As states in America plan their budgets for the coming fiscal year, they face the challenge of reinvesting in public higher education initiatives after years of devastating cuts leading to the economy's decline and the states' inability to raise additional revenues. In the past five years, states have made drastic and almost universal cuts in funding higher education institutions. Broadly, funding of deep state has massive outcomes for public universities and colleges. States offer about half of the revenue collected in supporting the instruction of these institutions. However, when the funding gets cut, universities and colleges must cut expenditure, increase tuition to meet the opening, or both. Public universities and colleges in the states have raised tuition fees to complement deteriorating state funding. Also, there have been considerable variations in all states, and a high rise in federal student help and tax credits, on average, have barely helped in covering the intensifications.
The tuition increase has boosted longer-term developments of minimizing college affordability and changing costs from the American states to the learning students. According to boards of college reports, the cost of joining a four-year public university or college, even after the increase in tax subsidiaries and federal financial support, has fully-fledged significantly at a higher rate compared to the rise in median income in the last twenty years (Mitchell et al., 2017). Therefore, public universities and colleges have cut spots in their faculties, eradicated course offerings, closed down institutions, minimized library services, and shut down computer labs, among other cuts.
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However, in reversing all the trends occurring in higher education facilities in America, reinvesting in these institutions must be the foremost priority for state policymakers. The high rise in future jobs will need university graduate employees. Investing in higher-level education to boost the value of tuition in public universities and colleges and offer proper financial support to the students in need will help the states develop the skillful workforce required while competing for these jobs.
Historical Context Review
Families Response to Higher Education Financial Crisis
The Great Recession had massive impacts on both the demand and supply margins of higher education. Post-secondary learning institutions faced cuts concerning different revenue resources on the supply position, including endowment returns and charitable giving. The crisis also impacted government aid, mainly in state appropriations that influence the tuition fees. In different families, which is the demand side of higher education, the economy's recession impacted the unemployment and income rates, thus minimizing economic stability and well-being. Home equity and homeownership levels have been reduced, which minimizes a high source of capital and wealth for many families. The changes affect both the probability of admission into high-level institutions and what a family can afford and is willing to pay for institutions.
At the beginning of the Great Recession, universities' cost and debt of student's levels were historically vast, thus suggesting that the work of loans in high-level institutions was much more essential than in previous periods (Brown & Hoxby, 2013). Besides, the Great Recession economic downturn had a massive impact on many families. It also coincided with the most significant cohort of graduating students from high school, thus exacerbating the need for pressure and resources on schools' capacity. Similarly, federal financial support amplified to an unprecedented level to ensure more people had college access. Thus, the rise in prices and labor market impacts might have primarily determined the effect of past recessions on admission trends. The Great Recession happened in a more complex context, and the overall changes in tuition prices, income, demographics, liquidity, and financial support are not precise.
Significant Policies and Events
Tuition Pricing Trends
Different factors affect tuition prices in universities and colleges, with other revenue sources playing a significant segment. The cost of educating individuals is not all covered by the money the students pay. In high-level public institutions, the state appropriations level is a major determining factor of tuition levels. Generally, state appropriations allow the public universities and colleges to charge a discounted amount to in-state students. The distribution and level pattern of these state subsidies highly affect the student's admission decisions.
In the past several years, state appropriations to learning institutions have fallen considerably. However, since state constitutions need states to possess balanced budgets every year, legislators cut spending. With the past recessions, higher education appropriations have been a significant target. The impact of reduction of state appropriations on tuition costs has primarily affected many parts of the states. The inconsistent state appropriations influence the list of tuition costs at high-level public institutions and students' choice between private and public universities, plus two-year contrasted with a four-year decision. The moment in-kind subsidies are massive; students choose public universities, yet the gap between public and private resources is substantial. Studies by Berman & Stivers (2016) also indicate that huge levels of state appropriations, just like any subsidy, develop students' incentives in favor of four-year terms in public universities. Nonetheless, recent state appropriations reductions might lead to a shift in enrollment patterns.
