College Affordability

A group of private college leaders are calling for a cease fire in the institutional financial aid arms war. S. Georgia Nugent, the president of Kenyon College, is spearheading a movement to try to get her fellow college presidents to agree to recommit themselves to providing need-based financial aid, rather than merit scholarships and tuition discounts. This is an extremely admirable effort but unfortunately -- as Kenyon College’s own experience shows -- it’s unlikely to have much of an impact.

As Higher Ed Watch has previously reported, public and private four-year colleges are increasingly spending their institutional aid dollars on trying to attract the students they desire than on meeting the financial need of the low- and moderate-income students they enroll. A 2011 report from the U.S. Department of Education’s National Center for Education Statistics shows just how dramatically colleges have changed the way that they spend their institutional aid dollars over the past two decades.

The report found that in the 1995-96 school year, both public and private four-year colleges and universities primarily used institutional aid to try and meet the financial need of their students:

• At public colleges, 8 percent of first-time, full-time students received merit aid, while 11 percent received need-based aid
• At private colleges, 24 percent received merit aid, while 43 percent obtained need-based aid

But by 2007-08, merit aid trumped need-based aid at both types of institutions:

• At public colleges, 18 percent of first-time, full-time students received merit aid, while 16 percent received need-based aid
• At private colleges, 44 percent received merit aid, while 42 percent obtained need-based aid.

Clearly many of these schools are leveraging their financial aid budgets to buy students who could already afford to attend without the help. In many cases, these institutions are trying to lure in top students who will help them improve their standing in the U.S. News & World Report’s college rankings so that they can enhance their reputations and marketability.

Editor’s Note: Rebecca Shafer is a program associate with New America’s Bernard Schwartz Fellows Program. Previously, she taught at a public charter school in Washington, D.C. and a public school in Maryland. 

For two years, I taught eighth grade at a high-needs middle school in Prince George’s County, Maryland, just a few miles from Washington, D.C. The student body was nearly 90% African American, and over half of students qualified for free and reduced price lunch. (That didn’t include the cafeteria food one principal often bought out-of-pocket for other hungry kids.) Math scores hovered around 33% proficiency, and reading around 65%. The statewide average is about 69% proficiency in math and 80% in reading.  Especially at the start of my teaching career, I struggled to motivate my classes in the face of classroom disruptions, lagging reading levels, and pressures on students with unstable home situations.

Unfortunately, these issues aren’t unique to Maryland. There is an active conversation about how to reduce the disparities in education quality between K-12 schools in high- and low- income neighborhoods. Programs like Teach For America, which placed me (and some 38,000 other young college graduates over the past twenty years) in low-performing schools, and Obama’s Race to the Top program, which provided funding to my school, aim to fix this problem. If change is going to come, we need to set high goals for students.

My mentors and supervisors at my teaching jobs urged me to link my students’ academic growth with success in life. I pushed the idea to my students that college would reward them for their hard work, bringing opportunities and, further down the line, potentially lucrative careers. However, as Jason DeParle, a Bernard L. Schwartz Fellow, articulates in a recent New York Times piece, the path both to and through college to economic stability is often fraught with challenges particularly for lower-income students. For example, we see a widening socioeconomic gap in college attendance levels, graduation rates, and student loan burdens.

Editor’s Note: This post is part one in a series of four exploring research on the relationship between assets and children’s educational outcomes. Senior Research Fellow Willie Elliott is an Assistant Professor at the University of Kansas and Director of the Assets and Education Initiative (AEDI) at the School of Social Welfare.

Even casual observers are likely familiar with many of the challenges facing our higher education system:

• Education is the path to economic mobility, but rising college costs construct a high barrier.
• Families worry that high costs will make college attendance impossible, even while they sacrifice to save for higher education.
• Low expectations about college attainment may stunt students’ academic achievement, such that college is beyond reach even if they find a way to finance it.
• Once students manage to enroll in college, graduation rates are unacceptably low, reducing the likelihood that the U.S. will produce enough college graduates to meet future labor market demands.
• Even with high levels of effort and ability and a strong desire to attend college, many poor and minority children perceive college as out of reach. Seventy percent of low-income children in tenth grade plan to go to college, but only 54 percent actually enroll.

