Early Aid Could Lift College Aspirations

Early Aid Could Lift College Aspirations

October 30, 2007

No one likes rising prices. In an era of substantial increases in tuition at public universities, alums wistfully recall that they paid $50 a semester for their education. But they may not recall the reason that bargain price was possible: strong financial support from state legislatures.

The upward trend in public university tuition over the last decade is largely a function of the erosion of that support -- the failure of legislative funding to keep pace with enrollment growth and inflation and the resulting reliance on tuition and fees to pick up the slack. The price -- if not the explanation -- has gotten plenty of coverage in the news media.

One impact of the notoriety of higher tuition costs may be to deter low-income students from even applying for university admission. In economic terminology, the perception of price may itself reduce demand. We know from behavioral economics that perceptions of pricing are often critical in predicting consumer behavior. There is solid evidence that poor families often overestimate the cost of higher education, sometimes doubling the actual amount. If they are the first in their families to consider college, they may not have good sources of information, they may fear the unknown, they may worry about amassing debt when they are not confident of academic success.

This is confirmed by the fact that high-performing, low-income students enroll at universities at a much lower rate than do low-performing, high-income students. Ideally, well before the 12th grade, students should be aware of three attributes of higher education financing:

  • The "sticker price" of higher education, which is so highly publicized, is not the same as the average price actually paid by students. In the University of Texas System, the average discount, provided through scholarships and grants, is 30 percent off "list." The discount is often even larger at private institutions. Some students pay full freight, but many others do not pay any tuition and fees at all.
  • Pell Grants from the federal government are "portable;" they follow the student to wherever he or she is admitted. Many but not all state programs have a similar feature. With all of the acrimonious debate over voucher systems in elementary and secondary education, the fact is that there has been a voucher system in higher education for many years.
  • Low- and modest-interest-rate loans to finance one's higher education are outstanding investments in human capital. The average college graduate will earn about $1 million more than a high school graduate over his or her lifetime. This beats the heck out of a loan for an automobile or kitchen appliance, assets that depreciate over time. Low-income families that understandably eschew debt of all kind should reconsider in the case of higher education. Having said this, it is imperative to improve university graduation rates, so that students see the benefits of their investment and fully realize their potential.

One way to educate and clear up perception issues for low-income families is for the federal government to make Pell Grant commitments in the 11th grade. For families barely getting by, the reality of an early commitment swamps the often ineffective, written and oral assurances that students receive. Early award notification might guide a student's curricular choices as he or she seeks to be college-ready and college-eligible. It might also encourage a student to work harder during the senior year, to provide a clear sense of purpose rather than drifting through an unproductive senior year, and it might encourage families to do more financial planning and to seek out other sources of support, including merit-based scholarships.

Not many years ago, along with officials from other Texas universities, I addressed a crowd of low-income Hispanic high school students and their parents from the Rio Grande Valley at a celebratory event for honors students. One of my colleagues extolled the virtues of students attending his university. When he got around to financial aid, he said that no student would be denied an education for lack of financial means, that his institution had fulsome, need-based scholarship programs. I looked around the room. The families had almost no reaction. These were just words, no matter how honorable the source. If those students had already received financial aid commitments, it would have been a very different story. As Ronald Reagan said, “trust but verify.”

Currently, students cannot complete the Free Application for Federal Student Aid (FAFSA) until January 1 of their senior year of high school. Despite electronic processing, the notice of federal, state and institutional awards may not arrive at the doorstep until the summer before a student enrolls in college. This often late notice, combined with the much criticized complexity of the form, predictably has a negative effect on the decision as to whether to apply to college--particularly among low-income families. The College Cost Reduction and Access Act of 2007 commendably has taken steps to reduce complexity and to increase the level of family income (from $20,000 to $30,000) to qualify for a zero family contribution, but the timeline for application and notification remains unchanged. There is pending legislation for a pilot study to determine if awards are feasible as early as the junior year of high school, but it is not clear it will survive the higher education reauthorization process.

An early award program for Pell Grants would require the resolution of a number of obstacles. A family's income might significantly rise between the junior and senior year of high school. My own view, supported by the experience in Indiana, Oklahoma and other states awarding early state-provided financial aid, is that the occasional miscalculation is more than offset by the positive effects of an early award system on low-income families. The perfect is indeed the enemy of the good. What if family income declines? Adjustments in the package might be made in the second year of college or institutions might make up the differences with institutional or state funds. Or Pell funds might be set aside for this purpose.

There would also be some conflict with state financial aid laws and practices. Many state awards are not portable but dependent on the institution to which the student is admitted. A university cannot process such awards until a student is admitted, and thus, in such circumstances, the student would face a two-step process, an 11th grade application and another in the 12th grade. Furthermore, many states award merit-based scholarships. There are no simple answers. One approach, building on an analogy to the interplay between federal and state income taxes, would be to encourage the states to piggy-back on the Pell Grants and to create supplementary and portable state grant programs.

Perhaps the riskiest part of the early award strategy is that the students and their families will receive only partial information in the 11th grade as to the affordability of college. This can easily mislead. For example, an 11th grader might be notified of an award of the maximum Pell Grant of $4,310 (the maximum grant will rise to $4,800 next academic year and to higher figures in subsequent years), but the estimate of total expenses may be $15,000 or more at a public university. A poor family might quite reasonably think that it is responsible for the entire shortfall, not realizing that other financial aid may be available (or realizing it but worrying that it might not materialize).

One partial solution, if federal and state programs are in lock-step, is to make the state scholarship award at the same time. Another approach is to build on a recent trend among private and public universities. Public institutions such as the Universities of North Carolina, Texas, Virginia and Washington have established income cut-offs (often in the $25,000 range or higher), guaranteeing that families at or below those levels will receive adequate scholarships to cover tuition and fees. Harvard, the University of Pennsylvania and other distinguished private universities have similar programs. If the early award notification included such information for institutions designated by the student, the adverse effect of the partial information might be largely offset.

On balance, the benefits of an early award program for Pell Grants, particularly in terms of higher college participation rates for low-income Americans, outweigh the risks. If there is still doubt, the U.S. Department of Education might pilot such programs in a number of states. But one must remember that there is no silver-bullet solution for improving access. Out-of-pocket costs are critically important to families, but the greatest cost is the value of the work opportunities lost through college enrollment.

It is true that many students may be ill-prepared academically for college, requiring developmental courses to be college-ready. Many may also not be motivated to make the effort. Any solution to improving access to college for low-income students would be incomplete without addressing these issues, but an 11th grade award of Pell Grants may ameliorate the false perceptions of costs that cloud the application and enrollment processes.


Mark G. Yudof is chancellor of the University of Texas System.



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