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A Bold Proposal
Increasing college access without spending more money

By Donald E. Heller

I often speak with state and federal policymakers, legislators and others about the issue of college access in America. The conversation eventually gets to the question of what can be done to close the stubbornly persistent gaps in college participation in the nation. These gaps, whether comparing rich students to poorer students, or white students to African American and Latino students, are as large today as they were thirty years ago. Many people are looking for a quick and easy answer to this question. And given the budget constraints in recent years, any solution must be one that does not require an infusion of large amounts of new money.

As with most social problems, there is no "silver bullet" for solving the access problem in the nation. Most researchers agree that the gaps are due to differences between wealthier students and those who are less well off in a number of factors: academic preparation received in K-12 schools; peer, community and family influences and support for college going; and college costs and the availability of financial resources to pay for them.

The federal No Child Left Behind (NCLB) act has as its key goal improving the quality of the schooling received by students in the K-12 sector. Many efforts, including the federal TRIO and GEAR-UP programs, as well as those of private organizations, are focusing on increasing the college aspirations of lower-income students.

The problem of financial resources for college is different from the first two issues in an important way. Unlike the more difficult tasks of determining how best to improve K-12 education (witness the debates over the effectiveness of NCLB) and how to increase the aspirations and desire of lower-income students, we have a good understanding of what it takes to solve the problem of paying for college for lower-income students.

A wide and disparate body of research over more than three decades is consistent in finding that poorer students are the most sensitive to rising tuition prices-they are most likely to choose not to enroll, or be unable to enroll, in college as prices go up, and they are most likely to drop out of college if already enrolled. In the absence of low tuition prices, financial aid-and in particular, grants-has been shown to be most effective in getting these students into college and keeping them there.

It is important to understand that not every student from a poor or moderate-income family is confronted by all three of these barriers-poor K-12 preparation, underdeveloped college aspirations, and a lack of financial resources-when they are making their post-high school plans. Some of these students are able to overcome the challenges they face and prepare themselves academically for college and aspire to go there.

A 2002 report of the federal Advisory Committee on Student Financial Assistance, titled "Empty Promises," used data from the National Center for Education Statistics to examine the college participation of students who both indicated that they wished to attend a four-year college and were qualified to do so, "having adequate academic course preparation, grades, and aptitude test scores to meet the minimal entrance requirements of most four-year colleges." The report estimated that there were more than 400,000 students nationally from families with incomes below $50,000 who met these standards and yet were unable to enroll in a four-year college because of financial barriers. More than 160,000 of these students did not attend any college due to these barriers, not even a two-year institution.

Given that the era of low tuition, which predominated in public higher education for most of our history, is gone and most likely will never be seen again, the easy answer of course is to simply spend more money on financial aid. But as described earlier, that is a solution that most policymakers in both the state and federal governments are not willing to embrace. And as state and college leaders rightfully point out, states and higher education institutions have greatly increased their spending on financial aid.

From 1980 to 2002, tuition prices at public and private four-year institutions have increased at almost the same rate: 412 and 414 percent, respectively (in current dollars). While federal grant spending increased only 135 percent in this same period, institutional grant spending increased more than 1,000 percent. State grant spending increased more than 600 percent, but the fastest-growing type of aid in the states is merit aid, which is awarded disproportionately to higher-income students.

So, absent a major infusion of new financial aid funding, can anything be done to address the college financing barriers faced by the hundreds of thousands of students of moderate means? There is a relatively simple solution, one that does not require spending another penny by either the federal government, states or higher education institutions. And while it likely would not resolve the barriers faced by all these students, it would have a substantial impact on improving college access for many of them.

The solution is to require that all state and institutional grants-money already budgeted and being spent, not new funds-be awarded according to financial need criteria similar to those used in the awarding of federal Pell grants. While funding for the Pell program has lagged behind the increases in tuition prices, as noted above, Pell has remained highly targeted to students from families below the median income in the nation.

Data from the National Postsecondary Student Aid Study, a nationally representative survey of college students conducted in the 1999-2000 academic year, show that 97 percent of Pell grant funds awarded by four-year institutions to traditional-aged college students went to those from families earning below $45,000 annually, or approximately the median family income in the nation.

The targeting of state and institutional grants is quite different from that of Pell grants, however. In that same year, these four-year institutions awarded more than $8.5 billion in grants to undergraduates, and 64 percent-$5.5 billion-was awarded to students from families with income above $45,000. In addition, $800 million in state grants (38 percent of the total) went to these higher-income students. Thus, more than $6 billion in grants were awarded to students whose families were too wealthy to qualify for Pell grants.