By Chad Aldeman

If President Obama and House Speaker John Boehner need to find additional savings from the federal budget, a new Government Accountability Office report suggests one place they could look to find a couple billion dollars a year: the tax expenditure program known as 529 plans. In a damning report, the GAO found that the federal government spends $1.6 billion every year subsidizing college savings plans for wealthy families. To give some perspective, that money could pay for an additional 288,000 Pell Grants for low-income students.

The report chronicles the rise of 529 plans (and a similar savings vehicle called Coverdell Education Savings Accounts) from their start in 1986 as a small state program in Michigan. By 2001, these programs had become so popular that Congress made distributions for qualified higher education expenses tax-exempt. Today, every state offers accounts and a suite of contribution incentives and tax benefits. There are now 10 million accounts with $167 billion in assets (individuals can have more than one account). GAO researchers document a number of problems with 529 plans—including the fact that some plans are charging annual fees nearing 3 percent—but the most interesting finding is just how few American families are benefitting from these plans, and just how wealthy those who do are.

On November 7^th, the day after the Presidential election, House Majority Leader Eric Cantor (R-VA) sent a letter to his Republican colleagues expressing disappointment with the outcome, but also the belief that there was room for Republicans and Democrats to “act to bridge our differences and deliver results.” Among the short list that Cantor laid out was the following: “Making it easier for parents and students to make informed decisions about what type of post-high school education is right for them.”

That’s right. The day after the most expensive Presidential campaign in American’s history, amidst deep divisions about the fiscal cliff, taxes, spending, and social issues, education data made the legislative “to do” list.

Both political parties spent much of the past year talking about the need for better information in the face of skyrocketing college costs. President Obama proposed a college scorecard with comparable, easy-to-understand indicators of college value. The GOP platform called for greater transparency around “completion rates, repayment rates, future earnings, and other factors that may affect their (college) decisions.” The message was clear and consistent—students and families need better information.

Academic research is sometimes said to “collect dust on the shelf.” A recently published report shows this is not always the case.

The Assets and Education Initiative at the University of Kansas’ School of Social Welfare and the Center for Social Development at Washington University in St. Louis, along with their partners, bridge this gap between research and application. By producing solid research and engaging with policymakers, practitioners, and advocates, AEDI and CSD inform policy initiatives and bring their research to practice.

[This blog post ran first at The Chronicle of Higher Education]

The concept of “net price”—what students actually pay for college after financial aid is subtracted from published tuition rates—has become increasingly important  in discussions of college affordability. It was prominently featured in last month’s annual College Board pricing report and accompanying news-media coverage, and has been promoted through tools like the U.S. Department of Education’s net-price calculator.

The fact that many students pay substantially less than sticker price is significant, and deserves to be part of the conversation. But it shouldn’t give anyone false comfort about the magnitude of the long-term college-affordability problem.

Most colleges are nonprofit and spend all the money they get, so there are three big numbers to watch here: (1) how much colleges spend per student; (2) how much money comes into the system from sources other than students; and (3) how much students and their families pay out of pocket. Colleges prefer to ignore (1) as a contributing factor to unaffordability and focus on the broadly correct argument that (2) and (3) vary inversely: If state subsidies decline or endowments take a hit, then student charges must rise in order to maintain spending. Similarly, if Pell Grants go up, then students pay less out of pocket.

That’s all generally true. But ignore (1) at your peril because college spending is the driving force behind affordability or lack thereof in the long run. External subsidies and student charges are both limited in how much they can increase over time by a combination of overall growth in economic output (particularly as it’s distributed among families of college-age students) and the political economy of government fiscal policy.

Board of Minnesota higher ed institutions requests additional funding from state legislators

State university presidents in Indiana request increase after years of flat funding

Idaho teachers will receive bonus pay based on performance

Republicans criticize outgoing North Carolina governor for pre-K expansion

Board of Minnesota higher ed institutions requests additional funding from state legislators
The Minnesota State Colleges and Universities Board of Trustees this week offered to cap tuition increases at three percent, decrease administrative expenses by $44 million, and increase enrollment in return for an extra $97 million from legislators over the course of two years. The additional money will raise the system’s total budget to $1.2 billion, an 8.9 increase over the last budget, for the state’s 24 two-year colleges and seven state universities. The three-percent tuition cap would limit increases to $145 for a college student and $205 for a university student. In addition to promising tuition caps, the board has also proposed an aggressive matching campaign; for instance, the Board would match $21 million in state funding for “state-of-the art equipment” with donations from the private sector. State College Student Association President Steve Sabin expressed his concern that tuition hikes will be exceed the stated levels if the state does not fully fund the Board’s request. More here…

