Understanding Financial Aid in the UC and Beyond

The California Legislative Analyst has a recent report on higher education that clarifies many issues concerning the state of financial aid in the UC system. One of the key findings is that while tuition is being covered by state, federal, and institutional aid for many students, these different sources of support are not keeping up with the other expenses college students encounter: “Living expenses, including food and housing, transportation, and personal expenses, make up the majority of undergraduate student budgets . . . These costs are relatively high in California—about 20 percent higher than the national averages.”  One of the effects of this high cost of living in California is that even though UC has kept tuition flat for the last two years, students continue to graduate with high levels of debt, and while in school, many students are forced to work long hours to pay for their living expenses. 

As I have pointed out before, most politicians and higher ed officials only talk about the cost of tuition when they discuss student debt, but the biggest reason for student indebtedness is not tuition.  For example, Tennessee, Mississippi, and Oregon have received a lot of press coverage for proposing that community college should be free; however, this proposal would in reality increase student debt for low- and middle-income student as it would funnel money to wealthier students.  Since most of the lower-income students are already paying no tuition because of need-based institutional and federal aid, it is only the wealthier students who will be the major benefactors of eliminating tuition; meanwhile, the money spent on giving free tuition to wealthy students will prevent the state from giving aid to the lower income students to pay for books, room, board, and other living expenses.  Not only will the low-income students have to borrow more money to stay in school, but they will also have to work more to support their education, and this combination of increased debt and increased student work is a recipe for students dropping out of higher education. So if we want to stop a generation of students from being plagued by life-crippling debt, and if we want to increase our graduation rates, we need to find a way to pay for the total cost of attendance. 

I have recently updated my calculation of how much it would cost to pay for the total cost of attendance for each undergraduate student at a public university and college in America.   In 2011-12, there were 6.7 million full-time-equivalent undergraduate students enrolled in public universities and 4.2 million enrolled in community colleges. Since the average cost of tuition, room, board, books, and living expenses for undergraduates at public four-year institutions was $20,612, and at two-year public colleges, it was $13,237, the total cost was $195 billion. 

Of course $195 billion is a lot of money, but if we look at how much the U.S. spent in 2011 on financial aid and higher ed tax breaks, we come up with $201 billion:

$35 Billion  Pell Grants

$10 Billion  State Financial Aid

$27 Billion  Student Loan Subsidization

$40 Billion  Federal Tax Breaks

$12 billion Veteran Higher Ed Benefits

@$17 Billion  529 College Savings Plans

@$10 Billion  State Tax Breaks (estimated)

@$40 Billion  Institutional Aid and Tuition Discounting

@$10 Billion   Federal and State Work Study Funding

We are therefore spending enough to make public undergraduate higher education free; however, we are not allocating these resources in an organized and coherent manner.  For example, the federal government is currently spending $25 billion on low-performing for-profit colleges that have very low graduation rates and generate high student loan default rates.  Moreover, colleges and universities inflate their tuition price in order to pay for financial aid at the same time more schools are moving from need-based aid to merit-based aid, which privileges the wealthiest students. 

It should be clear that we need a national solution to a national problem, and his would entail a new compact among schools, state governments, and the federal government.  While some may say that this is a new role for the federal government, we must remember that the government already has strict requirements related to research grants and financial aid; what we need to do now is to tie aid to the institutions and force them to make the right decisions regarding access, affordability, and quality.