Unfair Advantage?

Elite private colleges say they will fight to protect federal aid that other institutions want for needy students

At Carleton College, even the neediest students are pretty fortunate. Not only

does this pricey liberal-arts college offer a top-notch education (some here dub it the Harvard of the Midwest), but it also ensures that students from low- and moderate-income families can attend without having to take on a particularly heavy debt load.

Carleton is one of only several-dozen selective private colleges that continue to meet the full financial need of every student that they admit, after taking into account the expected contribution from families.

The college can do this, in part, by spending more than $15-million a year of its own money on student financial aid. But Carleton officials point to another source of money that they say is vital for helping them meet their mission -- the generous support the college receives each year from the federal government’s campus-based student-aid programs.

The campus-based programs -- College Work-Study, Perkins Loans, and Supplemental Educational Opportunity Grants -- are intended to supplement Pell Grants for low-income students, and to provide aid for middle-class students who just miss the cutoff for the grants. Unlike Pell Grants, which are awarded directly to students, campus-based aid is distributed to colleges, which add their own dollars to the programs and then give the money to students.

“These aid programs help us ensure that we are able to bring the best and brightest students, regardless of their financial means, to our campus,” says Rodney Oto, Carleton’s associate dean of admissions and director of student financial services.

But if some federal lawmakers and state and community-college leaders have their way, Carleton and similar institutions could see their share of campus-based funds drop significantly.

As Congress begins its review this fall of legislation to renew the Higher Education Act, the law that governs most federal student-aid programs, a big fight is expected over the formula that the government uses to distribute money for the government’s three campus-based aid programs.

Many student-aid experts agree that the programs no longer serve the country’s neediest students very well. A select group of institutions, many of them private and wealthy, have benefited the most from these programs because their funds are divided largely on the basis of a formula set more than 20 years ago, even though college demographics have changed sharply since then, with more low-income students now attending low-cost, public two-year and four-year institutions.

“These funds are being distributed inequitably among schools,” says Mark Kantrowitz, publisher of FinAid, a Web site about financial aid. “The money should go to students with the most financial need.”

Private-college officials insist that they are providing money from these programs to the students on their campuses with the greatest amount of need. Without support from these programs, low-income students would have to go deeply into debt to attend colleges like Carleton, and probably would choose not to enroll. Needy students should not be precluded from attending selective private colleges, where their chances of succeeding are far greater than at two- or four-year public institutions, officials say.

No matter what, say leaders of private colleges, they will not surrender their campus-based funds without a battle.

“It’s going to take a real fight before schools like Carleton let go of this money,” Mr. Oto says.

A Long History

Carleton College and other elite private colleges, and some public flagship universities, have been recipients of campus-based aid since the late 1950s, when Congress created the National Defense Student Loan Program to help train Americans in mathematics and science to win the space race against Russia.

That program evolved into the Perkins Loan program, which helps low-income students. Today the government contributes some new capital each year to the Perkins program; in fiscal 2003, that amount was $167.5-million. A college in the program makes loans to students using its share of the new funds, as well as any money that past recipients of Perkins Loans have repaid to the institution. The loan funds revolve, helping a new set of students each year.

For the 2002-3 academic year, Carleton received $81,256 in Perkins Loan funds from the government, and after combining that with money from its revolving fund, awarded $800,000 in loans to its students. Including outstanding loans, Carlton’s revolving fund is worth close to $7-million.

Carleton has also been an active participant in the two other campus-based programs: Supplemental Educational Opportunity Grants, which go first to Pell Grant recipients who need more money to pay for college, and then to other students with “exceptional need”; and the work-study program, which provides colleges with 75 percent of the cost of employing students in campus jobs. Last year Carleton received about $320,000 in supplemental grants from the government, and about $373,000 in work-study funds.

In the first couple of decades that these programs existed, the federal government set aside money for each state, and regional boards reviewed applications for the funds from colleges, which competed on the basis of the need levels of their students.

But over the years, federal officials grew concerned that institutions with savvy aid administrators, who had the most creative grant-writing skills, were getting much of the money. In the late 1970s, the Carter administration called for a redistribution of the aid funds. Under that plan, which it started to carry out, institutions’ shares, or “base guarantees,” were to be phased out, and all of the money was to be awarded according to need.

