Category Archives: Financial Aid

March 25, 2014

Competency Based Financial Aid

Not long ago, we reported on the Carnegie Foundation’s announcement to reevaluate the Credit Hour unit of academic measure. It has been speculated that the Carnegie Foundation will begin to shift away from time-based measures in favor of competency-based units of learning. While the results of the Carnegie Foundation’s study won’t be expected for years, the Department of Education is introducing pathways for utilizing competency measures in financial aid reward packages.

financial-aid-101Competency-based programs in the US began at Excelsior College (formerly known as Regent’s College). Introduced in the 1970′s to benefit homemakers, returning veterans, and adults looking to further their education, Excelsior offered associate’s degrees based on standardized tests and credit transfer. The model spread to other institutions, and today there are more than 20 schools that currently use or are implementing competency-based programs. These programs can award degrees based on a number of factors including testing, clinical observation, portfolio reviews, and other methods that cater to the field of study under review.

While these programs have been widely accepted, the Department of Education historically had no way of incorporating competency credits into the process of awarding federal financial aid. But on March 19, 2013, the Department of Education announced the amendment of the Higher Education Reconciliation Act of 2005 to allow for the consideration of competency-based direct assessments of learning in lieu of credit hours for financial aid. This means that competency-based programs will no longer have to convert their learning assessments into credit hours and eliminates the dubious estimation of “seat time” in measuring learning in these cases.

It should be noted that these measures have not yet been tested in practice, and that the Department of Education is keeping the dialogue open with colleges and universities. Sylvia Manning, president of the Higher Learning Commission of the North Central Association of Colleges and Schools, a regional accreditor, said, “Experience will show how workable this process is.”

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July 23, 2013

The Slippery Slope of Merit Aid

Amidst the rise of merit aid and the decline of need-based aid, some college presidents have decided to take a stand and advocate for low-income students who are being squeezed out of the picture.

Merit aid might not seem like a problem at first glance, but the implications are deeper than many people realize. Here is a hypothetical scenario that often plays out during the admissions process: A talented student applies to several colleges and receives financial aid offers from several schools, but the student’s top choice didn’t offer the best aid package. So, the accepted student approaches the financial aid department armed with the other offers as evidence that he/she is worthy of more aid. The school makes a counter offer, and the student takes that offer to another school as evidence that he/she is worthy of more aid. A bidding war has begun, and it is a great situation for the student, but where is the money for these competing offers coming from?

The money for these ever-increasing merit scholarships comes from the pockets of other students because in order to cover the costs, schools will often end up increasing tuition. It is an unsustainable model that has partially contributed to the skyrocketing costs of education in this country. With so many schools directly competing for top applicants, everyone suffers. Shown below are the top 10 schools that receive the most non-need based aid according to U.S. News.

Students Receiving Non-need Based Merit

Over the winter, S. Georgia Nugent, president of Kenyon College, partnered with several other small private schools and drafted a proposal entitled “High Tuition, High Discount Has No Future.” In this proposal, they outlined the problems with merit aid and offered solutions in moving forward. For example, they call upon other schools to make their financial aid offers final as an effort to stop the bidding wars between schools. They envision eliminating the phrase “merit aid” from school marketing and replacing it with “non-need financial aid.” Nugent also suggests that schools should use restraint in setting tuition and to prioritize providing full aid to needy students.

The proposal was widely lauded and praised after its release, but putting words to action has proven difficult. “It’s the prisoner’s dilemma,” Nugent says. “Typically in conversations presidents will says ‘Yes, I agree. I don’t want to provide financial aid to families that don’t need it. But I can’t afford not to do this. If I don’t do this, the state university down the road will eat my lunch because they are doing it.”

Even though she spearheaded this effort, Nugent is having problems in de-emphasizing merit aid at her own school. Just last year, Kenyon announced several new merit scholarships funded from funds that had previously been allocated for need-based aid. In the last month, another merit scholarship was recently introduced – The S. Georgia Nugent Award in Creative Writing. The name was not Nugent’s decision, but the choice of one of the financial backers of the award. “It would not have been my choice [to create these scholarships], but this is a result of the competitive admission landscape,” Nugent says. “You look at what is happening in your admission pool and you have to be responsive.”

How does your school handle merit scholarships and aid?

 

May 20, 2013

Connecting with High-Achieving, Low-Income Students

A recent study has revealed that top colleges are lacking in highly talented low-income students, even though many schools have implemented new programs that cater to this demographic. Many of these skilled students never attempt to apply at selective universities and, as a result, are missing out the opportunity to matriculate at elite universities even though these schools offer lucrative financial aid opportunities for low-income students.

Why don’t low income students apply?

The majority of high achieving middle- and high-income students have a set pattern of applying to a variety of schools – they apply to some schools that are on “par” with their GPA and test scores, some “safety” schools, and some “reach” schools. However, a majority of their low-income counterparts tend to stick to less selective institutions that enroll more low income students than the elite universities.

This trend can be traced back to the culture in which the low-income student grew up. Often, high achieving students from poor or rural districts do not have any role models who attended a competitive university; indeed, many of these students are the first in their families to consider attending college. For these students, there is no set path, and no experienced guide to let them know how, when, and why they should apply to a selective university.

