College Affordability

[The New America Foundation's Education Policy Program recently released "Undermining Pell: How Colleges Compete for Wealthy Students and Leave the Low-Income Behind," a report that presents a new analysis of little-examined U.S. Department of Education data showing the "net price" – the amount students pay after all grant aid has been exhausted – for low-income students at individual colleges. This is the fifth in a series of posts related to the report's findings. Read earlier parts of the series here, here, here, and here,]

For generations, states made college affordable for all of their citizens by keeping the prices of their public higher education institutions low. But with more and more states divesting from their public college systems, those days are increasingly in the past.

There has long been a debate in the higher education policy world about the effectiveness and efficiency of states’ historic low-tuition model. Some student aid experts have advocated against this approach, saying that it doesn’t target subsidies effectively because it lowers the cost of higher education for the rich and the poor alike. They have argued that low-income students would benefit more from a high-tuition, high-aid model, in which states and schools devote their subsidies exclusively to those who couldn’t afford to go to college without the help.

The net price data analyzed in Undermining Pell don’t bear this out. In fact, they clearly show that the lowest-income students fare much better in states that have kept the costs of attending their public institutions relatively low.

Take, for example, North Carolina, which prides itself on its low-cost public higher education system. In the Tar Heel State, in-state public four-year college students with family incomes of $30,000 or less paid an average net price of just $5,361 in the 2010-11 academic year — an amount they could cover without even having to take out the maximum federal student loan for which they were eligible.

In contrast, the most financially needy students attending public four-year colleges in Pennsylvania paid an average net price that was more than double that amount: $12,305. And while not a single public college in North Carolina charged the lowest-income students an average net price over $10,000 (the highest being $7,217 at the University of North Carolina at Asheville), more than two dozen public colleges in Pennsylvania did, with 10 charging more than $15,000.

At the state’s flagship university, Penn State, the neediest students pay an average net price of about $17,000.  At the same time, about 6 percent of the school’s first-time freshmen received an average of $3,800 in so-called “merit aid” in 2010-11.

In addition to North Carolina, other low-cost states that stand out in keeping their public colleges accessible and affordable for the lowest-income students include: Wyoming ($5,046), Hawaii ($5,296); Louisiana ($5,549); Florida ($5,979); California ($6,331); and New Mexico ($6,403).

Meanwhile, low-income students who attend public four year colleges face average net prices over $10,000 in 15 states, including high-tuition, high-aid ones such as Illinois ($10,508), New Jersey ($10,599), Ohio ($10,756), South Carolina ($11,476), and Vermont ($10,532).

So while moving to a high-tuition, high aid approach is certainly appealing in a theoretical sense, the net price data show that the policy isn’t even coming close to working as intended.

Check out the map below to see the vastly different amounts that the lowest-income students are paying to attend public colleges in each state:

For more on this issue, check out this post from Clare McCann on our sister blog, Ed Money Watch.

For those who care about increased higher education transparency, the last few days have been a trip through the Congressional looking glass, culminating with yesterday’s introduction of a bill to “study” higher education transparency. On Thursday a bipartisan group of senators and representatives introduced the Student Right to Know Before You Go Act, which would help provide students, families, and taxpayers with answers to critical questions like whether students at particular institutions graduate, whether they get jobs, and whether they can comfortably pay back their loans. A televised discussion among Senators Wyden (D-OR), Rubio (R-FL), and Warner (D-VA), Representatives Hunter (R-CA) and Andrews (D-NJ), students, and guidance counselors underscored the urgent need for better information about higher education outcomes and value.  

It seems pretty straightforward. Students, families, and policymakers have questions. And this legislation would provide answers. But the day after the legislation was introduced, an unnamed senior Congressional education staffer said of the effort, “But a federal unit record system is only designed to answer questions no one is asking, namely: how do we bring No Child Left Behind and its command and control mentality to higher education.”

Let’s ignore the intentionally distracting NCLB reference and instead focus on this doozy: “designed to answer questions no one is asking.” Perhaps the staffer has fallen through the looking glass, because from this side it seems like everyone is asking these questions.

