Substantial increases in federal support for higher education over the last decade or more have made the federal government the largest direct investor in U.S. higher education. That increase however, has not produced the expected level of increase in college educated people in the workforce. This is largely for two reasons. First the investment model and the higher education system itself are misaligned with the students we must serve and the goals we are trying to achieve. Second, much of the federal investment has supplanted rather than supplemented state investment in higher education. To improve the return on investment in higher education, a redesigned system that requires a different partnership between states and the federal government that defines a new form of federalism for the 21st century is needed. The redesign builds on proposals to better integrate economic and workforce development and higher education agencies, programs and funding streams at all levels to create coherent pathways to and through college to successful careers. This paper also recommends the creation of affordability standards through federal/state/institutional partnerships that ensure a sustainable cost-containment model for all students. This partnership involves federal incentives to state and college partners to invest in higher education adequately, target resources appropriately, contain costs effectively and implement reforms that provide equitable outcomes for all students.