When Work Doesn't Pay

Financing a college education isn't easy for anybody these days, but it's an especially Herculean task if you're a working-class student living paycheck to paycheck. The obstacles to attending college are high, and the more you have to work to support yourself and your family, the less help you can expect to receive from the government in paying for college.

A new study by The Institute for Higher Education Policy (IHEP) "College Access for the Working Poor: Overcoming Burdens to Succeed in Higher Education" highlights the barriers to college facing working-class students. "For individuals from working poor families those whose wage earners are an active part of the workforce but are often unable to meet basic economic needs postsecondary opportunities remain largely elusive," the report states.

According to the IHEP report, colleges typically fall $4,300 short when trying to meet the full financial need, as determined by the federal government, of students from blue-collar families. In addition, "one of the key challenges working poor students face is the inability to rely on their parents for much financial support." As a result, many of these students are forced not only to cover their unmet financial need, but the amount that their parents are expected to cover as well.

While dependent students from working class families have it tough, the report states, independent, adult working-class students who may be supporting families of their own have it even rougher. "Despite working long hours to provide for their families, their incomes still teeter on the brink of poverty, they understand that enrolling in college and earning a degree will help them improve their skills and increase their earnings potential," the report states. "However, given their work and other responsibilities, it is difficult for them to enroll full time, thus making it harder for them to receive financial aid and complete the classes necessary for a degree."

One of our pet causes at Higher Ed Watch is bringing attention to the role that the federal financial aid system plays in reinforcing barriers that keep students from working class families and working poor adults from attending and persisting in college. As we've stated before, the only thing we hate more than the wasteful diversion of billions of taxpayer dollars each year in unnecessary student loan bank subsidies is the federal financial aid work penalty. There is a reduction of 50 cents in federal financial aid for every dollar a student earns above a certain minimal amount over the course of a calendar year. That's self-defeating. We should reward students working their way through college, not penalize them.

For those unaware of the subterranean world of financial aid need analysis, here's how the federal government penalizes students trying to work their way through college. In the 2005-06 school year, a dependent student could only earn up to $2,550 without seeing a reduction in their maximum Pell Grant award, which at the time was $4,050. Every dollar above that amount would result in a 50 cent decrease in their grant. As a result, a dependent student who earned more than $10,000 wouldn't be eligible for any grant aid.

Independent students are also hurt by the work penalty. As of 2005-06, independent students without children could earn up to $5,790 and still qualify for a maximum Pell Grant. Some student-aid experts, like Sandy Baum of the College Board, have said that it is especially unfair that the government assumes that independent students with families can devote half of their earnings above the caps for college expenses. In a 2006 report for the Lumina Foundation, entitled "Fixing the Formula," Baum argued that this "consficatory" assessment rate "unfairly discriminates against those who are forced to work long hourse because they have no other financial resources." We agree.

What, then, can be done to solve these problems? Well, higher education bills that are currently before Congress move in the right direction. A budget reconciliation bill that passed last week in the House, would would raise the earnings exemption for a dependent student to $3,750 and to $6,690 for independent students by the 2012-13 school year. Legislation that will soon come before the Senate calls for more significant increases. That bill would increase the dependent limit to $6,000 and the independent limit to $9,330 by 2012-13. And the Senate bill would also increase to $30,000 from $20,000 the amount of income that a dependent student's family could earn and automatically qualify for the maximum Pell Grant.

But more needs to be done. Congress could and should reduce the 50 percent assessment rate on student earnings up front, particularly for adult students, as Ms. Baum suggests. Congress should also consider making it easier for dependent students who are entirely self-sufficient to qualify as being independent of their parents, and therefore be eligible for greater amounts of federal financial aid. Currently, students must be 24 or older, married or a parent, or a soldier on active duty, among other conditions, to be considered independent.

IHEP steps up to the plate with their own recommendations, such as making higher education tax credits refundable and counting college attendance under the welfare work requirements. Both the Hope and the Lifetime Learning Tax Credits are currently nonrefundable. This means that the credit you take cannot be more than your overall tax burden. IHEP suggests that working poor families should receive the difference between their tax burden and the maximum credit.

Under the 1996 Temporary Assistance for Needy Families program, more commonly known as welfare, recipients of TANF aid have to work 20 hours a week or else risk losing their benefits. This adds another burden for working poor who would like to enroll in college but can't because they would lose their benefits. Allowing even a fraction of their college attendance to count toward TANF would mean these students could work less, finish their degrees quicker, and increase their incomes so they would no longer need welfare. Such a move is not without precedent vocational classes already count toward the work requirement.

Admittedly, these are all relatively small steps within the existing financial aid system paradigm. At some point there needs to be a broader rethinking of the structure of our system of higher education finance. Maybe we should be look to these folks for bold ideas. In the meantime, we welcome the input of others. The American Dream is every student's birthright.