College Costs

It's that time of the year again: high-school seniors around the country are anxiously awaiting the news that will change their lives -- early admission to the university of their choice. But while junior checks his email and the school's website 15 times an hour, parents are checking their savings account statements. As the recession bites into American families' incomes and makes the job search for recent graduates that much trickier, an increasing number of people are beginning to question the cost of attending colleges and universities in the United States.

Two businessmen walk into an auditorium full of fifth grade students and announce to the children, most from poor families, that they will all have their college educations paid for. For fans of The Office, this scene might conjurer up memories of Scott's Tots, the group of Scranton, PA students sponsored by Dunder Mifflin's regional manager Michael Scott.

The State Fiscal Stabilization Fund, a program created by the American Recovery and Reinvestment Act of 2009 to help states maintain state spending for education and other services, provided $39 billion in Education Stabilization funds specifically to support education spending. While most media reports focus on how the funds were used to support K-12 education, little is known about how states used the funds to support higher education.

Today, the Federal Education Budget Project (FEBP), Ed Money Watch’s parent initiative, released a policy paper, The State Fiscal Stabilization and Higher Education Spending: Part 3. This report sheds some light on how states actually used the Education Stabilization funds to support higher education and what will happen to these institutions' budgets in fiscal year 2012 when the funds are no longer available. Findings are based case studies of eight states including Colorado, Louisiana, Massachusetts, Montana, Nevada, North Carolina, Ohio, and Wyoming.

While it is hard to generalize about how states used the funds, we can draw some general conclusions about how the ARRA funds actually affected higher education and what is likely to happen once the funds are no longer available. For example, every state interpreted Department of Education guidance on the funds differently, likely the result of two inherently conflicting priorities outlined in the guidance: institutions were to use the funds to both save and create jobs and to avoid ongoing expenditures.

[For the last two weeks at Higher Ed Watch, we have run posts from student aid expert Mark Kantrowitz (see here and here) in which he argued that the financial aid award letters that colleges send out each spring need to be standardized both to protect the best interests of students and their families and to make them easier to understand and compare. Because this is an important public policy issue, we invited Justin Draeger, the president of the National Association of Student Financial Aid Administrators, to provide an opposing view. He took us up on the offer. Read on to find out why Draeger believes that "a federally mandated, standardized form" would do more harm than good.]

By Justin Draeger

Financial aid award letters can and should be improved to better help students understand the costs of higher education and the aid available to them. But a federally mandated, standardized form would fail to meet the needs of students, create more confusion, and stifle institutional innovation. Instead, we should focus on standardizing terms and definitions and promoting key elements to be included in each award letter.

One Size Does Not Fit All

If all colleges and student populations were the same (or even similar), then a standard award letter could be useful. Because there is so much variety, institutions need the flexibility to design unique award letters that highlight information that is most relevant to their student demographic. A cooperatively designed, optional form that models at least one good approach would be a useful catalyst for institutions to review their practices in light of their students’ needs.

[Last week at Higher Ed Watch, student aid expert Mark Kantrowitz explained why he believes the government needs to set mandatory standards for the financial aid award letters colleges send out each spring. Today, he offers his recommendations for what those standards should look like.]

By Mark Kantrowitz

Financial aid award letters need to be standardized both to protect the best interests of students and their families and to make them easier to understand and compare. Existing voluntary standards have proven to be inadequate to the task.

But what would these mandatory standards look like? To make these award letters more useful to students and their parents, colleges should be required to:

• Include Clear and Correct Information about College Costs

Every award letter should disclose the total cost of attendance, the total amount of gift aid (money that doesn’t need to be repaid, such as grants and scholarships), and the out-of-pocket cost (the difference between the cost of attendance and gift aid) for which students and their families are responsible. This information should appear prominently on the first page of the financial aid award letter in a standard location and format to allow families to comparison shop.

[The U.S. Department of Education is holding a public meeting today to discuss ways to improve financial aid award letters. Among those testifying is student aid expert Mark Kantrowitz, who has written extensively on this subject. Today at Higher Ed Watch, Kantrowitz explains why he believes the federal government needs to set mandatory standards for these letters. In a future post, he will offer his recommendations for what those standards should look like.]

By Mark Kantrowitz

The letters that colleges send students to alert them of their financial aid awards should be focused primarily on the needs of students and their families. Students and their families need and want clear, correct, complete, and comparable college cost and financial aid disclosures when they are deciding which school is the best fit. Unfortunately, most colleges’ award letters do not currently satisfy these needs.