Both political parties spent much of last year’s election cycle talking about the need for better college information for students and families. The GOP platform called for greater transparency around “completion rates, repayment rates, future earnings, and other factors that may affect their (college) decisions.” House Majority Leader Eric Cantor (R-VA) put “making it easier for parents and students to make informed decisions about what type of post-high school education is right for them” on his short legislative to-do list. Representative Virginia Foxx (R-NC), chair of the House Subcommittee on Higher Education and Workforce Training, said at a hearing on college data, “We have so much data, and we seem to know so little. What a tragedy for all the money that we’re spending in this country.” President Obama used his State of the Union to unveil a college scorecardthat provides comparable, easy-to-understand indicators of college value. Organizations that represent business and students, including the Chamber of Commerce and Young Invincibles, have been calling for better information for students and employers.

All of this was just in the past year. But the bipartisan drumbeat for transparency started much earlier. Three years ago, the National Governors Association launched its Complete to Compete initiative, which called for answers to a basic set of higher education outcomes questions. And long before that a commission appointed by former Secretary of Education Spellings “urge[d] the creation of a robust culture of accountability and transparency throughout higher education” in the form of a searchable database.

Congress itself has asked these questions. In 2008 it created a federal advisory committee to recommend changes in how graduation rates and other measures of success are calculated for two-year institutions. The Committee on Measures of Student Success issued its recommendations in 2011, which included broadening whose success “counts” to include part-time, transfer, and other students who don’t fit the antiquated first-time, full-time model. Since we currently have no idea how the students who receive hundreds of billions of dollars in federal financial aid are faring (either in or after college), the Committee recommended counting them, too. The success measures weren’t limited to two-year institutions, and they included post-college outcomes like employment. This Congressionally established committee not only identified the questions, it provided specific recommendations on how to answer the questions.

But despite this rare bipartisan agreement on the need for better data, and on the already-identified ways to get the data, Representative Messer (R-IN) introduced a bill yesterday that would require the formation of yet another commission to conduct yet another study on what college information is needed, or whether anyone needs it.

Where have these folks been for the last seven years? Students, families, taxpayers, and policymakers don’t need another study. They need better information. And they need it now.

Student loan debt has been in the news a lot these days. In the last week, a number of news outlets wrote about mounting student loan debt and the delaying of life events by their borrowers (see ABC News, the Chronicle of Higher Education, CNN Money, the NY Times [here and here], and the Wall Street Journal, to name a few). The article in the NY Times provides a great example of this, "Consider Shane Gill, a 33-year-old high-school teacher in New York City. He does not have a car. He does not own a home. He is not married. And he is no anomaly: like hundreds of thousands of others in his generation, he has put off such major purchases or decisions in part because of his debts."

Yesterday, the New America Foundation's Education Policy Program released "Undermining Pell: How Colleges Compete for Wealthy Students and Leave the Low-Income Behind." Author Stephen Burd reveals a full-fledged "financial aid arms-race" between private colleges and universities, and a burgeoning one among publics as well. Schools adopt a "high-tuition, high-aid” model that allows them to attract wealthy and high-achieving students to boost their rankings with significant amounts of merit aid – money that could have instead been directed to need-based aid for low-income students. That means that the neediest students are left with an impossibly high tuition bill.

Burd uses data, many of which are available through our Federal Education Budget Project database, on Pell Grant enrollment and net price for the lowest-income students at thousands of individual colleges. The analysis shows that hundreds of public and private non-profit colleges expect the neediest students to pay an annual amount that is equal to or even more than their families' entire yearly earnings. As a result, these students are left with little choice but to take on heavy debt loads or to behave in ways that are demonstrated to reduce the likelihood of earning their degrees, such as working full-time while enrolled or dropping out until they can afford to return. Only a few dozen exclusive colleges meet the full financial need of the lowest-income students they enroll. Nearly two-thirds of the private institutions analyzed charge students from the lowest-income families, those making $30,000 or less annually, a net price of over $15,000 a year.

Many private colleges have small endowments, making it extremely difficult for them to provide adequate support to those students with the greatest need. According to the report, the poorest schools are often the ones that enroll the largest share of federal Pell Grant recipients, but they charge these students high net prices because of their own limited resources. At the same time, many of these institutions provide deep tuition discounts to wealthier students to attract those high-achieving students to the school.

