Finally!

Finally. Someone is actually talking about the real problem in financial aid and the very important issue of access. It is not the super-wealthy colleges not spending enough. With no loans at most of these schools now, and many others practically giving the education away for anyone making under $100K (give or take depending on the particular school), the problem of access, which is absolutely real, lies elsewhere. And it has for a long, long time now. But the endless public focus has always remained where it does not belong: Harvard, Yale, Dartmouth, etc., and their small, highly selective private college counterparts. After all, these schools cannot, under any stretches, have the collective enrollment capacity to provide access to any more than a very small percentage of America’s college-bound enrollment. The real access problem, at least regarding financial aid, is merit-based aid, in all of its ugly forms, now practiced at most of American colleges and universities. Plainly and simply, no matter what arguments are made for it, merit-based aid is giving money to those who, by the standard financial measurements, do not need the amounts of institutionally-funded scholarship they are given. Which would be OK, perhaps, if the counter-side did not occur because of this. But, it inevitably does: those who DO have real financial need are either not admitted, or their aid awards do not come close to what used to be the goal in financial aid policy: meeting the full demonstrated need of every admitted student. That goal has been largely abandoned (except at the super-wealthy schools actually, the ones who can afford it). Rather, their awards of low-income, high-need students are gapped, with big gaps. Their need is under-met. No surprise, they cannot afford the costs, and don’t enroll or don’t finish. This is the real, primary issue regarding access. And it’s a huge effect. Meanwhile, the students from high and higher income families, who by the same financial methodologies could pay much more than they are asked to pay, walk off with the money in the form of extensive merit-based aid: athletic scholarships, artistic scholarships, “presidential awards,” and every imaginable award, but all basically the same: money from institutional resources going to those who can afford to pay substantially more for their children’s education than they are asked to pay, while many of those from lower income families are simply left out in the cold. Little or no merit aid for most of them: e.g., SAT scores are not high enough to make them the desired ones. And presidents cry “no money” when it comes to financing need-based financial aid for all. Why? Because it is being awarded in the form of merit-based aid. And Congress, e.g., Sen. Grassley, gets a lot of high-profile publicity going after what is entirely the wrong rabbit: Harvard and its $35 billion endowment. Those endowments, the levels of spending from them, and the schools that own them are NOT the problem. Finally, someone here is identifying the real problem. I hope we listen, and act.

DDVA, at 10:20 am EDT on June 13, 2008

Need based aid vs. Merit Aid

A healthy sign that colleges want to get away from merit aid, because it has shifted money away from the students with real financial need and access issues. I hope the discussion continues and becomes a reality. I get the sense that the anti-trust action of 1979 was perhaps a little overzealous (similar to the inducement discussions that took place recently; but I digress).

But back to the merit discussion. So as we are hoping institutions will move back towards more need based aid, Congress has created two need based programs with merit components (ACG and SMART grants) and a merit based program without any need based component (TEACH “grants” that will most likely become unsubsidized loans for the majority of recipients) with so many onerous provisions for students that very few schools are signing up for the program. Where were the public policy discussions as Congress forumlated these programs?

PAC, at 4:45 pm EDT on June 13, 2008

An economics-based alternative suggestion

Scott—an alternative suggestion. Why foster collusion when you can instead naturally structure your competition on a more leveled playing field? It strikes me that the final right approach to this problem might be a kind of cap-and-trade system using existing government programs (with no net increases) and existing government reporting requirements.

In this the denominator “cap” for each campus would be the total sum of direct government external support (state and Federal) that is targeted toward subsidizing enrollment expenses in a given year—so that’s the sum of SEOG and FWS, Pell grants, and all state grants designed to help undergraduates meet regular enrollment expenses. In general, it’s safe to assume that every campus would want to maximize that denominator—to earn and keep earning a big, maximized “cap” each year, just as they do now.

