Guest Post: A Question of Priorities at Public Colleges

By Sandy Baum

While most discussions of tuition discounting — including those recently appearing on this site — focus on private colleges, it is the policies and practices of state colleges and universities that most deserve our attention. The vast majority of students attend public colleges, which rely heavily on taxpayer funding and have the clear mission of providing educational opportunity for the citizens of the state. The unfortunate reality is that public four-year colleges are directing a significantly smaller proportion of their institutional aid dollars towards meeting the financial need of students than are private colleges.

Almost half of the non-athletic institutional grant aid at public four-year colleges and universities goes to students who do not have documented financial need, or for whom the aid they are receiving exceeds the need they have. In comparison, more than two-thirds of institutional grants are awarded on the basis of financial need at private colleges.

Need-based aid can be defined in a variety of ways. Many people focus on the motivation for awarding discounts. Is the student paying a lower price because he comes from a low-income family, or is she being rewarded for her academic accomplishments? In reality, the most important question is this: Are the discounts that colleges offer being directed towards students whose enrollment would be impossible without the assistance? Or are these discounts subsidizing students who would have little difficulty paying for college without this help – but who might choose a different institution if they were not treated so generously? It is these questions to which these figures refer. In 2006-07, the latest year for which reliable data are available, 54% of the non-athletic institutional grant at public four-year colleges helped students meet their financial need. The remaining 46% did not. At private colleges, 70% of the institutional grants went to meet financial need, while 30% of the funds went to students who could afford to enroll without assistance.

Perhaps it is encouraging to note that six years earlier, the proportion of non-need-based aid at public colleges and universities was even higher – 55%. Unfortunately, part of the explanation for this change is that as prices at these institutions have risen more rapidly than family incomes for all but the most fortunate, a greater proportion of the aid awarded without regard to financial circumstances ends up meeting need. But it is also possible that campus policy makers are becoming more aware of equity issues — and of the reality that without more assistance, increasing numbers of low- and moderate-income students will be shut out.

Public flagship universities tend to have somewhat higher proportions of their discounts going to students with need. This may be because they are more expensive and therefore, students in general have more need, or it could be that they are more dedicated to meeting the need of their students than are other state colleges. Certainly some flagship institutions, such as the University of North Carolina at Chapel Hill and the University of Virginia, are engaged in bold efforts to increase the socioeconomic diversity of their students. On the other hand, it may also be the case that more selective institutions have the luxury of attracting well-qualified students without having to offer generous merit scholarships.

The key issue, however, is that relatively wealthy students are receiving larger public subsidies than their less privileged peers to attend the same public colleges. While we don’t know yet the extent to which such policies are harming college access, we do know that this is an inefficient public policy. In effect, state colleges are subsidizing students to do exactly what they would do at higher prices, or perhaps drawing them into public institutions when they would otherwise pay for private higher education. The funds of taxpayers who themselves have not gone to college – which could be used to provide opportunities to the next generation of needy students – are instead going towards increasing institutional selectivity or making the lives of the more privileged somewhat easier.

It is important to remember that all in-state students enrolled in public colleges, including the wealthiest ones, receive significant subsidies from taxpayers, allowing them to pay tuition and fees that fall far short of the cost of their education. This is entirely reasonable, given the benefits that accrue to all of us from living in a society that has an educated workforce and that provides opportunities for people to attend college regardless of their financial circumstances.

There are also legitimate reasons for providing some financial aid based on academic accomplishments. Perhaps these programs lead students to work harder in high school. Perhaps they increase the quality of the student body and the overall intellectual experience on some college campuses. But in an environment where many students are unable to pay for college, where state budgets are strained to an unprecedented extent, and where many public colleges are unable to accommodate all qualified students who wish to enroll, tuition discounts to the affluent are difficult to justify. Allowing the rich to benefit from the general subsidy is one thing. Consciously allocating the most generous subsidies to the most affluent students is another thing all together. Current patterns of institutional grant aid in the public sector do exactly this.

The policies of private colleges certainly merit examination. But the policies of state colleges raise the most troubling questions. It is time to step back from the competitive pricing policies that have characterized higher education in recent years and articulate clear principles for differential pricing policies at public institutions. Our primary goal should be to provide access to high quality, appropriate postsecondary education for all qualified students. Dollars should not be diverted from those who need them to those who merely want them.

Sandy Baum is an economics professor at Skidmore College and a senior policy analyst at the College Board. She has written extensively on issues relating to college access, college pricing, student aid policy, student debt, affordability and other aspects of higher education finance. She is the co-author of Trends in Student Aid, Trends in College Pricing, and Education Pays: The Benefits of Higher Education for Individuals and Society for the College Board, and of Tuition Discounting: Not Just a Private College Practice. Her views are her own and do not necessarily reflect those of the New America Foundation.