State university presidents in Indiana request increase after years of flat funding
The presidents of three state universities in Indiana have asked the State Budget Committee to increase funding for higher education in the next budget biennium, which covers fiscal years 2013-2015, following years of spending cuts that helped keep the state’s budget in the black. Higher education funding this year totaled $1.7 billion in Indiana, a four percent decrease from its high of nearly $1.8 billion in fiscal year 2009. The funding problems are especially burdensome for the state universities that focus more on teaching than research because they have fewer opportunities to receive outside funding for research grants. The presidents argue that they have cut costs significantly and kept tuition and fees at manageable levels for the past several years. Now, they contend, the state should increase funding. More here…

Idaho teachers will receive bonus pay based on performance
Idaho teachers can expect the Pay-for-Performance bonuses implemented last year as part of the state’s “Students Come First” laws, despite the fact that those laws were repealed through a referendum in last week’s elections. Seventy-six percent of Idaho’s schools (499 schools) will receive a portion of the $38 million payout. Although voters were originally told that if the laws were struck down on November 6, the teachers would not legally be allowed to receive bonuses, but the Idaho deputy attorney general issued a legal opinion after the election stating there was no legal impediment to issuing the bonuses this year. Even though the laws were struck down, many legislators and government officials seem to suspect that merit pay for teachers, in some form, will eventually become part of the Idaho K-12 education system. More here…

Republicans criticize outgoing North Carolina governor for pre-K expansion
GOP legislators are criticizing outgoing Democratic Governor Beverly Perdue for reallocating $20 million for an expansion of the state’s pre-kindergarten program for low-income children through next summer. Perdue redirected the $20 million from other funding sources, arguing that programs AIDS medicine and foster care services were overfunded. GOP lawmakers expressed concern because in recent years the state has experienced budget shortfalls late in the fiscal year (usually associated with Medicaid). Further complicating the issue, Perdue will not be governor by the time any potential shortfall would occur – Republican Governor-elect Pat McCrory will take office in early 2013. Before the expansion to the program that will add 6,300 slots, the state was spending about $128 million annually to provide pre-K for approximately 25,000 children. Estimates suggest that closer to 67,000 children may be eligible for the program. The expansion is the result of a 20 percent cut to the program by GOP lawmakers, which included requiring parents to incur a co-pay for pre-K services. Both a county judge and the state Court of Appeals struck down those provisions. More here…

Morehouse, a private, all-male, liberal arts college, is one of the most prestigious historically black colleges in the nation. With a mission to develop men with disciplined minds who will lead lives of leadership and service, and a notable alumni list that includes Dr. Martin Luther King, Jr., Morehouse attracts some of the best and brightest. So why has this esteemed, selective institution of higher education suddenly been forced to furlough faculty and staff? The answer proves to be both surprising and unsettling: Parent PLUS Loans.

As I’ve written here before, Parent PLUS loans have increasingly become a burden for many families. While the federal government issues these loans, they are most similar to private loans and require parents to pay a high, fixed interest rate of 7.9 percent (plus a 4 percent origination fee, for a total APR of about 9 percent). Parents borrow these loans on behalf of their college-going children, and must meet minimal standards to qualify (more minimal than for private loans).  Unlike federal Stafford or Perkins loans, there is no cap on PLUS loans. Parents may borrow up to the full “Cost of Attendance” (COA) of the institution.

Here’s the problem: Morehouse is expensive. Its COA for 2011-2012 was around $44,000. Even when taking into account federal, state, and institutional financial aid, its average net price was $23,324. For students from families with incomes at or below $30,000, the net price was $23,036. Think about that. Some families are paying more than what they make in one year to send their children to Morehouse.  And Morehouse attracts a significant percentage of low-income students—almost 50 percent receive Pell Grants.

With Americans still trapped in the fifth year of our Great Recession, and median personal income having been essentially stagnant for forty years, perhaps we should finally admit that decades of economic policies have largely failed.