The numerator “trade” would be the percentage of funds the college or university elects to invest in enrolling students that doesn’t qualify as ‘meeting need.’ For example, if a college is aggressively seeking to boost its rankings by enrolling non-needy students with higher scores, it might still spend a hefty 25% of its “aid” budget on those non-needy students in a given year, but then the following year, its total government enrollment subsidy from both state and federal sources would be cut by that same 25%. Counting toward the 25% (in this instance) would be a wide set of subsidies: not only every clear merit scholarship dollar, but the funds now used to meet the enhanced ‘need’ definition at places such as the top Ivies and the current Consensus Approach 568 campuses, some athletic scholarships and employee-tuition-benefit programs that aren’t meeting need, AND state tuition grants such as HOPE, plus any payouts the government makes as a guarantor on defaulted loans.

This would give every college (including state schools) a balance of incentives. You could still choose as an institution to “get ahead” through “better” (and richer) enrollees with your own genuine bootstrap approach. To the extent that your own institutional aid funds can exceed your aid funds from government sources, you’ll have considerable freedom to keep making choices to give aid above the standardized need calculation. However, if you’re more dependent on government subsidy funds as a share of your aid budget, you would have to make your merit choices knowing that you’ll be sacrificing some share of your future government funds.

Worse, since it will be a zero-sum distribution, you’ll know that the funds you sacrifice will be lining the pockets of the college down the road that invests a larger share of its funds in needy students instead. Or, you might increasingly choose to be that other campus, diminish your use of the bootstrap/leveraging idea, and instead ensure that you collect every possible scrap of your (increasing) government funds each year, as long as you address it each year 100% toward meeting need.

This program could be neutral with regard to loans, so that colleges with enough funding to support reduced-loan packaging for either the neediest students (or the most desirable students with some need) would still be free to do that. For colleges that have higher default rates, tacking the default payouts to the ‘merit’ numerator would provide them with ample incentive to reduce defaulting—i.e. limit the loan options and levels for students who are most likely to default. This seems harsh but it’s the pragmatic actuarial choice.

Entire states could still choose to retain their best students via enrollment subsidies, but like the individual colleges, their first priority would inexorably be directed toward meeting need first. State universities with artificially low tuition pricing (which is really another form of subsidy to upper and upper-middle class students) would have an incentive to bring their tuition prices closer to real market levels and meeting a greater amount of the resulting need, because this increased spending is increasing the denominator against which the merit cut-percentage would be measured. States that wanted to spend more freely on enrollment subsidies beyond need might still do so if they’re willing to forego the Federal SSIG grants that help support state tuition aid programs.

Endowed awards that can help meet need would be welcomed by universities, while the incentive to seek unrestricted endowment for merit awards beyond need will not grow, since the spending from these kinds of awards would still count against the ‘cap’ in a subsequent year.

Athletic scholarships and tuition-benefit subsidies might face a new (and appropriate?) degree of scrutiny. Those funds that genuinely help needy students would flow unabated; those helping to finance non-needy students would get a second long look.

The biggest student beneficiaries would be the best-qualified, highest-need students. The colleges that meet need only would benefit from an increasing share of the government’s largesse at the expense of those colleges who continue to be aggressive with merit-beyond-need awards.

Since Pell grants would be counted in each year’s denominator but would remain portable with students and thus fully funded at the campus for the following year, the incentive to attract and retain more Pell recipients would grow.

Best news: every campus already collects almost all the necessary data in FISAP. It’s an extra couple of line items in the DOE formula to calculate the college’s investment in student discounting beyond what is needed to meet need as a percentage of its total investment, and then to discount the college’s annual block grant by that percentage and redistribute those funds in the Fair Share distribution.

Problems: the FM formula would become even more political and might need an improvement, especially in how it measures wealth. State compliance might be tricky; since most of their awards are given to the enrolling student rather than as a block grant to the institutions. For aggressive merit colleges within their borders, states would probably have to average some kind of ‘tax’ over time against the grant awards to the in-state students who choose to attend that college. Also, colleges would have an increased incentive to cheat by offering valuable off-aid-budget perks to their desirable ‘merit’ students. They’ll compete in many ways that won’t have to be reported as enrollment subsidies—preferential housing, parking, registration, other services etc. I.e. privileges. But no particular mechanism exists to stop those activities now, either, and they already happen in some places with nominally no or little “merit” awarding. Guaranteed parking at UCLA for their ‘honors’ admits is a big perk.