This is not just a question of institutional wealth, though. Some of the country's most prosperous private colleges are, in fact, the stingiest with need-based aid. These institutions tend to use their institutional financial aid as a competitive tool to reel in the top – and the most affluent – students to help them climb the U.S. News & World Report rankings and maximize their revenue.

We created an interactive graphic that groups institutions into four categories based on whether they charge low-income students a high or low tuition and whether they enroll a high or low percentage of Pell recipients. We also used data from the Department of Education, FEBP, and The Chronicle of Higher Education to determine the number of endowment dollars available per student.

We can see from this graphic, for instance, that Washington & Lee University enrolls a very low proportion of Pell students (eight percent) and charges the lowest-income students over $14,000 a year in tuition after Pell Grants and financial aid. That’s an average tuition bill of over half of a family’s total income. What's worse is that Washington & Lee has a relatively large endowment of around $450,000 per student. 

While the problem is not as extreme among public universities, it is rapidly getting worse. As more states cut funding for their higher education systems, public colleges are increasingly adopting the enrollment management tactics of their private college counterparts - to the detriment of low-income and working-class students alike.

In many states, public institutions are following the same high-tuition, high-aid model – and in some cases, including in Pennsylvania and South Carolina, the neediest students are facing net prices more than double what they are charged in low-tuition states such as North Carolina. At Penn State University, for example, in-state students attending the university's flagship campus in University Park pay about $16,000 in tuition and fees annually, which is double the average tuition charged at all national public four-year colleges and universities examined in his paper. Despite the fact that Penn State spends nearly $14 million a year on institutional aid, its lowest-income in-state students pay an average net price of nearly $17,000, the fifth-highest of any public institution this report examines. In other words, Penn State's neediest students do not appear to be getting any discount relative to other students at all. At the same time, about 6 percent of the school's first-time freshmen received an average of $3,800 in so-called "merit aid" in 2010-11.

Schools like Penn State seem to be using their pricing autonomy to gain an advantage as they fiercely compete for the students they most desire: the "best and brightest" students - and the wealthiest. These actions fly in the face of national goals to increase access to higher education and help more students earn high-quality degrees.

Over the past several decades, a powerful enrollment management industry has emerged to show colleges how they can use their institutional aid strategically in the pursuit of high-achieving and affluent students. And worse yet, there is compelling evidence to suggest that many schools are engaged in an elaborate shell game: using Pell Grants, the primary source of federal aid for low-income students, to supplant institutional aid they would have provided to financially needy students otherwise, and then shifting these funds to help recruit wealthier students. This is one reason that, even after historic increases in Pell Grant funding, the college-going gap between low-income students and their wealthier counterparts remains as wide as ever.

[Last week the New America Foundation's Education Policy Program released "Undermining Pell: How Colleges Compete for Wealthy Students and Leave the Low-Income Behind," a report that presents a new analysis of little-examined U.S. Department of Education data showing the "net price" – the amount students pay after all grant aid has been exhausted – for low-income students at individual colleges. This is the third in a series of posts related to the report's findings. Read earlier parts of the series here and here.]

Some private nonprofit colleges are making extraordinary efforts to recruit, enroll, and financially assist low-income students. Unfortunately, they are few and far between. Only 53 private colleges, or 11 percent of the schools examined in Undermining Pell charged students with family incomes of $30,000 or less an average net price under $10,000 in the 2010-11 school year. In contrast, nearly two thirds of the private institutions analyzed charged the lowest income an average net price of over $15,000 a year.

Certainly, a substantial number of private colleges have small endowments, making it extremely difficult for them to provide adequate support to those students with the greatest need. Indeed, many of these schools provide deep discounts because they believe they must do so as a matter of survival.

However, there are plenty of private colleges that have the means to enroll a substantial share of Pell Grant recipients and charge them a low price but choose not to do so. These include some fairly prosperous colleges that use their institutional aid as a competitive weapon to attract the students they desire, rather than to meet the financial need of their students.

