December 4, 2020

Economix Blog: Q.&A. on the ‘Shell Game’ of College Aid

Stephen Burd, a senior policy analyst at the New America Foundation.New America Foundation Stephen Burd, a senior policy analyst at the New America Foundation.

“With their relentless pursuit of prestige and revenue, the nation’s public and private four-year colleges and universities are in danger of shutting down what has long been a pathway to the middle class for low-income and working-class students,” writes Stephen Burd, a senior policy analyst at the New America Foundation, in a new report that’s getting considerable attention.

Mr. Burd uses data from the Education Department to argue that many colleges “are engaged in an elaborate shell game.” With Congress having recently increased the size of Pell Grants, a large federal aid program for lower-income families, colleges are redirecting their own aid money toward higher-income students. The goal of the colleges, he says, is to attract the high-scoring students who lift a college’s ranking and prestige.

Yet with list-price tuition growing rapidly, lower-income students, Mr. Burd writes, are left to pay more. He adds: “This is one reason why even after historic increases in Pell Grant funding, the college-going gap between low- income students and their wealthier counterparts remains as wide as ever.”

He uses the federal data to name colleges that are charging high net prices — that is, even after taking into account financial aid – for low-income students. The average net price for first-year, full-time students with family incomes of $30,000 or less at New York University, for instance, is a whopping $25,462. In effect, N.Y.U. is asking such a family to devote all of its income to college.

The comparable average at the University of Miami is $21,415. At Southern Methodist University, in Dallas, it is $14,040. At Penn State, a public university, it is $16,839. On the other end of the spectrum are, among others, Georgia Tech ($0), Caltech ($310) and Amherst College ($448).

Mr. Burd and I recently conducted a conversation by e-mail, and a lightly edited transcript follows.

Many people — myself among them — have long seen some advantages in the so-called high-tuition, high-aid model, in which a college charges a substantial list price but also awards large amount of aid. Such a system ensures that high-income families, who can afford college, pay for it at a time when college budgets are stretched and income inequality is high. It is an akin to a progressive system of taxation. You are skeptical of that model, though. Why?

I completely understand the appeal of the high-tuition, high-aid model in a theoretical sense. However, the net price data that I examine show that in states that are following this model, such as Pennsylvania and South Carolina, the neediest students are facing net prices that are more than double what they are being in low-tuition states such as North Carolina.

I think what happens sometimes is that states go to the high-tuition model but don’t follow through on the high-aid side of the equation. It also appears to be the case that the high aid is not necessarily going to low-income students — but is instead being redirected toward wealthier students.

Do you see any exceptions — state universities that charge a high list-price tuition but provide large amounts of aid to low-income students and enroll substantial numbers of them? There seem to be at least a few private colleges following that model, including Amherst, Haverford and Pomona.

I didn’t dig as deep on the public college side to parse that out. There still are a significant number of state universities that enroll a substantial share of low-income students and charge them a manageable net price. Having said that, the public institutions that I found are cheapest for low-income students are in low-tuition states, such as California, Florida, Louisiana, and North Carolina. The schools that were most expensive for low-income students are in high-tuition, high-aid states such as New Jersey, Ohio, Pennsylvania, and South Carolina.

What the lowest-income students pay to attend public colleges in each state. State-by-state data represent the average net price that first-time, full-time students with family incomes of $30,000 or less are charged, after all grant and scholarship aid is taken into account, to attend public colleges in their home states. The net price data are from the 2010-11 academic year.Sources: U.S. Department of Education and New America Foundation. What the lowest-income students pay to attend public colleges in each state. State-by-state data represent the average net price that first-time, full-time students with family incomes of $30,000 or less are charged, after all grant and scholarship aid is taken into account, to attend public colleges in their home states. The net price data are from the 2010-11 academic year.

There are definitely some schools in high-tuition, high-aid states that provide generous amounts of need-based aid — such as the University of Virginia and the University of Michigan. But these schools don’t tend to enroll a substantial share of low income students.

Yes, that seems to be one of the big mysteries from your report. You have two tables listing excellent colleges that are affordable for low-income students yet enroll very few of them, including Virginia, Michigan, the University of Delaware, Caltech and Washington University in St. Louis. Studies have made clear that large numbers of high-performing, low-income students exist. Why don’t they make it to these colleges? Do you think the colleges want to attract them?

I think that there are some schools that genuinely want to attract these students – and some like Amherst, Vassar, M.I.T., etc., that do a very good job of it. There are others that appear to be much more interested in attracting the “best and the brightest” and wealthiest students to improve their rankings and increase their revenues.

I do think that schools like Harvard and Virginia are genuinely interested in attracting more low-income students but have had trouble finding them. The excellent report you’ve written about by Christopher Avery and Caroline Hoxby shows that colleges don’t always look in the right places to find these students. And many of these students — even those with the most impressive academic records — don’t even think about applying to these schools because they don’t think they can afford them, among other reasons.

