Rethinking Federal Financial Aid

Almost everyone agrees that a college education should be available to anyone, regardless of socioeconomic background. But when the federal government sits down to reform the system of grants it gives to colleges for financial aid, schools like Harvard inevitably get hurt. The longest-established college in the country, Harvard stands to lose around $6 million after a federal redistribution of grants recently proposed by the Bush administration. This is because some older New England schools, including Harvard, have profited from a skewed, outdated formula that determines how much federal aid each school gets.

Although Harvard and schools like it will lose, the system as it stands is blatantly unfair; reform is a bigger priority. We recognize that the University’s enormous endowment does not insulate it from million dollar losses in federal aid, but basic equity demands that we support a new federal formula.

The new grant rules come with the reauthorization of the Higher Education Act (HEA) this year. First enacted in 1965, the HEA ratifies three essential federal student-aid programs—College Work-Study, Perkins Loans and Supplemental Educational Opportunity Grants. The inadequacy of the present allocation is unsurprising given that the underlying formula was devised more than 20 years ago. Known as the “base guarantee,” the formula in place now gives established colleges the same share of aid every year, and it has become progressively more out of touch with current changes in college demography. Increasingly, low-income students are enrolling in cheaper community and for-profit two-year and four-year colleges. Yet these schools are neglected in the current system, as little money remains after funding established colleges. In their present form, federal student-aid programs are no longer serving some of country’s most needy students.

So, we are glad to see that President Bush is acting to make the system fairer for newer schools and the lower-income students enrolled in them. That said, as it stands, the details of the administration’s plans to revamp federal funding are unclear. We hope that the president and Congress will require that all institutions that eventually receive federal aid meet minimum thresholds of academic integrity. This system must not be exploited by fly-by-night schools that are unequipped to deliver quality education. In these cases, funding is more productively used by established institutions with credible track-records.

But smarter allocations will only alleviate half of the problem. The total federal pie for financial aid should also increase. Investing in the future of young people is among the most productive uses of capital. College graduates are less likely to be unemployed and greatly contribute to national tax revenue. A larger pool of college-educated citizens not only benefits the nation by promoting higher future growth, but it also enriches society and culture.

In this regard, increasing expenditures on Pell Grants and other federal aid programs is vital. As the number of students attending college continues to grow, funds are increasingly spread thinner among applicants. The number of students receiving the Pell Grant is expected to grow by more than 20 percent this year relative to 2000. While the monetary value of each award has increased over time, it has not kept up with rising prices—$12 billion dollars is needed to restore the purchasing power of Pell Grants to its level in the 1970s. This is a lot of money, but it constitutes only a fraction of the dividends and capital gains component of the Bush tax cut.

But, predictably, instead of providing more funds in aggregate, the Bush administration has recently reduced college aid and proposed harmful new rules for financial assistance. In his proposal to Congress on the Higher Education Act, for instance, the president suggests raising loan limits for college first-years—a move that will almost certainly amplify the financial burden of education for the nation’s neediest citizens. President Bush was right to ask for a new formula for distributing the federal funds already allocated for higher education. But if he really wants to make a difference, he has to get more money into the hands of those who need it most.