Funding the Next Generation: The Financial Influence of the Federal Government on US Public and Private Universities

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Nearly all scholars agree that money is a government’s most powerful tool. One of the most fascinating ways in which this medium has influence over its citizens is through education. At the same time, a greater number of young people than ever before, nearly half of US young adults, are pursuing higher education. Consequently, the increasing number of students in universities has directly contributed to the federal government’s involvement and sponsorship of higher education. 

As this influence grows, there arise numerous conflicts around the extent of the US government’s control of colleges. Politicians and educators alike contentiously debate taxation, financial aid, and research grants, among other forms of government financial sponsorship. Yet it is critical to remember the ruling power’s fundamental duty to improve the quality of life of its citizens. As universities, the federal government, and society at-large continue to debate how federal funds should be distributed among universities, the US government must not only focus on ways to increase college attendance through direct scholarships and financial aid to students, but also devote itself to financing research and innovative programs at universities that contribute to society’s progression, through a divestment of funds from corporate subsidies. By increasing direct sponsorship to university students and decreasing subsidies in the private sector to fund research institutions, the US higher education system will allow a greater number of citizens to pursue secondary degrees and increase the wealth of knowledge of our nation. 

Before establishing what a beneficial future relationship between universities and federal sponsorship might look like, it is necessary to understand the historical context and laws that define the US relationship to higher education. Founded as a republic, the US has always viewed the denationalization of education as one of its tenets. From its origin, the US strived to differentiate itself from European countries that left higher education solely to the discretion of the crown and the church. Even with this in mind, the federal government has always played a significant financial role in higher education. In fact, the first public college, the University of Virginia, was established by Thomas Jefferson in 1819. 

One of the most significant and, arguably, revolutionary features of US colleges in the eighteenth and nineteenth centuries was their political and partisan independence. Although these early institutions received public funding, public colleges were not subject to much federal government intervention. Some of the first significant bills passed in relation to higher education included the Morrill Acts of 1862 and 1890, which encouraged states to set up public, “land-grant universities” through federal funding in order to teach agriculture and mechanical sciences—the nineteenth century equivalent of a technological institute. Here, the government’s specific desire to subsidize scientific advancement is clear. 

As federal laws continued to finance universities fairly equally, institutions of higher learning became more of a meritocratic outlet for social mobility rather than the hierarchical system traditionally seen in Europe. Mark Yudof, former president of the University of California public college system, suggests that historically, the federal government was only responsible for the “creation, research funding, and regulation” of higher education, limiting its influence to those spheres. Yudof finds that national policies have failed to gain a more fiscally significant role in American universities and that a greater monetary commitment is necessary to the production of a “vibrant economy” and “inclusive society” in the modern era. 

Two of the more modern and well-known federal policies used to fiscally support universities are financial aid and federal loans. Such monetary aid is generally administered through the institutions themselves and then “subsidized” through federal taxes (Freedman). As such, the scholarships’ impact on colleges is manifold. The greater accessibility to loans and aid allows more students to have access to enough money to attend university. Although at first glance this appears to be an extremely appealing policy, in reality, financial assistance actually increases tuition at universities. As students gain access to greater monetary resources, institutions are able to  raise the cost of attendance without limiting the number of students who can enroll. In turn, tuition continues to rise in an endless, cyclical fashion. Those opposed to federal financial involvement often cite low economic elasticity as one of their major concerns, meaning as the price of universities increases significantly, only a few students are truly affected and unable to attend a higher education institution. Most young people continue seeking out ways to afford university, no matter the physical costs. Following this argument, federal scholarships and loans only further raise tuition costs. It is evident here that the current federal aid approach is flawed in its implementation. 

In 2010, federal funding overtook state funding of universities, leading to an increase in federal involvement in colleges. However, this influence has stayed almost strictly financial in nature as Congress has failed to pass any new bipartisan laws targeting the accessibility of higher education. Moreover, when presented with an underinvestment in human capital it becomes incumbent on the federal government to intervene. 

The foremost way that federal policy must influence higher education is through redefined scholarship and aid programs. It is already clear that a greater investment in universities has led to economic flourishing in the twentieth century through bills such as the Defense of Higher Education Act and the creation of Pell Grants, so further financing of higher education would not only allow more students to attend university, but also have a positive influence on the economy as a whole. As a greater number of people attend colleges, they will have access to a greater disposable income, leading them to increase consumption and in turn, expand the US economy. However, the positive effects on the nation’s income must begin with a greater increase in affordable education through scholarships and loans. Instead of distributing public funds with little focus on specific help to students, it is Congress’ duty to hold universities, and the higher education market as a whole, accountable for their financial decisions. The federal government must address this concern by providing merit scholarships paid directly to students who plan to attend a university. Such incentives, already proven successful in Europe, would not only increase enrollment numbers—which have fallen significantly in the past decade—but also the quality of students at higher learning institutions as a whole.

Moreover, the development of an increased number of educational programs and scientific research funding is a direct responsibility of the federal government. The distinguishing factor between public and private nonprofit universities and corporations is the lack of necessity of commercialization. Though higher education institutions have fallen into a profit-oriented trap in recent years, this issue is directly linked to their lack of funding from the government and their necessity to compete with private companies to attract students and researchers. While companies are constantly searching for ways in which to maximize profits, universities have traditionally focused on long-term research aimed at future innovation. In this way, they have limited the widespread problem of confirmation bias which corporations face. The largest issue with a purely private research system is a lack of investment in those subjects which have a payoff to society that is hard for companies to capture. It therefore falls on the federal government to sponsor research outside of lucrative fields by investing in higher education. By increasing university funding across the board, the federal government would not only create competition between universities to secure grants for projects, but also guarantee that there is a constant growth of knowledge within the US 

Financing for university research should mainly come from a divestment of current subsidization of research and development within corporations. For profit companies are generally unwilling to conduct research with big risks and slow payoff, while universities have graduate programs devoted to this exact cause. At Stevens Institute of Technology, there is already a large amount of research funded by the federal government, specifically the Department of Defense and Department of Homeland Security. The issue with the current system of grants, however, is that they are almost exclusively aimed at perfecting the military and cybersecurity, fueling wars and conflict in place of societal improvements. While both of these fields are important on the national level, it is within the federal government’s interests to fund research devoted towards the general improvement of society, in the fields of medicine, engineering, sociology, and so forth. While the Department of Defense granted $185 million towards university research, non-engineering and non-medical fields received just $26 million worth of funding in 2020. Congress must therefore divert corporate subsidies towards these areas in the form of research grants to universities. By combining increased financial aid with greater funding in research, the government is able to positively influence society through higher education.     

It is the salient duty of the federal government to intervene in the affairs of state, especially when they involve the long term well being of the nation. Therefore, policies must be implemented at the federal level to further and more effectively financially assist higher education institutions. Among these laws, it is incumbent on the government to increase scholarships and financial aid directly to students instead of distributing such funds directly to universities. The government must also expand research funds beyond the Department of Defense and Department of Homeland Security through the Department of Education towards non-STEM related fields. By combining greater amounts of aid with more generalized and broader opportunities for federal-funded research, the government would not only guarantee an increase in university enrollment, but also improve the quality of education through research. When the government recognizes its necessary duty to actively invest in higher education, society will inevitably improve.