In a Nutshell

• The number of Michigan high school graduates enrolling in college has fallen significantly in the last decade both in absolute and percentage terms.
• One challenge has been college affordability. A forthcoming Research Council report will show that tuition and fee charges at public universities and community colleges (both in Michigan and nationally) have grown significantly faster than typical household incomes.
• A $250 million appropriation in the state budget for a new Postsecondary Scholarship Fund could help reverse large cuts to state-based financial aid that followed the Great Recession. A well-constructed program could play an important role in making college more affordable to Michigan students.

With a relatively large revenue surplus at hand, the state budget enacted in July included a number of large new public investments. One of those investments could help reverse what has been a decades-long trend of stagnant growth in state funding for higher education. A $250 million appropriation for a new Postsecondary Scholarship Fund could be instrumental in addressing a growing public policy concern: the decline in the proportion of Michigan high school graduates attending college.

In today’s workplace, higher wages are increasingly reserved to those with advanced skills most commonly associated with a college degree; those skills also enhance worker productivity and economic growth for the economy as a whole. Data make it clear that obtaining a college degree is the surest path to securing employment that provides a healthy income. In 2021, median weekly earnings for a full-time worker with a bachelor’s degree was $1,334; that’s 65 percent higher than the median weekly earnings for full-time work for a person with only a high school diploma ($809).  Having an associate’s degree boosts median earnings by around 19 percent to $963.

Shrinking College Attendance Among Michigan High School Graduates

Despite this wage premium, however, the chart below shows the number of Michigan high school graduates that are entering college is shrinking. The decline is partly the result of demographics. Consistent with a general decline in the school-age population, the number of high school graduates shrank by almost eight percent across this period, falling from 105,399 in academic year (AY)2012 to 97,091 in AY2021. But the decline goes beyond just the population trend, the overall percentage of graduates entering either a university or community college within six months of graduation has also fallen from 64.8 percent in AY2012 to just 53.5 percent in AY2021.

Source: Michigan’s Center for Educational Performance and Information, College Enrollment by High School, Trend data for college enrollment within 6 months of high school graduation.

Further, gaps in college attendance rates exist along racial, socioeconomic, and geographic lines. While 53.5 percent of all AY2021 high school graduates enrolled in college, only 38.9 percent of African-American graduates and 43.3 percent of Hispanic/Latino graduates did the same.  For students from economically disadvantaged households, the rate was only 38.5 percent.

Finally, there was a significant geographic disparity across the state. Looking at individual Intermediate School Districts (ISDs), the top five ISDs in terms of college enrollment rates for their AY2021 graduates were Washtenaw (68.5 percent), Charlevoix-Emmet (66.3 percent), Oakland (60.9 percent), Livingston (60.1 percent), and Midland (59.8 percent).  In contrast, those enrollment rates were lowest in Manistee (35.6 percent), Montcalm Area (35.8 percent), Barry (38.5 percent), Wexford-Missaukee (40 percent), and St. Joseph (40.2 percent).

Clearly, the COVID-19 pandemic has played an important role in exacerbating the overall problem, but the data show college attendance was falling even before the pandemic in both absolute and percentage terms.

Tuition and Fee Growth Reduces College Affordability

One challenge to college enrollment has been affordability.  A forthcoming report from the Research Council will document the sharp growth in tuition and fee charges at public postsecondary institutions in both Michigan and nationally. Using data from the federal Integrated Postsecondary Education Data System (IPEDS), the study will analyze the financial hit to household budgets by looking at annual tuition and fee charges as a percentage for median household income. A key finding is that tuition and fees have grown significantly faster than incomes. For public universities, average tuition and fee charges as a percentage of median income have grown three-fold between 1989 and 2019; in Michigan, tuition and fees equated to 7.4 percent of median household income in 1989 but grew to 21.6 percent of median income by 2019.  For Michigan’s community colleges, tuition and fee charges grew from 3.2 percent to 5.8 percent of median income over the same period.

Our analysis suggests a key driver to the run-up in tuition and fee charges has been persistently slow growth in public operating support to the state’s public postsecondary institutions. Public universities and community colleges lean on two key sources of revenue to fund their educational programs: (1) tuition and fee revenue, which can come directly from students and families or from financial aid grants and student loan proceeds; and (2) public operating support – generally state appropriations and, for community colleges, local tax revenue from dedicated millages.