Financial Aid Trends
Underlying the rise in universities and college prices, the government offers financial support programs. Though the list cost can influence the admission decisions, it is the net price after the use of financial help that is most prominent. As tuition costs have risen in all sectors, financial aid by the government currently remains strong. According to Toutkoushian & Hillman (2012), the most extensive need-based support program in the American College Affordability Act (CAA) is the federal Pell grant, which serves as the basis for other aid; it means that if students are eligible, the Pell grant's awarding happens first. Most Pell recipients are from families with low-leveled income.
Nonetheless, under the College Affordability Act, the Pell Grants can get extended to short-term courses for particular eligible programs and learners. Broadly, the College Affordability Act work is overhauling the higher education program through lowering the cost of post-secondary learning, boosting the quality of education offered by instilling massive accountability measures, and offering learners support to acquire their academic objectives. The CAA also aids learners struggling with borrowing by streamlining the repayment process, activating a different fixed repayment plan, and incorporating an Income-Based Repayment method (IBR). Therefore, the CAA is essential as it allows understanding of the weight that learners' debt has on borrowers.
Additionally, the federal loan grant has increased and transformed to accommodate the increased family needs and economic trends. After the 2008-2009 recession influenced credit markets, leading to many private student loans to cease or suspend lending, Congress instilled a Loan Act to ensure students had continued access to loans in 2008. This provided the American department of education the power to establish direct loans to students. Also, Congress developed the loan limits for students. From research by Brown & Hoxby (2013), there has also been a rise in pressure on high-level institutional support sources, financial help provided by universities and colleges. Institutional financial help officers indicate that there has been a massive rise in the level of financial support requests they obtain for higher-level institutional support. However, with the rising economic uncertainty triggered by the downturn, several families have contacted offices with requests for revised assistance due to variations in their circumstances, like current unemployment rates. The aid has not met all students' needs but has helped minimize universities and colleges' overall costs.
Current Status on Budget Crisis for Higher Education
Recession in University Enrollment Decision
According to research, when individuals are deciding if to proceed with their educations, they ought to compare the human capital benefits of the price of obtaining it. However, in higher education, a person will consider the financial and non-financial costs and reimbursements of preparing for college, enrolling in a post-secondary school, and continuing before obtaining a university degree. According to a hypothesis, college demand is determined by the net cost of education–benefits minus costs, the prices of alternatives, and the individual's desires, subject to a lifetime budget limit ( Barr & McClellan, 2018 ). Tuition and foregone earnings are two of the costs of college. In this, foregone earnings are the earnings that a person would have earned had they chosen to enter the job force rather than attend school.
On the other hand, attending higher education has several advantages, one of which is increased earnings. Additional nonmonetary costs and benefits, such as the psychological costs of learning, the consumption value of college, and the potential for better health outcomes because of schooling, may be substantial. Numerous studies have verified the model predicted the relationship between enrollment patterns and the factors detailed in the model. Concerning the business cycle and recessions, theory suggests a higher likelihood for individuals to attend college as earnings decline and unemployment increases. Besides, earlier recessions revealed a similar trend.
Although several of the deviations brought by the Great Recession have occurred before, some factors make the current background very distinct. Moreover, before the recession, college costs were a much higher proportion of annual family income than during any previous recession, making any marginal rise in tuition costs more difficult to tackle than ever before. The number of students obtaining debt and the average amount of student debt at bachelor's degree graduation were at both unprecedented levels and continuing to increase. The desire to receive loans and the likelihood to incur debt to fund post-secondary attendance are now more critical determinants of college enrollment than they have ever been. The recession has had a significant impact on each of those variables. On the other hand, financial assistance increased significantly during this time, considerably more than during any previous recession.
Revenue and Expenses in Higher Level Education
There are two elements of a budget–revenue and expenses. The income supports both public and private institutions of the United States higher education. Some payments get collected, donated, or allocated for various purposes; these are termed restricted funds. They might get applied for specific designs provided by the fund's source. Money collected and grant funds from selected student fees are various instances of restricted revenue capital. Nonetheless, the primary sources of most public universities and colleges are the funds from the state government. Such income might also get accompanied by direct aid from the municipality or state governments where the institution is located.