All too often, in fact, colleges send award letters to prospective students that understate costs they’ll incur at the institution; overstate the generosity of the financial aid packages they offer; and obscure or misrepresent the true bottom-line price they will have to pay.

But why would colleges send award letters that are so misleading? The reason is that many institutions treat the financial aid award letter as a marketing and recruiting document, not a counseling tool. The goal from the college’s perspective is to make the college seem more affordable than it is. Colleges often accomplish this by obscuring the difference between loans and grants, which can lead to over-borrowing. In such cases, the design of the financial aid award letter is driven by the college’s pecuniary interests and not the student’s best interests.

Financial aid award letters need to be standardized both to protect the best interests of students and their families and to make them easier to understand and compare.

According to a recent article in The Chronicle of Higher Education, the U.S. Department of Education is planning to crack down on “Pell runners.” A Pell runner is “a scam artist who bounces from college to college, staying just long enough to receive a Pell Grant refund,” the newspaper reports.

The Education Department is absolutely correct to go after these individuals. Their actions not only hurt the federal fisc, but, if left unchecked, could undermine public and political support for this vital program over the long run.

There is, however, another group of “Pell runners” who may be even doing greater damage to the program’s long-term viability, but are coming under far less scrutiny. We are talking about public and private four year colleges that receive large amounts of  Pell Grant funds but use their institutional aid dollars to attract the students they desire, rather than to meet the financial need of the low-income students they enroll.

As we’ve said before, colleges that engage in financial aid leveraging to buy the best and/or wealthiest students are undercutting the Pell Grant program’s mission of making college accessible and affordable for low-income students. These institutions are, in fact, adding extra hurdles for Pell recipients to succeed, by loading them up with heavy loads of debt, including high-cost private student loans.

Judging by several reports that have been released over the last month, this problem is only getting worse and worse.

The country is facing a serious debt crisis that threatens to undermine our economic recovery. No, not that one. American households are carrying around $11.4 trillion of debt.

As we recently wrote at Ed Money Watch, data from the Department of Education’s National Center for Education Statistics (NCES) on colleges’ net price provides a glimpse on how campuses are spending their institutional financial aid -- aid they provide students from their own resources. But the view is far from complete. The net-price information (the average price students and their families are expected to pay after all sources of grant and scholarship aid are taken into account) for students who receive federal financial aid is available by income quartile only, rather than for the student body overall. As a result, colleges do not have to reveal the average net price that affluent students who receive merit-based aid from the institutions pay.

Understanding how colleges spend their institutional aid dollars is important because of concerns that many schools may be undermining the federal government’s efforts to remove the cost barriers that often keep low-income students from pursuing a higher education. Are colleges using their resources to try to meet the full financial need of Pell Grant recipients? Or are they primarily using institutional funds to attract the students they most desire, including those who can afford to pay full freight without help. The answers to these questions are especially vital at a time when policymakers are considering making major changes to the Pell Grant program to reduce its costs.

The limits of the Education Department data are a result of compromises Congress made when it reauthorized the Higher Education Act in 2008. Under pressure from higher education lobbyists, Congressional leaders, particularly in the House of Representatives, backed down from earlier proposals that would have directed colleges to reveal more about their financial aid practices.

The original House bill required colleges to report to NCES the average amount of institutional grant aid they provide to their students and their average net price, with each disaggregated by students’ family income. This data was to reflect the experiences of all their students, including those from families earning $140,000 or more a year.

The Senate version was much less demanding. Like the House bill, colleges were to report the average amount of grant aid they provide to their students and the average net price. But it did not require them to break this information down by income. In addition, the reporting provisions in the Senate bill were completely voluntary. Colleges that chose to participate were to report the information on their websites, using a model form developed by the Education Department. The Senate bill did, however, require schools to include net price information broken down by income quartile in the admissions materials they provide prospective students.

College lobbyists objected to these provisions, arguing that they “would create a significant new reporting burden for institutions.” While the lobbyists much preferred the Senate version, they opposed any requirement that they break the data down by income groups for all of their students, arguing that schools don’t always know how much students’ families make if they haven’t applied for federal financial aid. While this argument may be legitimate, it’s not clear why they couldn’t at least ask students who receive institutional aid for this information.