In 1980, however, powerful senators went to bat for the high-priced private colleges and public flagships in their districts that were in danger of losing large sums of money. As part of a reauthorization bill, Congress reversed the administration’s action, guaranteeing that the institutions in the programs would get the same proportion of aid money they had received in the past.

There have been several efforts since to redistribute the funds, but they have also failed. As a result, the formula essentially guarantees colleges the same share of aid that they have received from these programs since the 1970s, leaving little money available for two- and four-year public colleges that now enroll greater proportions of financially needy students.

Two-thirds of all money that lawmakers appropriate each year for the work-study and supplemental-grant programs continues to go to the private colleges and public flagship universities that have been in the programs for decades. And Congress rarely allocates enough money for Perkins Loans to cover even the amount guaranteed to colleges already in the program.

No Perkins Loans at Pensacola

At Pensacola Junior College, Robert Parker, the college’s financial-aid director, is not happy with the institution’s allotment of campus-based student-aid funds. Pensacola does not award any Perkins Loans, and Mr. Parker cannot even provide supplemental grants to all those who show the greatest need for aid -- the recipients of the maximum Pell Grant. Pensacola enrolls 13,242 students, and Carleton serves 1,932.

The Higher Education Act requires that aid administrators award supplemental grants first to Pell Grant recipients and provide any leftover money to those they deem to have “exceptional need.”

Among its recommendations for reauthorizing the act, the Consortium on Financing Higher Education, which represents 31 elite private colleges including Carleton, is asking Congress to “not restrict the awarding” of supplemental grants to those with exceptional need.

Mr. Parker says that this recommendation shows how unfair the current allocations are. While community colleges struggle to meet the needs of the lowest-income students, more-affluent institutions are looking to make use of all of the campus-based aid money that they have. “Unless a lot more money is made available,” Mr. Parker says, “this program should remain focused on helping the neediest students.”

Carleton’s Mr. Oto says that he understands the concerns of aid administrators like Mr. Parker. “The formula was designed years ago, and the student populations have changed,” he says.

Still, he says, Carleton is devoting the federal aid it receives to the students who need the assistance the most. For example, two-thirds of the students who receive supplemental grants from Carleton come from families earning $40,000 a year or less.

The best way for Congress to spread the campus-based aid money more widely, he says, is for it to provide larger annual appropriations for these programs.

But with the Congressional Budget Office projecting the budget deficit to exceed $400-billion this year, even the most optimistic college lobbyists are not expecting the Republicans in the White House or Congress to rally behind proposals for a large infusion of money into the student-aid programs.

Realigning Programs

Despite failed efforts in the past to overhaul the campus-based aid formula, Republican leaders of the education committee in the U.S. House of Representatives are sending a strong signal that they will make that one of their top goals when they draft legislation renewing the Higher Education Act this fall.

In outlining their main priorities for reauthorization in July, Reps. John A. Boehner of Ohio and Howard P. (Buck) McKeon of California said they intend to “realign” the federal student-aid programs to “ensure fairness” for low-income students and their families.

“A declining share of federal resources are being devoted to low-income students striving for the dream of a higher education,” the lawmakers wrote in a news release. “Reauthorization provides Congress with an opportunity to realign student-aid programs to ensure that they are fairly administered and meeting their fullest potential to serve students in need.”

If these lawmakers do choose to take on the campus-based formula, they will probably have a key ally in Rep. George Miller of California, the ranking Democrat on the House education committee, who has expressed frustration with the programs in the past.

In 2001, Reps. McKeon and Miller joined forces to lead the California delegation in providing additional campus-based aid to California State University’s Monterey Bay and San Marcos campuses, which get only small allotments from these programs.

Any potential change to the formula would have to once again overcome one major stumbling block -- the Senate. The Senate committee in charge of higher-education policy is dominated by lawmakers from New England, who tend to protect the interests of the established higher-education institutions that are so important to their states. Sen. Edward M. Kennedy, the top Democrat on the Senate panel, has fought hard throughout his career to keep the campus-based aid formula in place.

The wild card may be Sen. Judd Gregg, the New Hampshire Republican who leads the Senate panel. Should the efforts of House Republican lawmakers win the backing of the Bush administration, which is likely, Mr. Gregg will be forced to choose between his party loyalty and the colleges in his district.