The designs applied in assigning state resources to a public high-level education facility vary in every state. Many states use a pre-defined formula in determining the 'base funding level' for the facility. In other nations, legislative oversight of the administrative budget is comprehensive and can include a line-by-line review of all budget products. Ultimately, a small number of agencies, such as the University of Michigan, are legally independent and thus viewed the same way as any other state entity during the legislative budget process (Toutkoushian & Hillman, 2012). State appropriations to private institutions have a much narrower purpose than they do in the public sector. Typically, state funding for private institutions is restricted to particular services that align with state goals and interests. This may include assistance with teacher education, medical education, or services that train former students to work with people who have infirmities. Additionally, the state can fund private institutes through the capital budget provision or straight financial aid to learners.
Moreover, income from institutional donation investments is frequently a momentous source of funding for private learning facilities. At these institutions, the institutional governing board bears overall fiduciary responsibility for endowment fund management. Institutional employees or external investment firms handle daily management problems. The income generated by the endowment is used to fund the institution's annual operating budget.
In recent times, most large public institutions have far smaller endowments compared to their private equivalents. However, this will vary as state funding for public institutions declines and alternate revenue streams become necessary. Although the governing board in private institutions typically controls the budget, this is not always public establishments. Several public universities and colleges have formed independent bodies to collect funds and invest for the institution's benefit. However, any such foundation must comply with applicable state statutes and regulations in the state in which it is located. According to Weerts & Ronca (2006), such autonomous foundations will differ in their organization and power. For instance, some governing boards include institutional members, while others do not. Some are fully self-sufficient, while others receive office space and administrative and accounting help from the institution. Each circumstance is exceptional and often is determined by the institution's history and tradition. Besides, independent foundations present an institutional chief executive with enormous management challenges. In these instances, the officer lacks leverage over a vital source of funding for the enterprise.
Prudent institutions do not reinvest the entire income provided by their endowment in their current operations. Other than that, the executive committee establishes rules governing the percentage of operating budget income that institutions can spend on operations in each fiscal year. The remainder of the income generated by endowment investments is reinvested in the endowment's corpus, enabling it to expand. Such budget caps also help the institution maintain a more reliable revenue stream, as it is not as affected by the winds of transition in a fluctuating economy. Additionally, it imposes a restraint on the institutional budgeting mechanism by preventing the operating budget from being so reliant on endowment income that a market downturn will affect the institution's educational activities. While most institutions maintain conservative policies regarding the percentage of endowment income used to finance operating expenses, significant exceptions have occurred in recent years, including some institutions considered to be among the best run. Stanford, Dartmouth, and Harvard are institutions whose dependence on endowment income to finance operating budgets has proven troublesome during challenging economic times.
Factors Influencing Development of a Budget in Higher Education Institutions
These factors are institutional characteristics, the process participants, and the time available for seeking output on budgetary matters. Research has shown that universities with low staff, faculties, and a sense of shared governance possess relatively open considerations concerning budgeting. More prominent institutions or those with the less participating governance structure have a reasonably closed budgeting process. Using open forums or advisory committees, large institutions possess designs for incorporating more constituent teams in the budget decision-making program (Geiger, 2010). Therefore, the history, culture, and the private or public nature of the intuition will provide good designs for establishing an institutional budget.
Therefore, any higher education institution's budget cycle is dynamic and demands high attention to detail. Anyone responsible for any unit's budget control must grasp the institutional budget cycle and parameters. Once this is evident, the unit budget manager should create internal budget guidelines and a timetable that requires enough time to meet institutional deadlines. Typically, when an administrator is assigned budget responsibility, they are responsible for the current fiscal year's budget, closing out the previous fiscal year, and preparing for the fiscal year ahead.
The Future of the Budget Crisis for Higher Education
Solving the Student's Loan Crisis
The primary problem for the American budget crisis for higher education is the accrued student loan debt. The budgeting problem is a concern to the lending organizations, the federal government, and the economy as a whole as Berman & Stivers (2016) argues, it is still a crisis to the United States economy because servicing the debts has a significant impact on various sectors of the economy. Nonetheless, the debt is on a trajectory manner likely to grow in the future. Research indicates that most of the individuals struggling to pay higher-education loans experience mental health problems brought about by these loans' weight.