Lawmakers took these objections into consideration when they drafted the final version of the bill. The measure still required colleges to report the average amount of grant aid they provide students but did not require them to disaggregate this information by family income. And while the measure continued to require colleges to break down the average net price by income, it directed the schools to include only students who had received federal aid in these calculations. As a result, they were no longer required to report income-specific data for students who received institutional aid only -- which can be a significant share particularly at four year public and private colleges. In addition, the lawmakers struck the provision requiring colleges to provide net price information in their admissions documents.

As we have said previously, the resulting net price data is a start, as it provides a clearer picture of the hurdles that low-income students face at different colleges. But Congress ultimately allowed colleges to keep the veil on their institutional aid practices. As a result, we still don’t know whether schools are predominantly helping or hindering the government’s goal of making college more accessible and affordable for low-income students.

Despite the federal government’s substantial investment in federal student aid, low-income students still face extraordinarily high financial barriers in their efforts to obtain a higher education, the Education Trust, a research and advocacy group, states in a new report. The organization puts much of the blame on colleges for increasingly devoting their institutional aid dollars to attract the students they desire, rather than for meeting the financial need of the low-income students they enroll.

The report, “Priced Out: How the Wrong Financial Aid Policies Hurt Low-Income Students,” comes at a critical time, as both the Obama administration and Republican lawmakers are looking to cut spending on the federal Pell Grant program, which is the government’s primary source of aid for low-income students. The report does not suggest that the Pell Grant program is failing, but rather that policymakers need to find ways to ensure that colleges are not undermining the government’s mission of making college accessible and affordable for low-income students.

Ed Trust analyzed data that the Department of Education’s National Center for Education Statistics released earlier this year on institutional net price, which represents the average price students must pay to attend a college after all sources of grant and scholarship aid are taken into account. A 2008 law requires colleges to report to the Department of Education the average net price paid for all of its first-time, full-time students for the academic years 2006-07, 2007-08, and 2008-09. In addition, starting with the 2008-09 academic year, Congress mandated that colleges break down these data by income for students who received federal financial aid. (You can see these data by institution at http://febp.newamerica.net/higher-ed.)

Ed Trust found that of the 1,186 colleges that have reported comparable net-price data, students from families making $30,000 or less (with an average income of $17,000) paid, on average, an amount equivalent to 72 percent of their annual family income to attend a four-year college in the 2008-09 academic year, after all grant aid was taken into account. In comparison, students from families making between about $54,000 and $80,000 paid, on average, 27 percent of their annual family income.

In total, low-income students at more than two-thirds of the colleges that reported data contributed at least 50 percent of their family’s income that year to pay for college. At about a quarter of the schools, these students contributed more than 100 percent of their family’s annual income.

How does this translate to net prices for students at individual schools? Students from families making $30,000 or less at Pennsylvania State University, for example, were on the hook for nearly $14,500 in the 2008-09 academic year, and at the University of South Carolina at Columbia, nearly $15,600. Financially needy students, on the other hand, were best off at public universities in low-tuition states, such as at the University of North Carolina at Chapel Hill, where they only paid about $2,400, and at the most elite private colleges and universities, which can afford to offer generous need-based financial aid packages to the relatively small proportion of low-income students they serve. Meanwhile, low-income students attending for-profit colleges faced especially high net prices, the report says, because these schools  receive no direct support from state governments and provide little to no institutional aid, resulting in high prices overall.

Because low-income students at the vast majority of colleges have high levels of unmet need, many of them go deeply into debt to pay their college bills, including taking on high-cost private student loans, the report states. Others 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.

Ed Trust puts the brunt of the blame on colleges, which finance more than a third of all grant funds available to students. While four-year public and private colleges provided nearly $15 billion of grant aid in 2007, “these institutions chose to distribute this aid in a highly regressive manner,” by devoting significant sums to merit aid, the report states. “Private nonprofit colleges and universities spent almost twice as much on students from families in the top quintile of family income as they did on those in the bottom quartile,” the organization writes. “Even public institutions spent roughly the same amount on students from the wealthiest families as they did on those from low-income backgrounds.” (Italics in original)

As the Ed Trust report shows, the relatively new net-price information broken down by income provides policymakers with a clearer picture of the financial hurdles that low-incomes students are facing at individual colleges, and at least a limited view of how campuses are spending their institutional aid dollars. The data is far from complete, as it looks only at first-time full-time students who receive federal financial aid, rather than for the student body overall. But it’s a start and should help inform policymakers as they consider options for revamping the Pell Grant program.