**DRAFT**

**CHALLENGES TO MAINTAINING ACCESS**

**IN THE TWENTY-FIRST CENTURY**

**DISCUSSION ISSUES**

**ADVISORY COMMITTEE ON**

**STUDENT FINANCIAL ASSISTANCE**

**APRIL 1999**

**EXECUTIVE SUMMARY**

With the popular press leading the way, families and legislators alike
regularly express the belief that postsecondary education is simply not
affordable for middle-income American families. There is a very strong
feeling that college costs are out of control and that one of the major
culprits is federal student aid. The argument by now is a familiar one.
College is beyond the reach of most American families. Federal student
aid, including unsubsidized loans, is largely self-defeating, merely
driving up tuitions\--especially in the private college sector\--because
it pays for colleges to raise tuition to capture more federal dollars.

Exacerbating the public disillusionment and dissatisfaction related to
college affordability in general, rising tuitions in particular, and
colleges' apparent insensitivity to the plight of the middle class, are
three additional themes: the lowest income, lowest ability students get
all the subsidies; scarce need-based aid funds are being wasted on
students who are unprepared for college, especially those taking
remedial courses; and merit is not rewarded nearly enough\--all of which
is undermining the quality of higher education.

Further eroding public confidence in and support for need-based student
aid is the impression that the very process of determining need
discourages middle-income families from saving for college by taxing
their assets too heavily. This all becomes intolerable when it is taken
for granted that the full need of the lowest income students is being
met in both the public and private sectors through *need-blind*
admissions and *full-need* financial aid policies.

This paper, designed to guide a roundtable discussion about these
misperceptions, presents a very different view and attempts to set the
record straight. First, college is affordable for middle- and
upper-income families; indeed, overall rates of college attendance are
at an all-time high. In addition,

there is no evidence whatsoever to suggest student aid drives up
tuition;

the wealthiest and brightest students in fact receive the greatest
subsidy;

remediation is a sound investment;

there is no shortage of merit-based aid for the best students; and

federal need analysis virtually ignores all assets of most middle-income
families.

But most important of all, the paper suggests that the lowest income
students still face the highest levels of unmet need, even in the
two-year public sector. Finally, they may not do much better in the
private sector either where they are met with intertwined policies for
admission and financial aid that are far from either *need-blind* or
*full-need*.

i

**INTRODUCTION**

The most important charge of the Advisory Committee on Student Financial
Assistance is to make recommendations to Congress and the Secretary of
Education that will lead to the maintenance and enhancement of access to
postsecondary education for low- and middle-income students. In
fulfilling that charge, the Committee makes regular formal
recommendations in the form of yearly reports, legislative proposals,
and comments on proposed regulations. However, just as often, the
guidance provided is informal, taking the form of briefings, meetings,
and data analyses designed to inform and enhance the federal student aid
policy making process. Regardless of venue, the ultimate goal is always
the same: maintaining and improving access through the expansion and
improvement of the federal need-based Title IV student aid programs.

Despite broad consensus that the federal Title IV programs have been
immensely successful in providing access to tens of millions of
Americans over the past decade, Congress and the higher education
community confronted during the 1998 reauthorization of the Higher
Education Act assertions that the programs were fundamentally flawed and
produced serious negative consequences for higher education. These
assertions based on fundamental misperceptions persist today and likely
will affect federal access‑related policy discussion into the
twenty‑first century.

At its upcoming April meeting in Oxford, Mississippi, the Advisory
Committee will conduct a roundtable discussion among national experts
about these misperceptions related to:

college cost;

student aid; and

family contribution (and unmet need).

The broad implications for federal policy making related to access will
also be discussed.

This paper is meant to provide a framework and a set of reference points
for the morning sessions. After briefly describing the nature of the
erroneous arguments and the counterproductive proposals to which they
often give rise, the paper presents three specific policy questions in
each area. To promote discussion, for each question, a few excerpts from
recent books, newspaper articles, and public policy analyses are
presented. Each specific quotation has been chosen primarily because it
characterizes the issue in a manner that is particularly meaningful to
the Advisory Committee given its charge to maintain access.

The resulting framework and references are not meant to be exhaustive in
any way or the last word on the subject of access. They are merely
suggestive not pPAGErescriptive. Panelists will be free to focus on
those access issues of particular relevance to them as well as include
in the discussion any access-related issue that may have been overlooked
or underemphasized in the paper.

