Clearing up the confusion about financial aid - college costs

USA Today (Society for the Advancement of Education), Sept, 1994 by Michael A. MacDowell

WHEN TWO airline passengers, in adjoining seats, discuss what they paid for their tickets, it isn't unusual for each to find that the prices were significantly different. While students at colleges and universities may not yet be comparing the net price they paid for tuition, their parents most probably are. Just like seats on the same flight, the net cost of tuition, room, and board varies for different students at the same school. Confusion and frustration abound for good reasons.

At the heart of the confusion is the issue of financial aid: Where does (and will) it come from, who gets it, and why? These are important questions on every campus today, made even more compelling by the failure of Federal and state aid promised--but never delivered--to meet students' soaring financial aid needs.

Financial aid takes three basic forms: out-right grants or scholarships, short- or long-term loans, and student work-study. Financial aid may come from Federal, state, institutional, or private sources.

The amount of an award may be based on demonstrated financial need or the individual's "merit" as an outstanding student or athlete.

A generation ago, student aid was relatively straightforward. Economically disadvantaged students received Federal grants, low-interest loans, and/or subsidized campus jobs. At most colleges and universities, the impact of Federal funding, while available, was limited. In the late 1970s, the Middle Income Student Assistance Act was passed, providing additional grants and, more importantly, low-interest loans for non-economically disadvantaged students. During the next decade, the amount of Federal grants to students would peak and then begin to erode rapidly.

For example, at Cornell University in 1976-77, Federal funds provided seven percent of the grant aid to undergraduates. Following the adoption of the Middle Income Students Assistance Act, Federal support rose to just under 28% of grant aid by 1980-81. By 1992, Federal grants had fallen back to 11.6%. The case was similar at Hartwick College, a small, liberal arts school 70 miles from Cornell in the Catskill Mountains. In 1976-77, Hartwick received 13% of its financial fund grants to students from Federal sources. By 1980-81, that had increased to 23%, but fell to nine percent in 1992-93.

The history of state support for financial aid is similar, with one huge exception--the subsidy of public institutions of higher education. Depending on the state, public funds pay between 40 and 90% of the cost of attending a state college or university. States also provide direct financial aid to students enrolled in their own public colleges and universities, as well as to those in private institutions.

State financial aid support for private institutions is not new. Direct support for students in New York began as early as 1913, when the state established its Regent Scholarships and made them available to students for use at any institution. A Scholar Incentive Program was introduced in the 1960s, and the Tuition Assistance Program, its 1974 successor, was designed to "help to assure that [New York State students] were not deprived of a meaningful choice between private and public education." Others such as the Higher Education Opportunity Program gave special and significant financial aid to minority students. Many states have similar initiatives such as Illinois' Monetary Award Program, as well as self-help financial aid including work-study, which allows students the opportunity to work on campus for a modest wage.

Federal and state financial aid programs grew rapidly through the 1970s, reaching a crescendo in the early to mid 1980s. Since then, that support has all but evaporated, forcing many colleges and universities to dip deeper and deeper into internal resources to cover increasing costs. For example, Cornell University's institutional funds provided 55% of students' grant aid in 1976-77, but by 1980-81 only had to cover 40%. Today, this figure has increased to 63%.

The net result of recent and significantly diminished support from state and Federal sources for individual student financial aid has been twofold. First, colleges and universities find that, at the margin, increases in tuition yield ever-smaller net revenues. At Hartwick, for every $100 increase in tuition, $35 must be spent on financial aid. At Cornell, for every $100 increase in tuition and fees, about $37 goes for increased student aid.

Second, it has become increasingly difficult for families to plan adequately. The recent recession-induced family financial crisis was intensified to some degree by increases in college tuition. A student generally learns in early spring what his or her education will cost for the following fall semester. The general inability to forecast the net cost of college more than 12 months in the future makes it difficult for families to plan.

Planning is just as difficult for colleges and universities. A school that commits to a budget in January may find in the height of the spring admissions season that its actual needs for financial aid are 25-50% higher than originally anticipated. The result has been that even the best long-run financial plans at colleges and universities can be upset by situations far beyond their control.