Many of these colleges follow the same playbook: using so-called merit aid to bring in students that will help them build their prestige and propel themselves up the rankings. And while a number of these generally second-tier schools strive to compete with the most-elite institutions for top students, their endowments, while substantial, tend to pale in comparison. As a result, these colleges often have to rely heavily on tuition dollars to finance their operations, giving them a significant incentive to use their institutional aid to attract full-pay students as well. Meanwhile low-income students who enroll in these schools are generally left with a hefty gap between what the government says they should be expected to pay and what they are being charged.

A Change of Direction at GW

One such “striving” school is George Washington University (GW). For most of its history, the university was a commuter school that primarily served a diverse group of working adults seeking credentials that would help them advance in their careers.

That all changed in 1988 with the arrival of the university’s new president, Stephen Joel Trachtenberg. The former president of the University of Hartford immediately set an ambitious course for the institution: to be the destination of choice for students who didn’t make the cut at the nation’s most selective colleges.To accomplish this, Trachtenberg knew that he would have to make the school much more appealing to an upscale crowd.

Over 19 years, he turned what was a relatively low-cost institution into one of the most expensive colleges in the country and went on a building spree to provide the kind of amenities that wealthier students crave, such as state-of-the-art dormitories and a fancy new student union that won the American Institute of Architects’ highest award. And Trachtenberg opened up the university’s financial aid coffers for the sole purpose of “buying talent,” as he himself has acknowledged. According to a recent profile of the former GW president in The Atlantic, Trachtenberg operated under the philosophy “that students were more interested in attending a $40,000 school with a $20,000 discount than they were in attending a $20,000 school.”

Since Trachtenberg’s retirement in 2007, the university’s leadership has scaled back a bit (there are now nearly two dozen colleges that are higher-priced than GW, after all). But the school remains among the 30 least socioeconomically diverse private colleges in the nation. While 20 percent of GW freshmen receive merit aid, averaging about $18,500 each, only 13 percent of its students receive Pell Grants. GW’s lowest-income students pay an average net price of nearly $15,000, and student loan borrowers at the school graduate with an average debt of about $33,000.

Rising Up the Ranks at Miami

Another school that has had a remarkable rise up the ranks over the past several decades is the University of Miami, which pioneered many of the enrollment management practices that have become commonplace today.

In the late 1980s, the fortunes of the 60-year-old school were flagging. Most people outside the state had not heard of it, or thought of it as a party school that excelled only in college football.Many mistakenly believed it was a giant state school. At the time, the school was admitting about three-quarters of the students who applied.

What was needed, university officials decided, was to bring together all of the separate offices involved in enrollment to make a concerted effort to ramp up the marketing of the school and to do all they could “to improve student quality while maximizing tuition revenue.” This involved recruiting high-achieving students and rewarding them with generous scholarships. It also meant copying the trappings of more-prestigious institutions. “To be considered a top private university, the University of Miami needed to act more like a highly selective private college,” Paul M. Orehovec, the school’s former vice president of enrollment management, wrote in a history he has compiled of the university’s efforts in this area. For example, the school introduced a wait list to make it appear more exclusive than it was, and started a legacy program to give the children of alumni a leg up in the admissions process.

These efforts bore fruit as the University of Miami started to rise through the ranks. But this process accelerated considerably after Donna Shalala, the former Secretary of Health and Human Services, came on board in 2001. Under her leadership, the university became much more aggressive in recruiting top students.

The school, for example, started inviting several hundred prospective students to the campus each spring to compete for the new Isaac Bashevis Singer Scholarships — which cover four years of full tuition, totaling more than $150,000 for those who demonstrate “superior academic achievement and abilities for success.”This “one-of-a-kind weekend” gives these students the chance to “get firsthand information about life as a high-achieving student at the University of Miami.” All they have to do is have a meeting with a faculty member and try to convince that professor they are deserving of the school’s most “prestigious merit award.”

In 2011, the university awarded 67 Singer scholarships. But those who missed out had no need to worry, as they still had a very good shot at winning one of the school’s other merit awards. Overall, around a quarter of University of Miami freshmen receive non-need-based aid, averaging about $23,000 per student.

By the standards that colleges use to judge their performance these days, Shalala’s efforts have paid off big time. The University of Miami has catapulted up the U.S. News rankings — breaking the top 50 for the first time in 2009 — making it a top-tier university in the magazine’s estimation. The average SAT scores of incoming freshmen have risen over 100 points, to nearly 1300. And the university now admits fewer than two out of every five students that apply.

