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How the Pandemic Should Make Us Rethink College Financial Aid

Education Higher Ed

‘Why should we ­reward colleges with more funds for raising their rates?’

Applications for college financial aid are down dramatically this year. Yet given the economic crisis, it’s a safe bet that more students will need financial support. With the lockdowns removing regular access to guidance counselors and other resources to help them, these struggling students, including the children of front-line workers, won’t know where to turn for help to navigate the complex maze of financial applications.

They need a reformed system, and the pandemic is a great opportunity to rethink our federal financial-aid system — especially by adding transparency for students and accountability for colleges.

The most obvious problem is with the Free Application for Federal Student Aid itself. With over 100 items on the form, many students and parents find it overwhelming, if not downright baffling. Surveys show many applicants don’t have enough information to complete the application or find it too time-consuming.

This, even though everything the government should need to know to make determinations can be found on a family’s tax return. We could eliminate the FAFSA ­altogether or reduce the questions to those that fit on a postcard, suggests Richard Vedder, an economist at Ohio University.

But the form is only the tip of the iceberg. Students and parents have no idea how the financial-aid “formula” actually works. Why is it that the same California student who decides to go to Stanford will receive more money in aid than if she attends the University of California system?

We are rewarding students — or rather, colleges, to whom the money goes — for picking the more expensive option. Average federal grants per student are higher at four-year private schools than at public ones.

The perverse result is that Washington continues to cover the rising costs as the sticker price increases, because the feds end up subsidizing bloated, overpriced colleges.

The model we have was adopted in the immediate postwar years, when tuition was much lower than it is today. Yet as Vedder notes, the GI Bill model, which would cover costs with no limit, “was an open invitation for colleges to raise fees.”

The Pell Grants, on the other hand, have always had a maximum amount attached to them. At around $6,000, these grants will do little to help a student with Ivy League tuition but will do a great deal to cover the costs of a public university and will go even further in covering community-college costs.

If we are about to embark on ­another program to reward frontline workers with scholarships, it would be better to model them on the Pell Grants than the GI Bill. With less money available, this would be a good time to give students a fixed amount of cash to spend at the institution they think will best suit their needs.

We can certainly give more money to students with lower ­incomes, but why should we ­reward colleges with more funds for raising their rates?

Finally, it is worth rethinking how financial aid is calculated when it comes to room and board. The federal government now ­offers students awards based on “cost of attendance,” which includes living expenses near the school. In the fall, as many students will be ­attending classes online, this won’t be necessary.

But at some point, they will ­return, and the same perverse ­incentives will be at work: Colleges continue to raise the cost of room and board with more outrageous campus features and gourmet food options. But the “cost of attendance,” even off-campus, is higher in more expensive areas. Why should the feds be on the hook for paying the price of an apartment in New York City ­instead of one in Charlottesville or Tulsa?

As more students are wary of crowded cities, there is little reason to provide extra ­induce­ments to attend these ­urban institutions. Students in need can be awarded vouchers to cover a portion of their costs, and they can decide for themselves how to spend those funds, whether at a high- or a lower-cost school or perhaps a community college.

In other words, let students vote with their feet, and let the funds follow along. Simplicity should be the lodestar of the new system.

This piece originally appeared at the New York Post


James Piereson is a senior fellow at the Manhattan Institute. 

Naomi Schaefer Riley is a resident fellow at the American Enterprise Institute and a senior fellow at the Independent Women’s Forum.

This piece originally appeared in New York Post