Institutional Aid

Guest Post: Bolder Steps are Needed to Help Low-Income Students Avoid Debt

By Mark Kantrowitz

While the Obama Administration's proposal to index the maximum Pell Grant to one percent over the inflation rate is a step in the right direction, it would not do enough to increase the number of low income students enrolling and graduating from college. Congress needs to take much bolder steps to enable and encourage the pursuit of a college education, such as eliminating debt from the financial aid packages of the lowest income students.

Contrary to popular opinion, low income students do not get a free ride. Pell Grant recipients are forced to borrow more for their education than non-recipients even though they have a greater aversion to debt. Moderate and upper-income families don't like debt, but it doesn't prevent them from enrolling in college. Among low-income families, however, the prospect of debt can have a chilling effect on enrollment, retention and graduation rates.

According to the U.S. Department of Education's latest student loan borrowing data, Pell Grant recipients in 2007-08 who obtained a bachelor's degree were 73 percent more likely to graduate with debt than their more-affluent peers, and their average total debt load was $3,405 higher. In fact, only 13.1% of Pell Grant recipients who obtained a bachelor's degree graduated without debt, compared with 49.8% of bachelor's degree recipients who never received a Pell Grant. Middle and upper income students were almost four times more likely to graduate without any debt than Pell Grant recipients.

How Would You Spend $87-Billion?

Yesterday, at Higher Ed Watch, we urged Democratic Congressional leaders to keep their eye on the ball and move forward with President Obama's plan to make Pell Grants into a true entitlement for low-income students.

But what if eliminating the Federal Family Education Loan (FFEL) program doesn't produce enough savings for Congress to achieve this lofty goal (as recent media reports suggest)? Or what if opposition to creating a new Pell Grant entitlement program is strong enough among fiscally conservative Democrats and appropriators to kill the proposal? What then should be done with the tens of billions of dollars the government would save by providing loans entirely through the Direct Loan program? 

We have a few ideas at Higher Ed Watch about how that money could be spent -- none of which involve extending the interest rate reduction that we wrote about yesterday.

Guest Post: A Question of Priorities at Public Colleges

By Sandy Baum

While most discussions of tuition discounting -- including those recently appearing on this site -- focus on private colleges, it is the policies and practices of  state colleges and universities that most deserve our attention.  The vast majority of students attend public colleges, which rely heavily on taxpayer funding and have the clear mission of providing educational opportunity for the citizens of the state. The unfortunate reality is that public four-year colleges are directing a significantly smaller proportion of their institutional aid dollars towards meeting the financial need of students than are private colleges.

Almost half of the non-athletic institutional grant aid at public four-year colleges and universities goes to students who do not have documented financial need, or for whom the aid they are receiving exceeds the need they have. In comparison, more than two-thirds of institutional grants are awarded on the basis of financial need at private colleges.

Need-based aid can be defined in a variety of ways. Many people focus on the motivation for awarding discounts. Is the student paying a lower price because he comes from a low-income family, or is she being rewarded for her academic accomplishments?  In reality, the most important question is this: Are the discounts that colleges offer being directed towards students whose enrollment would be impossible without the assistance? Or are these discounts subsidizing students who would have little difficulty paying for college without this help - but who might choose a different institution if they were not treated so generously? It is these questions to which these figures refer. In 2006-07, the latest year for which reliable data are available, 54% of the non-athletic institutional grant at public four-year colleges helped students meet their financial need. The remaining 46% did not. At private colleges, 70% of the institutional grants went to meet financial need, while 30% of the funds went to students who could afford to enroll without assistance.

A Senator's Legacy

At Higher Ed Watch, we were saddened to learn of the recent death of former Sen. Claiborne Pell, the Rhode Island Democrat whose work on Capitol Hill helped open the doors of college to tens of millions of low-income students. The Pell Grant program remains the cornerstone of the federal government's efforts to help the most financially-needy students obtain a higher education.

As Maura Casey, an editorial writer for The New York Times wrote in a moving tribute to the Senator on Tuesday, "Pell Grants have been around so long that few remember how much opposition they had to overcome or how revolutionary they once seemed."

In fact, Senator Pell -- "a wealthy New England aristocrat," as Casey described him -- had to fight an epic battle in 1972 against his Democratic colleagues in the House of Representatives and the higher education establishment to create the grant program that he first dreamed up, legend has it, on a ski slope in Switzerland. [Whether or not he had ever skied at all is a matter of much debate.]

Pell's vision was to create a new grant program to aid low-income students modeled on the GI Bill, which had helped pay for his graduate education. Under the Senator's plan, federal grants would go directly to students who could use them at the college of their choice. The idea, however, was met with fierce opposition from the leading national higher education associations who wanted the money to go straight to their member institutions. They argued that college officials were in the best position to determine which students were in most need of financial aid funds. The college groups had powerful allies on the House education committee, who fought on their behalf.

Don't Pass the Buck

With Thanksgiving behind us, it is officially the start of the gift-giving season. Unfortunately, students at public colleges and universities across the country can already expect an unwanted present from their governors -- tuition and fee increases. At least coal could have been used for heat.

Students are going to face increased tuition burdens, both for next semester and the following academic year, because governors and state legislators often turn to higher education when they need to make budget cuts. But increasing tuition could lead more students to drop out or delay enrollment -- lowering graduation rates and stranding students with debt. To prevent these negative outcomes, we urge states to make a sustained commitment to higher education, while asking schools to reexamine their financial aid and revenue allocation policies.

