Who’s to Blame for College Financial Aid Shortfalls?

by Fred Siegmund

The Education Trust, a nonprofit advocacy group, recently released a report titled “Opportunity Adrift” that criticizes the financial aid practices of public universities. The report used data from 2003 to 2007.

The report accuses public research universities of increasing the amount of aid to students whose parents make at least $115,000 a year by 28 percent (to $361.4 million).

It also reports that public colleges routinely award as much in financial aid to students whose parents make more than $80,000 a year as to those whose parents make less than $54,000 a year.

Apparently, public universities do have authority to favor the neediest students over those who are better off, but if tuition is going up at a faster rate than the maximum than government-based financial aid, then students of modest means will be crowded out any way.

Posted in-state tuition at the University of Virginia in the 2002-2003 academic year was $4,595; in 2008-2009 it was $9,505. That amounts to an annual compounded rate of increase of 12.88 percent.

Virginia is not alone. At the University of Arizona, the increase over the same years was 14.23 percent; at University of California-Berkeley it was 10.52 percent; at the University of Colorado-Boulder it was 12.63 percent and so on.

Federal Aid Isn’t Keeping Up With Tuition Costs

Federal financial aid comes primarily from grants and loans and is not keeping pace with the inflation in college tuition. Grants are the best form of aid since they do not have to be paid back, but they have yearly upper limits.

From 2003 to 2007, the top Pell grant award was frozen at $4,050, but went to $4,731 for 2008. If it was keeping up with inflation as measured by the Bureau of Labor Statistics education price index, one component of the Consumer Price Index, it should have been $5,832 by 2008.

But the price index comparison doesn’t measure the short fall of funding in the years 2002-2008. In the 2002-2003 academic year at the University of Virginia, a Pell grant covered all but $545 of tuition ($4,595-$4,040). In 2008, the gap of funding was up to $4,774 ($9,505-$4,731).

The more grants in aid fall below tuition, the more difficult it will be for prospective students from moderate income households to finance their education.

In the period from 2003-2007, wages were not keeping up with inflation either. Federal student loans have limits and Congress raised interest rates during the years of the study.

Can Lower Income Applicants Even Afford Tuition?

Looking at it this way, we shouldn’t be surprised that state universities are channeling more financial aid money to higher income applicants because we suspect they have fewer lower income applicants who can afford to fund the rest of their tuition.

It also suggests that the problem is the federal financial aid program, not that of the state universities.

But there is reason for optimism: the Obama administration has increased the Pell Grant maximum to $5,350. Of course, we shouldn’t ignore the policies of state universities in directing their financial aid, but the first place to look for problems is at federal financial aid.

About the author: Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com

{ 1 comment… read it below or add one }

Adam@RabbitFunds February 16, 2010 at 8:50 pm

Interesting article. Have you read “America, Welcome to the Poorhouse” by Jane White? She firmly asserts that the government, and therefore taxpayers, should be covering the cost of tuition. I disagree with much of what she recommends but I think she does a decent job of explaining some of the issues that caused us to be in the college tuition situation we are in. I personally believe that parents need to more proactively save for college.

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