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In 2004 Colorado passed legislation enacting the nation's first voucher-based approach to financing higher education, known as the College Opportunity Fund (COF). The work of an unusual coalition that included higher education leaders, generally conservative policymakers, and others, COF completely replaced the traditional approach of subsidizing public higher education through direct appropriations with a combination of vouchers and “procurement contracts” for educational services.
COF's most ardent backers, including many of the neoliberally minded policymakers who controlled much of state government at the time of its adoption, believed the vouchers would boost access to college—especially among poor, minority, and male students—by making the state's investment in them more apparent and by empowering them as “consumers” to pick and choose among colleges. They also expected that COF would make institutions accountable by forcing them to become entrepreneurial and market-driven.
But these were not COF's only goals, or even necessarily its most important ones. Instead, COF's main virtue for many supporters was its potential to relieve the stranglehold the state's constitution had placed on college and university finances. Higher education leaders came to view COF's passage as critical to sustaining quality at their institutions.
Several years later, the higher education community in Colorado tends to heap scorn on the vouchers. Some liken COF to “smoke and mirrors”; others disparage it for having created “bureaucracy out the wazoo.” Within and outside of higher education, few believe that COF has increased access or led to more competition among institutions. But despite its shortcomings, there is wide recognition that the policy has been instrumental in breaking the state's beleaguered higher education institutions free from a fiscal and legal tangle that had seemed an imminent threat to their missions.
What has COF achieved, where has it failed, and what can we learn from it? To find out, the Colorado Department of Higher Education (CDHE) commissioned the Western Interstate Commission for Higher Education (WICHE) to undertake a full-scale evaluation of the COF policy, as required under the statute. This article reports on the findings of that evaluation, which included interviews with key members of the coalition that supported COF's passage and representatives from public institutions, as well as an analysis of enrollment data.
Origins and Evolution
Colorado's adoption of vouchers can be traced to a distinctive feature of its legal and political landscape. In 1992, voters passed the Taxpayers' Bill of Rights (TABOR) as an amendment to the state constitution. TABOR imposes strict limits on the state's ability to collect and spend revenue by restricting growth in the general fund to inflation plus population growth, and it requires that voters directly approve any tax increases. TABOR has had a profound effect on the state's decisions in all areas of public finance, but higher education was especially hard hit, since tuition revenues were treated as state revenue and therefore subject to its limits.
Even prior to TABOR's enactment, Colorado had not been the most munificent funder of higher education. According to the State Higher Education Executive Officer's state higher education finance (SHEF) report, in 1991 Colorado ranked 35th among the 50 states in total education revenue at its public institutions. Because TABOR bases each year's funding on the previous year's budget level, recession-level funding determines the base from which budget levels are calculated in more prosperous times (this came to be known as the “ratchet effect”). So, having fallen during the early 1990s recession, Colorado's public institutions' funding levels failed to keep pace with those for their counterparts in other states during the recovery of the later 1990s.
The situation worsened as the nation entered another recessionary period at the turn of the 21st century when, like other states, Colorado found it necessary once again to cut state agencies' budgets. As the economy soured, TABOR's ratchet effect reset the state's higher education budget limit for the subsequent year at the resulting lower level. By 2004 Colorado had slipped into last place nationally in total educational revenue to public institutions (Figure 1).
Figure 1. State Appropriations and Tuition Revenue per FTE for Colorado Institutions
Seeking a way to untie this fiscal knot and to improve postsecondary participation, in 2003 a gubernatorally appointed panel recommended the replacement of the state's existing higher education finance policies with a voucher-driven system. This recommendation eventually led to the COF policy, passed by the legislature in 2004.
A Primer on COF's Design and Original Goals
COF's main innovation was to employ vouchers as the principal financing mechanism for higher education. All resident undergraduate students attending the state's public institutions, as well as resident Pell Grant recipients enrolled at eligible private nonprofit institutions, can tap into COF funds to offset their educational expenses. The stipend's value is set annually by the legislature at a specific amount per credit hour.
Less publicized but equally important is COF's second component: fee-for-service contracts, through which the state purchases services to meet “state needs” not funded through the stipend, such as graduate education. While the stipend gets the lion's share of attention, fee-for-service contracts provided just under $300 million to Colorado's public institutions in 2007–08—nearly half of the combined revenue from both funding streams that year. The contracts were initially set at a level that, when added to the stipend revenue, was intended to hold institutions harmless relative to their preexisting direct-appropriation levels.
Finally, performance contracts, COF's third component, are negotiated between the Colorado Department of Higher Education (CDHE) and all institutions that participate in the stipend component. They require institutions to make progress toward agreed-upon goals relative to access and success, quality, efficient operations, and other activities in keeping with their roles and missions.
