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How the Graham-Cassidy Health Care Bill Could Wind Up Increasing Student Loan Debt

Mark Huelsman

When states cut higher education budgets, public colleges are faced with a few bad options: increase tuition for in-state students, increase the number of wealthy out-of-state students who will pay more for the same education, or take cost-cutting measures that may dilute the quality of the education that students receive, such as reducing full-time faculty, eliminating student support services, or decreasing course offerings.

Higher education is one of the largest pots of money states can control from year to year, and states can choose to cut per-student funding for various, often interlocking reasons: a political philosophy that prizes tax cuts, budgetary holes elsewhere, or simply not making higher education a policy priority. But the end result of education budget cuts is usually a nasty series of consequences for students and families—and those consequences tend to fall on the students who are least able to afford college in the first place, or on the schools with the fewest resources to cope. 

One way to put more pressure on states to cut higher education budgets would be to add a giant new burden on state budgets, for example by massively shifting public resources devoted to health care away from states that had been relying on federal funding to allow low-income residents to have access to basic medical care.

This is exactly what Senate Republicans are planning with the Graham-Cassidy bill, their latest attempt at gutting the Affordable Care Act.

Among other things, Graham-Cassidy would erode the amount of federal funding going toward Medicaid, put a per-person cap on Medicaid spending, and spread a smaller amount of federal health care funding across a larger number of states through block grants. The Center on Budget and Policy Priorities reports that in 2027, states would absorb a total of $300 billion in federal funding cuts relative to current law. Those states that had previously expanded Medicaid under the Affordable Care Act, as well as those that provide the most generous benefits for working-class residents, would be hit the hardest.

States will have 2 options in this instance, neither of them good: They could preserve higher education funding at the expense of health care subsidies, or vice versa. More likely, states will do a mix of both. Graham-Cassidy would create waivers that could allow states to cut costs by gutting most protections of the Affordable Care Act, such as the prohibition against insurance companies charging more based on preexisting conditions. Providing stingier health care benefits would give states a way to muddle through on higher education spending. 

Politically, states that had done the right thing and expanded Medicaid would likely feel pressure to keep those promises to state residents. The problem is that some of those states have also done better than others in funding higher education (California, for example), meaning that a state that has done right by its people would have to choose between one public service and the other. States like Louisiana, which recently expanded Medicaid but has been dismal at funding its colleges and universities, could see the bottom fall out of both.

A true nightmare scenario is that this bill passes and the U.S. economy faces a recession. The countercyclical nature of higher education—more students attend to college when the economy is bad and jobs are scarce—means that states have less tax revenue when the demand for college is the highest. This is why per-student funding bottomed out during the Great Recession, only to very slowly recover in the intervening years.

But Graham-Cassidy would actually exacerbate this problem. Since the beginning of Medicaid in 1965, the federal government has matched a portion of the cost of medical care for individuals, with states covering the rest. The amount of the federal match is based on a state’s per-capita income, with poorer states getting more help from the feds. Meanwhile, the Affordable Care Act’s Medicaid expansion essentially offered voluntary free money to states that expanded the existing program, giving the 32 states that expanded Medicaid a substantial boost in the program. But by phasing out the Medicaid expansion, as well as capping the amount of federal funding states can receive per-person and not adjusting for the increased demand for health care that normally comes about during a recession, Graham-Cassidy would harm states at exactly the time when they’re least likely to be able to fund basic services.

The result, in an economic downturn, is lower tax revenue, greater demand for education, and greater need for public health care coverage among the working class. In other words: higher college tuition, greater student debt, fewer opportunities for students, and much stingier health care for the neediest.

This is the exact opposite of the approach we should be taking. Currently, when states make budgetary decisions, on higher education at least, the institutions given the shortest shrift are community colleges, Minority Serving Institutions, and less-selective four-year institutions. And rising tuition at public colleges disproportionately impacts low-income students and students of color. We also know that those who rely on Medicaid tend to be poor, sick, people with disabilities, veterans, and people of color. There is likely a large, overlapping group—a working-class student whose mother has a history of breast cancer, say—that would be hit the hardest under this bill. We should be using all levers, state and federal, to put these populations on a more level playing field.

But by putting greater strain on state budgets and reducing federal investment in health care for the poor, we could easily see states decide to drastically shift the cost of higher education onto students themselves, increasing loan debt for some and pricing others out of the system. Or, states could deny health care to the most vulnerable citizens, only to preserve spending on higher education that even without Graham-Cassidy remains far too low. Neither option is appealing, and it’s not a choice any rational society should have to make.