Imagine the president or a governor called you into his or her office and said, “O.K., how do we change policy to improve matters.” What would you say?

I can’t believe that hasn’t already happened!

Because of my background covering federal student aid, I’ve mostly thought of this from the perspective of the federal Pell Grant program, which provides nearly $35 billion a year to help low-income students pay for college. Right now this money goes to colleges without any strings attached. I think that’s got to change to ensure that colleges are doing their part to remove the financial barriers that prevent low-income students from enrolling in and completing college.

At the New America Foundation, we have recommended that the government take a carrot-and-stick approach. The carrot is to help schools that don’t have the resources to keep down the net prices of the low-income students they serve. The plan would offer Pell bonuses to financially strapped public and private four-year colleges that serve a substantial share of Pell Grant recipients and graduate at least half of their students school-wide. The goal would be to help these schools boost their institutional aid budgets and bring down the net prices they charge the neediest students.

The stick is for wealthier colleges that have chosen to divert their aid to try to buy the best and/or wealthiest students. These schools would be required to provide additional need-based aid, to help the lowest-income students, in exchange for the Pell dollars they receive.

Article source:

Economix: Pushing Colleges on Diversity

How can top colleges be persuaded to admit more talented low- and middle-income students? My column this week laid out a strategy for making colleges more economically diverse and meritocratic, based on policies at Amherst College and the University of California. But I didn’t spent much time on the politics of getting colleges to make changes. Fortunately, several other writers have done so — some today, in response to the column, and some long before.

The first potential lever is the federal government. It pays for and administers Pell Grants, a huge program that benefits, roughly, the bottom half of the income distribution. Goldie Blumenstyk of The Chronicle of Higher Education wrote last year:

… the chancellor of the California State University system, Charles B. Reed, … has been pushing a proposal to reward institutions that enroll higher numbers of Pell Grant students with more federal money and withhold support from colleges whose Pell enrollments fall below 15 percent. Rich institutions should use their endowments to meet those thresholds, Mr. Reed argues, and the tax exemption on their endowments should be yanked or restricted if they fall short.

Similarly, I’ve argued that Pell Grants and other federal aid should be tied to graduation rates, with colleges at risk of losing financing if their graduation rates (adjusted for their student population) are too low. Perhaps students should also be at risk of losing financing, if they do not stay on track to graduate, as is the case in West Virginia.

But the government isn’t the only lever. Foundations can make a difference, too. Writing in the journal Democracy in 2008, Theda Skocpol of Harvard and Suzanne Mettler of Cornell noted:

…the efforts required will be more than just governmental. Community college students often find that few of their credits transfer to four-year institutions, a situation that could be remedied by better institutional cooperation. The Jack Kent Cooke Foundation, for example, has recently created an exemplary program to support efforts by Amherst College and seven other highly selective institutions that have formed partnerships with nearby community colleges. The idea is to identify promising potential transfers and help them make the transition to four-year college.

And private donors can probably have even more influence than foundations, given the donors’ importance to private colleges. Matthew Yglesias writes:

… another channel I would urge people to consider is simply social norms. Fancy colleges and universities are largely funded by charitable donations. People make these donations in part because doing so is a socially esteemed undertaking. If we, as a society, shift our idea of what kinds of activities should be valorized then donor behavior will shift and schools will find ways to be more credible ladders of opportunity.

Obviously, some private donors might blanch at the idea of paying to make their alma mater more diverse and, in the process, potentially reducing the odds of their own children’s getting in. But Amherst’s experiences suggest this will not need be the case with all alumni. Its fund-raising has remained quite strong. Among other things, it received a $100 million anonymous gift recently.

Some graduates may even be more likely to donate because they believe in their college’s mission. As Aaron Carroll, a pediatrician at the Indiana University School of Medicine and an Amherst graduate, wrote on his blog Wednesday, “I don’t think I’ve ever been so proud of my alma mater.”

Georgia Levenson Keohane, a fellow at the Roosevelt Institute who advises nonprofit groups and has studied Amherst, wrote the following to me, in an e-mail:

Amherst has proven that there can be a competitive advantage to this approach. By declaring that it selects for the best and the brightest — not just the best and the brightest of the upper middle class — it has attracted more applicants across the board, which in turn makes it even more selective, and a virtuous cycle ensues.
The trick is paying for this, since the model relies on private fund-raising in addition to Pell Grants. In tough economic times, will full-tuition paying families and alumni who embrace an Amherst-like vision continue to give the kind of additional financial support necessary to sustain the model? And when endowments plunge, can university administrators maintain their commitment to robust financial aid in the face of competing priorities — not just things like nice facilities, but lifeblood stuff: paying enough to attract and retain top faculty? The case of Amherst suggests yes.

