In his State of the Union address on Tuesday night, President Obama “put colleges and universities on notice.” Find a way to stop tuition from going up, he told them, or risk losing federal aid money. Following up on that charge, Obama put forward a proposal on Friday at the University of Michigan that, if passed, would tie federal campus-based aid programs to tuition policies for the first time in history.
Under the plan, the Administration would shift aid away from those colleges that fail to keep tuition down in favor of institutions that “do their fair share” to keep tuition affordable. The plan would achieve this by targeting campus-based aid programs—work-study programs, Perkins loans and supplemental grants for low-income students—which accounted for $3 billion of the $142 billion distributed in federal grants and loans annually. The plan proposed increasing that total to $10 billion next year.
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Obama targeted campus-based aid programs, rather than much larger federal aid programs like Pell grants and Stafford loans, because those programs give money to students who can use it at any college, whereas Perkins loans go directly to colleges, where administrators can use the money as they see fit.
The plan also outlined a Race to the Top-style competition in which states would compete for $1 billion in prize money, a separate $55 million award for colleges that increase their efficiency, called for a doubling of work-study jobs and materials that will help families determine the true cost of college. The President also called on Congress to extend the interest rate reduction on subsidized Stafford loans as well as the opportunity tax credit, a $2,500 per year tax credit for working families with students who attend college.
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Incentivizing colleges to lower tuition sounds like a great thing on its face. College students are now taking on more debt than ever to compensate for tuition costs that are increasing twice as fast as inflation—even faster than health care costs. But at the same time, state funding for higher ed has just sustained record-high cutbacks. According to the annual Grapevine report from the Center for the Study of Education Policy at Illinois State University, 41 states cut funding for higher education in response to the slow economic recovery and the end of federal stimulus funds last year. Overall, in the past year alone, state funding for higher ed decreased by nearly 8%, or $6 billion. As state money declines, many have said the only way for colleges to compensate is for students to foot more of the bill. But if Obama’s plan were to pass, raising tuition wouldn’t be an option if states wanted to receive part of the $10 billion in proposed federal aid.
Some higher ed experts fear the plan would force colleges to trade quality for price. In the four years since the 2008 financial crisis, many institutions have made the easy cuts. They’ve consolidated campuses, cut programs with low-enrollment, scaled back administrative costs and increased energy efficiency. The options that remain—trimming financial aid, reducing enrollment, increasing class size, cutting back on the number of classes, using adjunct instructors instead of full-time faculty and postponing maintenance projects—can hurt students. Some are taking these steps anyway.
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Maybe institutions are just going to have to get more creative. “Colleges and universities have got to realize this is a long-term problem and we can’t just get all the money from students,” says Joni Finney, professor of higher education at the University of Pennsylvania and the vice president of the non-profit, non-partisan National Center for Public Policy and Higher Education. “Now is the time to think about doing business in unusual ways.” Finney advocates for some lesser-used options for reducing costs, including cutting non-effective programs, using technology more effectively, streamlining curricula so students don’t graduate with more credits than they need (which is common today), upping the number of hours faculty teach, making better use of evenings, weekends and summers, and offering three-year degree programs to well-prepared students.
Still, even with changes on campus, Finney agrees with Obama that states must maintain their commitment to higher ed. “States can’t continue to cut,” she says. “They’ve turned to higher ed to make cuts because they knew colleges had another revenue source: tuition, but they can’t continue to rely on that or there will be a tipping point where college enrollment goes down because no one can afford it.” Which is exactly what Obama is trying to avoid. “Higher education is not a luxury,” the President said in his speech at the University of Michigan. “It’s an economic imperative that every family in America should be able to afford.” But as Congress must approve nearly all of the aspects of the President’s plan, the question remains as to whether colleges and universities will be forced to meet his call.
Kayla Webley is a Staff Writer at TIME. Find her on Twitter at @kaylawebley, on Facebook or on Google+. You can also continue the discussion on TIME’s Facebook page and on Twitter at @TIME.