But not everyone has benefited from the University of Miami’s generous merit aid policies. While Pell Grant recipients make up 22 percent of the school’s student body, the school’s lowest-income students pay a hefty average net price of $21,415.

Besides the very richest colleges and some exceptional schools, nearly all private colleges provide generous amounts of merit aid, often to the detriment of the low-income students they enroll. But private colleges are not the only ones preoccupied with prestige and rankings. Public college leaders are also driven to move up the pecking order, and they too have found that the most expedient way to achieve this goal is to chase after the top -- and wealthiest -- students as well. Stay tuned to see how the merit aid game is being playing out at our country’s public universities.

Nearly fifty years ago, the federal government committed itself to removing the financial barriers that prevent low-income students from enrolling in and completing college. Colleges for years complemented the government's efforts by using their financial aid resources to open the doors to the neediest students. But those days appear to be in the past. With their relentless pursuit of prestige and revenue, the nation's public and private four-year colleges and universities are now in danger of shutting down what has long been a pathway to the middle class for low-income and working-class students.

Today the New America Foundation is releasing Undermining Pell: How Colleges Compete for Wealthy Students and Leave the Low-Income Behind, a report that presents a new analysis of little-examined U.S. Department of Education data showing the "net price" – the amount students pay after all grant aid has been exhausted – for low-income students at thousands of individual colleges. The analysis shows that hundreds of public and private non-profit colleges expect the neediest students to pay an amount that is equal to or even more than their families' yearly earnings. As a result, these students are left with little choice but to take on heavy debt loads or engage in activities that reduce their likelihood of earning their degrees, such as working full-time while enrolled or dropping out until they can afford to return.

Nearly fifty years ago, the federal government committed itself to removing the financial barriers that prevent low-income students from enrolling in and completing colleges. For years, colleges complemented the government's efforts by using their financial aid resources to open the doors to the neediest students. But those days appear to be in the past.

Alan Simpson and Erskine Bowles, of the famed Simpson-Bowles commission (officially the National Commission on Fiscal Responsibility and Reform) that the Obama administration tapped to generate ideas to reduce federal budget deficits, are out with a new wide-ranging proposal. Titled A Bipartisan Path Forward to Securing America’s Future, the report was published by the Moment of Truth Project, which is itself affiliated with the Committee for a Responsible Federal Budget, an organization previously housed at New America.

The report includes higher education reforms that they say will create $35 billion in savings through 2023. These reforms mirror some of the ideas outlined earlier this year in the Education Policy Program’s report, Rebalancing Resources and Incentives in Federal Student Aid. Unlike the latest Moment of Truth Project report, though, the New America Foundation report argues that the savings these proposals generate should be reinvested fully in more effective and higher-quality postsecondary education aid. (The Path Forward proposal reinvests most, but not all of the savings into higher education aid.)

One way that Path Forward finds big savings is through eliminating the in-school interest rate subsidy, which defers accrued interest on the borrowers loans until after graduation. This is basically identical to New America’s proposal to eliminate Subsidized Stafford loans.

According to the Moment of Truth Project report, the subsidy is poorly targeted and that money can be better spent by funding the Pell Grant program. The authors argue that income-based repayment is a far better benefit to struggling borrowers, something we made the case for in Rebalancing Resources and Incentives. The deficit reduction report writes:

Another $15 to $20 billion could be generated through a number of more targeted changes such as adopting the President's proposal to reform Perkins loans, lowering Guaranty Agency Compensation Rehabilitation loans, repealing Grad PLUS loans, equalizing loans for dependent and independent students, creating a two-tiered income-based repayment system, and reducing or discontinuing funding for underperforming for-profit schools.

The authors go on to note that such reforms would fix the Pell Grant funding cliff, something we also accomplished in the Education Policy Program report. The authors further note that "by providing mandatory funding to cover much of the projected shortfall in the Pell Grant program, this option would limit the pressure on the Appropriations Committee" to make deep cuts in discretionary programs or to decrease the benefits Pell provides. In 2014, Congress was pleasantly surprised by a Congressional Budget Office estimate that showed a surplus had accumulated in the program over the past several years, permitting lawmakers to flat-fund the program at 2013 pre-sequester levels. Still, costs of the Pell program are expected to increase rapidly over the next several years, demanding a long-term solution.

