Institutional Aid

[Last week the New America Foundation's Education Policy Program released "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 individual colleges. This is the fourth in a series of posts related to the report's findings. Read earlier parts of the series here, here, and here.]

As Higher Ed Watch reported this week, only a small number of private colleges are using their financial aid resources to make college more accessible and affordable for the neediest students. Instead, most are charging students with family incomes of $30,000 or less a net price exceeding $10,000.

The news is much better in the public higher education sector. Two-thirds of public four-year colleges continue to enroll a substantial share of low-income students and charge them a manageable net price.

However, the data also raise some major red flags. As more and more states divest from their higher education systems, public universities are increasingly adopting the enrollment tactics of their private college counterparts — using their institutional aid strategically, for instance, to compete for “the best and brightest” students and to increase their revenue. In a number of states, the growing privatization of public higher education systems is threatening to shut down what has long been a pathway to the middle class for low-income and working-class students.

Of 480 public four-year colleges examined in Undermining Pell, 164, or 34 percent, charge the lowest-income students a net price over $10,000; and 22, or 5 percent, require these students to come up with $15,000 or more.

Embracing Enrollment Management at the U. of Alabama

Many of the 164 public institutions are active participants in the institutional financial aid arms race. But few have embraced the competition with as much gusto as the University of Alabama.

It wasn’t always so. By the late 1990s, the University of Alabama’s admissions office had become complacent, according to a paper that several school officials wrote on the subject for the American Association of Collegiate Registrars and Admissions Officers (AACRAO) in 2010. While the admissions staff did some recruiting, the staff generally expected students to be interested in the school because of its long history and status as a flagship university. Heading into the new century, the university, which marketed itself mainly on its athletic programs and social traditions, was having trouble attracting top students.

Enter Robert E. Witt, the former business school dean at the University of Texas at Austin and president of the University of Texas at Arlington. Upon taking the presidency of the University of Alabama in 2003, he laid down a challenge to the admissions office: to “recruit top student scholars with the same fervor as top athletic prospects, and look beyond the state’s borders to find them.” The admissions staff, which was also charged with expanding the school’s enrollment from 19,000 to 28,000 over a 10-year period, met the challenge head on. According to the AACRAO paper:

The president’s message spread rapidly; with a clear and universally shared vision, a team mentality developed among the major players in enrollment management. The pervasive attitude became one of considerable pride and ambition. And because the vision became so pervasive throughout the institution, enrollment management targets were reached ahead of schedule.

To carry out its mission, the university set up full-time regional recruiters in several nearby states, including Florida, Georgia, Tennessee, and Texas. And the school put its money where its mouth was — establishing automatic scholarships for both in-state and out-of-state students who achieve high standardized test scores and good grades.

For example, at the University of Alabama, out-of state students with 1400 to 1600 SAT scores in critical reading and math who have earned a cumulative grade point average of at least a 3.5 are automatically eligible for a full-tuition scholarship for four years. Those with slightly lower test scores are eligible for scholarships covering up to two-thirds of their tuition. Meanwhile, the school goes all out for National Merit Scholars, covering their full tuition for four years as well as providing them with a reduced rate on campus housing, an additional $1,000 scholarship each year for four years, a onetime $2,000 stipend for summer research or international study, and a free iPad.

Seeking "Full-Pay" Students

But the University of Alabama is not just targeting high-achieving students. As Matthew Quirk of The Atlantic wrote in 2005 on enrollment management, the school is working hard to reel in those who can pay full freight as well:

At the AACRAO conference two members of the University of Alabama’s enrollment management team demonstrated how, in their campaign for out-of-state prospects, they overlaid income data from the U.S. Census on maps of high schools in Texas to target wealthy students.

Overall, nearly 30 percent of University of Alabama freshmen receive merit scholarships, averaging about $9,000 each. The university’s effort appears to have paid off — as it has seen its U.S. News ranking surge in recent years. Considered a second-tier institution in the late 1990s, the school now ranks 77th among all national universities and 32nd among public universities.

But with all the money the University of Alabama spends recruiting the best and the brightest and the wealthiest, the university appears to have little left over for those with the greatest financial need. While Pell Grant recipients make up 23 percent of the school’s student body, the lowest-income students pay an average net price of $13,815 — 37^th highest among all of the public colleges examined.

As the University of Alabama shows, private colleges are not the only ones preoccupied with prestige and rankings. Public college leaders are also driven to move up the pecking order, and they too have found that the most expedient way to achieve this goal is to chase after top students.

