american recovery and reinvestment act

In light of yesterday's post about Pell Grants in the stimulus, it's worth asking and exploring in more detail whether, and if so how, Pell Grants and other forms of education assistance function as a form of stimulus.

The House Education and Labor Committee has taken up this challenge, and in an email today provided these examples as to why education aid counts as long and short term stimulus. It's worth reprinting the whole thing for general distribution, and I've obtained permission to do so:

The American Recovery and Reinvestment Act passed by the House last week will increase the Pell Grant scholarship by $500 next school year for seven million eligible students (an investment of $15.6 billion). Some critics of this provision are questioning its inclusion, arguing that boosting student aid does not yield immediate economic benefits. They have not provided evidence to back up this claim.

In reality, students and families are facing intensifying job losses, declining wages, and a persisting college affordability crisis – a perfect storm that could hurt our economy’s ability to recover and our future prosperity. Making college more affordable and accessible is an investment in human capital that meets both the immediate and long-term economic goals laid out by President Obama, lawmakers and economists. The following memo explains how investing in the Pell Grant scholarship will generate benefits for state and local economies and help build the 21st century workforce we’ll need as the economy recovers.

Providing direct, immediate aid to millions of students

Recent studies show that the Pell Grant scholarship is playing an increasingly important role in expanding college access for low-income students. In FY 2006, almost 75 percent of students receiving the Pell Grant had family incomes below $30,000.

This investment builds on a key priority for the Democratic Congress – making college more affordable and accessible for students who need it most. When combined with other increases enacted during the 110th Congress, the maximum Pell Grant award will have increased by $1,500 – or 37 percent – since January 2007. This was the first meaningful increase in the scholarship in years.

In addition, the American Recovery and Reinvestment Act will invest $6 billion to create jobs by modernizing colleges and universities, will create a new $2,500 tuition tax credit for students and families, invest in campus-based aid to create new on-campus jobs for students, and will help states stave off further layoffs by restoring cuts to higher education. For more information, click here.

Colleges and Universities are engines of state and local economies

States and communities across the country rely heavily on the income and benefits derived from colleges and universities. College and universities create jobs, support taxes and generate spending on goods and services. Increasing the Pell Grant scholarship will help more students stay in college, and more new students enroll in college – which in turn will help colleges and universities keep more jobs on the payroll and continue to serve as local economic engines. Numerous studies illustrate these benefits.

• For example, colleges and universities in the Atlanta area supply 130,000 jobs and contribute $10.8 billion annually to the state’s economy.
• Each year, the University of Houston system generates over $3 billion in local economic activity and 24,000 local jobs.
• In 2006, Nebraska’s 14 private universities and colleges spent about $521 million on goods and services – generating another $900 million in spillover effects for a total estimated benefit of $1.42 billion to the state’s economy. In addition, Nebraska’s private colleges and universities generated nearly $69 million in state and local taxes and supported nearly 23,000 jobs in the state.
• In 2003-2004, the total estimated economic impact of spending by Pennsylvania’s 14 state-owned regional public universities was $4.47 billion; each of these schools provided an average of 3,592 jobs.

A December report by the Brookings Institute further illustrates the economic benefits of expanding college access: “Expanding eds and meds brings in new income to a metropolitan area. The presence of eds in a metropolitan area makes area residents more likely to earn college degrees and remain in the area to work. In addition, students who come to the area from elsewhere are more likely to remain in the area to work after completing their degrees. In both these ways, expanding eds increases the percentage of a metropolitan area’s residents who have college degrees and, therefore, increases earnings.”

A college degree leads to higher wages, benefits and greater financial security

A college degree is still the best pathway to the middle class for all racial and ethnic groups, men and women. According to a 2007 study by the College Board, college graduates earn 60 percent more over their lifetime than high school graduates; are 70 percent more likely to receive a pension from their employer; and are more likely to have employer-provided health insurance. A college degree yields higher incomes and greater purchasing power, which in turn inject more spending and tax revenue directly into the economy. These are all key ingredients for a sustainable economic recovery.

The advantages of an educated workforce

Leading economists agree that investments in human capital are critical to creating a well-educated, innovative workforce and a meaningful economic recovery.

“Education may not be as tangible as green jobs. But it helps a society leverage every other investment it makes, be it in medicine, transportation or alternative energy. Education -- educating more people and educating them better -- appears to be the best single bet that a society can make.”

--David Leonhardt, economics columnist, The New York Times, February 1, 2009

“It's our human capital that's in short supply. And without adequate public funding, the supply will shrink further. I'm not saying funding is everything, but without it we can't attract talented people into teaching, keep classrooms small and give our kids a well-rounded curriculum, and ensure that every qualified young person can go to college…

[T]he future competitiveness and standard of living of America depend on our peoples' skills, their capacities to communicate and solve problems, and innovate.”

-- Robert Reich, Marketplace Radio , December 3, 2008

For those looking to take action, Rock the Vote is currently running an action on the stimulus package that in part highlights the importance of student aid.

Today the American Reinvestment and Recovery Act (aka "the stimulus package") will be introduced in the House. The stimulus is a huge, all-encompassing bill (read full text here) that includes everything from governmental reforms to new energy and health care programs. If you want to get a good understanding of what is in the bill, this four page summary (pdf) is the most digestible synopsis I've read.