The report also endorses a proposal first offered by the Education Policy Program’s Jason Delisle. Recently highlighted both in President Obama's fiscal year 2014 budget proposal and in a bill proposed by Republican Senators Coburn, Burr, and Alexander, the plan would interest rates on federal student loans to the rate of 10-year Treasury notes, plus a mark-up. As the commission notes, this addresses the interest rate problem more gradually than a bump from 3.4 percent to 6.8 percent – and it would permanently resolve the annual debate over setting the rates by creating a long-term policy subject to the market, not lawmakers’ whims and political interests.

In the Education Policy Program paper Rebalancing Resources and Incentives in Federal Student Aid, we recommend nearly all of these fixes as part of a larger reform to make federal student aid more equitable and rational. And we did this in a budget-neutral way – that is, we used savings found in some programs to increase funding for other programs, or to create completely new ones. While the new Simpson-Bowles report would use some of the savings to fund the looming Pell Grant program shortfall, the authors would also redirect a portion of the savings to deficit reduction.

Our proposal included a broad array of reform proposals, covering loans, grants, tax expenditures, transparency, and other federal aid issues, and it is meant to be seen as an entire package, not a menu of options, because each component of aid affects the others. We stand by that belief, but we are pleased to see other groups arrive at the same conclusions that we did in reforming the federal student aid system: Policymakers can better spend the significant resources they have already committed to federal student aid programs to benefit students, taxpayers, and other education stakeholders.

For more than 100 years, the time-based credit hour has been the currency of higher education. Originally created to calculate eligibility for Andrew Carnegie’s free faculty pension system, the credit hour evolved to become much more. Entire systems have been built around and upon the time-based credit hour, including the economic lifeblood of many colleges and universities—federal financial aid. But today, the U.S. Department of Education approved Southern New Hampshire University’s (SNHU) College for America (CfA) to be the first program in the country to receive federal financial aid based on “direct assessment” of student learning, rather than the credit hour. This move from the federal government could signal a new era for higher education—one in which we value and pay for learning rather than time.

Southern New Hampshire University, a small, private liberal arts institution, is familiar with pushing the boundaries of what is possible. Over a decade ago, it added a three-year competency-based bachelor’s degree to its regular course offerings. Rather than squeeze four years of “time” into three years through summer and weekend classes, the faculty identified the core competencies students should have upon graduation and then wove those competencies into every course and assignment. By looking at the program holistically, rather than just as a combination of courses, the school was able to eliminate redundancies in the curriculum and focus on what students were expected to learn and do.

A new report from the American Council of Trustees and Alumni and Education Sector, “Selling Students Short: Declining Teaching Loads at Colleges and Universities,” assigns tenure-line university faculty a remarkable amount of blame for the high price of college. As the report states, bemoaning faculty labor costs is common practice among critics of the academy, who frequently assume the single largest university budget category (usually faculty compensation) holds the most fat. To his credit, author Andrew Gillen moves beyond that simplistic assumption and seeks evidence of ineffective faculty spending. In doing so, he tells a compelling and concerning narrative about university products and faculty priorities: the instructional mission of American higher education is being short-changed, particularly for students and taxpayers. Unfortunately, the report’s conclusions ultimately overreach and overshadow its main value—generating greater policy discussion around the costs and products associated with faculty work.

Gillen uses federal data to demonstrate reductions in tenured and tenure-track (TT) teaching loads across institution types, between academic years 1987-1988 and 2003-2004. He provides a cohesive synthesis of factors widely thought to contribute to this outcome, with some emphasis on Massy and Zemsky’s concept of “the academic ratchet.” The academic ratchet explains that as faculty seek reputational prestige and career mobility through increased attention to their research responsibilities, they must, and readily do, decrease attention to instruction and other responsibilities. The report neglects to mention the other half of this framework, (“the administrative lattice”), which explains how administrators enable faculty to restructure their work: they expand their ranks, also at added cost. Data show administrative growth, both in terms of expenditure and added employees, has been prodigious in recent years.