Most of the leading higher-education associations oppose efforts to realign the campus-based programs. “These programs work well in their current form,” the leaders of the American Council on Education wrote in a letter to the House education committee in January. The letter contained recommendations developed by the council and more than 40 other college groups for reauthorization.

On the other hand, the National Association of Student Financial Aid Administrators is calling on Congress to phase out colleges’ base guarantees by 20 percent each year starting in 2005. In a document outlining its proposals, the association writes that changing the formula and redistributing funds will “reflect more accurately the distribution of student need among institutions.”

A Costly Policy

Some private-college officials say that if their institutions, like Carleton’s neighbor, St. Olaf College, lose substantial amounts of campus-based aid, they may not be able to afford to continue longstanding policies on their campuses that help them to ensure a financially diverse student body.

Katharine Ruby, St. Olaf’s financial-aid administrator, says that the college has managed to continue to meet the full need of every student they admit, despite having a much smaller endowment than Carleton’s.

But the policy is extremely costly, and “it’s getting harder and harder to do.” She says that the campus-based aid funds have been invaluable in helping the college to continue meeting their students’ need.

“If we lose that, that’ll be just another factor in our decision of whether we can continue our policy,” Ms. Ruby says.

Mr. Oto does not believe that losing campus-based aid would stop Carleton from being able to meet its students’ financial needs. But, he says, it would force the campus to significantly raise the students’ level of debt. That in turn, he says, could cause many low- and moderate-income students to reconsider attending Carleton.

Right now the college is able to keep the level of debt of its students fairly manageable.

And not having to take out big loans was one of the factors that made the college so attractive to Heather Hilchey, a Minnesotan who will be a senior at Carleton this fall. Raised by her mother, a social worker, since she was 2, Ms. Hilchey has tried to make the most of her college experience because she was not sure she would be able to afford to go to college right away.

“If I hadn’t been able to get financial aid, I would have had to spend a serious amount of time working, probably at a minimum-wage job, so I could come up with enough money to get myself into some sort of school,” she says.

Ms. Hilchey will leave Carleton with loans totaling about $15,000, almost $3,000 less than the average senior at a private college. And most of her loans are low-cost Perkins Loans. “I’m really glad that I’ve been able to go to a school that is such a good match for me,” she says. “And I’m especially happy that I’ve been able to do it without going broke.”

NEXT: For-profit colleges want a change in a key definition in higher-education law, and more respect.

WHERE THE MONEY GOES

Private-college leaders are expected to fight efforts by lawmakers to change the formula used to allocate money from the government’s three campus-based aid programs--College Work-Study, Perkins Loans, and Supplemental Educational Opportunity Grants. That formula essentially guarantees colleges the same share of money that they have received from these programs since the 1970s, favoring private colleges and public flagships over regional state colleges, community colleges, and for-profit institutions.

Any additional money that Congress appropriates each year for these programs is available to all colleges based on the level of need of their students. Spending on the aid programs has not increased enough, however, to enable many new institutions to take advantage of them.

TOP PRIORITIES FOR PRIVATE COLLEGES

In addition to pressing for continued support for several federal student-aid programs that especially benefit their students, private colleges have made several recommendations to Congress as it reviews the Higher Education Act. Among other proposals, they want Congress to:

• Raise the limits on what students can borrow from the federal student-loan programs, so that they are not forced to borrow more-expensive private loans because they have reached the federal caps.
• Establish a new competitive grant program to help colleges create or improve programs on their campuses designed to increase the persistence and graduation rates of low-income students and others deemed to be at high risk of dropping out.
• Equalize the treatment of college-savings plans when determining need for federal student aid. Currently, different types of college-savings programs receive different treatment under the government’s formula for assessing need. As a result, families in some savings plans are eligible for larger financial-aid awards than those in other programs.
• Maintain a provision in federal law that prevents students at the lowest-cost community colleges from receiving the maximum Pell Grant. Allow students whose Pell Grants have been reduced to make use of the unused funds if they transfer to a four-year institution.
• Create a new competitive grant program to assist groups of colleges in developing collaborative approaches for saving money on their campuses. Such efforts could include establishing arrangements for sharing services or making common purchases.

SOURCES: National Association of Independent Colleges and Universities; Consortium on Financing Higher Education

http://chronicle.com Section: Government & Politics Volume 49, Issue 49, Page A21