Many may not realize it, but President Obama’s goal to link increased financial aid resources to higher education reform goes back to the very beginning of his campaign days. While ultimately unsuccessful, the story around how the American Opportunity Tax Credit sought to promote student responsibility sheds light on how the next President should push for good policy and good politics.
At a 2007 Iowa campaign speech, then-Senator Obama laid out a plan for public service that would simultaneously increase college affordability. Obama’s proposal – called the “American Opportunity Tax Credit (AOTC)” – would ensure that the first $4,000 of a college education would be free in exchange for the completion of 100 hours of public service.
As Obama later described it: “You invest in America and America invests in you – that’s how we’re going to make sure that college is affordable for every single American.”
This represented a marked shift in financial aid policy. Never before has a universal financial aid program ever called for shared student responsibility. It makes for very good policy because college students would now have to exert more effort in exchange for an increased financial aid benefit. Research finds, after all, that students who work or serve a minimal amount (between 10-15 hours per week) manage their time better, take their studies more seriously, and get better grades. That aids in overall college completion.
Unfortunately for the AOTC, politics ultimately got ahead of the good policy goal.
In heeding Chief of Staff Rahm Emanuel’s advice to “never waste a crisis,” President Obama tried to incorporate his tuition tax credit proposal into the Recovery Act, as he did with Pell Grant funding. The ultimate AOTC that got created, however, lost its key service provision. Instead, it was shelved for further study to see if it would be feasible to require community service as an eligibility condition. In the meantime, the AOTC would revert to a standard form of financial aid available to students from low- and middle-income families who claimed the tax credit.
Related: Education Funding Boosted with Chris Matthews’-Style “Hardball”
Five years later, the Treasury Department concluded: “While technically possible, such a requirement would be very costly for educational institutions and the IRS to administer.” Public comments – the vast majority from institutions of higher education – supported the Treasury’s claim that the logistical troubles that the IRS, colleges, students, and service organizations might face would be too burdensome to bear. In a nutshell, a lack of political will killed the service requirement.
Admittedly, a tax credit may not have been the best vehicle to push student responsibility standards in exchange for financial aid benefits. Tax credits by themselves are already a complicated form of financial aid whose benefits are not delivered at the time when college expenses are due. Regardless, the fact that President Obama tried to link financial aid to student responsibility in order to boost completion is a new paradigm shift. It’s a goal that has recently resurfaced with his free community college proposal.
The goal also makes for good politics. As the recent exchange between Martin O’Malley and Jeb Bush over debt-free college reminds us, we can’t just have “more free stuff” or just “higher ed reform.” We need both.
.@JebBush no, debt-free college is not about “free stuff.” It’s about providing opportunities for every American. http://t.co/KAsQECFQPZ
— Martin O'Malley (@MartinOMalley) July 8, 2015
And in order to achieve both goals, a policy needs to be structured so that it encourages timely completion in exchange for a bigger affordability commitment. For example, “debt-free college” could be restructured as “a cap on student loan debt” where students would have to meet several personal responsibility standards in exchange for a firm assurance that student loan debt would never exceed a proportion of family income.
Related: Debt-Free College: Something New, Something Borrowed
Shared student responsibility for college completion in exchange for an affordability commitment is a recipe for good policy and good politics. We hope the next President is up to the challenge.
For more details on how a “cap on student loan debt” could work and the 45th President’s challenge, read our new report.