Independent students are a growing force in higher education: Nearly half of all undergraduates (and about two-thirds of all part-time undergrads) are now considered by the government, for one of several reasons, to be financially independent from their parents.
Yet despite their increasing presence, the methods by which the federal government and financial aid officers assess how much independent students can afford to pay toward their education "is inherently less precise than doing so for students who depend on their parents," says Sandy Baum, an economics professor at Skidmore College and consultant to the College Board.
And because of the imperfections of the current method, and the great variation in the makeup of the independent student population, says Baum, a widely respected expert on financial aid, some low-income independent students wind up getting little or no financial aid, and some independent students from higher-income backgrounds may get quite a bit more than they need. (Although there's a tendency to assume that all independent students need help because the government deems them to be on their own, students qualify as independent if they are in graduate or professional school, or if they're 24 or older, and many such students may still benefit from their parents' support.)
In a new report from the Lumina Foundation for Education, Baum proposes a new way of measuring independent students' financial need that would try to even out potential inequities.
Baum cites two main problems with the current formula for calculating independent students' financial need. First, it relies too heavily on students' past earnings to indicate their ability to pay for college now, she says, since "students who have been working before they enroll can rarely maintain their earnings after enrollment without compromising academic success."
Second, the formula also presumes that independent students can contribute from 50 to 70 percent of their after-tax income toward their education, on the presumption that college should be their first priority. But this approach actually can discourage students from working, and "discriminates against those who are forced to work long hours because they have no other financial resources," Baum writes.
Her proposed alternative is based on several assumptions, including that independent undergraduates are fundamentally different from graduate and professional students and should have their financial need measured in different ways; that income from the previous year is not a good measure of the funds available to students once enrolled; and that parents' financial status should be taken into account in some ways, because “students from families with significant resources can more easily contribute to their own educational expenses, even without direct contributions from their parents.”
Baum’s proposed new formula is, like many financial aid calculations, very complicated, and those who want to explore the nitty-gritty will want to delve into the details contained in the Lumina report, "Fixing the Formula: A New Approach to Determining Independent Students' Ability to Pay for College." But it corrects the perceived problems with the current formula in the following ways:
- Uses a student’s past income only as an indicator of expected savings.
- Standardizes the amount students are expected to contribute to their educations while in college to eliminate the penalty for working.
- Takes parents’ resources into account when determining a student’s expected financial contribution.
- Treats student borrowing as a component of the student’s expected contribution, not as part of the financial assistance that meets a student’s need.
“The proposed methodology,” Baum writes, “allows students to work to fill the gaps in their budgets without losing aid and recognizes that students’ ability to pay is increased by their future earning capacity. Accordingly, loans constitute a reasonable portion of the expected student contribution, but only gift aid can fill the gap between what students can afford to pay and the full cost of attendance.”