Rising Tuition and Fees, Stagnant Incomes Add Up to Increased Reliance on State Grant Aid

As college costs rise, and with many household incomes stagnant, students have become increasingly reliant on the various forms of tuition assistance available to them, including state grant aid.

Stateline Midwest Vol. 20, No. 9: September 2011

Darbi Yost is a 20-year-old sophomore at Black Hills State University in Spearfish, S.D. From a working-class family in Wheatland, Wyo., Yost says paying for college has been a challenge.

To pay the almost $13,000 yearly cost for her education, she depends upon a variety of grants and scholarships — federal Pell Grants, a scholarship from a Wyoming-based foundation and a volleyball scholarship, for example.

When asked if she worries about being able to pay for her degree, Yost answers quickly.

“Oh yeah,” she says. “My financial aid went under review. I wasn’t sure I was going to get it for quite a while. … I have had to take out loans and stuff like that already.

“I don’t really want to have to pay for those when I get older, but you do what you have to. I’m sure I’ll take out many more to come.”

Students relying more on aid
Yost is not alone.

Concerns about the cost of college and the debts being taken on by students and families have never been higher.

In its 2008 “Measuring Up” report, the National Center for Public Policy and Higher Education laments “the deterioration of college affordability throughout the nation,” noting that college and tuition prices have risen by 439 percent over the past three decades. In comparison, the consumer price index has increased by 106 percent and median family income by 147 percent.

Between 1998 and 2008, student borrowing more than doubled.

In their state-by-state evaluation of college affordability, the report’s authors gave every state except California a failing grade. In all 11 Midwestern states, too, there has been a rise since 1997 in the percentage of income (average of all income groups) needed to pay for college expenses at public four-year institutions.

As college costs rise and with many family incomes stagnant, the various forms of tuition assistance available to students like Yost have become an increasingly vital financial resource for them.

According to a fall 2010 report of the College Board Advocacy & Policy Center, the average net price that students pay for higher education, after considering grant aid and tax benefits, has increased more slowly than the consumer price index over the past five years.

That is because although the cost of tuition, fees and room and board have gone up, there have been record increases in the amount of federal aid available through Pell Grants. (In a March report, researchers at the Center for College Affordability and Productivity argue that higher education institutions are “capturing” the financial aid by raising prices, with the end result being no improvement in college affordability.)

Along with the federal government, states are another important source of financial help for students.

Total state-funded student aid in the Midwest during the last school year was about $1.5 billion, data compiled by the National Association of State Student Grant and Aid Programs show. And spending on grants accounts for a significant portion of a state’s total support of higher education: in the Midwest, anywhere from 14.7 percent in Indiana to 2.1 percent in South Dakota.

Where should the finite amount of money available for financial assistance go? Which group of students should be targeted for state aid?

These are increasingly important questions for policymakers as the demand for an educated workforce increases and students and families rely more on tuition assistance. Aid programs offered in South Dakota and Indiana offer examples of two different approaches — one based on merit, the other on need.

South Dakota’s merit-based approach

In South Dakota, the state has focused its financial assistance program primarily as an incentive to get high school students to take a more challenging curriculum.

Its primary assistance program is Opportunity Scholarship, the goal of which is to encourage students to be better prepared for college. Individuals wanting to qualify for the scholarship must complete four years of math, science and English — standards in all subjects that are above the state’s minimum graduation requirements. Students also must earn no final grade less than a C and have a composite ACT score of at least 24.

“It was tough to get high schools, because of local control, to embrace a different set of curricula and require [tougher classes],” says Paul Turman, associate vice president for academic affairs for the South Dakota Board of Regents.

“By infusing the incentive at the end with the Opportunity Scholarship, it would result in getting more parents noting, ‘OK, as a freshman, sophomore, junior and senior, here’s what you need to do so we can benefit from this program.’”

Turman says the state’s scholarship program has contributed to several positive education trends in South Dakota: The number of students going to colleges and universities in the state has increased, remediation rates have gone down, and the average ACT score of incoming college freshmen has increased.

The state still struggles, however, with getting low-income and first-generation students into and through college. Native Americans make up 10 percent of South Dakota’s population, but comprise only 2 percent of the students enrolled in the university system.

For many years, Turman says, South Dakota was the only state without any income-based financial aid.

According to the National Association of State Student Grant and Aid Programs, the state offered $178,000 in income-based aid for the 2009-10 school year, the lowest amount of any Midwestern state. In that same school year, financial aid not based on need amounted to almost $3.8 million in South Dakota.

“It’s been on our radar,” Turman says about expanding the availability of need-based aid. “… We continue to remind people about the data we have on low-income students. The number eventually going on to college in South Dakota continues to be below the national norm.”

Large gaps seen among income groups
States vary not only in the amount of total aid they provide students, but the extent to which theallocation of aid is based on financial need.

A recent Education Trust study found that over the past decade, the amount of state grants not based on need has grown three times faster than needs-based assistance.

That same study (“Priced Out: How the Wrong Financial-Aid Policies Hurt Low-Income Students”) noted that the typical low-income student must come up with more than $11,000 each year to attend a public or private nonprofit college — an amount equal to almost three-quarters of the student’s family income.

