College Financial Aid (Part 1): The Grand Illusion

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This piece was first published in September, 2011.  I thought it might be instructive to revisit it and to give you some insight regarding any “progress” about the way we Americans pay for college.  Like the proverbial rotting pork chop, things are not getting better with the passage of time.

Again this year, millions of hopeful Americans will complete the FAFSA, the CSS Profile and a growing host of new forms in order to qualify for need-based financial aid.  They will pay attention to deadlines and try to follow the rules out of an innate sense of honesty and a desire to play it straight.  They will do their job.

For their troubles, the promised outcomes will rarely if ever occur.  Financial aid awards across the nation will reflect a different reality with elusive, shifting rules and an opaque strategy of determining who gets what.  Families at any income and a few dollars left in the bank will be routinely “short-sheeted” by college-produced aid awards.  If a family reporting an income of $65,000 were judged by their financial aid award, you might guess that the family had an income of $90,000 or even more.  For millions of American families the college financial aid system will be a cruel and costly hoax.

For years, including this one, there has been a clamor to simplify the FAFSA so that families can more readily apply for need-based aid but with every passing year, it is clear that simplification would merely add to the growing chorus of disillusioned Americans.  What real benefit is there to gain easy access to a theater if the play is bad?  Simplification of the financial aid paperwork would merely add to the audience of disappointed and increasingly angry college-bound students and their families.  But the illusion runs much deeper than mere paperwork.

An actual experience with financial aid looks like this.  A family had submitted precisely the same financial and demographic information to three private colleges, two in Massachusetts and one in Oregon.  Each college received exactly the same numbers.  Two colleges responded with offers that suggested a family contribution of about $19,000 and $32,000 while a third proclaimed that the family did not qualify for one cent of aid making their family contribution a whopping $45,000+ or an assumption of an income of around $150-200,000.  Same numbers, same formula, different outcomes.  Why?

The mechanics of the system aside, the issue is money.  Colleges can’t offer aid if they don’t have the money.  The primary reason for this fiscal deficit is that the federal government and in some cases the state governments, agencies who may have had a hand in creating the system, have failed to contribute sufficient funds to ensure its ongoing viability.  Federal and in many instances state contributions in support of need-based financial aid haven’t begun to keep pace with the realities of inflation or any accepted measure of cost-of-living adjustment.  While college costs for families have gone up by more than 100% over the last couple of decades, during that same period the per-pupil influx of public aid has increased only about 20-30%.  Family incomes may have grown by an even smaller increment in that time frame.  The outcome of this scenario leaves the colleges holding the financial aid bag and an increasing number of them simply don’t have the resources to deal with it.  Families try their best to fill in the gap and they usually do so by cashing in their retirement funds or pulling equity out of their homes or taking on more work if they can get it.  All of this, of course, will come back to haunt this nation when it has to come to grips with the long-term fallout, an impoverished generation of senior citizens financially marginalized by unexpected college costs.  They will join a large and growing population that will be on the retirement public dole for thirty or more years because we as a society failed to adequately support their kids during a relatively short four years of college.

There is a solution but it will likely have to come from people who are not stakeholders in the current mess.  It won’t come from the bureaucrats who have jobs because of the complexity and the Wizard-of-Oz nature of the current system. It won’t come from Congress because they may have to admit that they had created a monster and Congress rarely acknowledges fallibility. Moreover, certain members of Congress have long ago turned their backs on the national well-being and, instead, have pledged their primary loyalty to certain narrow interest groups.  And it probably won’t come from colleges because under the present system there are no rules beyond procedural issues…and not a scintilla of enforcement oversight relating to meeting the calculated financial needs of families.  Put another way, there is no penalty for a college that simply ignores the financial distress of families. It won’t come from the usual think-tank types who tend to tweak embedded systems rather than create new models based upon new paradigms that better reflect the lives and realities of actual people.  And it most assuredly won’t come through prayer. Change of this magnitude will be the creation of a group of really smart, focused people who can rise above the toxicity of politics and their own self-interest, people who care deeply about and understand the value of education and its role as an insurance policy on the continued viability of the nation as a global leader.  They must be visionaries who have a gut-level appreciation of the pressures on families, on colleges and on public fiscal resources and policies.