Looking for the Big Bucks

The use of strategic enrollment management by public colleges is not just being driven by the quest for prestige. Schools are also using these techniques to try to increase their revenue in the face of large-scale state budget cuts.

Such is the case at the University of Nevada at Reno, which has sustained major reductions in state funding in recent years. In an interview with the university’s alumni magazine, the school’s president, Marc Johnson, said the institution was pursuing an “enrollment management strategy so that we can purposely grow our student body, especially among students who will have a high probability of graduating.” By doing this, he said, “we’ll grow, make more revenue, and add back more faculty and staff positions and still increase our graduation rates.”

The key to the strategy is to attract full-pay students. But university financial aid officials acknowledge that “affluent students (and their parents) expect to be rewarded with academic merit aid.” As a result, “the university has set up a new scholarship award process” that “permits the university to remain competitive in that expectation.”

Under the process, students are automatically considered for a merit scholarship upon admission to the university. The size of the award that students receive depends on their academic record. University officials fully recognize that the shift away from need-based aid has been harmful to low-income students, but they don’t see any way around it.

These policies have certainly taken a toll. While 34 percent of freshmen at the school received merit awards in 2010-11, averaging $2,917 each, the lowest-income students paid an average net price of $11,230.

As these cases show, state disinvestment and institutional status seeking are working together, hand-in-hand, to encourage public universities to follow the lead of their private college competitors – to the detriment of low-income and working class students alike.

[This post ran first on the Three Capitals blog]

By Jon H. Oberg

The Education Policy Program at the New America Foundation has published an accurate, unblinking look at the sorry state of the country's student financial aid efforts. In "Undermining Pell: How Colleges Compete for Wealthy Students and Leave the Low Income Behind," author Stephen Burd documents that the higher education access gap across income lines is widening as more and more colleges turn their backs on students and families that are struggling financially.

The reaction to this report on Capitol Hill will not be pretty. Congress -- both houses, both parties -- will claim that this not their fault and will congratulate themselves on support for Pell grants; they will then blame colleges for raising tuition and threaten that someday they are going to do something about those greedy colleges.

It will be the rare member or staffer who reads the report and asks whether colleges are simply and rationally responding to federal incentives to move to the so-called High Tuition, High Aid model of student aid finance. There are a lot of advantages to moving to this model, and a whole new profession of enrollment managers has been eager to sell colleges on it. One big advantage is that the model creates enough institutional aid so as to make Pell grants completely fungible in student financial aid packaging. Why allow Pell grant increases to go to the needy when for all intents and purposes the federal funds can be used to recruit the wealthy and thereby raise institutional ranking? So many colleges have done it with impunity and success, it is hard for remaining colleges to hold out.

Congress could eliminate its counterproductive incentives by applying the tools of fiscal federalism that are common in other federal programs and agencies, such as maintenance-of-effort, matching requirements, or performance standards. The New America Foundation, to its credit, advocates changes to the Pell program to lessen tuition increase incentives and to make certain that more of the Pell billions actually wind up helping those Congress intends to help.

The new report cites a 2002 paper I wrote while at the Department of Education. In this paper I found that student loan debt for the low income went up over time regardless of whether Pell grants increased or decreased. Pell increases were actually related to lower borrowing among the non-needy. To my knowledge, no one else has looked at these relationships, although Lesley Turner has admirably put an annual price tag ($6 billion in 2011) on the amount of Pell grants essentially lost to the low-income due to their fungibility with institutional grants.

When I testified in 2007 on the reauthorization of the Higher Education Act and advocated killing the corrupt Federal Family Education Loan program in favor of putting billions of resulting savings into federal student grants, I did not do so to see low-income borrowing escalate and the access gap widen, but that is unfortunately what has happened. And the blame lies as much on the Hill as it does among the colleges.

Jon H. Oberg is a former state government official, college association president, and U.S. Senate staff member. In retirement from the U.S. Department of Education since 2005, he has worked with the Department of Justice and the Department of Education on public finance issues to settle false claims and return funds to the U.S. Treasury. He previously wrote in Higher Ed Watch about fixing federal higher education research. His views are his own and do not necessarily reflect those of Higher Ed Watch or the New America Foundation.

[Last week the New America Foundation's Education Policy Program released "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 individual colleges. This is the third in a series of posts related to the report's findings. Read earlier parts of the series here and here.]

