The Case for Need-Based College Aid

A couple weeks ago, The New York Times’ Freakonomics blog posted a research study about who gains the most from college. The study, published in the most recent edition of the American Sociological Review, uses demographic, academic achievement, and income data to determine the effect of a college degree on income. Buried in the dense technical study is a significant finding: individuals who are least likely to go to college benefit the most economically from a college degree. It provides, in other words, more evidence that the need-based financial aid the federal government, states, and colleges provide is a worthy investment.

But the new study also turns conventional theory on its head. Conventional thinking among academics is that individuals who are most likely to attend college will benefit the most from college. This is because economists believe that students choose to attend college because they believe that income gains as a result of a college degree will outweigh the cost of college. But authors Jennie Brand and Yu Xie suggest instead that individuals choose to attend college based on a host of reasons of which economic benefit is only one. These can include family expectations, whether an individual’s friends are also going to college, and even how many siblings an individual has.

Instead, Brand and Xie hypothesized that individuals that are least likely to attend college actually base their decision to attend college primarily on economics factors, unlike students that are most likely to attend. Study after study suggests, after all, that a college degree significantly increases an individual’s potential earnings. As a result, it is possible that those that are least likely to attend college benefit the most from college because they have the most to gain.

Brand and Xie tested their hypothesis using two cohorts of data – one from Wisconsin starting in 1957 and one covering the entire country starting in 1979.[1] They used advanced statistical methods to determine each individual’s likelihood of attending college based on a host of variables including race, parent income, number of siblings, parent education, religion, and academic ability. After controlling for other factors, the authors calculated the effect of a college degree on income for men and women in both cohorts based on this likelihood indicator.

The results are impressive. Among the 1979 cohort, men in their 20s and 30s who were least likely to attend college but earned a college degree anyway, earned 30 percent higher incomes than their counterparts that did not earn college degrees. Men who were least likely to attend college also received a greater increase in their incomes from earning a college degree than men most likely to attend – 20 percent. This means that likely college attenders received a much smaller income increase as a result of their college degrees than unlikely attenders. Women in the same cohort who were least likely to attend college benefited 15 percent more from a college degree than women most likely to attend. The 1957 cohort displayed similar patterns – those least likely to attend college benefited the most from their college degree.

These patterns can be explained in some part by the differences in social resources available to those that are most and least likely to attend college. Individuals that are least likely to attend college are also more likely to be low-income and face other obstacles to financial success. As a result, they are likely to continue to be low-income without a college degree. In contrast, students that are more likely to attend college are more likely to be from affluent families and can often compensate for a lack of a college degree by tapping into other resources available to them. As a result, their projected earnings, even without a degree, are higher.

Thus, it seems that the key to helping low-income individuals increase their future earnings is to help remove the economic barriers to college. This is where need-based financial aid like Pell Grants come in. The Pell Grant program provides low-income students with need-based grants for college tuition, making college affordable for students who may have been unable to attend otherwise. In 2009, 7,022,000 students received Pell Grants of up to $5,350.

Congress has made the Pell Grant program a priority during the current economic crisis – the American Recovery and Reinvestment Act provided an additional $17.1 billion in Pell Grant funding for the 2009-10 and 2010-11 school years. But increasing numbers of eligible students are sending program costs through the roof, meaning the program could require $30 billion or more to continue at current grant levels in the coming years.

The federal government, however, can’t do the job alone. States and colleges must also maintain their commitment to financing need-based aid. As a recent Higher Ed Watch post discussed, many public and private colleges are acting at cross-purposes with the government by using Pell Grants to displace need-based institutional aid and free up funding for merit-based aid. These practices draw high-achieving, wealthier students into these colleges and universities while disadvantaging low-income students who stand to benefit the most from a college education. These practices not only reduce the effectiveness of the Pell Grant program, but may also weaken political support for it as federal policymakers grow frustrated that their efforts to help low income students are being undermined.

Financial uncertainty, coupled with increasing reliance on institutions of higher education to train and educate newly unemployed Americans, make need-based aid like Pell Grants more important than ever. Brand and Xie’s study suggests that these programs can play an important role in economic and social mobility at a time when Americans need it most.