The report will show that slow growth in public operating support over the last three decades has resulted in a greater reliance on tuition and fee revenue to meet educational expenses, particularly for public universities. Between 1989 and 2019, public operating support per full-time equated student at Michigan public universities grew at an annual rate of only 0.4 percent; in contrast, tuition and fee revenue per student grew at an annual rate of 6.4 percent.  Looking at combined revenue from both tuition and public support, most of this revenue (61.4 percent) came from public dollars in AY1989; by AY2019, the opposite was true – only 22.1 percent of these revenues came from public support with the remaining 77.9 percent coming from tuition and fee charges.

On the top of the slow growth in public operating support, Michigan also implemented huge reductions in state-based financial aid programs as it weathered the impacts of the Great Recession. In Fiscal Year 2010, faced with $1.5 billion General Fund budget shortfall, the state slashed $139 million in state financial aid from the budget, which included the elimination of the $80.5 million Michigan Promise Grant program and a combined $46.2 million reduction (52 percent cut from prior year) to the state’s two largest need-based aid programs – the State Competitive Scholarship and Tuition Grant programs.

As a result, at a time when financial aid award rates were increasing nationally for undergraduate students, Michigan students saw award rates decline. The chart below displays the percentage of first-time, full-time undergraduates at both U.S. and Michigan public postsecondary institutions that were awarded financial grants from all sources (e.g., federal, state, private, institutional) and specifically from state/local sources in AY2009 and AY2019; in other words, before and after the significant reductions to state-based financial aid in Michigan.  In AY2009, Michigan was a relatively generous state in terms of grant aid awards.  After the major budget reductions, Michigan now lags behind the national average; in general, this means Michigan students get a smaller financial aid discount and bear a greater share of formal tuition and fee charges.

Source: Research Council calculations based on data from Integrated Postsecondary Education Data System (IPEDS), U.S. Department of Education, Institute of Education Sciences, National Center for Education Statistics.

$250 Million Scholarship Fund Can Move the Needle

The $250 million investment for the Postsecondary Scholarship Fund could be a critical public policy step to promote postsecondary educational attainment in Michigan. However, work remains to be done in terms of implementing the new program. State budget language provides no details on how the funding is to be allocated; only that funding must be used to provide “scholarship awards to eligible students who attend eligible postsecondary educational institutions in this state”. The language requires the details on eligibility for both students and institutions to be ironed out through the enactment of a new state law to guide the program funding.

While the pending elections are a potential distraction, the administration and legislature should begin work now on establishing guidelines for this new funding with two goals:

• Pass the enabling legislation as soon as possible. The budget requires legislation to be enacted by September 30, 2023, but the legislature and administration should begin discussions with the goal of doing it much sooner, so that funding can be tapped to help students and families sooner rather than later. Several critical eligibility issues will need to be resolved, and discussions should begin now on each of them: 
  • To what extent will aid be need-based or merit-based, and who is eligible under either standard? 
  • Can funding be used to attend private institutions in Michigan? 
  • Should funding be earmarked to some degree between universities and community colleges?  

• Maintain the full funding in future budgets as an ongoing investment. The $250 million deposit into the Postsecondary Scholarship Fund represents a major investment that can help replenish state-based financial aid in Michigan. But if the investment is one-time in nature, it’s really only a band-aid relative to the long-term challenge of making a college degree affordable and improving the skills of the state’s future workforce. With a $7 billion balance in the state’s two major revenue funds, the $250 million should be maintained in future budgets as annual ongoing support for state-based financial aid.

There is broad agreement that Michigan’s economic future hinges on the talent and skills of its workforce. Recent investments in the Michigan Reconnect program to promote tuition-free coursework at Michigan community colleges for persons aged 25 years and older have already helped connect some non-traditional college students with college programs. The new state budget also includes funding for   a Future Educators Fellowship program which will provide scholarships of up to $10,000 per year for students enrolling in qualified teacher preparation programs in Michigan starting this fall.  Despite the uncertainty regarding the program’s design, a $250 million ongoing investment in financial aid grants – especially grants that are focused on encouraging greater college enrollment –  would likely help move the needle even further.