As we've written here many times since November, now that the election is over, it is time to move our resources over towards the policy realm. As one of the first major pieces of legislation coming out of the Obama Administration, it's worth taking a look at how well it reflects the concerns of young voters. While not first in any poll of young voters policy beliefs, Higher Education policy is often the issue most associated with young voters, and the issue around which the most information is available at the moment, so I'm going to focus on that particular issue in this post, and provide more details on other issues in a later post.

The Chronicle of Higher Education has an excellent summary posted of the many education provisions in the stimulus package:

• Increasing college affordability for 7 million students by funding the shortfall in Pell Grants and increasing the maximum award level by $500.”
• Providing a new higher education tax cut to nearly 4 million students. The plan will create a new $2,500 American Opportunity Tax Credit that is partially refundable. As a result, the nearly one-fifth of high school seniors who receive no tax credit under the current system will receive a tax cut to make college affordable for the first time.”
• Tripling the number of undergraduate and graduate fellowships in science, to help spur the next generation of home grown scientific innovation.”
• Preventing teacher layoffs and education cuts in every state, maintaining key reforms, and ensuring all schools have advanced technology for the 21st century economy.”

The Pell Grant expansion and the Opportunity Tax Credits are the big story here. Both could provide significant relief to low and middle-income American families trying to pay for college. Here's a more in-depth look at what the tax credit provides (from a House press release):

The Ways and Means Committee is marking up the American Recovery and Reinvestment Tax Act of 2009 today and the tax credit for tuition and textbooks described below will be a part of the Economic Recovery package that will be headed to the House floor.

“For 2009 and 2010, H.R. 598 provides taxpayers with a new American Opportunity Tax Credit of up to $2,500 of the cost of tuition and related expenses paid during the taxable year. The American Opportunity Tax Credit would replace the Hope Tax Credit and the above-the-line tuition tax deduction for the next two years. For the first time, textbooks would be included in the higher education expenses that would be eligible for the tax credit. Forty percent of the tax credit – up to $1000 – would be refundable. This tax credit will be subject to a phase-out for taxpayers with adjusted gross income in excess of $80,000 ($160,000 for married couples filing jointly). This will provide an estimated $13.5 billion in tax relief.”

It's worth stopping here to note that the Opportunity Tax Credit was introduced by Reps Doggett and Perriello, based on legislation they filed earlier in the year (the College Learning Access, Simplicity, and Savings Act (H.R. 386). Some of you may remember that Perriello was a Young Voter PAC endorsed candidate who won a close race in Virginia after a recount. Young voters in Virginia helped elect Perriello, and young Virginians getting ready for college will see the results.

So things are looking good in the House version of the stimulus package. Things aren't quite so rosy in the Senate. This is where we are going to need to direct resources in the next few weeks to ensure that the provisions in the House bill make it to Obama's desk.

Again, the Chronicle of Higher Education provides us with an excellent summary comparing the two bills:

Conservatives in the Senate are already working to cut the Pell Grant expansions out of the stimulus package, arguing that it will do little to stimulate the economy. Ditto the tax credit, which disproportionately assist low-income students. Again from the Chronicle of Higher Education:

The entire stimulus package will have much less to offer colleges and students (and beneficiaries of many other social programs) if Congressional Republicans have their way. In speeches and television appearances over the weekend, Sen. John McCain of Arizona and Rep. John Boehner of Ohio, both of whom are prominent members of the minority in their respective chambers, criticized the Democrats’ stimulus packages for greatly emphasizing spending that may or may not spark the economy rather than tax breaks that would put money directly into consumers’ and businesses’ pockets.

Boehner specifically singled out aid for education in his criticism. “[P]roviding $300 billion of this package to states — $166 billion in direct aid to the states, another $140 billion in education funding — this is not going to do anything, anything to stimulate our economy, to help the — our ailing economy,” the Ohio Republican said on NBC’s “Meet the Press.”

Boehner's argument is bunk. As Rahm Emmanuel repeatedly stated during a Meet the Press appearance, and as Lawrence Sumemrs did on Meet the Press just this past weekend, increased education aid is an investment in the future of the American workforce. A more educated population leads to a stronger middle class. When a family can get aid, and don't need to mortgage their home to send children to college, that strengthens the middle class and the economy. And $13 billion in Pell Grant aid is money that will be spent completely and quickly, helping to financially shore up our universities, many of which are facing funding cuts from the states. It pays teachers and buys equipment which in turn creates other jobs. That's not stimulus?

Some youth groups are currently working to organize around this issue. USSA and USPIRG are already working together to push a robust higher education package in the stimulus bill by organizing college and university governments to come out in favor of the House version. Campus Progress is also running a letter writing campaign Students in states with wavering Republican Senators should call their representatives' offices and urge them to support the Higher Education provisions in the bill.

Of course, even in the best case scenario, these provisions will not solve all the problems in our higher education system. No matter what version of the bill winds up on Obama's desk, more work will need to be done to improve the lending process. Banks are still soaking up taxpayer dollars through inefficient (but profitable) lending practices. The text book companies still maintain a monopoly on campus, price gouging students forced to by expensive "new editions" of old text books. And millions of students will still be unable to afford to go to college, the price for admission into today's middle class.

There's a lot more to be done. Just remember that we are only one week into the new administration, and this is a good beginning for students.