Tuesday, June 15, 2010

Student Aid and Tuition

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

The report accused 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. Also it reported 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 in Federal government need based financial aid then students of modest means will be crowded out anyway.

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 financial aid comes primarily from grants and loans and it 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 grants and loans 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. It should have been $5,832 by 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.

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 = $4,595-$4,040 of tuition. In 2008 the gap of funding was up to $9,505-$4,731 = $4,774.

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.

In 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 Federal Financial Aid program is the problem more than the state universities.

There is reason for optimism because the Obama administration has increased the Pell Grant maximum $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.

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