges and a plan for improving transfer pathways in the state.

Conclusion

The potential influx of federal money into states and their higher education systems represents an unprecedented opportunity to rethink the relationship between the federal government, states, and institutions. While the federal match is generous and provides a multiyear on-ramp for states to increase their funding for community colleges to meet their portion of the federal-state match, in states with above-median tuition, participating in the program would still require immediate and substantial increases in state and local funding for eligible community colleges. Additionally, the program does not allow states to use any matching funds for program administration, which presents an additional cost for states not included in our modeling.

Our hope is that the analysis presented here helps state leaders plan for the potential of joining the federal-state partnership and to consider how they may take advantage of this opportunity to better serve their students.

Notes

1. In addition to the District of Columbia, the seven territories and U.S. outlying islands with eligible institutions are American Samoa, Federated States of Micronesia (FSM), Guam, the Marshall Islands, Northern Mariana Islands, Palau, and Puerto Rico.

2. States with an 8% increase in the first year are those with below-median tuition. These states are only required to increase funding to keep up with projected inflation and enrollment increases.

3. States can only use local funding and financial aid toward their state match if they can demonstrate to the Secretary that there will not be a net reduction in total per-student revenue including revenue derived from tuition and fees

Helping states develop and sustain excellent systems of higher education.