Some private nonprofit colleges are making extraordinary efforts to recruit, enroll, and financially assist low-income students. Unfortunately, they are few and far between. Only 53 private colleges, or 11 percent of the schools examined in Undermining Pell charged students with family incomes of $30,000 or less an average net price under $10,000 in the 2010-11 school year. In contrast, nearly two thirds of the private institutions analyzed charged the lowest income an average net price of over $15,000 a year.

Certainly, a substantial number of private colleges have small endowments, making it extremely difficult for them to provide adequate support to those students with the greatest need. Indeed, many of these schools provide deep discounts because they believe they must do so as a matter of survival.

However, there are plenty of private colleges that have the means to enroll a substantial share of Pell Grant recipients and charge them a low price but choose not to do so. These include some fairly prosperous colleges that use their institutional aid as a competitive weapon to attract the students they desire, rather than to meet the financial need of their students.

Many of these colleges follow the same playbook: using so-called merit aid to bring in students that will help them build their prestige and propel themselves up the rankings. And while a number of these generally second-tier schools strive to compete with the most-elite institutions for top students, their endowments, while substantial, tend to pale in comparison. As a result, these colleges often have to rely heavily on tuition dollars to finance their operations, giving them a significant incentive to use their institutional aid to attract full-pay students as well. Meanwhile low-income students who enroll in these schools are generally left with a hefty gap between what the government says they should be expected to pay and what they are being charged.

A Change of Direction at GW

One such “striving” school is George Washington University (GW). For most of its history, the university was a commuter school that primarily served a diverse group of working adults seeking credentials that would help them advance in their careers.

That all changed in 1988 with the arrival of the university’s new president, Stephen Joel Trachtenberg. The former president of the University of Hartford immediately set an ambitious course for the institution: to be the destination of choice for students who didn’t make the cut at the nation’s most selective colleges.To accomplish this, Trachtenberg knew that he would have to make the school much more appealing to an upscale crowd.

Over 19 years, he turned what was a relatively low-cost institution into one of the most expensive colleges in the country and went on a building spree to provide the kind of amenities that wealthier students crave, such as state-of-the-art dormitories and a fancy new student union that won the American Institute of Architects’ highest award. And Trachtenberg opened up the university’s financial aid coffers for the sole purpose of “buying talent,” as he himself has acknowledged. According to a recent profile of the former GW president in The Atlantic, Trachtenberg operated under the philosophy “that students were more interested in attending a $40,000 school with a $20,000 discount than they were in attending a $20,000 school.”

Since Trachtenberg’s retirement in 2007, the university’s leadership has scaled back a bit (there are now nearly two dozen colleges that are higher-priced than GW, after all). But the school remains among the 30 least socioeconomically diverse private colleges in the nation. While 20 percent of GW freshmen receive merit aid, averaging about $18,500 each, only 13 percent of its students receive Pell Grants. GW’s lowest-income students pay an average net price of nearly $15,000, and student loan borrowers at the school graduate with an average debt of about $33,000.

Rising Up the Ranks at Miami

Another school that has had a remarkable rise up the ranks over the past several decades is the University of Miami, which pioneered many of the enrollment management practices that have become commonplace today.

In the late 1980s, the fortunes of the 60-year-old school were flagging. Most people outside the state had not heard of it, or thought of it as a party school that excelled only in college football.Many mistakenly believed it was a giant state school. At the time, the school was admitting about three-quarters of the students who applied.

What was needed, university officials decided, was to bring together all of the separate offices involved in enrollment to make a concerted effort to ramp up the marketing of the school and to do all they could “to improve student quality while maximizing tuition revenue.” This involved recruiting high-achieving students and rewarding them with generous scholarships. It also meant copying the trappings of more-prestigious institutions. “To be considered a top private university, the University of Miami needed to act more like a highly selective private college,” Paul M. Orehovec, the school’s former vice president of enrollment management, wrote in a history he has compiled of the university’s efforts in this area. For example, the school introduced a wait list to make it appear more exclusive than it was, and started a legacy program to give the children of alumni a leg up in the admissions process.

These efforts bore fruit as the University of Miami started to rise through the ranks. But this process accelerated considerably after Donna Shalala, the former Secretary of Health and Human Services, came on board in 2001. Under her leadership, the university became much more aggressive in recruiting top students.

The school, for example, started inviting several hundred prospective students to the campus each spring to compete for the new Isaac Bashevis Singer Scholarships — which cover four years of full tuition, totaling more than $150,000 for those who demonstrate “superior academic achievement and abilities for success.”This “one-of-a-kind weekend” gives these students the chance to “get firsthand information about life as a high-achieving student at the University of Miami.” All they have to do is have a meeting with a faculty member and try to convince that professor they are deserving of the school’s most “prestigious merit award.”