I’d like to believe that university presidents and other administrators would not need any arm-twisting on this issue. And some do not. But unfortunately, many presidents seem to, as Richard Kahlenberg of the Century Foundation suggests:

The discouraging news is that most wealthy institutions have not followed Amherst’s lead. Despite a great flurry of activity on the financial aid front, The Chronicle of Higher Education recently found that at the wealthiest 50 institutions, Pell percentages remained flat between 2004-05 and 2008-09. At thirty-one of these wealthy colleges and universities, the proportion of Pell recipients actually declined.

Article source:

Economix: Behind the Rise in Pell Grants

My column this week looks at Amherst College’s impressive recent track record of recruiting low- and middle-income students. Amherst now has a much higher share of Pell Grant recipients — who tend to come from the lower-half of the income distribution — than most other elite colleges.

It’s true that many other elite colleges have also increased their number of Pell recipients in recent years. And these colleges deserve praise for increasing financial aid and recruiting in new places. But they may not deserve quite as much praise as they have heaped on themselves.

The federal government, it turns out, deserves some of the credit.

In the last few years, the government has significantly expanded the Pell program, which is the largest federal aid program. Four years ago, 5.2 million students received Pell Grants. Last year (the 2009-10 academic year), 8.1 million students did, according to the Education Department. That’s an increase of 56 percent.

If colleges had not changed their admissions or financial-aid policies at all in the last few years, they probably would still have more Pell recipients today. Amherst’s increase in Pell recipients has nearly doubled since 2005, comfortably outpacing the national increase. But not every college has kept pace.

Article source:

Economix: Taxing the Rich

The Tax Foundation
Today's Economist

Nancy Folbre is an economics professor at the University of Massachusetts Amherst.

Increased taxes on the rich could balance the budget and end the showdown over how many billions to slash from social spending.

Consider, for instance, the Fairness in Taxation Act introduced by Representative Jan Schakowsky, Democrat of Illinois, which would increase the top federal marginal income tax rate to 45 percent for married couples earning more than one million dollars a year and to 49 percent for billionaires, from the current rate of 35 percent.

Historically unprecedented? Hardly. The top marginal tax rate was 50 percent in the mid-1980s and even higher in the 1950s (as the chart shows).

Such a boost could raise an estimated $78 billion, more than the current Republican budget-cut goal. Even if it fell far short it would avert proposed cuts for many valuable programs, including Head Start, which provides early childhood education, and Pell Grants, which help low-income families send their children to college.

Some outspoken millionaires, including the billionaire Warren Buffett, have long advocated increased taxes on the rich.

Plenty of ordinary Americans favor this policy as well. An NBC News/Wall Street Journal poll conducted in February offered 26 different ways of reducing the federal budget deficit. The most popular option, considered acceptable by 81 percent of respondents, would place a surtax on federal income taxes for those who make more than $1million a year.

As Robert Kuttner points out, even the “national town meeting” sponsored last June by the Peterson Foundation, a strong advocate of cuts to entitlement spending, reported that 58 percent of participants favored a new, higher tax bracket for millionaires.

Opponents of such a policy argue, variously, that it would be unfair, inefficient or politically impossible.

Would higher rates be unfair? The top 1 percent has increased its share of total income to more than 20 percent today from about 10 percent in the 1960s.

Those who believe that income can be generated only by brilliant innovation, bold risk-taking and hard work may conclude that this group has simply grown more productive over time. It seems more likely that changes in the structure of the global economy have delivered rich windfalls to those at the top.

Would higher rates be inefficient? Many argue that lower tax rates on the rich encourage more effort and more investment. If true, much depends on where this effort and investment goes. The development of new credit derivatives didn’t help most American taxpayers. It forced them to lend money to bail out big banks.

The historical record does not support the claim that high marginal tax rates dampen the economy. Average annual rates of growth in gross domestic product in the high-tax era between 1950 and 1980 exceeded those of the last 30 years. Increases in the top tax rate under President Clinton were followed by robust economic expansion.

A recent essay in The Wall Street Journal asserts that the high volatility of income at the top makes it impractical to rely on taxing it. But these concerns are overstated and can be easily addressed by rainy-day funds that set some revenues aside as a buffer against variation.

Are higher rates politically impossible? Fierce opposition to them has been stoked by fear that higher taxes on the rich will inevitably lead to higher taxes for almost everybody else. Indeed, the rich exercise considerable power to relocate themselves and their investments to minimize their tax liabilities.

But American voters have the power to increase tax revenues from millionaires and have recently done so in eight states: California, Connecticut, Hawaii, Maryland, New Jersey, New York, Oregon and Wisconsin. A detailed study of the New Jersey case, published in the National Tax Journal by Cristobal Young and Charles Varner, found little effect on millionaires’ migration from the state.

Those who are furious at the very idea of a millionaires’ tax often portray those who work in the public sector or benefit from government programs as parasites.

Can voters be convinced that teachers, police officers, firefighters, students, retirees and the unemployed represent the waving arms of a giant vampire squid sucking money from the rest of us?

Maybe, for a little while, they can. But soon, those waving arms, and many other voters, will feel the knife of budget cuts — and new varieties of pain.

Article source: