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Presidents Plot Push for Aid Changes

January 7, 2011

PALM SPRINGS, CALIF. -- It could be a long while before it's clear whether a spirited discussion that took place here Wednesday ultimately prompts meaningful changes in how colleges allocate their precious financial aid dollars. But the college presidents and financial aid experts who led the conversation at the annual presidents' institute of the Council of Independent Colleges have high hopes, if not quite confident expectations, that they have a shot at remaking the landscape.

Their aims are not modest: stop higher education from hurtling down its current path of giving ever-increasing amounts of financial aid to academically talented (but not necessarily financially needy) students. And do so by getting a group of peer institutions to agree collectively -- through as little as a handshake or as much as a full-blown agreement or association, perhaps -- to reorder their priorities to reemphasize the goal of meeting students' full financial need.

"We've got a financial model in the American academy that is broken, and part of fixing that is changing our financial aid approach so it is more focused on need-based aid and access," said John A. Roush, president of Kentucky's Centre College. "This was the best, most thoughtful conversation about student aid and where it should that I've been involved in in a long time."

It is not news that some presidents and aid experts believe that the growing use of merit-based financial aid is bad policy and that it should change; Roush and others have written widely on that topic (including in these pages). But those arguments have gotten "no traction," Roush acknowledged, not so much because of disagreement about the agenda (though some exists) as because of a sense that the competition for students that has driven the use of merit aid is an unstoppable force, and one many colleges desperate to attract students will be reluctant to abandon.

Defenders of (or at least fatalists about) the explosion of merit aid often cite one other factor for its growth: the perceived restrictions that prevent colleges from agreeing among themselves about how to allocate their financial aid resources, given the collapse in the early 1990s of the Overlap Group amid a Justice Department antitrust investigation. The end of the practice in which elite institutions reviewed the aid offers they were preparing for commonly admitted students was designed to give top students more competitive financial aid options, and the competition that ensued is widely held responsible for stoking the expanded use of merit-based aid. While critics of the practice have long hoped for a legal challenge that would once again allow collaboration on financial aid practices, they have often seen that such a challenge might prove impractical or politically unappealing.

The last few years, however, have brought increasing chatter in some quarters about the desirability -- and the viability -- of seeking an exemption from federal antitrust law that would allow colleges to reach a consensus on how best to allot their aid dollars. Those discussions have been stoked by growing acknowledgment by college presidents of the unsustainability of the current financial model in higher education, as students' increased financial need has stretched many institutions' aid budgets to the breaking point.

A 2008 study by the Institute for College Access and Success found that four-year colleges were distributing $3.3 billion in institutional aid to one group of students in excess of those students' proven financial need, while first-year students at those same institutions had $2.4 billion in unmet need over and above their grants, subsidized loans and work study funds. The point of the study: a wholesale reallocation of institutional funds that now go to reward merit could help fill the gap that many needy students (and their institutions) still face.

That confluence of factors spurred the discussion here. The Council of Independent Colleges represents hundreds of mostly small independent colleges -- some wealthy, but most not -- that sometimes resort to merit-based financial aid to try to attract students, but typically do not have big war chests with which to do so.

Those leading the effort suggested that officials at enough institutions may be feeling financial pain now (or doubting their ability to meet their students' financial needs down the road) that they might be willing to link arms with those who, like Roush, dislike non-need-based financial aid for philosophical reasons. (Political sensitivity about the topic remains such, however, that those leading the discussion at the CIC meeting rebuffed a reporter's request to listen in on it, though they did provide a briefing immediately afterward.)

The several dozen college presidents who attended heard from Thane D. Scott, an antitrust lawyer who defended MIT during the Overlap case, who left them with the clear impression, said S. Georgia Nugent, president of Kenyon College, that the legal situation gives institutions more flexibility for collaborative approaches than they have typically understood.

"There are options," said Roush.

All of the participants were quick to note that they are in the early stages of considering a strategy, and that it is far too soon to say exactly what approach (or approaches) the institutions might take. There seemed to be general agreement that they did not envision a legal challenge or a formal attempt to seek government approval to resuscitate the Overlap Group or something like it.

The group's main goal, said James H. Day, president of Hardwick-Day, a consulting firm that works with colleges on admissions and financial aid issues, is to "create a collaborative framework in which more of the aid would be available based on the need of students," and to do so in a way that would "pass muster from an antitrust perspective."

Asked to lay out what that might look like, Day proceeded cautiously, envisioning an agreement among some group of colleges to embrace a series of common commitments or parameters.

For instance, "What if," he said, "we agreed that we will address need and we won't let loans exceed a certain amount" -- either a specific dollar amount or a percentage of the cost of attendance.

"But we expect everybody to pay something, because we need to get revenue" into the equation somehow, he said.

And much as some participants would probably love to eliminate non-need-based financial aid entirely, a more likely scenario would be that the group would agree to cap it -- "saying you can't exceed half of tuition, say, unless there is financial need involved," Day said, emphasizing the hypothetical nature of the boundaries. "Or it might be pegged to state tuition," since the independent colleges in this discussion are often competing for students against their local public institutions.

Day said that the officials believed that agreeing on a series of floors and ceilings for how much the institutions would spend on components of their aid packages would not raise antitrust concerns, though he and Nugent acknowledged, in response to a question, that it might make sense for the collaborators also to agree that whatever approach they adopted would at least be budget-neutral -- meaning that the colleges as a group would spend no less than they did before.

The leaders of the discussion group -- who included Michael S. McPherson, president of the Spencer Foundation, and Lloyd Thacker, executive director of the Education Conservancy, in addition to Roush, Nugent, Scott and Day -- seemed enthused (and even a little bit surprised) by the degree of consensus among the participants in the CIC conversation, though they acknowledged that some self-selection may have contributed to that result.

Nugent said that the next step would be to bring the general approach "to our various consortiums and groups" of colleges to gauge which institutions might be interested in participating (Roush wondered whether it would be possible to get the 130 members of the Annapolis Group to sign on). Nugent acknowledged that if there was support for the concept, "there would be a need for real negotiation" over the specific commitments the institutions made as a group.

While the trend toward non-need-based financial aid has seemed like a runaway train in recent times, the twinning of philosophical and practical considerations may be enough to slow it down, if not stop it, Roush said.

"This is a moral issue of sorts, as we've seen this merit aid thing take on a life of its own, even though we know this is not the right thing," Roush said. What's changing now, he added, is that "we know there's just not enough funding in the enterprise" to make it continue to function.

 

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