The Tangled Web of Financial Aid Policy

Inside Higher Ed has a great piece today on the trade-offs inherent in institutional financial aid, focusing on the impact of institutions that move to a 'no loans' policy without also having a 'need blind' admissions policy. Doing both requires a hefty endowment and for those colleges that jump on the no-loans bandwagon without going 'need blind' there could be some unintended consequences that hurt the ability of low-income students to get into and pay for selective, private colleges. From the article:

The danger of going no-loans without being need-blind, Hill [President of Vassar College] said, is that it could result in some students receiving less aid and some low-income students not being admitted — at least once you leave the relatively small group of colleges and universities with stratospheric endowments. “If you are a school that is not need blind, and you go to a no-loan policy, you are going to make the financial aid for each of those you accept more generous, but it’s not saying what your overall commitment is,” she said. “If your aid budget is unchanged, or doesn’t increase in the future, you will be giving more financial aid to fewer students, and I’m not sure I would consider that a welfare-improving situation.”

Institutional financial aid doesn't always help those that need it most. Our first-ever Charts You Can Trust showed institutional aid increasing fastest for students in the highest income group. And we've followed up with charts looking at the impact of merit-based aid, or 'tuition discounts', that often go to the highest income students with the best test scores, and most recently at the continued income gap in college access to the most selective institutions--even among top students.

This article also raises an excellent question--one that's too often looked over in the debate about student debt--what is an appropriate amount of debt for college? Considering that a substantial amount of the financial benefits of a college degree accrue to the individual student, it is reasonable to expect students to invest in their own education. But that investment needs to be balanced against career expectations and the actual value of the degree. Another great quote from the article:

For example, Lindeman [financial aid director at Macalester College] noted that many colleges going no-loans say that they are thinking about the undergraduate who wants to be a teacher or join the Peace Corps, but who is worried about loan repayment. If that’s the problem, he said, colleges should be creating funds that repay the loans of new alumni who enter those or similar service-oriented (and low-income) fields. But he noted that the elite colleges that are boasting of going no-loans turn out plenty of lawyers and technology entrepreneurs and investment bankers — arguably far more than inner-city school teachers. Does everyone deserve a loan-free education, he asked?

Some great, if thorny, issues to think about in this piece, underlining that financial aid policy is far from being a clear-cut issue. Even so, if the discussion continues at this high of a level, then we're likely to see some good progress on the issue.