The American Families Plan Offers New Vision for Higher Education Affordability, but Should it be Bolder?

As President Biden closes out his first 100 days in office, he has unveiled his American Families Plan, the second part of his broader infrastructure and economic recovery package. The American Families Plan is the most ambitious domestic policy agenda proposed by a president since the New Deal. In many ways, Biden’s plan follows President Franklin Roosevelt’s “three R’s” of relief, recovery, and reform, acknowledging that Americans need relief from the pandemic, recovery from its ensuing economic fallout, and reform for how our country invests in people and programs. President Biden is going big in a lot of areas, proposing investing billions in child care, early childhood education, paid family leave, and more. Biden is also calling for one of the largest investments in higher education ever, including making community college tuition-free, a significant increase to the maximum Pell Grant, and critical investments in Historically Black Colleges and Universities (HBCUs), Tribal Colleges and Universities (TCUs), and other Minority Serving Institutions (MSIs), and other under-resourced colleges and universities. These investments are game-changing for American families and recognize the importance of higher education and its role in developing human capital infrastructure for the economy.

We review the components of the higher education plan below, detailing the importance of this critical investment in America's higher education system and our outstanding questions moving forward as details are hashed out. We also discuss why the Biden Administration should take this moment to be even bolder in their investment—delivering on Biden’s campaign promise to provide free tuition for public four-year institutions and to double the Pell Grant.

Free Community College

The American Families Plan lays out a $109 billion investment over ten years to make community colleges tuition-free for any American—including DREAMers—who wants to attend one. Biden’s proposal likely will follow the America’s College Promise legislation that was reintroduced this week in Congress, an initiative he has supported since his time as Vice President. The plan would eliminate tuition at community colleges through a federal-state partnership, where the federal government provides 75 percent of the funds needed to make tuition $0, and states would cover the remaining 25 percent — on top of their existing spending. (Tribal governments would only have to provide 5 percent and the federal government would pick up the rest.) Students would have access to free tuition for three years and, in recognition that full-time enrollment is difficult for many students, up to four years if circumstances warrant. Even better, this proposed investment is also paired with a $12 billion proposal for community college infrastructure from the American Jobs Plan.

An investment that makes community college tuition-free would drastically expand access to higher education, especially for the lowest-income Americans — the ones who would benefit most from the improved employability and financial security offered to college graduates. The message of “free” is simple and sends a clear signal of college affordability. Too often students wonder if they might qualify for financial aid and the uncertainty discourages them from applying even though they likely qualify for generous aid packages. Research has shown that “college promise” programs in states like Tennessee and Oregon increase college enrollment among students who wouldn’t have otherwise attended and reduce student borrowing, even though they are “last-dollar” programs that eliminate tuition after all other grants and scholarships. As a “first-dollar” initiative, the America’s College Promise program is likely to have a greater effect, especially in terms of decreasing the need for students to take out loans, because it will allow students to use Pell Grants and other financial aid towards books and living costs, which account for the majority of the total cost of attendance, especially for low-income students. The increased financial aid, paired with the potential of diverting students from attending predatory for-profit colleges, could also decrease future student loan defaults.

One promising piece of America’s College Promise is that the legislation includes a “maintenance of effort” provision for state (or tribal) funding that calls for them to maintain their funding for higher education—including need-based student aid—at the level of the average of the last three years. So if states cut their higher education budgets they should be at risk of losing the federal grant supporting free community college. But it is critical that these provisions are enforced. We know that states tend to cut higher education and backfill those cuts with federal funds. In fact, a month ago in Florida, the House Higher Education Appropriations Chairman Rene Plasencia justified their proposed $593 million higher education budget cuts with the influx of federal pandemic relief funds, saying, “As you can see, when federal aid dollars are taken into account, each entity is net positive despite our reductions.” The relief funds included a maintenance of effort provision, but some are still trying to get around them and hope the federal government will cover the difference. This shows just how important maintenance of effort provisions are, but also how difficult they can be to implement across states. Enforcement of this provision will be key to ensuring the states don’t disinvest and shift the cost to the federal government.

There are still important questions about what it means for states and their likelihood of participating in the program. There are two factors in tension with one another in federal-state partnerships. First, the match and amount of money provided has to be large enough to ensure states participate. But on the other hand, state spending on higher education is varied across the country, and tight budgets due to Medicaid, prison, and pension costs can make it difficult to find additional money. And some states just simply prioritize higher education more, creating concern that the plan could reward states that don’t and give less to those that do. The program would be much less successful if states chose not to participate for either financial or political reasons, like many did with expanded Medicaid under the Affordable Care Act.

