Trends in Higher Education: Understanding Policy and Outcomes
During the course of its work, the task force studied the major trends in higher education outcomes and policy. A common understanding of these trends shaped the task force’s assessment of the state-federal relationship and its broader recommendations for advancing better outcomes in higher education.
Trends in Higher Education Outcomes
Education attainment rates have increased steadily over time. Today, nearly 38% of adults have a bachelor’s degree or higher. Half of those ages 25 to 29 have at least an associate’s degree, an increase of over 7 percentage points over the past decade.
Despite modest gains in attainment, nearly 42 million Americans have “some college, no credential.” This population represents 18.1% of the total U.S. population aged 18 to 64.
For most graduates, a higher education continues to offer clear benefits. The wage premium for a higher education remains substantial: The average college graduate with a bachelor’s degree earned about $78,000 in 2019, compared with $45,000 for the average worker with only a high school diploma. However, this wage premium has declined somewhat over time and wage gaps persist by race and gender at all levels of education attainment.
However not all students who receive degrees benefit from their investment. A Third Way study found that more than 3,100 programs (13%) do not offer any return on investment, and another 2,600 programs (14%) take at least 10 years and as long as 20 years for students to recoup costs.
Overall graduation rates have increased steadily over the last 30 years at four-year institutions. The overall six-year graduation rate at public institutions has increased from 55.4% in the mid-1990s to 63.5% today. A federal report found that the six-year completion rate for public two-year institutions was 43.4% and an additional 11.2% of students were at least still enrolled in higher education.
Between 2012 and 2022, the overall undergraduate enrollment population decreased by 2.4 million students, a 13.5% drop. Over this time, enrollment in four-year institutions has increased 2% and enrollment in two-year institutions has decreased 35%, a loss of nearly 2.5 million students. About 70% of undergraduate students attend four-year institutions, and nearly three-fourths of these students attend public four-year institutions.
Trends in Public Spending and Affordability
In 2019, the U.S. spent $37,400 per student on postsecondary education, more than double the average of OECD countries and second only to Luxembourg. By comparison, the U.S. spent $15,500 per student on elementary and secondary education. The U.S. spends 2.5% of its GDP on postsecondary education, the second-highest rate in the world behind Chile at 2.7%. Only three OECD countries spend more than 2% of GDP on postsecondary education.
State policymakers play an essential role in developing, funding and overseeing an affordable higher education system. State spending on higher education is a significant expenditure for policymakers. In fiscal year 2023, 8.7% of state expenditures went to higher education, trailing only Medicaid and K-12 spending as the third-largest area of spending. In total, state governments spent more than $112 billion to support higher education institutions and programs in FY 2023, according to the State Higher Education Executive Officers Association.
On an aggregate basis, state funding for higher education has increased year-over-year since state budgets began recovering from the Great Recession in FY 2013. Overall state spending per student has surpassed funding levels compared to levels prior to the Great Recession but remains nearly 4% below the previous all-time per student funding high set in FY 2000 of $11,492. Since FY 2001, state appropriations are up over 14%, although current per student funding is slightly below FY 2001 levels due to increased student enrollment. However, half of states are still spending less per student than they did before 2008.
Annual revenues at public institutions are at all-time highs and state spending per student is nearing all-time highs set in FY1999-2001.
Most of these funds are appropriated directly to colleges and universities, but states also offer a robust and growing range of financial aid programs to support students. Taken together, state policymakers provide significant support and funding to postsecondary institutions that serve the students in their states. Additionally, many state lawmakers have authority over tuition and fees at public institutions, as well as broader governance of postsecondary institutions that can impact affordability.
The federal government has long played a complementary role to states in making college more affordable for students and families. The Pell Grant has formed the bedrock of the federal role in affordability and is by far the most substantial federal program that directly lowers the price of college for students. Over time, income eligibility for the Pell Grant has expanded—the most recent expansion was made available for the 2024-25 award. The maximum Pell Grant award is $7,395 for 2024-25, which is 10% higher than in 2003-04.
Funding for the program has been fairly stable over time. The maximum Pell award remains at a similar level to the award in 1978 when adjusted for inflation. However, the purchasing power of Pell has declined over time due to rising college costs.
The combined efforts of state and federal policymakers, along with grants from institutions, have largely kept net tuition prices in check over the past decade. Students at public four-year institutions paid an average $2,730 net tuition and fees (the tuition charged to students after financial aid and discounts are applied) in 2023-24. Net tuition and fees peaked at $4,230 in 2012-13 and have since declined. Today’s net tuition costs are lower than they were in the mid-2000s. The average net tuition and fees that students pay at public two-year institutions is -$330 in 2023-24. This reflects that the average student receives sufficient grant aid to cover tuition and fees and has additional funds to put towards broader cost of attendance expenses. Net tuition and fees were $760 in 2006-07, the highest mark in the most recent range calculated by the College Board. Net tuition dropped as low as -$690 in 2010-11 and -$680 in 2021-22.
