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Higher Ed Watch

A Blog from New America's Higher Education Initiative

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Nearly fifty years ago, the federal government committed itself to removing the financial barriers that prevent low-income students from enrolling in and completing college. Colleges for years complemented the government's efforts by using their financial aid resources to open the doors to the neediest students. But those days appear to be in the past. With their relentless pursuit of prestige and revenue, the nation's public and private four-year colleges and universities are now in danger of shutting down what has long been a pathway to the middle class for low-income and working-class students.

Today the New America Foundation is releasing Undermining Pell: How Colleges Compete for Wealthy Students and Leave the Low-Income Behind, a report that presents a new analysis of little-examined U.S. Department of Education data showing the "net price" – the amount students pay after all grant aid has been exhausted – for low-income students at thousands of individual colleges. The analysis shows that hundreds of public and private non-profit colleges expect the neediest students to pay an amount that is equal to or even more than their families' yearly earnings. As a result, these students are left with little choice but to take on heavy debt loads or engage in activities that reduce their likelihood of earning their degrees, such as working full-time while enrolled or dropping out until they can afford to return.

The analysis finds that the financial hurdles are highest in the private nonprofit college sector, where only a few dozen exclusive colleges meet the full financial need of the low-income students they enroll. Nearly two-thirds of the private institutions analyzed charge students from the lowest-income families, those making $30,000 or less annually, a net price of over $15,000 a year.

Many private colleges have small endowments, making it extremely difficult for them to provide adequate support to those students with the greatest need. Indeed, it is often the poorest schools that enroll the largest proportion of federal Pell Grant recipients and charge these students high net prices because of their own limited resources. At the same time, many of these institutions provide deep tuition discounts to wealthier students because they believe it is necessary for their survival.

This is not, however, just a question of institutional wealth. Some of the country’s most prosperous private colleges are, in fact, the stingiest with need-based aid. These institutions tend to use their institutional financial aid as a competitive tool to reel in the top students, as well as the most affluent, to help them climb up the U.S. News & World Report rankings and maximize their revenue.

While the problem is not as extreme among public universities, it is rapidly getting worse. As more states cut funding for their higher education systems, public colleges are increasingly adopting the enrollment management tactics of their private college counterparts – to the detriment of low-income and working-class students alike.

One of the main ways that states have dealt with the financial pressure has been to free their public institutions to take a so-called “high tuition, high aid” approach – meaning that these institutions can sharply raise their prices with the expectation that they will provide more-generous amounts of financial aid to offset the effect on low- and moderate-income students. This analysis finds that the high-tuition, high aid approach has been a failure for low-income students. In many states that are following this model, such as Pennsylvania and South Carolina, the neediest students are facing net prices that are more than double what they are being charged in low-tuition states such as North Carolina.

Penn State University is a case in point. In-state students attending the university’s flagship campus in University Park pay about $16,000 in tuition and fees annually, which is double the average charged at public four-year colleges and universities. Despite the fact that Penn State spends nearly $14 million a year on institutional aid, its lowest-income in-state students pay an average net price of nearly $17,000, the fifth-highest of any public institution this report examines. In other words, Penn State’s neediest students do not appear to be getting any discount relative to other students at all. At the same time, about 6 percent of the school’s first-time freshmen received an average of $3,800 in so-called “merit aid” in 2010-11.

Schools like Penn State seem to be using their pricing autonomy to gain an advantage as they fiercely compete for the students they most desire: the “best and brightest” students – and the wealthiest. These actions fly in the face of national goals to increase access to higher education and help more students earn high-quality degrees.

Over the past several decades, a powerful enrollment management industry has emerged to show colleges how they can use their institutional aid strategically in the pursuit of high-achieving and affluent students.

Worse yet, there is compelling evidence to suggest that many schools are engaged in an elaborate shell game: using Pell Grants, the primary source of federal aid for low-income students, to supplant institutional aid they would have provided to financially needy students otherwise, and then shifting these funds to help recruit wealthier students. This is one reason why even after historic increases in Pell Grant funding, the college-going gap between low-income students and their wealthier counterparts remains as wide as ever. Low-income students are not receiving the full benefits intended.

Overall, too many four-year colleges, both public and private, are failing to help the government achieve its college access mission. They are, instead, adding hurdles that could hamper the educational progress of needy students, or leave them with mountains of debt after they graduate.

Remarkably, the retrenchment in colleges’ commitment to helping low-income students has barely registered in Washington. Federal officials appear to be operating under the assumption that colleges are continuing to complement the government’s efforts, rather than increasingly undermining them.

The time has come for policymakers to take notice. Federal action is needed to ensure that colleges continue to provide a gateway to opportunity, rather than perpetuating inequality by limiting college access to only those who are rich enough to be able to afford it.


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