Breaking the chicken-or-egg cycle in American higher education

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U.S. higher education institutions face ongoing criticism by journalists, policymakers, scholars, families, and students for inadequately supporting socioeconomic mobility. (I too have contributed to this criticism for more than two decades.) Evidence shows that earning a bachelor’s degree increases lifetime earnings by above 60 percent on average. Despite this, overall educational attainment is lagging and college access remains unequal. Will 2022 be the year we see notable progress? I want to be optimistic, but I am reluctant given the chicken-or-egg conundrum facing American higher education. 

The problem is that while there are changes colleges and universities could implement to improve educational opportunities for lower- and middle-income families, rising income inequality, dating back to the 1970s, actually makes it increasingly difficult to do so. To put it more bluntly: colleges must commit more money to educate a growing share of lower- and middle-income students at a time when fewer of their students can afford to pay their tuition. This has the perverse consequence of driving colleges and universities to spend more to attract those who are willing and able to cover the bills. Every dollar spent on financial aid cannot be spent on the items that typically attract those high-income students, and vice-versa. Rising income inequality leads to rising tuition, costs, and the need for financial aid at colleges and universities, making it harder for them to educate more lower- and middle-income students.

We can no longer afford for this to continue. We are failing our citizens. Even as the rich have gotten richer in our country (and this includes our most well-endowed institutions), we have made very little progress. The 60 colleges and universities with the largest endowments have only slightly increased the percentage of Pell recipients they serve — from 17 percent of entering students in 2009-10 to 18 percent in 2019-20. The top ten institutions did better in that time period, but only to the level of other high endowment colleges and universities. In that ten-year period, endowments have nearly doubled, and that doesn’t account for the phenomenal returns of this past year — around 50 percent in some cases. Even for less wealthy institutions, which collectively educate the vast majority of students, the situation is no less of a concern. While they are enrolling significantly higher shares of Pell-eligible students, graduation rates are suboptimal.

Breaking the cycle presents challenges, but through the right policies and incentives, these can be overcome. We must reduce income inequality and stimulate higher education institutions to enroll lower- and middle-income students in greater numbers more rapidly.

When I examined the impact of rising income inequality between 1971 and 2009 on rising tuition, costs, and financial aid at a set of the better-endowed colleges and universities (those with the financial resources to address issues of affordability and access, as well as student success), I found that the government was in the best position to address rising income inequality directly and also to change the incentives facing higher education. In fact, without government action — such as tying funding to contributions to social mobility — colleges and universities face financial disincentives to change their behavior and therefore will accomplish little on their own. 

Since then, we have seen some attempts at cooperation within the sector. The American Talent Initiative (ATI) is aimed in that direction. ATI members are working together to achieve a collective goal of attracting, educating, and graduating an additional 50,000 talented low- and middle-income students at the country’s top colleges and universities by 2025. Other collaborations, like the Association of Public and Land-grant Universities’ Powered by Publics, are bringing institutions together to address issues including affordability and meeting basic needs.

But even as these attempts are encouraging, I am doubtful that we will turn the tide without government incentives. We must change the financial incentives facing colleges and universities so that all encounter added reasons to increase their commitment to socioeconomic diversity. The government could require a minimum Pell threshold for institutions to be eligible for student financial aid or offer an endowment tax credit for those meeting Pell thresholds, as two examples. These measures could work alongside increased funding to help students attend college — whether in the form of increased Pell grants, free community college, increased funding for HBCUs, or higher education grants for national service.

The time to act is now. Every day that the chicken-or-egg cycle continues, it becomes harder to correct. If America is to Build Back Better, we must reduce the income gap that persists, putting lower- and middle-income families in a better position to invest in their children’s education. We should recognize that higher education institutions, with the right incentives, also can play a pivotal role in doing so. What better time for the colleges and universities with the increased resources of the last decade to step up and do more to contribute to the public good. 

Catharine B. Hill is managing director of Ithaka S+R and president emerita of Vassar College.

Tags income inequality Pell Grant

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