Whatever we do we had better do it quickly.  Time is not our ally in this matter.  Colleges will begin to close; talent waiting to be developed and refined tends to have a short shelf life; and families will continue to be impoverished by college costs every minute of every day. The meter is running and the fate of this great democracy may be hanging in the balance.

That was then.  This is now (2015).

Update:  When I arrived at my desk this morning (7/28/15), I reviewed two emails from clients who had done everything right in terms of applying for financial aid.

A Pac 12 University:  Out of State Tuition and Fees –  $46,902

•    Family’s EFC (Expected Family Contribution):  $4,550 (an amount which suggests a family income of around $45,000-$50,000)
•    Eligibility for “Need-based” financial aid:  $42,352
•    Need-based Aid Offered:  $17,225
•    Gap (shortfall in need-based aid): $25,127
•    Family’s actual contribution:  $29,677 (or the amount expected under the “formula”  for a family making well in excess of $100,000!)

A California State University Campus: Tuition and Fees – $27,452

The student is essentially without a functional parent.  Her father is unknown and her mother is incarcerated serving a 12-year sentence in a state prison.  She lives with a relative who is serving as an “ersatz” foster parent.
•    The “family’s” EFC:  $0
•    Eligibility for need-based aid:  $27,452
•    Need-based aid offered:  $16,395
•    Gap:  $11,057
•    “Family’s” actual contribution:  $11,057 (not including the interest on the loans covering this amount) approximates an amount that someone making about $65,000+ might expect to pay under the original design and intent of the financial aid system.

To make matters worse to the point of outright folly, one of the non-need based loans offered was a parent loan (PLUS) of over $9,000 that the incarcerated parent was supposed to request.  Since the parent couldn’t possibly do that the student would then be eligible for another $4,000 in unsubsidized student loans (“unsubsidized” means the loans accrue interest and are due and payable while the student is in college).  Remember too that this illustrates year one of a four-year college engagement! In this instance the student who has overcome enormous odds to be academically eligible and fully prepared for college-level work would have her dreams shattered by the very system that was put in place to help her.

I am aware that a critic will say that the EFC is no longer a dollar amount but rather an ethereal, somewhat meaningless “index of eligibility”.  But I am also aware that the morphed terminology was a deliberate bureaucratic concoction that allows colleges to provide insufficient financial aid with impunity.

A Plan for Change:

For the last 7+ years, the Obama Administration along with many others have had in their possession the outline for a new, comprehensive overhaul of how we as a nation might pay for college.  Essentially, the plan….
•    Eliminates forever the scourge of student loans for non-profit colleges
•    Preserves the financial well-being of parents
•    Is 100% reliable and transparent
•    Protects and even enhances the financial strength of colleges
•    Includes a comprehensive, confidential rating system for colleges that is not available to the general public and is not in any way rank-ordered
•    Provides incentives for colleges to rein in costs and to assure graduation in four years
•    Creates unrivaled college access to all qualified, college-ready students regardless of economic status, race or ethnicity where the primary currency for admission is talent and character not dollars
•    Dramatically reduces the growing bureaucracy in the U.S. Department of Education
•    Eliminates the FAFSA and CSS Profile financial aid forms along with their associated paperwork
•    Encourages and enables parents to focus on saving for retirement rather than college
•    Mobilizes the full talent reserve of the nation
•    Includes a smart public/private plan using the already-in-place tax code to pay down existing student loans
•    Reduces the reliance on off-shore human resources
•    Enhances the security of the nation.  Well-educated, prosperous people tend to look for non-military solutions.  But if all else fails, history would suggest that wars are usually won by smart people, not smart bombs.
•    Benefits “Main Street” and ordinary Americans instantly
•    Creates a huge, ongoing economic windfall for the economy

Neither the U.S. Department of Education, the Obama Administration, members of Congress, departments of education at universities nor a wide array of public interest organizations who purport to be advocates for education have shown the slightest interest in taking a long, hard, creative look at how this nation supports higher education.  Nor have they critically examined the real, financially tangible impact of the current “system” on the financial health of families who seek post-secondary training for their sons and daughters.  They have spent endless hours and words critiquing the system but have offered little in the form of dynamic “zero-based” thinking needed to craft new paradigms. The only exceptions to that list are a tiny handful of Representatives like Jackie Speier, long a paragon of advocacy for hard-working ordinary citizens and the future of this nation and Senator Lamar Alexander, who is at the very least trying to raise the issue among his largely tone-deaf colleagues.  The U.S. Department of Education showed a glimmer of interest when Secretary Arne Duncan seemed to care since he understood that any barrier to higher education would serve to undermine creative advances in K-12 programs. But little came of that interest which was disappointing because in my view Arne Duncan is a smart, visionary public servant who could have done much to change the landscape of how this nation pays for higher education.

