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No Strings Attached

Friday, May 1, 1998

A private college spurns federal aid
to save its academic freedom

If American athletes in certain premier sports perform poorly in the next Olympic Games, in Sydney, Australia, we may have the federal government in part to blame. Not because it fails to support our teams adequately, but because its intrusion into the affairs of American colleges and universities has effectively reduced the number of collegiate opportunities for budding athletes. In the pursuit of gender equity in college sports, federal regulators interpret and enforce Title IX of the federal Higher Education Act in a way that is having disastrous consequences for several men’s sports.

Under the reigning interpretation of Title IX, colleges must in theory meet one of three tests to avoid liability for gender discrimination. They must either: (1) sponsor enough teams to satisfy the "interest and ability" of the underrepresented gender; (2) demonstrate a continued expansion of teams for the underrepresented gender; or (3) have roughly the same proportion of female athletes as there are female undergraduates. But in practice, if a school wants to appease plaintiffs or regulators at the U.S. Department of Education’s Office of Civil Rights, it had better satisfy the third test regardless of the first two.

Men’s swimming, gymnastics, and wrestling in particular have suffered tremendous cuts and often elimination as colleges and universities have attempted to achieve gender parity by subtraction. Since 1982, at least 99 colleges have eliminated wrestling, 64 have done away with men’s swimming, and the number of men’s gymnastics squads has fallen from 133 teams in 1975 to 32 today. Maybe these cutbacks will not hurt our Olympic hopes. Maybe there’s another way to nurture and develop talent. And maybe a smaller number of college teams can support the levels of excellence needed for Olympic glory. I’m no expert, but I doubt it.

The Financial Stick

As the president of Grove City College, I am not concerned only about the effect of federal regulation on college sports. I am more broadly concerned about its effect on academic independence. For most federal regulations, the federal government’s lever with institutions of higher education is financial. If a college accepts federal aid through grants or research contracts, if it accepts tuition or fee money provided to its students by the federal government, or if its students pay their tuition with funds borrowed from private banks but merely insured by the federal government, then that college is subject to a vast and complex set of regulations, including those pertaining to gender equity in sports.

I am not opposed to gender equity in sports. At Grove City College, we provide equal athletic opportunities to our women and men. But gender equity is only one of the many regulations that are attached to federal aid, and such regulations often have consequences that we do not like. To avoid these consequences, we refuse to accept any federal aid.

The Courts Intervene

Grove City College learned the lesson of federal funding more than 20 years ago. In late 1977, after the passage of Title IX, the college refused to sign an Assurance of Compliance form required by the federal government. Even then, the college accepted no direct federal aid and, as a private institution, argued that the federal government should have no jurisdiction.

The government thought differently. Some Grove City students received Basic Educational Opportunity Grants (now Pell Grants) and federally guaranteed student loans. So the government contended that the college was receiving federal financial support. Grove City argued that BEOG and student loan funds are aid to students, not to the college. In response, the U.S. Department of Education sued Grove City in 1977 to force it to sign the compliance agreement.

The government never claimed that Grove City had ever discriminated. The case was really about whether financial relationships between our college and the government subjected us to federal regulation. In 1984, in the case of Grove City College v. Bell, the Supreme Court held that the student grants constituted indirect aid to the college and thus obligated the college to follow the requirements of the Higher Education Act.

Rather than submit its financial aid office to federal regulation, the college decided that it would no longer accept students with federal grants and would provide needed aid with privately financed scholarships.

The other shoe took a dozen years to drop. The Court ruling in 1984 did not include federally guaranteed student loans. So Grove City continued to accept tuition and fee payments financed by federal Stafford and PLUS programs. In June 1996, however, the U.S. Department of Education changed its policy with regard to student loans. It insisted that Grove City sign an agreement that would have subjected the college to regulation under all of the subsections of the Higher Education Act pertaining to financial aid, including those governing programs in which we do not participate, such as the Pell Grant program.

How much regulation would this have meant? It’s hard to say. According to one estimate, there are more than 7,000 separate items—regulations and the frequent modifications issued by the Department of Education—to keep track of. If we had signed the agreement, we would have been required to:

  • Give the Department of Education access to confidential books, documents, papers, and records;

  • split loan-payment authorization and the disbursement of funds into separate administrative functions;

  • submit to nonfederal audits performed in accordance with Department of Education audit guidelines at least every two years;

  • maintain records in our financial aid office for each student who submits a student aid report regardless of whether the aid for which the student applies comes from federal sources; and

  • comply with a perjury clause that imposes personal liability on college officers signing required federal forms, something that requires personal knowledge of detailed operations (or very careful wording).