This $6 billion, if redirected to Pell-eligible students already attending college, would double the total amount of grant aid they received. Alternatively, all or some of this money could also be used to promote the college participation of the 400,000 students from low- and moderate-income families whom the Advisory Committee found could not afford to enroll in a four-year college. And all of this could be accomplished without adding a single new dollar to the financial aid pool.

But what about the wealthier students from whom the grants were taken? Would the increase in their net cost of attendance cause them to drop out of college or not enroll in the first place? The research tells us that very few of them would respond in this fashion. These students tend to have what economists call a low price elasticity; in simpler terms, their college participation is much more resilient in the face of price increases.

Some may argue that using median income is too harsh a cutoff point, that middle-income students still deserve some grant support. We could increase the cutoff to $65,000-or approximately 150 percent of median income-and still increase the amount of grant aid available to Pell-eligible students by 63 percent, or $4 billion.

Others may argue that it would not be fair to take away all the grants going to students above the cutoff point. A compromise that would redirect just half of the aid to poorer students would still generate $3 billion in new grant aid using the median income cutoff, or almost $2 billion in new aid using the $65,000 cutoff. Two billion dollars would provide enough funds to award a Pell grant of $4,050 (the current maximum) to every one of the 400,000 students identified by the Advisory Commission as being priced out of a four-year college.

It is unlikely that this change would occur if states and higher education institutions were left to their own devices. Merit aid programs, which award their grants disproportionately to higher-income students, have proven to be extremely popular in the states and are the fastest-growing form of state aid. Merit aid is also growing faster than need-based grants in colleges and universities. The competitive environment faced by many institutions has encouraged them to use financial aid for enrollment management purposes, rather than to promote access for needy students. All the jawboning in the world is unlikely to change the recent trend of awarding more and more grants to higher-income students.

The best way to implement this program would be to use a "carrot" approach as a means of encouraging institutional behavior. Six years ago, in their book, "The Student Aid Game," economists Michael McPherson and Morton Owen Schapiro suggested a new "piggyback" Pell program that would award additional federal grant dollars to students attending institutions that pledge to meet a substantial portion of the financial need of Pell-eligible students.

But in the current policy environment that dominates Washington, it is unlikely that Congress will commit significant new funding for federal grants. If the carrot is not available, then Congress could use the stick by requiring that to participate in the Title IV student aid programs, which provide Pell and other federal grants and guaranteed loans, colleges and universities would have to agree to award all or a significant portion of their own aid using the same financial need criteria used to award Pell grants.

Any proposal by Congress to move in this direction is likely to be met with an outcry from higher education institutions and their membership organizations in Washington. Shouts of "institutional autonomy" and "don't tell us how to spend our own money" will be heard up and down the halls of the Capitol. But Congress does have the legislative authority to make such a change if it so chooses.

As with most other policy proposals, this one could have unintended consequences. With less control over how they can spend their own institutional grant dollars, colleges and universities may cut their spending on financial aid. Alternatively, they may choose to raise tuition even higher, in order to generate more tuition revenue that can be recycled as grant dollars to replace some of those redirected away from the higher-income students. But as long as a significant proportion of this increased grant spending is targeted at lower-income students, this might actually help increase college access.

Accomplishing the redirection of state aid is a bit trickier. The Higher Education Act provides the federal government with no direct authority over state aid programs. States would have to be encouraged to reverse the trend toward non need-tested merit aid. This could be done by implementing income caps on these programs, which would allow them to still reward "merit" as defined by each state while ensuring that the grants are awarded to students who need the money to be able to attend college.

I spend enough time researching and engaging in higher education policy discussions to know that it will be difficult to garner political support for this proposal. But the crisis in college access for lower-income students identified by the Advisory Committee on Student Financial Assistance calls for bold action.

If constrained resources make it unlikely that large new sums of money can be made available for targeted aid, then it is time for the discussions about financial aid policy to examine other alternatives that can help needy students attend college. The debate will likely be emotional, difficult and potentially divisive, but it is a conversation in which this nation needs to engage.

Donald E. Heller is Associate Professor and Senior Research Associate in the Center for the Study of Higher Education, at The Pennsylvania State University.

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National CrossTalk Fall 2004



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