Trends in Federal Lending and Student Debt
The student loan program has long been a key component of the federal role in financing higher education. There is a recognition that some forms of higher education, especially graduate education, cost more than public funding can reasonably support and students and families can afford on modest incomes. Federal lending allows students to access any institution of their choosing without regard to credit history or current income levels.
Americans collectively owe $1.753 trillion in student loans. Student debt has more than tripled since 2006, when Americans owed $481 billion. Students borrowed $83.5 billion in 2022-23, including $44.1 billion for undergraduate education and $39.4 billion for graduate education. Total annual borrowing through federal loans peaked in 2012-13 at $129.7 billion and has since declined. Since this peak, annual undergraduate borrowing has significantly declined by 48%, or $41.5 billion. The share of graduate debt has grown steadily over time. The Congressional Budget Office (CBO) reported that graduate debt made up nearly 47% of all federal student debt in 2017.
Among the more than 46.2 million federal borrowers, more than half (54%) owe less than $20,000 and account for 12% of total federal debt. Nearly one-third of borrowers owe less than $10,000. However, borrowers with balances greater than $80,000 hold 47% of total federal debt despite comprising only 10% of all borrowers. Nearly 50% of students who graduated from public four-year institutions borrowed with an average cumulative debt per borrower of $27,400.
One-third of federal borrowers have debt but no degree. These borrowers are more likely to have borrowed less than $10,000 and are more likely to default on their student loans. In the second quarter of 2023, 6.5 million borrowers, or 15% of all borrowers, were in default status on their federal student loans.
Over time, the federal government has implemented programs that make up a “safety net” for borrowers who struggle to repay their loans. This combination of federal programs—providing repayment assistance, loan forgiveness due to exceptional circumstances or completion of public service, and repayment waivers during national emergencies—represents a critical advantage that federal lending holds over private lending. However, the implementation of these programs has been uneven and have left borrowers struggling to access its benefits. Federal repayment and forgiveness programs are often hard to access and navigate and choosing a repayment plan can be quite confusing.
A flurry of reforms over the past three years have sought to address the numerous challenges borrowers have faced in accessing the benefits of the federal student loan program. These reforms have allowed millions of borrowers to access the benefits of the student loan safety net and have greatly expanded federal spending on loan forgiveness.
Since 2021, the Department of Education has forgiven $168.5 billion in student debt for 4.76 million borrowers through these reforms to existing forgiveness and repayment programs. This includes $56.1 billion through income-driven repayment, $69.5 billion for Public Service Loan Forgiveness, $28.7 billion through Borrower Defense to Repayment, and $14.1 billion through the total and permanent disability discharge. The average loan balance discharged through these programs is over $35,000.
The Department of Education recently implemented its most generous income-driven repayment program yet, the Saving on a Valuable Education, or SAVE, plan. The Department has also proposed nine new one-time relief polices through a rule proposed in April 2024. The rule generally seeks to provide relief to borrowers whose balances have grown over time and would forgive debt for borrowers who are otherwise eligible for forgiveness under existing programs but are not enrolled.
Trends in Higher Education Governance
State legislators retain significant authority to oversee the mission and funding of postsecondary education institutions in their states. Through this oversight, state legislators can promote accountable, value-driven postsecondary degree and credential programs. States have also enhanced measures of postsecondary value often through expansions or refinements of data collection and usage, as well as explicit reports on value generated by postsecondary institutions. In recent legislative sessions, states have imposed new regulatory guidelines and created protections designed to help borrowers understand their repayment options and navigate the loan servicing process.
The federal government has long played a role in accountability and transparency. To participate in federal Title IV aid programs, institutions must meet certain federal conditions, which provide the basis for the federal interest in quality assurance and accountability. The federal government also plays a prominent role in transparency and has become the primary source of higher education data, including those related to student outcomes.
Significant increases in the cost of the loan program and concerns over institutional quality have sparked a new era of federal policymaking related to accountability and transparency. In just the past three years, the Department of Education has proposed or finalized a series of regulatory packages that have expanded the federal role in accountability in higher education. This regulatory agenda has also intersected with state policy in novel ways, particularly with regard to state authorization and overseeing student loan servicing companies.
Congressional lawmakers have also signaled interest in an increased federal role in accountability, including establishing minimum state authorization requirements. Among the more frequently discussed proposals is “risk sharing,” which would require all institutions to pay back portions of the unpaid loans of their former students.
During the course of its work, the task force studied the major trends in higher education outcomes and policy. A common understanding of these trends shaped the task force’s assessment of the state-federal relationship and its broader recommendations for advancing better outcomes in higher education.