The College That Turned Down Washington's Money and What It Teaches Us

The most expensive piece of paper in American higher education is not a diploma. It's a form. Specifically, it's the compliance form a college signs to say it will follow the rules that come attached to federal money. It looks like paperwork. It reads like a cheerful promise. And somewhere around page three, like the fine print on a timeshare, it explains who is really in charge.

In the 1970s a small college in Hillsdale, Michigan, looked at one of these forms and decided it would not sign. That decision turned into a lawsuit, a long standoff with Washington, and eventually a policy that has made the college unusual to this day: it declines federal and state taxpayer money altogether. Whatever you think of Hillsdale's politics, its story is the clearest classroom example we have of a rule that Washington would prefer you didn't learn. Federal money always arrives with conditions. The conditions are the price. And the only way to avoid the price is to avoid the money.

That is my thesis, and I'll defend it in the open, with the cases.

The argument in five steps

1. Federal aid comes with terms, and Congress is allowed to write them. The Constitution gives Congress the power to tax and spend for the general welfare. When Congress offers money to a state or a private institution, it may attach conditions, and the recipient is free to refuse the offer.
2. Those terms tend to widen over time. A condition written for a narrow purpose gets read, by agencies and then by statute, to cover more.
3. The courts will police only the edges. Judges require that conditions be clear, related to the purpose of the program and not coercive. That's a low bar.
4. So the real protection is a decision at the front door. An institution that doesn't want the conditions has one reliable option: decline the money.
5. The honest conclusion is that strings are the price of funding. Anyone who takes the money should read the price list, and anyone who wants to be free of the strings has to be willing to live without the funds.

I know that last sentence sounds like a shrug. It's not. It's a rule for how to think about every federal grant program from Title I to a farm subsidy, and it cuts across party lines. Let me show how it plays out.

Hillsdale and the form

The federal law at issue was Title IX of the Education Amendments of 1972, which says that no person shall, on the basis of sex, be excluded from, denied the benefits of or subjected to discrimination under any education program or activity receiving federal financial assistance. Nobody at a serious college argues that sex discrimination is good. What Hillsdale and a few others objected to was the mechanism: the federal government's Department of Health, Education and Welfare asked institutions to sign a written assurance of compliance with its regulations, and Hillsdale refused to sign.

The college's argument was one of principle. It did not take direct federal grants. Some of its students received federal aid in the form of Basic Educational Opportunity Grants, which are the ancestors of today's Pell Grants. Hillsdale argued that money going to students was money going to students, and that it did not turn the college into a recipient of federal assistance subject to federal supervision. The government said otherwise. The dispute went to court, and the college lost at the court of appeals.

Next to this case sits a second, with a different college and the same issue. Grove City College, a Christian college in Pennsylvania, also refused to sign the assurance. That case went all the way to the Supreme Court.

Grove City College v. Bell (1984)

In Grove City College v. Bell (1984), the Supreme Court held that a college whose students receive federal grants is a recipient of federal financial assistance for purposes of Title IX. In other words, the Court said the government was right on the first question. Grove City's students' federal grants made the college a covered institution.

But it gave the college half a victory. The Court held that Title IX is "program-specific": its anti-discrimination rule reaches only the program or activity that actually receives the federal money. At Grove City, that was the financial aid office. The rest of the college, the classrooms and the athletic department and the admissions office, was not covered by the Court's reading. The ruling made it harder for Washington to treat one federal grant as a license to regulate an entire campus.

The conservative reading of the case was that it protected institutional independence. A school that took a federal grant for one purpose could not be treated as an arm of the government in every other respect.

Hillsdale, after Grove City, drew its own conclusion. The college says that from 1984 on it has accepted no federal or state taxpayer funds, including student aid, and that it replaced them with private scholarships and gifts. The reasoning was exactly the one in my thesis. If any federal money, however indirect, can be read as a hook for federal supervision, then the only sure way to avoid supervision is to take none.

Congress answers: the Civil Rights Restoration Act of 1988

If the story ended there, it would be a tidy morality play about a plucky college. It doesn't, because the political system answered. Congress, unhappy with Grove City's narrow reading, passed the Civil Rights Restoration Act. It defined "program or activity" to cover all of the operations of a college or university, in every one of the civil rights laws it touched, which included Title IX and Title VI of the Civil Rights Act of 1964. President Reagan vetoed the bill in March 1988, objecting that it expanded federal power over private institutions, including churches and religious schools. Congress overrode the veto within days, by margins well beyond two-thirds in both chambers.

Two lessons come out of that.

First, notice who made the rules: the people's representatives. The law that widened the strings was not written by a clerk or a judge. It was passed over the objection of the president by large majorities of Congress, which means the voters' agents chose it. I disagree with the result, but it was a legitimate exercise of the legislative power. If you don't like what Congress did, the remedy is to change who sits in Congress.

Second, notice what the law did for institutions like Hillsdale. Before 1988, an institution might have argued that taking a student's grant didn't bring its whole campus under federal rules. After 1988, that argument was gone. Taking the money meant taking the rules for everything. That sharpened Hillsdale's choice: all of the money, with all of the rules, or none.