COF's ultimate success in the legislature was due to a coalition comprising an array of stakeholders with divergent ideological perspectives, a range of motivations, and sometimes competing interests. Yet they all recognized that Colorado needed to get its higher education institutions out from under TABOR. Some key supporters were eager to change how TABOR treated tuition revenue, both because it prevented institutions from pricing themselves according to the market and because enrollment growth alone could strain state budgets in completely unrelated areas of public finance like transportation.
But most also believed that TABOR's constraints had become an imminent threat to the state's higher education enterprise. Without an exclusion from its strict provisions, “we are facing the downfall of public higher education in Colorado” by the end of the decade, warned Elizabeth Hoffman, then-president of the University of Colorado, at a 2004 House Education Committee hearing.
Accordingly, COF's designers wanted institutions to have “enterprise” status, which exempts organizations receiving less than 10 percent of their revenues directly from the state from TABOR's limitations. The thinking went that if the state funded students through vouchers and purchased educational services from colleges and universities through contracts rather than funding institutions directly through appropriations, the institutions could argue persuasively that they were enterprises.
In addition to securing the TABOR exemption, a subset of COF's backers were committed to finding a way to impose greater market discipline on institutions. These individuals felt that the voucher approach would compel institutions to adopt more entrepreneurial behaviors, particularly in recruiting students. Some also expected the policy to more actively engage the market by allowing institutions more freedom in setting their own tuition levels, enabling the more prestigious among them to generate additional revenue by tapping more deeply into their large pool of qualified applicants, many of whom might be willing to pay more to enroll there.
These market-minded proponents saw fee-for-service contracts as another way to unleash competitive forces that would encourage institutions to prove themselves more worthy of state investment than their peers, based on how efficient or responsive to state needs they could be. For instance, one institution might feel pressure to reduce costs in a program like nursing if another could offer the same program at a lower cost. Such incentives were not apparent to those in the higher education community, however. They viewed fee-for-service contracts simply as a way to account for differences in role and mission that led to legitimately higher costs for some institutions, especially those involved in graduate education.
But by linking state dollars sent to institutions to the purchase of specific services, fee-for-service funding also provided a rationale for treating a greater share of institutional revenues as exempt from TABOR. Doing so enabled more institutions to reach enterprise status, thereby broadening the appeal of the COF approach within the higher-education community.
COF's perceived market orientation had one other important virtue. In general, the state's political leadership at the time believed that a largely unregulated market provides the most efficient means of delivering state services. COF became a way for those who had been striving to secure better and more stable funding for higher education to wrap that goal in the cloak of a philosophy that appealed to the political leaders guiding Colorado.
One segment of the coalition had another major goal for the policy. This group was convinced that vouchers could improve access to higher education for traditionally underrepresented populations. They thought that more students would choose college if only they appreciated the size of the investment the state was making on their behalf; they also believed that the voucher could be a useful tool for counseling high-school students, especially if it was backed with an aggressive marketing effort.
For most supporters, though, improved access was little more than a rhetorical device to generate broader support. They dismissed the notion that the stipend made financing a college education more transparent and found the idea that vouchers would somehow be more appealing to underrepresented groups than to their wealthier peers difficult to swallow. Nevertheless, these skeptics, many from within the higher education community, were content to be silent with their misgivings rather than risk derailing the effort to solve their funding problems. In the end, the enacted legislation articulated the expectation that COF would increase access, especially among males, low-income residents, and those from underrepresented populations.
The Voucher and Enrollment Patterns
COF became effective with the fall 2005 semester. How did enrollment patterns change after implementation, and how did they differ based on student characteristics, especially for targeted groups? To what extent were changes in enrollment patterns consistent across different types of institutions? While this evaluation cannot conclusively identify COF as the principal cause of the changes that unfolded after its enactment, the numbers are nevertheless revealing.
Overall, Colorado's enrollment patterns in the immediate wake of the voucher program stand in stark contrast to national trends over the same period, especially in the two-year sector. Enrollment at the state's public institutions fell 2.9 percent following the introduction of vouchers (Figure 2). This decline occurred even while national undergraduate enrollments continued to climb—and at a time when Colorado's population was growing.
Figure 2. Cumulative Percent Change in Undergraduate Enrollment, 2003–2007
The rate at which recent high-school graduates enrolled at non-selective public institutions also lagged the rate of growth in high-school graduates. The enrollment rate of black and Hispanic residents continued a descent that preceded vouchers, while for whites the rate held steady. The enrollment of low-income students declined substantially, especially in the second year of implementation, compared to national data.
