For low-income students, getting into college is one challenge — but actually staying in college and graduating is another challenge entirely. Often, the difference between the two milestones comes down to money.
As states continue to cut funding for public colleges, and tuition continues too rise, students are increasingly being forced to fund their education through student loans and — if they’re lucky — family help. But federal aid for students has less and less purchasing power each year, which means that many middle class and poor college students are being left behind.
For example, in 1980, Pell grants covered 77 percent of of the total cost of attending a four-year college. Today, these grants cover only about 30 percent of the cost. A low-income student whose family can’t contribute anything to their education costs would receive $5,195 from a Pell grant — the maximum allowed — which isn’t enough to ensure they can actually finish their education.
This is because the way we determine financial aid makes very little sense. There is no expectation that colleges will ensure costs are in line with a student’s expected family contribution. Meanwhile, tuition and rent vary widely from state to state.
A new report from the Center for American Progress suggests a better way. (Disclosure: ThinkProgress is an editorially independent site housed at the Center for American Progress.) The report’s authors propose we look beyond a dollar amount and consider what that money actually buys students — perhaps by relying on affordability standards like the ones used in Section 8 affordable housing programs and the Affordable Care Act.
One of the reasons it’s been so difficult to talk about reforming the way we handle financial aid is because Americans don’t necessarily see education as a right.
“We don’t tend to think of a Pell grant or other higher education benefits as part of the social safety net or social insurance system in the same way that we would housing or food or health care, and there is certainly reason for that. A higher education is not seen as necessary,” said Antoinette Flores, a policy analyst on the post-secondary education policy team at CAP and one of the authors of the new report. “But more and more, its becoming almost necessary to gain access to the middle class.”
Why the way we currently decide financial aid doesn’t work
Flores said the way the current system works doesn’t make any sense given the high cost of attending college.
Although we use “expected family contribution” to determine students’ financial aid, there is currently no way to ensure the cost of education actually lines up with that. Instead, it can quickly become an unreasonable financial burden — especially compared to what students expect to make once they begin their careers. The lack of protections in place for students with burdensome debt obligations who don’t expect their income to increase quickly enough to pay said debt doesn’t help.
The costs students pay for a higher education are all highly dependent on the decisions of governors, state legislatures, and administrators at colleges and universities. For example, California community colleges are extremely cheap to attend, while universities in New Hampshire are much more expensive, and both grants and federal loans may not be enough to cover the cost of going to school there.
The report argues that, given how much money the federal government invests in higher education, and how greatly students have to rely on the federal government to subsidize their education to fill in the gaps due to lack of state funding, there’s a big incentive to fix this variation.
The federal government has a high stake in where its money goes. When students from low-income families aren’t finishing college because their financial aid wasn’t sufficient to get them through the first semester, the intent behind that aid becomes meaningless. In turn, low-income students are hit the hardest by student loan obligations.
“In higher education, we say ‘Here’s $5,000 and good luck.’.”
When the report authors compared the government’s approach to federal student aid to the way it approaches housing and health care, they found major differences.
“Other sectors in the federal government say this is the price that people face, and this is how much someone can reasonably pay, and the benefit needs to fill that gap. In higher education, we say ‘Here’s $5,000 and good luck,’” Flores said. “The way we provide benefits doesn’t consider expected family contribution and it’s non-binding, right? So the federal government gives students money and then the student can use it wherever and the institution can charge whatever.”
How we could improve the student aid process
Other government initiatives — like the Affordable Care Act and federal housing assistance — offer potential models for how to remedy the current financial aid system.
The ACA, for instance, ensures that low-income families receive tax credits so they don’t have to cover the full cost of their insurance premiums. With Section 8 housing assistance, families aren’t required to spend any more than 30 percent of their household income to pay for rent (according to the median rent price).
Although Section 8 housing assistance is far from perfect — and is not well-funded because it relies on Congress to provide the appropriations each year — the report argues that this approach may be better than what we’re currently doing for students who can’t afford to attend college.
The report offers several suggestions for improving the student aid process so that students aren’t paying outrageous prices for their education if they clearly can’t afford it. For instance, if the federal government set standards for a more reasonable family contribution and relatively little debt, that would be a huge step forward, the report says. It also recommended that the government require that families should be able to afford the price of an in-state public college or university.
Risk-sharing could be another way to keep colleges accountable when the cost of attending college is unreasonable for the economic outcome students are expected to receive. In other words, if students don’t benefit as expected given their choice of study at the school and thus have difficulty paying their loans, the school would lose some of its federal student aid.
The conversation on holding institutions of higher education accountable is opening up thanks to investigations of and activism against for-profit colleges, Flores said.
“What has been going on in the for-profit sector raises awareness that not all colleges provide the same degree of value, and we need to have more awareness of what schools are charging and what the return of investment is,” Flores said. “There is definitely resistance in some sectors to have the federal government more involved in high education, because once they do, they have greater leverage over influencing price.”
A U.S. Department of Education spokesperson responded to ThinkProgress’ request for comment on the CAP report by referring to its effort to make the Pell Grant more valuable. The department plans on increasing the maximum award, and tying it to inflation through 2017 for the first time, in order to “protect and sustain its value for future generations.”
Challenges in implementation
These ideas would make a monumental difference for students, the authors say, but their directives also come with some obstacles.
Flores said that two of the biggest barriers are ensuring states do their job by providing more funding to public universities and getting the appropriations from Congress to prevent more low-income students from relying on an unreasonable amount of money in student loans to finance their education. The report’s authors point out that, as in the case of Section 8 affordable housing, that means many people who need the help will be left out of the equation.
“Because some of these costs can get so high, I think that’s one of the challenges is figuring out how to meet it and ensure that students aren’t so limited,” Flores said. “There is an inherent tension between choice and affordable choices. And by that right now students have unlimited choice and maybe that’s not the best thing but how much should we limit choice?”
“There is an inherent tension between choice and affordable choices.”
There are also challenges that come along with ideas such as risk-sharing, for example, that use financial aid as an incentive to supposedly ensure students can pay back the loans they have taken out. When asked whether universities will avoid disadvantaged students who they think may be a “bad bet,” because they are homeless or a first-generation college student, Flores said there are ways policymakers can try to avoid that possibility. She said the way many states opt for performance-based funding, where they fund universities based on things like graduation rates, show how these sorts of policies could be harmful if they aren’t done the right way.
“If you are providing money specifically based on student outcomes that gives a disincentive to serve certain types of students, but there are ways to work around that,” Flores said. “One way to do that is provide some kind of incentive for institutions to take more low-income or les prepared students … There should be a point at which you’re so low income that you don’t have to pay anything. You should have no additional cost. You should be able to afford a public education and those students wouldn’t be taking on debt.”