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Going to Market for Student Aid

Going to Market for Student Aid
April 16, 2010

Illinois's main need-based grant program for college students, the Monetary Award Program, has been like a target in a shooting gallery in recent years, dodging many bullets but getting nicked more than a few times.

The state government's financial problems forced the state agency that administers the program to shut access to it prematurely in July 2009, potentially denying aid to 138,000 people, most of them adults or community college students; in October, state leaders came up with a last-minute rescue to provide grants to those students.

But the same pattern is repeating itself this year, with the Illinois Student Assistance Commission announcing this week that it would again freeze applications as of Monday, citing increased demand and reduced funds. With more than 400,000 students estimated to be eligible for the grants this year, and 189,000 likely to beat the deadline, as many as 220,000 eligible applicants -- 142,000 of whom are community college students -- could forgo the state grants.

With the state's budget situation unlikely to turn around anytime soon, leaders of the Illinois aid agency are proposing an alternative way of finding consistent financing for roughly $50 million in MAP grants that go to community college students each year. Under the plan put forward by the state commission, which would require legislative approval, the agency would issue up to $550 million in bonds over the next five years. Doing so would raise enough money from the capital financial markets to finance grants not only for the 50,000 community college students who currently receive grants, but for another 50,000 who now miss out because of the program's shortfall.

The thinking of agency leaders is that the community college students who receive the grants would generate more than enough tax revenue, because of their greater levels of education, to repay what the state borrowed.

"In essence, what we are doing is going beyond the lip service that we all commonly give to the idea of education being 'an investment,' " said Andrew Davis, executive director of the Illinois Student Assistance Commission. "If it truly is an investment, and we believe it is, then we ought to harness the investment return to fund the investment."

Financial aid experts noted that states such as Iowa, Missouri, Kansas, and Michigan had turned to bond markets to raise money for work force investment grants and other college-related funds, but said they were unaware of another state that had sought private market financing for a core student aid program.

But just as states use bonds to finance their physical infrastructures for facilities and roads, "well-trained workers are an asset that pays dividends over time," Women Employed, a nonprofit group, said in a document summarizing the Illinois proposal. "Bonds that allow the state to invest in financial aid for community college students could help build the supply of skilled workers and meet the needs of businesses. Directing investment to community college students will ensure that the investment stays in Illinois, as nine out of ten community college students stay and work in the state."

Supporters of the idea cite research by the Illinois aid commission showing that community college students who receive the state grants "earn enough that they pay nearly 70 percent more in state income taxes than other low income taxpayers who do not go to school." The extra tax revenue that would be derived from the grants would more than cover the state's cost of repaying the bonds, they say.

Still, the idea may not be the easiest sell given the state's financial situation, Davis acknowledged. Opposition is likely to come on several fronts, he said: from small government types and those worried about additional state borrowing, those skeptical about whether sending many more students to college is necessary, and even some who worry about "letting the state off the hook" by funding student grants from sources other than general revenues.

But Davis said he hoped legislators and, ultimately, Gov. Pat Quinn would be persuaded by arguments that "there is a positive rate of return on governmental investment in education," and that capitalizing on the private markets to help state officials do that makes good fiscal and public policy sense.

 

 

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