Ultimately, a more normalized curve should begin emerge, where a balance point between the incentive to distribute merit dollars to the non-needy and the general public’s interest in having need met first attracts a large cluster of both private and public schools in the middle. Both kinds of colleges would be offering realistic tuition rates, equivalent discount rates, and a steady percentage of ‘merit’ investments against their ‘need-based’ funding. Meanwhile, there would be a node of many “need-only” outliers who might find that an increasing share of that need can be met through government funds—and those colleges may decide to redirect an equal share of their institutional funds away from institutional aid and toward other kinds of improvements, such as teaching and facilities. Then there would still be some high-merit outliers continuing to risk their total government funds for the sake of enrolling larger numbers of wealthier and well-qualified students.

This isn’t so different from the world we have now, except that the highest-cost, highest-merit, highest-aid schools might curtail their most aggressive competitive impulses, while some the artificially-low-cost, hidden-subsidy state schools, as well as schools in states with aggressive resident merit programs, might normalize their programs more too.

Jon Burdick, Dean of Admissions and Financial Aid at University of Rochester, at 8:25 am EDT on June 14, 2008

When I see that people think that doing away with merit-based aid to free up money for need-based aid, I really see a shift in philosophy that is at the base of a system that is failing to adequately educate our young citizens. Somewhere along the way, we lost sight of the axiom that the purpose of the university is to train the minds of our best and brightest. This has been supplanted with the ludicrous notion that everyone has a right to a college education. Couple that with the fact that colleges and universities are now run like businesses, and we see that such factors as increasing enrollment become more important than focusing on the best instruction possible. Most colleges are glorified vocational schools these days.

Student financial aid should be predicated on both merit and need. Obviously, a bright scholar from a walthy background should not need financial assistance and their are other ways to award merit. But a poor to mediocre student should not receive financial aid at all. There must be a minimum academic performance standard to be maintained as a condition of receiving aid. The better a student performs, the more money the student gets. Eliminate the dead wood and more money is available to those who both need and deserve assistance. This should be obvious to any educator. Poor performing students drag down the entire academic community; they are a waste of both their peers’ and their professors’ time. In this day, rather than dismissing such students, they are coddled and even given financial assistance. This is shy we have students graduating from college with the equivalent of the ninth grade education of 40 years ago.

Reality Check, Decline of Education in America, at 10:05 am EDT on June 14, 2008

anti-anti-trust cooperation

As a historian of financial aid, who came into the subject out of concern about merit scholarships, I’m impressed at the level of discussion generated by this report, especially perhaps the bold but not one-sided analysis by Rochester’s Jon Burdick.

I endorse the basic idea of reducing merit alms races by cooperation between peer institutions, but a few history- and law-based warnings are in order. 1. the dual concept of scholarships as both PROVISION for the needy and PRIZES for the bright, diligent or virtuous goes back to medieval England, though a big movement for merits in America did not start till the late 19C. 2. Since intellectually lively students are part of a good education, the incentive for colleges to enhance educational quality by buying good students will not go away among the many colleges that are not so prestigious that they do not have to buy talent. (I say nothing here about USNews &WR ratings.) 3. Curent anti-trust protection law, as applied to colleges, is ham-fisted in two ways: —i. It does not say whether cooperating colelges can agree in some way to LIMIT rather than totally BAN non-need-based merits —ii. It requres cooperating colleges to practise need-blind admissions but not meet all financial need (by whatever criterion). So, for example, Smith and Mount Holyoke Colleges, which practise need-aware admissions but essentially meet all need and, due to varied admissions programs, have unusually high proportions of Pell student relative to their academic selectivity, cannot join in.

As much of the foregoing discussion implies, the way forward is to limit and dis-incent (!) merits, not quixotically ban them altogether.

At risk of incurring InsideHigherEd censorship for advertising, I would add that my book, AIDING STUDENTS, BUYING STUDENTS: Financial Aid in America (Vanderbilt UP, 2005) tells the many-sided legal drama of the seminal anti-trust case, US v. Brown University et al (really Justice Dept v. MIT) and proposes much the same cooperation envisaged by the Institute for College Access and Success — entailing a change in the law.

Rupert Wilkinson

Rupert Wilkinson, at 1:00 pm EDT on June 17, 2008