The Gap in College Opportunities for Low- and Moderate-Income Students: Multiple Approaches to a Persistent Problem
by Sandy Baum - May 05, 2006
Creative approaches are required to narrow the persistent gaps in college enrollment and success rates across income levels. The growth in tuition levels must be slowed, both through adequate public funding and through increased campus efficiencies. Student aid dollars must be augmented and must be targeted on those who need them most. But these solutions will not be adequate to narrow the gaps in educational attainment across socioeconomic groups without significant simplification of the process, clear early assurances of the availability of funding, and improved understanding of the importance of the investment in higher education for individual students, including a better understanding of the role of student debt.
The educational opportunities of many capable students with severely limited financial resources are diminished by a combination of insufficient funds; inadequate information both about available assistance and about the potential benefits of a college education; and low levels of expectations, aspirations, and academic preparation. Despite years of effort, billions of dollars in financial aid, and multiple policy approaches, students from families in the lower half of the income distribution are far less likely than those from the upper half to enroll in college and, if they do enroll, to persist to earn a degree. What can be done to narrow these gaps in educational opportunity?
It is easy to argue that the concrete financial barriers to higher education result from tuition and fees rising more rapidly than available student aid combined with student and family resources. Therefore, the policy solutions lie in slowing tuition inflation and increasing the availability of grant aid. Surely efforts in these directions are, have been, and will continue to be vital. But there is little hope that the problems facing low- and moderate-income students will be solved in such a straightforward manner in the foreseeable future. More creative approaches are necessary.
Published tuition and fee levels have grown rapidly in recent years. But this is not a new story. Between 19951996 and 20052006, tuition and fees at private four-year colleges grew 37% beyond the rate of inflation. The rates of growth were 54% at public four-year institutions and 30% at public two-year colleges. Yet private four-year and public two-year tuition grew more rapidly in percentage terms during the preceding decade, and the published price of public four-year colleges rose 55% in inflation-adjusted dollars between 19751976 and 19851986.
Moreover, it is the net price of college, after considering grants and other gift aid, that is most relevant to affordability. And the net price of college has risen more slowly over time than the published price. On average, full-time students enrolled in public two-year colleges receive about $1,800 per year in grants and tax benefits. Those attending four-year colleges receive an average of about $3,300 in the public sector and $9,600 at private institutions (The College Board, Trends in College Pricing, 2005).
Averages, however, are not always helpful for individual students. The financial aid system has evolved into a complex set of rules, regulations, and programs with an application process that is difficult to navigate, eligibility rules and funding that are unpredictable, and inconsistencies that are impossible to defend. Simplifying the aid system and providing clear assurance to students long before they graduate from high school that adequate funding will be available may be the most important immediate steps towards narrowing the gaps.
Another strategy that does not require significant funding increases is improved targeting of aid dollars. In recent years the federal government, states, and institutions have all increased the proportions of their student aid dedicated to goals other than improving access. The federal government spends about 60% as much on income tax credits and deductions for higher education as on Pell Grants. The tax benefits are important to middle- and upper-income students, but they dont reach the lowest-income students. The new Academic Competitiveness and SMART grants, although limited to Pell Grant recipients, are likely to leave the neediest students with awards that are significantly smaller than those received by others with more available resources. State grant programs now award about a quarter of their funds on the basis of academic merit, without regard to financial need. And many colleges and universities, in both the public and private sectors, are using growing portions of their limited grant dollars to influence the choice of institutions among desirable students rather than to subsidize those who are otherwise unable to afford to enroll.
The dollars used to influence the choices of individual students are part of a self-defeating competition among institutions. In a world without anti-trust constraints, it would behoove colleges to agree on a plan to end these battles and to redirect their aid dollars towards increasing access and choice for low- and moderate-income students. Working to make the anti-trust regulations more compatible with the interests of disadvantaged students would be a valuable long-term effort. Meanwhile, individual institutions must reaffirm their commitment to educational opportunity and make that commitment the foundation of their student aid policies.
No matter how well-designed our student aid policies and no matter how much the tuition spiral might be slowed, students and families will struggle with college financing so long as they do not have adequate information and a clear understanding of the importance of higher education. The role of student debt is only a piece of this picture, but it is an important piece. Even students living at home with their parents and enrolled in low-priced colleges must sacrifice labor market earnings in order to devote time to education. Excessive work can interfere with academic success, so borrowing is frequently a wise decision.
For those facing higher living costs and higher tuition levels there is even less chance that student debt will cease to play a major role in financing in the foreseeable future. Policy makers can mitigate the burden of this debt by subsidizing interest rates and by designing appropriate income-contingent repayment and loan forgiveness programs.
Part of the responsibility, however, lies with those parents who can afford to plan and save more than they currently do and with students whose future earnings make it entirely reasonable for them to shoulder a significant part of the cost of their own education. Adults between the ages of 25 and 34 with bachelors degrees earn an average of over $14,000 a year more than those with only a high school education. Even allowing for taxes and the time-value of money, this earnings premium makes the typical debt levels of about $20,000 a year facing recent four-year college graduates appear quite reasonable. There are surely students who borrow excessive amounts as undergraduates, too many who do not complete degrees, and those for whom the degree does not pay off so well financially. But it is hard to believe that a negative attitude towards debt and a lack of understanding of the value of the investment in higher education is not exacerbating the perceived burden of student debt. Policy makers and higher education officials should engage more actively in providing students and potential students with a clear understanding of the justification for borrowing for education and of the criteria for judging both appropriate levels of borrowing and the best sources of loans with favorable terms.
The growth in tuition levels must be slowed, both through adequate public funding and through increased campus efficiencies. Student aid dollars must be augmented and must be targeted on those who need them most. But these solutions will not be adequate to narrow the gaps in educational attainment across socioeconomic groups without significant simplification of the process, clear early assurances of the availability of funding, and improved understanding of the importance of the investment in higher education for individual students.