In short, the federal government would have dictated the college’s operations in many important respects. Even worse, there are so many financial-aid regulations that we would never be sure whether our policies complied with the law.

Most importantly, there was no way to ensure that the government would not add regulations that might strike at the heart of Grove City’s mission. As a private, Christian college, we have legitimate concerns about federal interference in what we teach and how we teach it. This was the most compelling reason for our decision to withdraw from the program.

Free To Pursue Truth

With about 800 students paying for their education with federally guaranteed loans, however, we had to find a substitute. Fortunately, we were ready. Our vice president for finance had been investigating the possibility of offering privately financed student loans for more than a year prior to our decision. The program we designed, operated through PNC Bank, is a completely private student-loan program that competes favorably against the federal loan programs.

Now we are entirely free of federal funding. We have no federal scholarships, no federally guaranteed loans, no federal work-study funds, and no federal research grants or contracts. We did not withdraw from these programs out of caprice or just for the sake of independence. Nor did we do it because of the compliance costs (although they can be steep).

We did it because we want to be free to pursue our mission. We do not, of course, escape all federal regulation. We still must comply with all of the general regulations that affect everyone—the minimum wage, equal opportunity laws, tax laws, and all the rest. But none of these laws has as much potential to interfere with our mission as the Higher Education Act. The federal government’s interpretation of Title IX illustrates the perverse consequences of its regulations. And we see the potential for even greater mischief.

Grove City College is a Christian institution. This implies an approach to teaching and learning—to pursuing the truth—that may be quite different from that at, say, Ohio State or Stanford. If we continued to accept federal aid, how long would it be before the federal government began to proscribe some activities or pressure us to change our curriculum? If we were to accept federal support, the Establishment Clause of the First Amendment to the U.S. Constitution, which prohibits government from establishing a religion, might give the federal government a pretext to interfere with our Christian mission. It was that concern, more than anything, that led us to withdraw from the federal loan programs.

Big Business

I wish other institutions could duplicate the independent stand taken by us, Michigan’s Hillsdale College, and very few others. But by now the reach of federal funding is so wide that it may be impossible. In fact, the financial involvement of the federal government in higher education is much greater, both absolutely and relatively, than in K-12 education.

In 1992-93, for example, federal funding to public elementary and secondary schools amounted to about $17 billion, a little less than 7 percent of these schools’ total expenditures. That year, direct federal funding of higher education totaled $21 billion, or 12 percent of all higher education spending. Almost $12 billion of that federal spending funded research and development at colleges and universities, about 60 percent of all R&D funds in academia. Other direct funding included special appropriations, nonresearch grants and contracts, and support for independent operations.

But the federal role goes beyond direct funding. It provides indirect support through grants to students (mostly Pell grants) and federally guaranteed loans. Pell grants totaled $4.7 billion in 1992-93, while federally guaranteed student loans came to $17.4 billion. Federal aid to higher education totaled $43 billion five years ago, or close to a quarter of all spending on higher education. Today, it is at least $50 billion.

It is big business, and it’s getting bigger. The Clinton administration’s HOPE scholarships, created last year, extends aid to students through income tax credits. It also requires that colleges collect and submit information about their students to the Internal Revenue Service. Although the administration has primarily focused on K-12 education, aid to higher education through student grants and loans and through research grants and contracts is also expanding.

The Looming Threat

The insidious nature of expanding federal aid can be seen in a very important change regarding federally guaranteed student loans that is almost certain to occur this summer. There are two categories of federally supported student loans: federally guaranteed loans that are provided by private banks (the indirect loan program) and, since 1994, direct federal loans.

The interest rate that is charged on these loans is presently based on the 91-day Treasury bill rate. Congress is poised to change that basis, resulting in a cut in the rate charged on all federally guaranteed student loans by about 0.8 percentage points.

Lower interest rates on student loans sounds like a good idea. But leading banks that make these loans have said they would lose money at such interest rates. So Congress is proposing a subsidy to the banks of 0.5 percentage points.

At the time this was written, the issue had not been resolved and it was not clear whether the arrangement would be acceptable to the banks. If it does become law, our privately financed loan program—and any others like it—will be put at a competitive disadvantage in attracting students who rely on financial aid. As it becomes more difficult for institutions like ours to find competitive student-loan resources independent of the government, it will become even harder to avoid its regulatory clutches.

As those clutches control more and more of academic life, we as a nation lose something precious—the freedom of institutions to follow their own star.

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