**MISPERCEPTIONS THAT UNDERMINE**

**FEDERAL ACCESS POLICIES**

Over the last decade, the Advisory Committee has encountered several
recurring and interrelated public misperceptions about the Title IV
student aid programs. These appear not only in the popular press but in
arguments supporting particular legislative and regulatory proposals for
change.

The most serious of these misperceptions pertain to the three components
that measure student need: college costs; student aid; and family
contribution (and unmet need). They are:

In the area of ***college costs*** and its determinants,

Postsecondary education is not affordable for most American families.

Title IV student aid serves to drive up tuitions, especially in the
private sector.

Colleges have raised tuition primarily to capture federal student aid.

In the area of ***student aid***,

The lowest income, lowest ability students get the largest educational
subsidies.

Need-based student aid is inefficient because it increases remediation.

Merit-based aid is a better investment of taxpayer dollars than
need-based aid.

In the area of expected ***family contribution*** (and ***unmet
need***),

Federal need analysis discourages saving for college by taxing assets
heavily.

Public institutions regularly meet full need for the lowest income
students.

Private colleges have "need-blind" admissions and "full-need" aid
policies.

These views\--largely unsubstantiated by existing theory, empirical
data, and analysis\--serve to produce confusion about the true nature of
student aid, eroding public support for the programs, and thereby
undermining the pursuit of access. More importantly, they are often used
to justify formal proposals for legislative and regulatory changes that
would not be in the interest of low-income students.

**Misperceptions about College Costs**

As Gordon C. Winston put it in his paper written for the National
Commission on the Cost of Higher Education: "Paradoxically, the single
most serious problem facing the understanding of higher education\--and
hence public attitudes and public policies\--may well be common sense .
. . very persuasive and appealing common sense." Families and
legislators think that postsecondary education is not affordable for
middle-income American families. They feel that college costs are out of
control and that one of the major culprits is federal student aid.

The argument by now is a familiar one: College is beyond the reach of
most middle-income American families. Federal student aid, including
unsubsidized loans, is largely self-defeating, merely driving up
tuitions\--especially in the private college sector\--because it pays
for colleges to raise tuition to capture more federal dollars.

**Associated Policy Proposals.** This line of argument has been used to
justify a wide range of counterproductive legislative and regulatory
proposals including:

federal cost controls on college tuition;

severe loan limits on students; and

restrictions on the receipt of need-based aid by institutions and
students.

Such changes would make the pursuit of access through need-based aid
much more difficult.

**The Facts:**

College *is* affordable for most middle- and upper income families.

Overall rates of college attendance are at an *all-time high*.

There is *no evidence* whatsoever to suggest student aid drives up
tuition.

**Recent Evidence:**

**On affordability**

"Families with incomes of \$70,000-79,999 had an average EFC of
\$12,300, enough to cover the price to attend a public 4-year
institution without aid. Families with incomes of between \$100,000 and
\$124,000 had an EFC about equal to the price to attend a private,
not-for-profit 4-year." *The Condition of Education, page 1.*

"Despite the concerns we have noted about the impact on access of the
recent rise in college costs for low-income students, the high overall
rates of college attendance in recent years point to considerable
success in making at least *some* form of postsecondary education
financially accessible to a very wide range of Americans." *McPherson
and Shapiro, The Student Aid Game, page 42.*

"After a period of decline in the 1960s and 1970s, average tuition,
room, and board at public institutions rose to 15 percent of median
family income in 1993 and has remained stable ever since." *The
Condition of Education, page 70.*

**On student aid's alleged effect on tuition**

"The Commission finds no evidence to suggest any relationship between
the availability of federal grants and the costs or prices in these
institutions . . . The Commission has found no conclusive evidence that
loans have contributed to rising costs and prices." *The Cost
Commission, page 11.*

"We found no evidence that . . . private institutions increased their
tuitions when they received more federal student aid . . . Given the
tuition increases that have occurred since (the mid-1980s) . . . we
would not be surprised to discover that the effect of federal aid on
public tuition has been substantially attenuated by now." *McPherson and
Shapiro, The Student Aid Game, page 84.*

