Let’s talk about education.
Education is one of those great bipartisan issues in this country in that everyone agrees it is a good thing, right? And here in Happy Valley, education is what pays the proverbial bills. The name of the town is “State College” for gosh sakes.
Since its founding in February 1855 as the Farmers’ High School of Pennsylvania, James Irvin’s gift of 200 acres has morphed into a multi-billion-dollar organization that employs over 20,500 people full-time and another 16,400 people part-time across the state. It’s been the largest employer in Centre County for years.
Granted, over 4,000 of the full-time employees are either at Commonwealth campuses or the College of Medicine, but I think we all agree that without James Irvin’s initial 200-acre donation in the middle-of-nowhere, Happy Valley would be just a nice two-lane country road between Bellefonte and Boalsburg.
Luckily, Mr. Irvin did give that land away, and we have this wonderful valley to live, work and play in. And, to watch the Penn State men’s ice hockey team make their first-ever trip to the NCAA Frozen Four in their quest for a national championship.
Because, I must admit, I was beginning to get a bit of championship withdrawal. The PSU women’s volleyball team won their national title on Dec. 22, and the wrestling team won theirs on March 22. Now it’s been a good 10 days since Penn State has won a national title – what’s a diehard fan to do?! Wish Coach Gadowsky and the team a great tournament in St. Louis, that’s what!
Anyway, getting back to the education component of the university though… because education is such a big part of our local economy, there was a bit of interest a little less than two weeks ago when President Donald Trump signed an executive order to officially begin the process of closing the federal Department of Education.
That’s right, he’s closing the United States Department of Education.
But how can that be? As I said, education is a bipartisan issue. Everybody agrees education is a good thing. Then why would he get rid of the Department of Education? That sounds contradictory.
Before I begin, I have a couple of disclaimers. One, I’m looking at this from a financial perspective, not at its effect on how education is carried out. And two, I researched it and found that getting rid of the Department of Education is the president’s call. The federal executive departments are the main parts of the executive branch, and the administrative arms of the president of the United States. The heads of the executive departments are appointed by the president, take office after confirmation by the U.S. Senate, and serve at the pleasure of the president. In short, it is the president’s call.
Here are three interesting things about this effort:
First, getting rid of the DoE is not a new idea. As my work over the years has taken me to many Democratic and Republican National Conventions, I was at a panel discussion in Philadelphia during the 2000 Republican Convention that was moderated by Ron Reagan – the son, not the president – during which he questioned a congressman on the panel about the Republicans’ longstanding efforts to get rid of the Department of Education. It’s basically been a “thing” since the day the department was created.
Second, getting rid of the DoE means next-to nothing to local school districts from a financial standpoint. Using the State College Area School District as an example, the district received $2,006,514 from federal sources in 2023-24, and are projecting $1,615,762 in the 2024-25 fiscal year. The first number is just slightly above 1% of revenue, and the second is only eight-tenths of one percent of revenue.
Whereas, local real estate tax revenue will increase by $4 million from 2023-24 to 2024-25, and the total allocations from the state of Pennsylvania will increase almost another $4 million. Of course, those will get eaten up by the district’s personnel costs which are projected to increase by $10 million during that same period. Meaning, the loss of less than $2 million in federal funds could be made up if personnel costs only went up 5.7% instead of 7.2% year-over-year.
Third, getting rid of the DoE would save money. According to USAspending.gov — the official source for spending data for the U.S. government — the Department of Education had a $102 billion budget for fiscal year 2025, making it the 13th largest agency of the federal government. Which is down from a high of $637 billion in 2022. Which would have made it the fourth largest agency this year.
Not that this would happen when the department is completely shuttered, but if that $102 billion were redistributed to every one of the 340 million people in this country, that would be $300 to every man woman and child. Which, if the 80,000 people or so within the boundaries of the State College Area School District felt so inclined and donated that to the district, would bump revenue by $24 million.
Again, only speaking to the financial aspects of the DoE, it’s possible that closing it will have a positive financial effect on our area.
Except for one small possible catch.
For those who read the executive order, the language in it is pretty straightforward. It says that, after more than four decades and $3 trillion, this cabinet agency which has existed only since 1979, will be disbanded and authority over education will be returned to the states and local communities.
But where things might affect our area financially is the order provides this information, “The Department of Education currently manages a student loan debt portfolio of more than $1.6 trillion. This means the federal student aid program is roughly the size of one of the nation’s largest banks, Wells Fargo… The Department of Education is not a bank, and it must return bank functions to an entity equipped to serve America’s students.”
Anybody who has been involved with a college education in the last 30-plus years has heard of the FAFSA form. It stands for Free Application for Federal Student Aid. You fill it out and qualify for money to help pay for college. It’s just that most of that money comes in the form of loans, and those loans are made or backed by the federal government.
Which means the loans are covered by a backstop if they go bad. Could this have made it possible for loans to be made to those without a real regard for their ability to pay them back? Now, I’m not saying there is a cause-and-effect here, but it’s certainly possible that this “easy money” allowed colleges and universities to increase tuition, room-and-board, and fees – which in many cases exceeded the normal rate of inflation – because students could easily get loans to cover those costs.
Well, if, as the executive order suggests, the DoE’s “bank functions” return to an entity that acts like a real bank, it’s possible many student aid applications might begin getting denied.
Now, only Penn State knows how much of its income consists of federally-funded student loans, but I’m guessing it’s a substantial amount. What would Penn State do if many of its students suddenly could no longer afford to attend Penn State because they couldn’t get loans?
Penn State President Neeli Bendapudi has been preaching the fiscal austerity program almost since the day she arrived. How would she and the Board of Trustees handle it if a billion dollars in revenue suddenly disappeared? And how would they make higher education accessible to all?
