Policy Paper: The effects of Iowa College Student Aid Commission’s (ICSAC) decision to reduce the Iowa Tuition Grant (ITG).

Picture courtesy of IowaFiscal.org - http://www.iowafiscal.org/2012research/120412-IFP-collegeaid.html

This is an old draft (please excuse the grammatical errors!) of a paper I wrote for a macroeconomics course. Thought it would make a good blog post as I reminisce through some old e-mails, several years old in fact.



Overview

The Iowa College Student Aid Commission is the state agency that administers the Iowa Tuition Grant for Iowa students attending not-for-profit independent colleges and universities. Last spring we authorized Financial Aid Administrators to provide awards of up to $4,000, the maximum award allowed by law. The recent economic downfall has led to the drops in state revenue, thus ICSAC will reduce the grant by $435 for the remainder of the year. While the maximum award has been lowered to $3,565. The full reduction will affect students scheduled to receive awards totaling $1,000 to $2,000 for the remainder of the academic year. All students scheduled to receive less than $1,000 will have their awards reduced by $220.

This reduction in ITG funding will result in a higher out-of-pocket cost for students and their families, and could considerably lower the number of students that can afford to attend private colleges and universities. The State of Iowa’s government needs to act upon the falling economy, but not at the loss of it’s residents education and their future.

With this paper I hope to help rectify the issue by informing the public of the effects such drastic and hasty budget cuts are affecting future generations. Also by exemplifying some other alternatives for the government to consider when making the necessary budget cuts during the current recession.

THE ITG: Why is it so important?

The ITG is a need-based financial assistance program which goes directly to 17,000 Iowa students and their families who choose attend a private college in Iowa. This grant is only available to Iowa residents, who are attending a private college or university where the average graduation rate is 58.9%. According to the 2003 IPEDS Graduation Rate Survey 41% of private school students graduate at a year year rate, compared to 20% at public institutions, where students are subsidized by almost $12000.

Students seeking a higher education is becoming a more prevalent occurrence as the world becomes more technologically advanced. In recent decades the percentage of students attending college has increased dramatically. Today’s youth realise that a college education is putting them in a greater position over the course of their lifetime. The lifetime income of families headed by individuals with a bachelor's degree will be about $1.6 million more than the incomes of families headed by those with a high-school diploma, according to the Postsecondary Education Opportunity Research Letter. Statistically every dollar spent on a young persons college education produces $34.85 of income over their entire lifetime, obviously a wise investment not only for the individual, but also their community, state, and country. 

Studies have shown that college graduates, on average have:

• longer life spans
• better access to health care
• greater economic stability and security
• less dependency on government assistance
• more continuing education
• higher levels of voting in elections
• more volunteer work
• less criminal activity and incarceration

With this we see that a higher education, in the long run, benefit’s the state a great deal. The Iowa State Government spends millions of dollars on criminal activity and government assistance each year. Providing students with the ability to go to school and receive a higher education can help prevent the costs associated with these areas. 

What has been done in the past?

In the past, State and Federal Governments have gone ahead and made budget cuts to the education sector to help counter overspending and their deficits. This is a major part of the problem, as the government sees what has “worked” before (lowering education budgets) and continues to put the same methods into place. Over the long run these budget cuts only help in the short term, as they make the deficits disappear in the short term, but don’t counter the long term effects of the neglect that has been put into the education sector. In fear of not being re-elected and public scrutiny, state governments and officials use budget cuts across the board to reduce the deficits they are facing which makes it seems as though they are doing a good job in balancing their spending.How can the problem be solved?

In order for the government to satisfy their budget demands they must either 1) Increase their revenue, or 2) Decrease expenses. One particularly simple method of saving a lot of money could be through re-examining and altering the current methods of technology and programming used by the State government. By merging information technology systems, consolidating e-mail systems, outsourcing data storage, using free software and eliminating personnel costs associated with maintaining the hardware needed for data storage savings exponentially. Using high quality free software can significantly reduce the amount spent on software and the ensuing upgrades. Outsourcing data storage could possibly reduce hardware costs through upgrades, the cost of leasing hardware and drastically reduce the costs associated with the maintenance computer hardware due to malfunction. According to the Republican party a solution such as this could save up to $60m over the next fiscal year. That $60m in savings alone is more than the total of $53.6 million given out in the Iowa Tuition Program (http://iowahouserepublicans.com/wp-content/uploads/iowa-tuition-grant.PDF).

According to cdc.gov Iowa is just below the median percentage (22.1%) of smokers in the United States, I.e. the prevalence of smoking adults in comparison to other states. 21.7% of adults in Iowa smoke cigarettes, which puts the state right around the median percentile (approximately 26^th). The tax on cigarettes in Iowa ranks only as the 18^th highest, but is lower than neighboring states Wisconsin, Minnesota, Kansas and South Dakota. Tobbacofreekids.org states that “significant tobacco tax increases always produce substantial net new revenues. In every single instance where a state has passed a significant cigarette tax increase, the state has enjoyed a substantial increase to its state cigarette tax revenues, well above what they would have received absent any rate increase.” This exemplifies that a raise in cigarette tax will not only increase revenue for the state but also result in higher worker productivity, better overall public health which in turn will lower the cost of state health care.

By Blake Smith