"Using more recent data, the Coopers & Lybrand *LLP* report could not
find evidence to support . . . (the) finding that federal student
assistance resulted in tuition increases at public four-year
institutions." *Pearson and Baldi, page 95*

"In our study on tuition increases at four year public colleges and
universities for school year 1980-81 through 1994-95, we found that the
two major factors associated with these increases were the rise in
schools' expenditures and schools' need to increase tuition revenue to
make up for smaller increases in state appropriations." *GAO, page 1.*

**On colleges' alleged attempt to capture federal student aid**

"We found that private institutions tended to *increase* their spending
on institution-based aid when federal student aid increased." *McPherson
and Shapiro, The Student Aid Game, page 84.*

"Admitting a low-income student to Bates does not mean a federal aid
windfall. It means an initial \$20,000 commitment from our own
scholarship budget."

*Hiss, page 2.*

**Misperceptions About Student Aid**

Exacerbating the public disillusionment and dissatisfaction related to
college affordability in general, rising tuitions in particular, and
colleges' insensitivity to the plight of the middle class, are three
themes heard over and over. The argument goes as follows: The lowest
income, lowest ability students get a free ride in both the public and
private sector; scarce need-based student aid funds are being wasted on
students who are unprepared for college, especially those taking
remedial courses; and merit is not recognized or rewarded nearly
enough\--all of which are undermining the quality of higher education.

**Associated Policy Proposals.** This argument has been used to justify
a wide range of counterproductive legislative and regulatory proposals
including:

introduction of merit-based components into the Pell Grant program;

making certain remedial courses ineligible for Title IV funding; and

mandatory outsourcing of remediation.

Such changes, once again, would make the pursuit of access much more
difficult.

**The Facts:**

The wealthiest and brightest students in fact receive the *greatest*
subsidy.

Remediation is as *sound an investment* as need-based student aid.

There is *no shortage* of merit-based aid for the academically gifted
students.

**Recent Evidence:**

**On education subsidies**

"The American system of selective admission to a competitive set of
institutions tends to sort students with the highest academic
qualifications and promise into the institutions with the most ample
resources with which to subsidize the students' education." *McPherson
and Shapiro, The Student Aid Game, page 143.*

**On remediation**

"Remediation is a core function of higher education. . . There is no
evidence that remediation is expanding in size or scope . . . The
financial costs of remediation are modest." *Institute for Higher
Education Policy, College Remediation, page 5.*

"We believe that remedial education would pass the basic cost/benefit
test required of any efficient social program. True, it would be far
better if all high‑school students with college aspirations prepared
themselves adequately for college‑level work while in high school . . .
But, in the short run, what is the alternative to remediation?"
*Breneman and Haarlowe, page 3.*

**On merit-based vs. need-based aid**

"The considerable increases in net tuition for low-income students have
led to a growing gap between enrollment rates for high-income and
low-income students and to an increased concentration of low-income
students at the least costly institutions. With merit aid increasing a
faster rate than need-based aid, these trends seem likely to be
exacerbated in the future." *McPherson and Shapiro, The Student Aid
Game, page 140.*

**Misperceptions About Family Contribution and Unmet Need**

Finally, in addition to the misperceptions and bad feelings about
affordability, costs, and distribution of subsidies, three final
arguments serve to further undermine public confidence in and support
for federal need-based student aid. First, it is alleged that the very
process of determining need itself discourages saving for college by
taxing assets too heavily. Second, it is believed that public
institutions regularly meet the full need of the lowest income students.
Third, there is the impression that even in the private sector, the
lowest income students receive more than adequate student aid because
most private institutions have *need-blind* admissions and *full-need*
financial aid policies.

**Associated Policy Proposals.** These arguments have been used to
justify a wide range of counterproductive legislative and regulatory
proposals including:

elimination of assets entirely from federal need analysis;

redirection of grant aid to upper middle income families.

As would those previously mentioned, such changes would undermine the
pursuit of access.

**The Facts:**

Federal need analysis virtually *ignores the assets* of most
middle-income families.

The lowest income students face *high unmet need*, even in the two-year
public sector.

The neediest students face *discriminatory* admission and aid policies
in the private sector.