What the Supreme Court says about strings

The other half of the thesis is the law of conditions. The Supreme Court's main modern statement came in South Dakota v. Dole (1987). Congress had passed a law directing the withholding of a small percentage of a state's federal highway funds if the state allowed people under twenty-one to buy alcohol. South Dakota sued, arguing that Congress was using the spending power to regulate something the Constitution left to the states. The Court, in an opinion by Chief Justice Rehnquist, upheld the law and set out a test. A condition on federal funds is valid if:

1. The spending is for the general welfare.
2. The condition is stated unambiguously, so a state can make an informed choice. (This clear-statement rule traces back to an earlier case, Pennhurst State School v. Halderman, from 1981.)
3. The condition is related to a federal interest in the program.
4. No other part of the Constitution forbids it.
5. The pressure is not so great that it amounts to compulsion.

Look at how little that rules out. A national drinking age is not a highway matter in any obvious sense, and the Court said it was close enough. Only in 2012, in NFIB v. Sebelius, did the Court actually strike down a condition as coercive, in the Medicaid expansion, where states faced the loss of all their existing Medicaid funding if they declined the new program. That's one example in a generation. For the details of how that limit came about, read NFIB v. Sebelius Lost the Mandate Fight but Won a Limit on Federal Strings and The Drinking Age Story Shows How Washington Buys Control of the States. The deeper constitutional theory, that Congress has only the powers the Constitution lists, is in Congress Can Only Do What the Constitution Lists and Madison Said So.

The practical upshot: courts will enforce a clear statement and a rough relationship to the program, and in rare cases a limit on coercion. They will not tell Congress that a condition is unwise. If you want a limit on strings, you will rarely get it from a judge.

The strongest objection: taxpayers get to set terms

Now the fair hearing. Here is the best case against Hillsdale's position, and I think it is a strong one.

The money is not Hillsdale's. It belongs to taxpayers, who have every right to say how it is used. If a college wants to take public money, it has to play by public rules. And the particular rules at issue, against discrimination on the basis of race, sex and national origin, are not arbitrary. Title VI, passed in 1964, says that no person shall be subjected to discrimination under any program receiving federal financial assistance on the ground of race, color or national origin. The principle is that public money should never underwrite discrimination. A conservative who believes in equal treatment under law should be the last person to say that taxpayers must fund an institution that treats people unequally.

I agree with almost all of that. Taxpayers do have the right to set terms, and the anti-discrimination principle is sound. That's why my thesis is that strings are the price. A taxpayer-funded institution is a public institution in a way, and the public gets to decide the terms.

Where I part company is on three points.

• Scope. There's a difference between a term that says "don't discriminate in the program we pay for" and a term that says "submit your whole institution to federal supervision, including how you define your mission." The first is a condition. The second is a takeover.
• Drift. The original terms of Title IX and Title VI were short. The regulations, guidance letters and enforcement priorities that grew up around them are long, and they have changed as administrations changed. A college that signed in one decade may find itself under different obligations in the next, without a vote.
• Dependence. When federal aid is the oil in the engine of an entire sector, "you can always say no" is a thin freedom. Most colleges cannot say no, because their students cannot enroll without the loans. Hillsdale could, because it had a donor base willing to replace the money. That's a fact about Hillsdale, not a model for everyone.

So I don't claim the Hillsdale road is open to most schools. I claim that it exposes the logic that the rest of us live under.

Conservatives should apply the rule to their own side

If you take the thesis seriously, it has an uncomfortable corollary for conservatives. We want public money to follow the child to the school of the family's choice, including religious schools. That's a good idea, and the Supreme Court has opened the door to it, as the cases in Five cases that ended America's religious penalty in school aid describe. But if the money is public, strings will follow. A voucher program will come with testing rules, reporting rules and perhaps admissions rules, and the next legislature may add more. A school that joins should read the terms first and decide whether the independence it gives up is worth the dollars it gains. The mechanics are explained in How a School Voucher Works, From the State Check to the Classroom Door.

Consistency is a conservative virtue. If we say strings are a danger when Washington attaches them to a university, we should say the same when a statehouse attaches them to a voucher. The honest position is not "strings are bad when they're on my money." It is "know the price before you sign."

What this means for colleges and families

For a college, the lesson is to count the strings as a cost, in the same column as the benefits. Federal aid is not free. For a family, it's a reason to read the college's compliance obligations and ask what independence the school has traded away. And it relates to the price story: the question of whether federal aid pushes tuition up, in Does Federal Aid Raise Tuition? The Bennett Hypothesis Tested, and the quiet power of the gatekeepers who decide who is eligible, in Accreditation, the Gatekeeper Nobody Elected That Decides Who Gets Federal Money.

The verdict

Hillsdale's refusal is easy to romanticize and easy to dismiss, and both are mistakes. It is not a model for every school. It is a demonstration. It shows that independence has a price in dollars, that federal money has a price in independence, and that the price of each is visible to anyone willing to read the form.

Washington likes to describe its grants as help. Sometimes they are. But they are also contracts, and contracts have terms. The next time someone tells you a program is free money, ask the question the Hillsdale trustees asked in the 1970s: free of what?

The bottom line

• Federal money comes with conditions. Congress may attach them under the Spending Clause, and the courts check only that they are clear, related to the program and not coercive (South Dakota v. Dole, 1987).
• Grove City College v. Bell (1984) held that student grants made a college a recipient but limited Title IX to the program that got the money; Congress overrode that with the Civil Rights Restoration Act of 1988, passed over a presidential veto.
• Hillsdale College decided that independence was worth more than the aid, and says it has taken no federal or state taxpayer money since 1984. Few schools could follow.
• Taxpayers have a right to set terms, and the ban on discrimination is a fair one. The fight is over scope, drift and dependence.
• Apply the rule to your own causes. A voucher is public money, too, so read the strings before you sign.