The legislation also includes an automatic stabilizer, which would kick in during economic downturns so that states’ share of required funding decreases and the federal share increases. This is a critical component to ensure that the program is sustainable. State tax receipts often decrease drastically in recessions. In 2009, this led to steep cuts to higher education, which led to increases in tuition and student debt.

Investments in HBCUs, TCUs, and MSIs

From the start of his presidency, President Biden has said he is committed to racial justice. Biden’s proposal reflects that commitment by providing increased investments in HBCUs, TCUs, and other MSIs. The American Families Plan includes $39 billion to provide “two years of subsidized tuition for students from families earning less than $125,000 enrolled in a four-year HBCU, TCU, or MSI.” It’s unclear if that means eliminating tuition totally for those two years or reducing it, but the level of funding indicates that it could go a long way toward reducing student costs at the very least.

Students of color face a significant racial wealth gap due to systemic racism in education, the labor market, and other opportunities to build wealth, making affording college much more difficult. Black students in particular are more likely to borrow to attend college and leave with much higher debt loads. This investment could help students of color attend a host of colleges and universities and make doing so more affordable. The American Families Plan also would provide a $5 billion expansion of the grants provided to these colleges and universities under the Higher Education Act, in order to address systemic underfunding. And like his community college proposal, this is paired with another $45 billion investment from the American Jobs Plan.

We have the following questions about this investment:

• Does “two years of subsidized tuition” mean eliminating tuition or reducing tuition costs? So far, the plan has been thin on details as to what “subsidizing” tuition looks like and the requirements for institutions. A benefit like this can go a long way, but needs to be appropriately communicated to students and a complex subsidy may make it difficult for them to understand what financial aid they will receive. Special consideration also must be made about what happens beyond the two years of subsidized tuition in order to prevent students from dropping out if they encounter a sudden financial aid gap by their junior year.
• Will there be a maintenance of effort provision? Just like with the federal-state partnership for free community college tuition, this influx of funds without any strings can mean that states could reduce baseline funding for their public MSIs, making these under-resourced institutions no better off financially than before the program.

Increase to the Pell Grant

The Pell Grant is the cornerstone of federal financial aid for low- and moderate-income students. It has opened the door to higher education for millions of students, but for years now, the price of college has increased and the Pell Grant has not kept pace. For many low-income students, the Pell Grant and other aid falls far too short of covering the cost of college, making them more reliant on taking out loans, working more hours, pursuing other more affordable certificate or degree programs even if not aligned with their interests, or worse, foregoing higher education altogether. In the American Families Plan, President Biden calls for renewed investment in this critical program—raising the maximum Pell Grant by $1,800 ($400 of which would come from Biden’s skinny budget) from $6,495 to $8,295. Importantly, DREAMers would be able to access Pell for the first time, ensuring more ability to access college by reducing the incredible financial barriers DREAMers face.

This investment in Pell will fit well with other components of the American Families Plan and should be thought of as part of the strong foundation required to make higher education more affordable. Right now, a Pell Grant can defray most of the tuition and fees of attending a community college. As mentioned above, the problem is that nearly three-quarters of the costs community college students face are beyond tuition and fees, and those other costs have been growing—housing, food, books and technology, healthcare, transportation, and childcare. By making community college tuition-free (and subsidizing tuition and fees at Minority Serving Institutions), low- and moderate-income students can use the expanded Pell Grant for these other expenses. And though the American Families Plan stops short of making four-year public colleges tuition-free, low-income students will be able to cover more of their costs if they decide to attend those schools. In our current system, low-income students are one broken carburetor or medical bill away from dropping out, often with debt and no degree — a worst-case scenario that often leads to default. The comprehensiveness of this plan helps to alleviate the complicated financial pressures today’s students face.

And yet, the American Families Plan stops short of the level of investment required to fulfill Biden’s campaign promise of doubling the Pell Grant. To be fair, President Biden has called this expansion of the maximum Pell award a “downpayment” on doubling the Pell Grant. But all too often in policymaking something that is labeled a “downpayment” will not be revisited down the road. We have serious concerns that not calling for doubling Pell right now will leave it to simmer on a backburner forevermore.