The plan that was put on the table at The White House in 2009 is not perfect.  None of us has a monopoly on truth.  True, effective reform like the model outlined in 2009 and explained in some detail in Part 2 of this series will require a fair amount of ego-free, collegial thought and discussion but it is a start and it addresses a very wide array of flaws in the way we Americans currently pay for college.  Unlike many more piecemeal approaches, it is not a standalone construct but, rather, a component of the nation’s larger economy.  It is a coherent plan that will likely yield a far greater return on every public dollar spent than the present, often cruel “crap shoot” we call a college financial aid system.

After dealing with thousands of ordinary, hard-working families of every imaginable background, belief system and economic status for more than a quarter century, I can report without hesitation or reservation that we can and must do better.  If you have any doubts about the decreasing level of intellectual activity and its cost to the nation, just turn on the TV for a few hours.  The level of entertainment is depressing as is the tone and content of what passes as news and political discourse. The endless hours of reported violence are in most cases the offspring of ignorance and despair.   Much of the blame can go to our failure as a society to not only value high-level thinking and creativity but also our wanton neglect of the processes that will lead to those outcomes.  The road to college and higher learning in general is as much a public utility as it is a metaphor.  We can turn what is now an uncertain, costly and needlessly twisted path into an unobstructed super highway open to all who are willing and able meet the challenge.  We can surely do that.  Anyone who doesn’t believe it hasn’t read much American history.

And now, in 2016, it gets even worse.

•    The FAFSA (Free Application for Federal Student Aid) can be completed in October of the student’s senior year in high school which means that colleges are likely to have a very solid idea of the family’s ability to afford college before the admissions process takes place.  So much for need-blind admission!

•    It is taking longer than even to get a college degree.   In a recent major study of American colleges (Student Clearinghouse Research Center, 2015), students were tracked beginning with the fall of 2009. By the spring of 2015 (6 years later!) only 53% had received a degree.  In many cases this was a function of the students’ failure to do the work or their opting for part-time status because of cost considerations.  But often delays were caused by poor enrollment management by the colleges which resulted in unavailable required classes needed to complete majors and prerequisites in timely fashion.  In other instances, colleges knowingly admitted unqualified students as a simple business proposition.  Failing students are still required to pay the usual colleges costs.  It’s higher education’s version of sub-prime mortgages.

What is the actual cost of college “overtime”?  The students or parents still have to pay for it but there is more.  If a student were not languishing in college for an extra year or two, he/she would likely be going on to grad school or beginning a career making anywhere between $30,000 and $50,000 or so.  These “opportunity costs” when they are folded into the college cost mix makes that extra year very expensive at any enrollment price.  But there are even more implications….

The federal financial aid system was built and funded on the supposition that college was a four-year commitment.  When it takes longer and in the absence of massively greater funding levels by the federal government that means there will be fewer dollars available to those students who complete college in regulation time.  This shortfall puts even more pressure on colleges because on a per pupil basis there is even less federal money in the system to help struggling colleges fill the need-based demand.  Once again it will be left to parents or student loan lenders (often private because eligibility for federal loans has run dry particularly for part-time students) to make up for the shortfall.

Finally, let’s pretend that it took you about 10 minutes to read and reflect upon this post.  If one believes the best current estimates, during that time the total student loans nationally increased by about 2 million dollars!  Put another way, total student loans increase by about $2,800 to $3,000 a second, 24 hours a day, every day and that doesn’t include the extra borrowing by parents and the liquidation of long-term financial security assets that might assure a well-deserved, secure retirement.

Anyone out there who doesn’t understand the implications of our dysfunctional system of college funding doesn’t appreciate the importance of a highly-educated population in this very competitive and dangerous world of 2016.  We can fix it but that will require a willingness to work together as a nation not as a self-destructive people who treat others with whom we may not agree with as hateful enemies of the state.  The choice is as it has always been…ours and ours alone.

© Paul Wrubel, 2016
All Rights Reserved

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