**Recent Evidence:**

**On federal need analysis's alleged effect on family saving**

"When Congress decided to write the need analysis rules directly into
the 1992 legislation, it made those rules significantly more lenient
with respect to middle- and upper-middle-income students." *McPherson
and Shapiro, Priorities, page 143.*

"In 1993-94, the net value of the principal residence and the net value
of a family farm on which the family resides was eliminated from all EFC
formulas. . . The formulae for calculating the EFC provide for asset
reserves that 'protect' a portion . . . of assets when determining the
contribution from assets." *End of Year Report, page 75.*

**On the unmet need of the poorest students**

"Average unmet need was about \$6,200 (\$3,800) for full-time dependent
undergraduates from low income families attending private . . . (public)
4-year institutions." *The Condition of Education, page 4.*

"The prevalence of large amounts of unmet need\--net prices frequently
exceed EFCs, especially for students in the lower income
categories\--suggests that net prices may be rising faster than most
families' ability to pay." *Institute for Higher Education Policy,
Grants, page ix.*

**On private college admissions and aid policies for the poorest
students**

"Differential treatment of students within the aid-eligible population
is very common (including) making admissions 'need-aware' . . .
'differential packaging' . . . 'gapping' . . . 'admit-deny' . . . (and)
need-aware second review." *McPherson and Shapiro, The Student Aid Game,
pages 94-95.*

**CONCLUSION**

The misperceptions about college costs, student aid, family contribution
and unmet need identified in this paper have more than mere academic
significance. They will continue to play an important role in the
legislative and regulatory process that governs the survival, funding,
and distribution of federal need-based student aid.

In order to maintain and enhance access in the twenty-first century,
these misperceptions must be dealt with head on and eliminated. In that
regard, three recommendations can be made:

The higher education community must do a much better job of
communicating *valid* theory and *the facts* to the public, the press,
and legislators.

The policy research and development communities must base their public
statements as well as their legislative proposals on valid theory and
the facts, employ sound *empirical* data description and analysis, and
put aside their impressions and gut feelings.

Most important, the Department of Education must refocus its attention
and policies on access through the provision of need-based aid and take
the initiative to *actively oppose* misguided proposals based on these
misperceptions that would undermine access.

Otherwise, the considerable investment made in the structure of
need-based student aid over the last three decades could be easily swept
away by legislative changes that are neither in the interest of
low-income students or the nation.

**SOURCES**

Breneman, David W., and William N. Haarlow. 1999. "Establishing the Real
Value of Remedial Education." *Chronicle of Higher Education*, April 9.

Gladieux, Lawrence E., Bart Astor, and Watson Scott Swail. 1998. *Memory
Reason Imagination: A Quarter Century of Pell Grants*. New York, NY:
College Entrance Examination Board.

Harvey, James, Roger M. Williams, Rita Kirschstein, Amy Smith O'Malley
and Jane Wellman. *Straight Talk About College Costs and Prices.* The
National

Commission on the Cost of Higher Education. Oryx Press: 1998.

Hiss, William C. "Does Availability of Federal Student Aid Encourage
Colleges to Hike Tuition." Unpublished. March 1998.

The Institute for Higher Education Policy. 1998. *Do Grants Matter?
Student Grant Aid and College Affordability.* Washington, D.C.: The
Institute for Higher Education Policy.

\_\_\_\_\_.1998. *College Remediation: What It Is, What It Costs, What's
At Stake.* Washington, D.C.: The Institute for Higher Education Policy.

McPherson, Michael S., and Morton Owen Schapiro. 1998. *The Student Aid
Game.* Princeton: Princeton University Press.

Pearson, Roy J., and Stephane Baldi. 1997. "Student Aid and Tuition:
Toward A Casual Analysis." A paper prepared for the National Commission
on the Cost of Higher Education.

U.S. Department of Education. National Center for Education Statistics.
1998. *The Condition of Education 1998*. Washington, DC: U.S. Department
of Education.

U.S. Department of Education. 1995-1996 Title IV/Federal Pell Grant
Program End of Year Report. Washington, D.C.: U.S. Department of
Education.

U.S. General Accounting Office. 1998. *Tuition Increases and Colleges'
Efforts to Contain Costs*. HEHS-98-227. Washington, D.C.: U.S. General
Accounting Office.

Winston, Gordon C. 1997. "College Costs: Subsidies, Intuition and
Policy." A paper prepared for the National Commission on the Cost of
Higher Education.