The coming months are going to be gloomy for higher education funding. Several states have already announced plans for postsecondary education cuts, and many more are sure to follow suit. The governors of New York and California -- the two states with the largest public higher education systems in the country -- recently proposed a new round of budget cuts on top of ones that these colleges endured earlier this year.

Paying the Price at Private Colleges

For years, expensive private colleges have pretty much been able to raise their prices without having to worry about scaring off students -- as the widespread availability of easy credit made it possible for students and their families view these schools as affordable. Lenders have been all too willing to ensure that these students had all the money they needed, through the federal and private loan programs, to be able to afford to attend.

For these high-cost colleges, particularly non-elite ones that heavily rely on tuition to cover operating expenses, the lenders' eagerness to provide high cost private loans to financially needy students at their institutions presented a win-win situation. It allowed them to free up their institutional aid dollars to recruit "more attractive" students (merit scholars, etc.). And, for the most part, the schools had the luxury of not having to worry about the difficulties many of their students would encounter repaying these loans.

But now with all the turmoil in the financial markets, and private loan default rates on the rise, these policies are coming back to bite high-priced schools. That much is clear from a survey that the National Association of Independent Colleges and Universities (NAICU) released on Tuesday. The group, which lobbies on behalf of private colleges, questioned its members about the effect the credit crunch is having on student loan availability at their institutions.

Few of the 504 colleges that responded reported having any problems associated with federal loans. Many, however, said that they had run into trouble obtaining private loans for at least some of their students. This is because most lenders are no longer willing to waive or substantially loosen their credit requirements to provide unsecured debt to high-risk students -- a once commonplace practice that helped fuel the growth of private loan borrowing on these campuses.

Guest Post: A Better Solution for Campus-Based Aid

By Rupert Wilkinson

The Bush administration has repeatedly called for simplifying the federal student aid system by eliminating two of the main "campus-based" aid programs, which provide colleges with federal funds for needy students that they allocate themselves. Under the administration's plan, funds from the Supplemental Educational Opportunity Grant and Perkins Loan programs would be transferred into expanded Pell grants, the government's main source of grant aid for low-income students.

A better solution would be to restructure the campus-based aid programs so that they do a better job of leveraging college support for students who are promising but disadvantaged.

In America's decentralized higher education system, the ultimate responsibility for meeting (or not meeting) student financial need lies with the college itself. Outside an elite band of well-endowed institutions, most four-year colleges do not meet all need -- because they are either unable or unwilling to use their own grant aid to fill the gap between the cost of attendance and the family resources and financial aid (including federal loans and a reasonable amount of College Work-Study employment) that students are able to cobble together. Estimating that gap is tricky, but it is the widest for poor students -- probably well over 20% of what they need.

Targeting Campus-Based Aid

Now that Congress has completed work on legislation to reauthorize the Higher Education Act, momentum is growing among student-aid experts and some policymakers for a fundamental redesign of the federal student aid system. A key question they are asking is whether the federal campus-based student-aid programs are still needed.

The campus-based programs -- College Work-Study, Perkins Loans, and Supplemental Educational Opportunity Grants -- are intended to supplement Pell Grants for low-income students and to provide aid for students who just miss the cutoff for the grants. Unlike Pell Grants, which are awarded directly to students, campus-based aid is distributed to colleges, which add their own dollars to the programs and then give the money to students.

By requiring colleges to provide matching funds, these programs have long played an important role in enticing colleges to spend their own money to help support low- and moderate-income students. The programs, however, are no longer serving the neediest students well. The formula the government uses to distribute the aid overwhelmingly benefits elite private colleges and public flagship universities, even though low-income students predominantly attend community colleges, state colleges, and trade schools.

Our Biggest Disappointments (With Final Higher Ed Bill)

By Ben Miller, Stephen Burd, and Sara Mead

Yesterday, Higher Ed Watch highlighted our favorite provisions in the final version of legislation to reauthorize the Higher Education Act. With Congress poised to approve the bill today and send it to President Bush for his signature, we take a critical look at the parts of the legislation that fail to close loopholes, open new areas for potential exploitation, and weaken existing accountability frameworks.

  • Easing Restrictions on Trade Schools

For-profit colleges' lobbyists are exuberant about the reauthorization legislation. And who can blame them? Congress has gutted a key consumer protection provision that the career college lobbyists have been trying to kill since it was first introduced in 1992. The provision, which is known as the "90-10 rule," was intended to crack down on unscrupulous trade schools. It requires proprietary institutions to receive at least 10 percent of their revenue from sources other than federal student aid in order to participate in the aid programs. Congress' legislation would keep the requirement in place, but takes all the teeth out of it.

Guest Post: Six Principles for Financial Aid Reform

By Art Hauptman

There is widespread agreement among financial aid analysts and practitioners that our country's student aid system is not working as effectively as it could be. Many believe that the solution to this problem is to have the federal government substantially increase the amount of money it spends on the existing student aid programs.

I disagree. The federal government currently spends roughly $40 billion for grants, college work study, loan subsidies, and tax breaks for college -- more than enough to achieve the programs' goals if they were operating effectively and efficiently. As I argued last week, the current structure of student financial support in this country needs to be changed in fundamental ways.