We also have the following questions about the Pell expansion:

• Will the Pell Grant continue to rise over time with inflation? Any increase in Pell erodes if it is not indexed to inflation. Does the American Families Plan’s Pell expansion include inflationary increases year-over-year?
• Will this spending be mandatory? Currently, the Pell Grant program has both mandatory and discretionary requirements. Does this increase move the funding for the program to the mandatory side of the budget, ensuring it’s on the path for the needed doubling in the future?
• What are some of the requirements for students? Pell students now face lifetime eligibility limits (LEU) on Pell along with having to fulfill Satisfactory Academic Progress (SAP). Has there been any consideration to make LEU and SAP limitations more student-friendly?
• How will for-profit institutions be held accountable? The for-profit sector often prices itself in a way to suck up the most federal aid and loan money from students. We hope that the tuition-free community college proposal will help reduce this problem, but it likely won’t fully prevent it. What safeguards will be put in place to make sure these increases in Pell are meaningful for students, rather than a federal giveaway to the for-profit sector?

Student Success Fund

Community colleges are systemically underfunded. Eliminating tuition for students helps them attend, but covering tuition alone doesn’t address institutional funding disparities. Plus, enacting free community college might not set them up for success if there is an influx of students, but insufficient resources to support them. It also, by definition, leaves out under-resourced four-year colleges that serve many low-income students. Across higher education, regional four-year institutions have smaller endowments, partially by design with the Morrill Land Grant Act, and receive less in per-student state funding on average. These long-standing inequities have left these colleges doing more with less for decades, and it’s time the problem was addressed..

Luckily, the American Families Plan addresses these inequities—as well as the possible shortcomings of enacting free community college alone—by proposing an unprecedented $62 billion grant program to support students at colleges with a high number of low-income students. The proposal looks similar to the idea of a “Title I for Higher Ed,” a policy the President proposed in his campaign, and could truly change the higher education landscape. These funds, along with the investments in MSIs and the $12 billion for community college infrastructure proposed in American Jobs Plan, could boost the capacity of under-funded public colleges across the country. They would help community colleges serve the surge of students that are likely to enroll at their new price of “free.” The funds would also support the capacity of four-year schools serving low-income students to help those students persist and graduate. An investment of this magnitude would go a long way to addressing resource inequities for the institutions doing the lion’s share of educating marginalized and vulnerable students. Moreover, if implemented effectively, it could improve student success, leading to more college graduates with a financially secure life.

An investment of this size also requires working through the details to get it right. We have the following questions about this large, new program:

• How will the grants be distributed to states and tribes? Given the size of this program, it would most likely be a formula-funded program, going to every state and tribe based on some metrics. This is important since formula grants have the benefit of building the capacity of colleges that need it most and may not be in the position to apply for a competitive grant. But they also tend to be expensive with smaller allocations to each college because they are spread over so many schools. In this case, the funding should be distributed based on student headcount and the number of Pell-eligible students in the state (similar to the formula in the second Higher Education Emergency Relief Fund). The formula should also account for the number of potential low-income students in the state, especially as more are likely to enroll with free community college.
• How will the states and tribes be required to distribute the funds to colleges? We know that states tend to distribute more money to colleges that serve wealthier students. That is why the federal government should have clear metrics for how this money should be distributed to colleges and universities. Some clear measures of a college’s need as the basis for distributing the money should be included in the legislation and the U.S. Department of Education should be able to enforce that distribution.
• What can the money be used for? The explanation of this funding in the American Families Plan includes a host of allowable uses for the funding. It says the money will be used to “adopt innovative, proven solutions for student success, including wraparound services ranging from child care and mental health services to faculty and peer mentoring; emergency basic needs grants; practices that recruit and retain diverse faculty; transfer agreements between colleges; and evidence-based remediation programs.” These are all worthy uses of the funding. The challenge here is to encourage colleges to focus on a few evidence-based interventions they can do well, while also allowing the flexibility to address their most pressing problems on the ground. It is a difficult balance, but one that the legislation should strive for. There will be significant political pressure from colleges and states to allow these dollars to go towards almost any and everything, but Congress and the Department should keep their eyes on the prize and see to it that this historic investment aimed at reducing inequity meets its goal, by targeting and tailoring the grant applications. And because the Department will be able to ask different things of states and schools in each round of funding, it is important that it not maintain the status quo. Will the Department require more from colleges as the years go on and resource inequities are more balanced? Will it use subsequent applications to focus on improving student outcomes?
• Which colleges are eligible? The fact sheet does not specify whether this funding would only go to public colleges or whether states could also allocate the funds to private for-profit and nonprofit colleges. We would encourage the legislation to specify that this money could only be used to support public colleges, which the states have more direct governance over. If non-profit institutions are included, funding should only go to those educating a significant number or share of low-income students.
• Will there be a maintenance of effort provision? For this new program to be effective, it has to be implemented properly, and that requires that the funding goes to rectifying resource inequities. Like with the funds to subsidize tuition at community colleges and Minority-Serving Institutions, these funds can’t just be an excuse for states to pull back their funding. There has to be a meaningful maintenance of effort attached to these dollars that requires them to supplement state funding, not supplant them. And the Department has to be willing—and able—to enforce that. For an investment of this size and importance, a robust enforcement office should be set up and supported. Otherwise, it will likely fail to accomplish its goals.