It was in the two-year sector where enrollment patterns were most troubling (Figure 3). While national data in that sector dipped slightly (by less than 1 percent) in 2005–06 and bounced back the following year, enrollments in Colorado's two-year institutions plummeted by nearly 5 percent the first year under COF and by 9 percent the second year. What happened among adult learners was especially revealing. The older the student, the greater the decline in enrollment rates following the vouchers' introduction, perhaps because marketing efforts principally targeted high school students.
Figure 3. Undergraduate Enrollment by Sector, 2003–2007
Student-services staff at institutions identified issues with COF that may have contributed to the declines. Inconsistent information about the size of the voucher—whose value was designated at $4,400 when the policy was first under consideration but dropped to $2,400 by the time of implementation—and how it would affect students' out-of-pocket expenses got the program off on the wrong foot. State leaders' pronouncements—including those of prominent public officials who inaccurately proclaimed that the stipend would make community college effectively free—fueled the confusion.
But the real problems cropped up when students discovered that, instead of reducing their out-of-pocket expenses, the new system required them to pay at least the same amount as they did prior to the stipend. Since the stipends were replacing direct appropriations, COF's designers anticipated that institutions would raise their in-state tuition prices by roughly an amount equal to the stipend. In fact, institutions used their enterprise status to increase tuition beyond that amount, and many students wound up with bigger bills. In the meantime, COF created another pricing level—the “student share” of tuition—for would-be consumers to understand.
Amidst all this confusion and uncertainty, institutional staff found themselves spending a considerable amount of time explaining to students and families how COF really worked—conversations that were often tense and frustrating for all parties. One chief academic officer said that students' confusion led them to feel “duped and double-crossed” and that, from his perspective, there was “a lot of selling of COF's access angle,” which “created a credibility disaster for the institutions.” One student was heard comparing the process of enrolling under COF to purchasing a used car, and “used car salesmen aren't generally singled out for their integrity.” Financial-aid directors reported that the need to explain COF frequently “derailed” their presentations to parents and students about financing a college education.
And the new hassles and confusion didn't end there; the “authorization” procedure also created headaches for students and institutions. Under COF, a student never actually receives a voucher but only directs its payment to the institution through an online eligibility validation process operated by the state's student-loan guaranty agency. For many students, the authorization requirement merely added another administrative task to complete during registration.
For those who expected their college expenses to be fully paid by parents or scholarships, the reason that they needed to submit information to the student loan agency was far from obvious. Still others failed to authorize COF payments for various reasons, including neglect, uncertainty about how to do it, concern that doing so might expose family members to law enforcement (especially true for undocumented students), and even an unwillingness to take “charity” from the state. Authorization became an even more significant barrier when mismatched identification information—due to factors like the use of nicknames or input errors—thwarted the validation process.
Representatives from community colleges were especially vocal in criticizing the vouchers, which they believed dissuaded large numbers of two-year students—many of whom sign up for classes at the last minute, often without having given much thought to finances—from enrolling. Officials recounted experiences with students who, all but finished with their matriculation paperwork, stormed out of the registration office in frustration, unable to comprehend how the voucher program worked, how to successfully authorize it, or what their share of the costs would be. Community colleges working with late registrants resorted to charging them an “estimated” price so they could complete registration then and there. But this practice often left college staff scrambling to track down students when authorizations failed.
Despite the policy's putative power to unleash competition, officials could point to no significant changes in institutional behavior directly attributable to COF, apart from those necessary for its administration. Institutions have not altered their activities related to recruitment and outreach or financial aid. None found the voucher to be useful as a tool for reaching out to students earlier, connecting with a wider demographic, or starting a conversation about paying for college.
Officials recounted experiences with students who, all but finished with their matriculation paperwork, stormed out of the registration office in frustration, unable to comprehend how the voucher program worked, how to successfully authorize it, or what their share of the costs would be.
One chief academic officer summed up the feelings of many in the higher education community when he called the notion that target populations would find the voucher especially appealing “utterly implausible.” Instead, the sense that the voucher has merely added a burden for student-services offices was virtually unanimous. A few institutions found it necessary to add a position (or part of one) to deal with the extra work, while all pointed to energy diverted from activities with a greater impact on student access and success.
Bringing up COF with many in Colorado's higher education community tended to invite an outpouring of cynicism and frustration. Some openly expressed hopes that WICHE's evaluation would eventually lead to the voucher's elimination. To them, COF was not only an irritating time drain but a barrier to access, especially during its first two years. Even the stipend's most committed champions acknowledged that it has fallen well short of their hopes (though their affection for market-based educational reforms typically remained undiminished).
