Guest Post: A Better Solution for Campus-Based Aid

By Rupert Wilkinson

The Bush administration has repeatedly called for simplifying the federal student aid system by eliminating two of the main “campus-based” aid programs, which provide colleges with federal funds for needy students that they allocate themselves. Under the administration’s plan, funds from the Supplemental Educational Opportunity Grant and Perkins Loan programs would be transferred into expanded Pell grants, the government’s main source of grant aid for low-income students.

A better solution would be to restructure the campus-based aid programs so that they do a better job of leveraging college support for students who are promising but disadvantaged.

In America’s decentralized higher education system, the ultimate responsibility for meeting (or not meeting) student financial need lies with the college itself. Outside an elite band of well-endowed institutions, most four-year colleges do not meet all need — because they are either unable or unwilling to use their own grant aid to fill the gap between the cost of attendance and the family resources and financial aid (including federal loans and a reasonable amount of College Work-Study employment) that students are able to cobble together. Estimating that gap is tricky, but it is the widest for poor students — probably well over 20% of what they need.

Expanding the Pell Grant program won’t close the gap because unfortunately, each added Pell dollar does not necessarily produce an extra dollar for Pell recipients. Many four-year colleges use Pell grants as budget relief, diverting their own aid to middle- and even upper-income students. In fact, at some less selective private colleges, rich students actually get bigger institutional aid awards (in the form of “merit” aid) than poor ones. Of course, this isn’t true at smaller state colleges that don’t offer student aid of their own. But a study of state universities by Michael J. Rizzo and Ronald G. Ehrenberg has found that the these institutions tend to cancel out the value of increased Pell grants by raising their prices.

Instead, what are needed are new federal “student-program” grants to colleges aimed at encouraging them to give more of their own money to low-income students, while recognizing that these students need more than financial aid to help them persist. Colleges would be required to spend a certain proportion of the money they receive on financial aid for low-income students. The rest of the money could then be spent on academic back-up and support services for these students. The academic programs should be especially relevant to disadvantaged students but need not be confined to ‘remedial’ tutoring. They could include, for example, courses in writing and argument that could benefit other students as well.

Funding for these grants would be allocated to colleges based on two criteria: the number of low-income students enrolled and the institutions’ own effort to support them. Allocations, at least for four-year institutions, might be weighted according to the proportion of a college’s total budget spent on institutional aid to Pell Grant recipients.

The new grants would not dry up college aid to middle-income students (who are also the main beneficiaries of federal tuition tax credits). In modern market conditions, affecting public as well as private colleges, the incentive to use some aid to buy advantaged, high-scoring students is not easily dislodged. And many colleges, especially under-enrolled private ones, would continue using aid as a form of price discounting to get more students, needy or not. The new grants, however, would create a counterveiling incentive for colleges to seek more economic diversity.

The grants would have something in common with existing state programs such as New Jersey and New York’s “opportunity” grants, given to colleges for supporting disadvantaged students with financial aid and academic back-up. The “student-program” grants would also fit in well with the new College Access Challenge Grant program, which provides federal matching grants to states for aid and outreach to “underserved populations.” Congress created the program last year as part of the College Cost Reduction and Access Act.

The whole idea of matching grants — giving money to other players in return for their own contribution — is an old tradition in America. With the exception of the GI Bill, almost all federal student aid until the 1970s was campus-based and involved matching grants. One problem with federal matching grants is how to ensure that the federal funds bring in new, added money that would not have been contributed anyway. On this and other grounds, the new student-program grants could do a better job than the current SEOG program.

To suggest replacing SEOG with this new grant program is to enter a potential bear pit, reopening past acrimony between defenders of the campus-based aid programs and their critics. But that is true of any proposal to terminate or radically revise a federal student aid program. One reason why federal aid programs have proliferated over the years is that each has acquired its own impassioned constituency with supporters in Congress. That makes it easier to add a new program than axe an old one.

SEOG consists solely of financial aid; there is no subsidy to the college for academic programs (the original Pell grant legislation actually provided for that but it was deleted). The supplemental grants are supposed to go to students with “exceptional financial need” and colleges have to give recipients one dollar for every three that they get from the government. But this contribution can include state student aid and outside scholarships obtained by students from private donors. More importantly, as Higher Ed Watch noted yesterday, the grants are allocated to colleges on historical and biased formulas that tend to give the most aid per student to elite institutions (private and public) that have relatively few low-income students.

The future demographics of higher education — involving many more lower-income students — require a new and better targeted campus-based grant program. Not just more money for Pell Grants.

Rupert Wilkinson is the author of Aiding Students, Buying Students: Financial Aid in America (Vanderbilt University Press, 2005), a wide-ranging history of student aid in America, including recommendations for making the programs more equitable. His views are his own and do not necessarily reflect those of the New America Foundation.