In 2011, the university awarded 67 Singer scholarships. But those who missed out had no need to worry, as they still had a very good shot at winning one of the school’s other merit awards. Overall, around a quarter of University of Miami freshmen receive non-need-based aid, averaging about $23,000 per student.

By the standards that colleges use to judge their performance these days, Shalala’s efforts have paid off big time. The University of Miami has catapulted up the U.S. News rankings — breaking the top 50 for the first time in 2009 — making it a top-tier university in the magazine’s estimation. The average SAT scores of incoming freshmen have risen over 100 points, to nearly 1300. And the university now admits fewer than two out of every five students that apply.

But not everyone has benefited from the University of Miami’s generous merit aid policies. While Pell Grant recipients make up 22 percent of the school’s student body, the school’s lowest-income students pay a hefty average net price of $21,415.

Besides the very richest colleges and some exceptional schools, nearly all private colleges provide generous amounts of merit aid, often to the detriment of the low-income students they enroll. But private colleges are not the only ones preoccupied with prestige and rankings. Public college leaders are also driven to move up the pecking order, and they too have found that the most expedient way to achieve this goal is to chase after the top -- and wealthiest -- students as well. Stay tuned to see how the merit aid game is being playing out at our country’s public universities.

[Yesterday the New America Foundation's Education Policy Program released "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 individual colleges. This is the second in a series of posts related to the report's findings. Read the first part of the series here.]

Until recently, it has been very difficult to assess how well individual colleges are serving low-income students. Policymakers, researchers, and journalists have mostly had to rely on a single measure to do so: the proportion of Pell Grant recipients each college enrolls.

While this dataset provides a useful tool for comparing colleges based on their record of admitting low-income students, it does not tell us anything about the schools’ commitment to making college affordable for these individuals. For example, if a college enrolls a large number of Pell Grant recipients but doesn’t come close to meeting their remaining financial need, it may be setting them up for failure.

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.

Nearly fifty years ago, the federal government committed itself to removing the financial barriers that prevent low-income students from enrolling in and completing colleges. For years, colleges 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.

Alan Simpson and Erskine Bowles, of the famed Simpson-Bowles commission (officially the National Commission on Fiscal Responsibility and Reform) that the Obama administration tapped to generate ideas to reduce federal budget deficits, are out with a new wide-ranging proposal. Titled A Bipartisan Path Forward to Securing America’s Future, the report was published by the Moment of Truth Project, which is itself affiliated with the Committee for a Responsible Federal Budget, an organization previously housed at New America.

The report includes higher education reforms that they say will create $35 billion in savings through 2023. These reforms mirror some of the ideas outlined earlier this year in the Education Policy Program’s report, Rebalancing Resources and Incentives in Federal Student Aid. Unlike the latest Moment of Truth Project report, though, the New America Foundation report argues that the savings these proposals generate should be reinvested fully in more effective and higher-quality postsecondary education aid. (The Path Forward proposal reinvests most, but not all of the savings into higher education aid.)

One way that Path Forward finds big savings is through eliminating the in-school interest rate subsidy, which defers accrued interest on the borrowers loans until after graduation. This is basically identical to New America’s proposal to eliminate Subsidized Stafford loans.

According to the Moment of Truth Project report, the subsidy is poorly targeted and that money can be better spent by funding the Pell Grant program. The authors argue that income-based repayment is a far better benefit to struggling borrowers, something we made the case for in Rebalancing Resources and Incentives. The deficit reduction report writes:

Another $15 to $20 billion could be generated through a number of more targeted changes such as adopting the President's proposal to reform Perkins loans, lowering Guaranty Agency Compensation Rehabilitation loans, repealing Grad PLUS loans, equalizing loans for dependent and independent students, creating a two-tiered income-based repayment system, and reducing or discontinuing funding for underperforming for-profit schools.

The authors go on to note that such reforms would fix the Pell Grant funding cliff, something we also accomplished in the Education Policy Program report. The authors further note that "by providing mandatory funding to cover much of the projected shortfall in the Pell Grant program, this option would limit the pressure on the Appropriations Committee" to make deep cuts in discretionary programs or to decrease the benefits Pell provides. In 2014, Congress was pleasantly surprised by a Congressional Budget Office estimate that showed a surplus had accumulated in the program over the past several years, permitting lawmakers to flat-fund the program at 2013 pre-sequester levels. Still, costs of the Pell program are expected to increase rapidly over the next several years, demanding a long-term solution.