Yet it was also clear that COF was a resounding success in at least one respect: it exempted higher education institutions from TABOR. No matter how unhappy individuals were with the vouchers, most were unwilling to jettison the policy if doing so meant a return to TABOR's constraints.
Fee-for-Service Contracts Backfire
If the voucher component failed to meet expectations, the fee-for-service contracts were just as bad, or worse: One interviewee dubbed them “a charade.” In many respects, these contracts were never as clearly tied to a broader, market-oriented philosophy as the stipend was. Indeed, institutional representatives were mostly unaware that the contracts were expected to influence their decisions in any way.
In this case, perception and reality turned out to be one and the same. No institution reported making curriculum, practice, or policy changes in pursuit of more fee-for-service funding. The flimsy connection between that funding and market forces was easy to sever during implementation.
And sever it Colorado did, in a manner that effectively did away with any incentive to change institutional practices in response to the stipend component as well. The state—prohibited in the enacting legislation from treating stipends as entitlements—funds the voucher program through the appropriations process. Each year, the legislature uses CDHE's enrollment projections for the upcoming academic year to set the COF stipend “budget.” When CDHE's projections inevitably do not precisely match actual enrollments, the state fills the gap by shifting money between accounts originally set aside for stipends and the fee-for-service contracts—so the institution's overall funding level remains exactly the same.
Thus, individual institutions get neither rewarded nor penalized for their performance in enrolling COF-eligible students. This has gutted the stipend of any power it might have had to induce institutions to compete more strenuously for in-state residents. Likewise, institutions feel no market pressure to adjust curricula or delivery modes to compete either to retain their fee-for-service funding or to accumulate more of it. Simply put, Colorado's public colleges and universities have no incentive to make changes to boost enrollments or improve efficiency as a result of COF.
COF's third element, the performance contracts, also appears to have had a negligible impact on institutional behaviors. Institutions felt free to ignore the contracts once the contracts had supplied CDHE with the required reporting, since they included no provisions to either reward or punish institutions for meeting their negotiated performance goals or falling short of them. Indeed, institutional representatives in key student-services offices told us they had no concrete knowledge of what was in their institution's performance contract or what the contract made them accountable for.
Lessons
So far, no state has followed Colorado's lead in setting up a voucher system, although the policy continues to generate attention among those attracted to market-based reforms in higher education. Yet Colorado's experience provides a cautionary tale for states considering a voucher-based postsecondary education finance reform—with a proviso or two.
First, the constitutional context in Colorado was decisive in drumming up support for vouchers. A wide swath of the political elite recognized that the TABOR limits had damaged the state's higher education system, creating problems which demanded some kind of far-reaching solution. Absent a sense that nothing short of a radical solution would help, it is unclear if the higher education community would have backed the proposal. Its active involvement helped bring along allies within the public and the legislature who might otherwise have resisted.
The state made concessions during implementation that robbed the policy of whatever capacity it might have had to stimulate meaningful changes in either institutional practices or student behavior.
Second, Colorado's experience has not provided a fair test of the voucher concept's effectiveness. Rather than reducing costs to students, the move to vouchers actually led to higher out-of-pocket expenses. On the supply side, institutions were neither rewarded nor penalized for bringing in more or fewer eligible students and thus found no compelling reason to become leaner or more responsive to the needs of students or the state. A truer test of vouchers as the principal funding mechanism in higher education awaits a state to implement them in a way that preserves the market-oriented incentives that champions of vouchers generally attribute to them.
Still, important lessons may be drawn from Colorado's voucher program. The eagerness of some to promote vouchers, together with the higher education community's acquiescence, meant that the resulting policy was light on specifics concerning what changes the state wanted to see from its institutions, while little attention was paid to the implementation details that would stimulate those changes.
Consequently, the state made concessions during implementation that robbed the policy of whatever capacity it might have had to stimulate meaningful changes in either institutional practices or student behavior. Moreover, the fee-for-service funding was immediately decoupled from any market-oriented incentives and eventually served to undermine the stipend's intent, while the performance contracts were never imbued with much capacity to influence institutions.
What was needed was a careful plan that would motivate institutions (without micromanaging them) to meet a set of specific outcomes in return for a more reliable funding stream. What Colorado got was a policy implemented according to a vague sense that simply freeing up the market would generate improvement. Colorado's experience reminds us that a state exploring a reform of its financing model for higher education must pay as much attention to how the policy is implemented as it does to its design.
Additionally, there was little attempt to examine how vouchers might change the behavior of students, especially those from populations that were their intended target—this despite healthy skepticism about this goal among many of the policy's proponents. Higher education officials eager to slice through the Gordian knot of TABOR-related funding inadequacies were largely unmotivated to question assumptions related to the voucher's likely impact on access. Any state considering vouchers should clearly understand how they are expected to change individual behaviors, if at all, and ensure that elements critical to that aim are built into the policy and its implementation.