However, the immediate solution is to look for resolutions that recognize the lenders' economy's inconsiderable personal situation plus conditions. One solution would be a congregational commission for proposing and identifying reasonable plus acceptable long-term methods for dealing with high-level institution's loans. This can involve the continuing debate for allowing organizations to participate in their worker's student loan payments as a tax-advantaged design to both the employee and employer.
The most significant source of the nationwide loan crisis is the continued rise in the cost of attending universities and colleges and obtaining a degree. The books, rooms, tuition, and compulsory fees are rising annually. The rising prices have led to an increase in the inflation rate for centuries, and without massive loans, a university degree is beyond reach to most families. Students and parents are requesting to understand the reasons behind the increase or even slow down the increases. Chances to reduce these costs by applying advanced teaching and new technology advancements are getting strategically and quietly avoided, which have been observed by many scholars in the past decades as new technologies have made way to the markets. Institutions have opposed online teaching; still, chances for cost-cutting partnerships with other institutions are getting rejected in favor of institutions' autonomy and independence (Cheslock & Gianneschi, 2008). There have been high costs of non-academic college amenities like climbing walls, hot tubs, accessible movie theaters, residential halls, swimming pools, and many more, modeled to attract student admissions to institutions. These facilities add a more significant price tag through these costs, which are getting passed to learning individuals and their families.
Nonetheless, the good news is that higher education can get fully transformed. A significant source of change is students themselves; they can induce change to universities and colleges. They could exert pressure on higher education institutions to cut costs by delaying admission for a period and spending time traveling, working, volunteering, and saving. However, with the deferred tuition fees, most high education institutions could have no choice but cut administrative costs, minimize spending and remove the redundant programs in their boards.
Conclusion
In conclusion, the Great Recession had positive impacts on the demand and supply of higher education. Nonetheless, complications like massive reliance on student loan debts to finance expenditures, the cohorts of new high school graduates, and the varying federal support policies made the situation in the recession period more complicated. The impacts differed from state to state; some families could not afford their students' college admission. After examining the trends during the recession period in loans and federal grants, it confirms that university affordability reduced even after expanding the Pell Grant policy. However, for states to proceed to sustain investments in higher learning institutions and boost universities' education quality and affordability, budget choices in the incoming times must recognize the significance of investing in quality education and human capital.
Additionally, states must increase their revenues to rebuild the education systems; the government must avoid shortsighted tax cuts, which might complicate their higher education investments, establish jobs for the future, and develop their employees' skills. In solving the American budget crisis for higher education, students can be of great use. Learners can stay at home and volunteer, work, travel, and save until they lower the prices and remove redundant systems from their boards. However, if America is willing to continue to be the leading nation globally, the government must resolve the higher education crisis.
References
Brown, J. R., & Hoxby, C. M. (2013). Introduction to" How the Financial Crisis and Great Recession Affected Higher Education." In How the Financial Crisis and Great Recession Affected Higher Education (pp. 1-13). University of Chicago Press.
Barr, M. J. & McClellan, G. S. (2018). Budgets and Financial Management in Higher Education (3rd ed.). San Francisco, CA: John Wiley & Sons.
Berman, E. P., & Stivers, A. (2016). Student loans as pressure on US higher education. In The university under pressure . Emerald Group Publishing Limited.
Cheslock, J. J., & Gianneschi, M. (2008). Replacing state appropriations with alternative revenue sources: The case of voluntary support. The Journal of Higher Education , 79 (2), 208-229.
Geiger, R. (2010). Impact of the financial crisis on higher education in the United States. International Higher Education , (59).
Mitchell, M., Leachman, M., & Masterson, K. (2017). A lost decade in higher education funding state cuts has driven up tuition and reduced quality.
Toutkoushian, R. K., & Hillman, N. W. (2012). The impact of state appropriations and grants on access to higher education and outmigration. The Review of Higher Education , 36 (1), 51-90.
Weerts, D. J., & Ronca, J. M. (2006). Examining differences in state support for higher education: A comparative study of state appropriations for research I universities. The Journal of Higher Education , 77 (6), 935-967.