The report also endorses a proposal first offered by the Education Policy Program’s Jason Delisle. Recently highlighted both in President Obama's fiscal year 2014 budget proposal and in a bill proposed by Republican Senators Coburn, Burr, and Alexander, the plan would interest rates on federal student loans to the rate of 10-year Treasury notes, plus a mark-up. As the commission notes, this addresses the interest rate problem more gradually than a bump from 3.4 percent to 6.8 percent – and it would permanently resolve the annual debate over setting the rates by creating a long-term policy subject to the market, not lawmakers’ whims and political interests.

In the Education Policy Program paper Rebalancing Resources and Incentives in Federal Student Aid, we recommend nearly all of these fixes as part of a larger reform to make federal student aid more equitable and rational. And we did this in a budget-neutral way – that is, we used savings found in some programs to increase funding for other programs, or to create completely new ones. While the new Simpson-Bowles report would use some of the savings to fund the looming Pell Grant program shortfall, the authors would also redirect a portion of the savings to deficit reduction.

Our proposal included a broad array of reform proposals, covering loans, grants, tax expenditures, transparency, and other federal aid issues, and it is meant to be seen as an entire package, not a menu of options, because each component of aid affects the others. We stand by that belief, but we are pleased to see other groups arrive at the same conclusions that we did in reforming the federal student aid system: Policymakers can better spend the significant resources they have already committed to federal student aid programs to benefit students, taxpayers, and other education stakeholders.

When it comes to private colleges enrolling and supporting low-income students, Grinnell College has been one of the best. Nearly a quarter of its students receive Pell Grants, and the lowest-income students have to take on only a relatively small amount of debt to receive a top-notch liberal arts education.

That’s why it is so disheartening to hear that Grinnell plans to become more aggressive in using so-called “merit” aid for the explicit purpose of recruiting wealthy students. According to college’s president Raynard Kington, this is the price Grinnell will have to pay for maintaining its need-blind admissions policy for the next two years.

Last year, Grinnell’s board raised alarms on campus when it announced that it was considering abandoning its costly policy of admitting students regardless of their financial need. But after months of heated discussions among students, faculty, administrators, and alumni, the board relented and agreed to allow the practice to continue for another couple of years. In return, however, the school must “find a way to curb growth in its discount rate (the percentage of sticker price provided by the college in aid, on average) and to reduce the share of its operating budget paid by the endowment,” according to Inside Higher Ed. They need to, in other words, bring in more students who can pay full freight.

Yesterday at Higher Ed Watch, I argued that a federal solution is needed to ensure that colleges use their institutional aid resources to keep higher education affordable for low- and moderate-income students. But why should the federal government get involved?

The reason is simple: the government is already involved, way involved. It spends nearly $40 billion on the Pell Grant program each year to try to remove the financial barriers that prevent low-income students from enrolling in and completing college through the Pell Grant program. Yet colleges are increasingly undercutting the government’s mission by using their institutional aid dollars to try to attract the students they desire rather than to meet the financial need of the low income students they enroll. Worse yet, there is compelling evidence to suggest that schools are capturing a significant share of the Pell Grant funds they receive and using them for other purposes, such as providing non-need-based aid to recruit high achieving and wealthier students. This is one reason why even after historic increases in funding, the program’s impact is so limited: students and families are not receiving the full benefits as intended.

The enormous growth in non-need-based, or “merit” aid, at four-year colleges over the last two decades has come lately at the expense of the neediest students. Low-income students who attend these institutions often face high levels of “unmet need,” defined as the difference between the cost of attendance and the amount of financial aid they receive. Unmet need forces students to take on significant amounts of debt, including risky private student loans. Financially strapped students also frequently engage in activities that lessen their likelihood of completing their degrees, such as working full-time while attending college or dropping out until they can afford to return.

Do colleges still provide a gateway to opportunity for low-income and working class students? Or are they perpetuating inequality in this country by limiting opportunity to only those who are rich enough to be able to afford it?

That question, which came up during a podcast conversation between my colleague Kevin Carey and New York Times journalist and New America Foundation Schwartz fellow Jason DeParle [author of this riveting article on the subject] last week, is central to proposals we have offered that aim to ensure that colleges use their institutional aid resources to keep higher education affordable for low- and moderate-income students.

Unfortunately this is often not the case. Colleges are, in fact, increasingly raising the barriers to higher education for low income students by redirecting their institutional financial aid dollars to wealthier students.