Go Even Bolder: Four-Year Affordability

The American Families Plan is historic. But there are two key areas where it falls short of its grand vision. Free community college—in addition to the other investments in higher education mentioned above—is a significant step forward and will help millions of students access and afford higher education. However, the plan doesn’t fully address college affordability for students and families today because it doesn’t make a similar investment improving affordability at four-year colleges and universities, nor—as previously mentioned—does it double the Pell Grant. Both are necessary to ensure broad access to all credential types and to make low- and middle-income students less reliant on debt financing for their degrees in the future.

Over the last few decades, state disinvestment in public higher education has driven up tuition costs contributing to more students borrowing, and borrowing larger amounts. Worse, it has meant that some students never enrolled in the first place. And it isn’t just low-income students. Even middle-class families have been squeezed, stretching their budgets to save for college. Often what they saved wasn’t enough, especially for many families hit hard during the Great Recession, forcing many middle-class students to take on more debt than previous generations of students.

During the campaign, now-President Biden committed to making public four-year colleges and universities tuition-free for families earning $125,000 or less, alongside his existing proposals to double the Pell Grant and make community colleges tuition-free for everyone. It was a solid proposal that would eliminate tuition at public colleges for the vast majority of families, a version of which was introduced this week in Congress by Senator Sanders. But the American Families Plan doesn’t go that far, which means many students—particularly low-income students who are sensitive to college costs—will have to make the decision between a community college with little or no debt, or a four-year institution that might leave them with significantly more debt. The increases to the Pell Grant will help reduce their costs, but not nearly enough.

The approach of the American Families plan also risks deepening the existing stratification in higher education, where low-income families often are forced to choose the most affordable option, which is worsened by our systemic underfunding of community colleges. Biden’s plan will do a lot to address resource inequities, but it could still send a signal that certain schools and programs are for “those” students, often a dog whistle for Black, brown, and low-income students. If four-year colleges and universities are only affordable to some students, we will continue to exacerbate existing inequality, where low-income students aren’t afforded the same opportunities as their more affluent peers.

To be sure, eliminating community college tuition would be one of the biggest changes to higher education in decades, and it would help millions of Black, brown, and low-income students attend college and be less reliant on debt financing. And making community college tuition-free would allow students to save money in their first two years and then transfer to a four-year college. But low-income students and students of color who face racial wealth gaps shouldn’t be forced to jump through the hoops of transferring—where they lose an average of 26 percent of their credits in the process, costing them time and money—if the degree they seek is at a four-year college. Equal access to higher education should mean all of higher education.

The American Families Plan meets the moment in so many areas of domestic policy, including in higher education. But if we are to really “Build Back Better,” we have to make sure that all of public and minority-serving higher education is affordable and accessible to everyone. Four-year colleges will play a vital role in our economic recovery. Those with a bachelor’s degree or more account for 73 percent of the job gains since the last recession, and that trend is likely to persist. Every American should have the chance to attend a public four-year college if they want to. It’s not about everyone needing to have a bachelor’s degree, but if American students want to pursue one, cost shouldn’t stop them from doing so.

President Biden has outlined a proposal for higher education with ambition we haven’t seen in decades. But we know this moment won’t last long. We hope that President Biden and Congress will take this once-in-a-generation opportunity to invest in the totality of America’s higher education system and open the door of opportunity to all Americans.

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