True – There are some low-income students applying and being accepted at top-tier universities, but the study found that the majority of these students are coming from a “highly concentrated” group of selective high schools. These high schools have GPA requirements and staff that specialize in helping their students prepare for college. Inner city and rural public schools are largely unrepresented in these low-income applicant pools.

How can you connect with these students?

In a follow-up project from Stanford University, about 40,000 students from low-income, non-selective high schools were tracked as they made their college decisions. These students come from districts and schools where few, if any, graduates apply to elite colleges. These students then received a number of low-cost interventions to advise and educate them along the way, and to directly address concerns that poor families have during the application process.

Some of the interventions included; customized information about the true cost of college (as opposed to the “sticker price”), automatic application fee waivers to certain universities, and information about graduation rates. The results were dramatic. These students were significantly more likely to apply for admission and be accepted at competitive schools that typically enroll higher numbers of high-income students. They also found that these students performed as well or better than their peers who attended less competitive institutions.

So, the studies show that a small investment can yield big results when recruiting low-income students. But very few schools go to such lengths to attract students whose educations need to be subsidized by loans and other forms of private aid. Low income students simply don’t contribute towards the bottom line. As Unemployed Northeastern, an Inside Higher Education commenter said:

“…at the most elite schools, after they pencil in the legacy and athletic admits, the development cases, the scions of politicians and other wielders of power, the centuries-old quota from Deerfield and Exeter and similar, how many spots are really left for the great unwashed masses who have neither riches nor connections to their name? According to the Crimson, at Harvard… less than 5% of the class comes from the bottom quintile of household income and less than 20% comes from the bottom three quintiles of household income. Meanwhile, nearly 50% of Harvard students come from famlies with >$200,000 in income. In other words, just because college makes a show of trying to get more low-income students doesn’t mean they are actually trying to get more low-income students.

Although most colleges and universities will likely ignore the findings of Stanford’s recent study, perhaps their models for intervening on these students can find a place within low-income high schools’ advising and guidance departments.

How does your school recruit low-income groups?

December 20, 2012

Parental Debt in Higher Education

When discussing the so-called Student Debt Bubble, most reporting focuses on the financial woes of the student and statistics related to student borrowing. The financial burden that is put upon parents of those students is often overlooked, under reported, and poorly documented. These days, parents are more often carrying larger loan balances than their children, saddling themselves with huge amounts of debt well into their old age to allow their children to go to their dream college.

Parents are the largest source of college funding. A recent annual survey reported that parents cover on average 37% of  total college costs. The increase in parental borrowing can partially be attributed to the ease of access to PLUS loans. These loans are often included in financial aid reward letters, giving some families the false impression that they can afford to send their child to that particular school. The intention of a PLUS loan is to allow more families access to more schools, but the end result is often quite bleak because it is incredibly easy for families to borrow far beyond their financial means.

Applying for a PLUS loan is oftentimes easier than applying for a car loan. During the application process, the government checks credit history, but little else. Ability to repay the loan is not a consideration; parents do not need to provide any income information, employment status, or current debt holdings. There is no limit on how much money can be borrowed through PLUS loans.

Student loans are problematic for borrowers, in this case parents, because it is exceedingly difficult to have them forgiven even in bankruptcy proceedings. While a student’s federal loan payments can be quite flexible with grace periods, income-based repayment programs, and deferrals, parental PLUS loan payments cannot be deferred or reduced except in the most dire of situations. This often leaves parents drowning in growing debt. For example, in 1999, Gemma Nemenzo of NYC applied for a PLUS loan to help finance her daughter’s education at her dream school, New York University. As a single parent making just $25,000 per year to support a family of three, Gemma was quickly approved for a $17,000 PLUS loan. Soon, the financial factors became too much and her daughter withdrew from NYU in favor of a more affordable institution. But the debt remained, and has nearly doubled to $33,000 in the years since Gemma accepted the loan.

“Right now, the government runs the program by the seat of its pants,” says Mark Kantrowitz, publisher of two authoritative financial-aid Web sites. “You do have some parents who are borrowing $100,000 or more for their children’s college education who are getting in completely over their heads. Those parents are going to default, and their lives are going to be ruined, because they were allowed to borrow far more than is rational.”

For this writer, the parallels between PLUS loans of today and No Income No Asset (NINA) mortgage loans of the 2000′s are frighteningly similar. If you are not familiar with the NINA mortgage loans, they are one of the financial products that led to the sub-prime mortgage crisis of 2008. NINA loans were used by aggressive mortgage brokers who did not want any trouble qualifying loans for approval. It was extremely easy for brokers to disburse a loan to an applicant, since they did not need to provide any proof of income, assets, or job status… Sound familiar? In turn, this led to a worldwide economic recession that the U.S. economy is still recovering from. For a large number of these borrowers, it was never possible for them to repay their mortgage loans. This resulted in massive amounts of foreclosures and the demise of the housing market in the United States. It is worrisome that our government employs similar requirements for federally-funded school loan programs.

The good news is that there has been a movement to educate and inform student loan borrowers since 2008. There is mandatory entry and exit counseling, along with the newly introduced financial aid Shopping Sheet and growing calls for financial aid reform. These combined resources with increasing pressure on institutions to bring the cost of tuition down, will hopefully deflate the student debt bubble in the coming years.