Sticking it to students

New England Journal of Higher Education, The, Fall 2003 by O'Toole, Chuck

A New Losing Formula for Financial Aid Eligibility?

Thanks to some quiet accounting this past spring by the Bush administration, recession-crunched families across the country suddenly could have more money to spend on education and less need for financial aid. At least on paper.

The minor miracle took shape in May when the U.S. Department of Education proposed its annual revision of the Expected Family Contribution (EFC) formula. The EFC is a complex calculation that determines a family's eligibility for federal financial aid.

Much like the federal income tax, the EFC calculation includes an exemption to allow for state and local taxes paid. This exemption varies by state. This year, for the first time in almost a decade, the department proposed reducing that exemption nearly across the board-in some states, by 50 percent or more. Consequently, parents filing for aid for September 2004 would appear to have higher after-tax incomes than they would have had a year earlier.

Why the proposed changes now? Federal law mandates a periodic re-evaluation of the state tax exemption using "the most recent reliable data available" according to Education Department spokeswoman Jane Glickman. This year, she says, the most recent reliable data on state tax rates came from fiscal year 2000, the peak of the Internet boom and state tax-cut enthusiasm. The lower exemptions reflect the lower taxes of that period-and ignore the subsequent economic downturn.

The trouble is that many states are now raising taxes to cover budget shortfalls. If current trends continue, most families will pay more in taxes, have less money to put toward education and need more financial assistance to send their kids to college than they did before. But that aid may not be coming under a new EFC formula.

A study released in July by the Congressional Research Service projects that the revision could render 84,000 students ineligible for Pell Grants and other types of need-based aid. Nearly 1 million more would see reductions in grant awards.

As CONNECTION went to press, the Senate passed an amendment to a large appropriations bill that would effectively block the formula change. But no similar provision was included in the House version of the bill. And the Bush administration was expected to lobby House-Senate conferees to keep the formula change intact, in part because the Education Department has already reprogrammed computers and reprinted forms to reflect the new formula; doing that over again could delay the entire student aid process.

Glickman says the reductions would mostly affect middle-class students who receive the minimum assistance. "This program is intended for the poorest students," she says. By limiting eligibility for aid, Glickman argues that the changes would refocus federal aid on the lowest-income groups. Furthermore, the department will pay out more money overall in grants and loans as the college-age population swells in the next several years.

But anyone who pays state taxes would feel the effect of a re-jiggering, and as always, the college aspirations of low-income students would be most threatened. "It's already difficult for [low-income] students to piece together enough resources to pay for college," says Arturo Iriarte, executive director of the Higher Education Information Center, a nonprofit college awareness program housed in the basement of the Boston Public Library. "A lot of students who would like to attend a particular institution wind up strapped with thousands of dollars in loans."

The changes would cut upwards of $270 million in government spending on student aid. Given the enormous tax cuts and military expenditures of the past three years, some education observers feel the cuts reflect the deeper priorities of the Bush administration.

"This administration is not particularly interested in higher education," says Thomas G. Mortenson, an independent higher education analyst and senior scholar at the Pell Institute in Washington, D.C.

Mortenson sees the proposed changes as part of a long pattern of broken promises and neglect of need-based financial aid programs. For example, Bush promised in the 2000 campaign to increase the maximum Pell Grant award from its limit then of $3,125 to $5,100, and to increase that maximum still further for high-achieving students. But since taking office, Bush has opposed much more modest increases proposed by Congress. Relative to tuition, the grants are worth less than half what they were when the program started in 1972.

Seen from that perspective, the EFC changes may amount to salt in the real wound, which Mortenson says is the long-term public divestment from financial aid for low-income students. "A growing share of the future population in higher education is coming from low-income populations," says Mortenson, "but on all levels-federal, state and private-we are moving away from need-based aid for these groups".

Chuck O'Toole is a writer and member of the NEBHE staff.