Those trends, says Jim Applegate of the Lumina Foundation, are not consistent with a goal of getting more students into and through college. (Lumina’s goal is to have 60 percent of Americans with a high-quality degree or credential by 2025.)

“If you have a state-based aid program, who is that going to and is it really, from a policy standpoint, helping us develop the workforce we need in our state to have a vibrant economy?” asks Applegate, vice president for program development at Lumina.

“In tight fiscal times, if we are giving a significant part of our money to kids who are reasonably wealthy by standards in our state — who are probably going to college anyway — is that a wise use of dollars?” he adds.

“Look at low-income students age 24, and [you] find only 12 percent of them graduate from college. Look at high-income students age 24, and 59 percent of them graduate from college.

“Do we really believe rich kids are five times smarter than poor kids?”

Indiana’s need-based aid program
For more than 20 years, Indiana has taken aggressive steps to improve college participation and graduation rates among low-income and first-generation students — by not only preparing them for college, but also paying their way to go.

Under the 21st Century Scholars Program, low-income middle school students (using criteria based on whether they qualify for the free and reduced-price lunch program) sign a pledge and also get a financial commitment from the state.

The students pledge to graduate with at least a 2.5 grade point average (the minimum was raised from 2.0 this year), not use illegal drugs or alcohol, not commit a crime, apply for financial aid on time, and apply for admission to an eligible Indiana college or university.

Fourteen regional support sites across the state provide participating students and families with workshops, access to campus visits, help with filling out financial-aid applications and other assistance.

If students fulfill their pledge, the state covers the cost of four years of public college tuition or a comparable amount if they choose to go to a private institution. When the 21st Century Scholars reach campus, the state’s higher education institutions provide mentoring and support for the students to help them succeed and graduate on time.

“It was never intended to be solely a scholarship program,” says Jason Bearce, an associate commissioner at the Indiana Commission for Higher Education. “It was intended to be an intervention program with a scholarship component. … We’re really happy with the degree to which it has raised aspirations to higher education pretty much across the board. We’re trying to send a really strong signal. Funding is one part of it, but there’s a lot more to being prepared to succeed in college.”

For Blair Brown, a sophomore public safety major at Indiana University-Purdue University Indianapolis, the 21st Century Scholars Program has been invaluable. He plans to be the first in his family to earn a college degree.

“The numbers for college each semester are overwhelming,” Brown said. “Even just paying for housing, stuff like that, seems to add up. For someone who doesn’t have to pay for [tuition], I still have student loans out. I can’t imagine adding up fees and in-state tuition on top of housing, books, things like that.”

In 2006, the high school graduation rate among 21st Century Scholars was 79 percent, compared to 76 percent for all students and 59 percent for low-income students. For the past 14 years, on average, about 3,000 21st Century Scholars have been admitted to colleges across Indiana annually.

State officials say the program has been a part of Indiana’s overall strategy to increase college participation rates. That strategy has shown signs of success: Between 1986 and 2006, the number of high school students in the state attending college soon after graduation rose from 33 percent to more than 63 percent.

But there is room for improvement with 21st Century Scholars, Bearce notes. Although the program participants attending college are more likely to graduate than other low-income students (16 percent earning an on-time bachelor’s degree vs. 15 percent), they still lag when compared to all students (23 percent).

Another concern is the Indiana students and families who aren’t eligible for the scholarship program, but who are feeling the pinch of higher college costs.

“One area we’re becoming increasingly concerned about is our middle-income students,” Bearce says, because “there are not the same resources available for them in terms of aid.”

“I don’t think Indiana is alone in the fact we’ve seen college tuition increase nearly 100 percent over the past 10 years.”

Pressuring or mandating institutions to curb or freeze tuition is one option for states. And Bearce points out other options, such as making financial aid more readily available to part-time and non-traditional students and reducing the amount of time it takes to earn a degree.

‘No longer think of college as optional’
Indiana’s 21st Century Scholars Program has received the attention of at least one neighboring state, Illinois. Lawmakers there recently passed HB 1710, a bill signed into law in August that sets up a college planning program for low-income and first-generation college students.

Under the new law, the state will offer many of the same services as 21st Century Scholars. But while it will help students learn about and apply for financial-aid programs, the new Illinois program does not guarantee tuition assistance.

Illinois already is one of the nation’s leaders in providing need-based aid to students — almost $400 million for the 2009-10 school year, an increase of almost 18 percent over the past decade. According to the National Association of State Student Grant and Aid Programs, Illinois is one of 10 states that together provide almost 75 percent of all need-based aid in the country. (Indiana is one of the other 10 states.)

Despite the $400 million that Illinois put toward need-based aid last year, Illinois Republican Rep. Robert Pritchard says, it is still not enough to cover higher college costs.

“The No. 1 thing states ought to be focusing on is creating the workforce for the jobs of the future,” says Pritchard, sponsor of HB 1710. “If they’re going to attract businesses, if they’re going to be economically viable, the workforce has to be able to do the jobs to attract the companies.”

Applegate agrees.

“We can no longer think of college as optional,” he says. “Some of our data would suggest that without some form of post-high-school education, which can take on different forms, you will be the working poor in the coming economy.

“Certainly your chances of having any middle-class lifestyle are nil. Our economy will suffer; our ability to recover from this recession will suffer.”