Tag Archives: student loans

Colleges and Universities should use institutional grants for need-based financial aid

At a recent meeting of the Student Financial Aid Research Network (SFARN), researchers indicated that the number of undergraduates receiving Pell Grants increased to 41% in 2011-12, up from 27% four years earlier. Think about this for a minute – one in five college students are low-income. Wow! In some ways, this news is good news – more students are getting federal financial aid to pay for college. But this news also underscores a fundamental problem, which is that college prices are going up so fast that more and more students cannot afford college without considerable financial assistance.

My friend and colleague, Sara Goldrick-Rab has openly advocated for free community college as a policy solution. Her proposal is generous – not only paying for tuition and fees, but also covering books, transportation, meals and living expenses. A presidential candidate, Bernie Sanders, and a U.S. Senator, Elizabeth Warren, have endorsed free community colleges, as has President Obama. And just this month, Hillary Clinton revealed a proposal that could make college debt-free for many students. Many other political leaders and advocates have endorsed a less ambitious, but also progressive, approach to cover tuition and fees for community college students – most often by promoting the Tennessee Promise as a policy solution. However, I am unaware of any Republican presidential candidates who support using federal policies to encourage or incent states and colleges to make college debt-free or to make the first two years of college free.

I wholeheartedly support these efforts to provide two years of free college for all students; however, the pragmatist in me wants to hedge bets and promote some incremental changes to provide more grant aid to low- and middle-income students.

According to the College Board, higher education institutions provided almost $35 billion in institutional grant aid to students in 2012-13. This figure represents 19 percent of the $185 billion in grant and loan financial aid available to undergraduates, and is more than the amount awarded by the federal Pell Grant program. Institutional grant aid is particularly important to students at private, nonprofit four-year colleges and universities, making up two-thirds of all student aid in this sector; however, institutional aid also represents one-fourth of all aid to students at public four-year colleges and universities.

As part of a recent project with the Association of Governing Boards and the National Association of College and University Business Officers, my colleague Don Hossler of Indiana University and I were struck by the growth of institutional grant aid, up 92 percent over the past decade. Yet, as has been documented elsewhere, institutional grant aid is not always used to support low- and middle-income students pay for college – that is, unless those students demonstrate academic superiority based on high school grades or standardized tests. This project, Looking Under the Hood, created a national dataset for benchmarking institutional grant aid. My hope is that colleges and universities will use this online tool to examine their institutional aid policies, and shift more resources to need-based financial aid.

Federal and state policies could incentivize colleges and universities to move in this direction. For example, the U.S. Department of Education could require colleges and universities to match all federal Pell Grants by 25% either through institutional scholarships or via tuition discounting. Similarly, states with need-based grant programs could also require a 25% match from colleges and universities for state financial aid. Both of these policy choices will cost colleges and universities, at a minimum because institutions would need to redirect institutional grant aid they currently award based on merit only to also include a need-based component. Progressive states could also allow colleges and universities to count the 25% match through the provision of dedicated student support services for all need-based federal and state grant aid recipients. These types of policy incentives push colleges and universities to pay attention to affordability for students. This policy stick of requiring institutional aid matches could be softened by performance-based funding policies, if such policies rewarded colleges who increased student retention and completion for need-based grant recipients.

College enrollments are becoming increasingly diverse – with more low-income and first-generation students in the pipeline. These students need affordable options. There are many policy solutions that can drive colleges and universities to prioritize affordability – including increased state and federal investments that could make the first two years of college free. An interim approach is for colleges and universities to provide more institutional grant dollars for need-based financial aid to support low- and middle-income students – many of whom are academically talented.

Derek V. Price