Indeed, a state can administer vouchers in a way that actually confounds access goals. In Colorado, the authorization requirement appears to do just that. That requirement was designed to put institutions' TABOR exemptions on safer legal ground by having students explicitly direct payment of their stipend to the institutions of their choice, thereby proving that the program truly is consumer-driven. Yet it is not obvious how an individual's enrolling at one institution instead of another should not be deemed to be an intentional choice on its own. As the TABOR exclusion provided by COF has yet to be challenged in court, it is unclear if the authorization process meets a real need or simply hindering access.
Colorado's experience also shows that vouchers are almost certain to increase some administrative costs, including money spent for the conversion of existing systems and the construction of a new one for verification and tracking purposes. Institutional officers must be trained and prepared for initial implementation, which will likely demand that considerable time and energy be spent working closely with students to help them understand the policy, possibly at the expense of delivering other useful services to them.
Adopting vouchers would also require substantial marketing. Colorado did commit significant resources in the first two years of the program to reach out to students and families. But its experience also reinforces the observation that marketing efforts and communication about paying for college can be tricky. Inconsistencies in the messages created confusion and led to anger among students and frustration among institutional staff. Gaps in the communications strategy (such as failing to reach out to adult learners) were especially apparent at open-access institutions. And any voucher-based reform will also have to wrestle with and effectively communicate about how it interacts with other activities, programs, and policies such as dual enrollment, remedial and developmental education, and financial aid.
Finally, in Colorado the COF policy served to undermine the principles of good government by creating a Rube-Goldberg-like state higher education financing structure. Named after the inventive cartoonist who drew them, Rube Goldberg machines perform extremely simple tasks in the most complicated and convoluted way imaginable (one example is the “Self-Operating Napkin,” which features a diner who wipes his own chin by way of a contraption employing a parrot, a clock, and a bottle rocket).
Similarly, COF necessitated a new apparatus to divert tax dollars through students and procurement contracts in order to give institutions the same amount of money they would have received if the state had continued subsidizing them directly. Though not terribly expensive to operate once implemented, this work-around process is not revenue-neutral and may ultimately cost the state graduates and widen gaps in educational attainment—exactly counter to its expressed purpose.
COF also has costs that are harder to measure. Here is a state policy that was radical in concept and sold to the public as a means of providing greater transparency while also expanding access and improving institutional efficiency. Yet the use of terms like “charade,” “bait-and-switch,” and “duplicity” were common among our conversations with educators. When the principal beneficiaries of a policy condemn it in such language, its failure to improve the transparency of public policy is plain.
In reality, COF was designed principally to shore up a beleaguered public system of higher education by circumventing an amendment within the state constitution. However problematic for public policymakers and institutions that provision may be, it was put there by the voting public. As a key state leader eloquently pointed out, this misrepresentation has unfortunate ramifications for civic engagement: If the public ever became fully aware of it, the gulf between the rhetoric around COF's intended purposes and how it actually operates could only serve to intensify public cynicism and mistrust of government.
Epilogue
Proponents of the COF policy hoped that future state policymakers would find it politically difficult to reduce the stipend amounts. As the economy collapsed, the policy faced this test and failed miserably when the state chose to reduce the value of the voucher by more than a quarter between 2008–09 and 2009–10 to help close a massive budget deficit.
Though the mechanics of distributing COF dollars are more familiar now, there's still considerable frustration over the program, even among those who most ardently supported its passage. On the other hand, it is likely that the recession will help preserve the policy. Without new investment, any changes will redistribute the available funding, producing winners and losers among the array of stakeholders (institutions, students, agencies, etc.), none of whom are likely to accept a disproportionate reduction without a fight. Possibly more problematic, any change has the potential to threaten the institutions' hard-won TABOR exemptions.
An additional challenge looms with the Obama administration's elimination of the bank-based student loan program. The guaranty agency that administers the COF program—supported until now by federal subsidies—may be hard-pressed to continue to do so at no cost to the state. The future will determine how Colorado will respond to this and other challenges to COF—and whether it will continue to operate its voucher program as is, with modifications, or not at all.
Brian T. Prescott is director of policy research at the Western Interstate Commission for Higher Education (WICHE) and, with David Longanecker, is author of the evaluation described in this essay. At WICHE he provides assistance to member states on an array of topics such as state financial aid, data systems and analysis, and demographic projections. Readers interested in the full report can find it at www.wiche.edu/pub/12271.
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