Western Interstate Commission 
for Higher Education 
-- July 1999

Forces Impacting Financial Aid

As our nation prepares for the largest college enrollment boom in U.S. history, the need for clear and consistent higher education finance strategies and aid programs  becomes critical. College enrollments are projected to rise to 16.1 million by the year 2008, an increase of over a million students from current numbers.1 Furthermore, the West is projected to have the highest percentage growth rate in the number of high school graduates in the nation by 2007, an estimated 729,623 students.2

Many states are reevaluating their financing structures and financial aid programs to determine the overall impact of this projected enrollment boom on access and affordability. The driving forces of change include:

Tremendous population growth in the West that places greater demands on higher education to increase access while strengthening and expanding programs.

Limited state resources allocated to higher education competing with K-12, corrections, social services and transportation allocations.

Greater socioeconomic diversity among students.

More for-profit, high-tech providers in higher education.

New approaches to federal aid programs.

As stakeholders confront these issues, inconsistent state policies for financing higher education and aid programs emerge. This issue of Exchanges identifies five major challenges that states face as they respond to this ever-changing environment and assess system responses to students’ financial aid needs.

Challenge #1: 
Financing Higher Education

As a result of enrollment growth demands, policymakers are analyzing their beliefs about higher education funding priorities and investment strategies to provide a solid financial framework for institutions of higher learning. To prepare for anticipated growth, many Western states are busy planning efforts to maximize their ability to serve students, provide a solid financial foundation, and either curb the migration of resident students or develop overflow enrollment strategies with neighboring state systems. Innovative national and state financial aid programs have the potential to play a vital role in this planning process.

"The number of school-aged individuals in Utah is 43 percent of the working-aged population, that’s 39 percent above the national average. I’m concerned that my state is still funding state financial aid programs at the pilot level."

Gail Norris, Utah State Board of Regents

As record numbers of college applicants approach the doors of the higher education community, states need to regroup financially from years of declining investment. According to WICHE’s 1998 Policy Indicators report, "All WICHE states, with the exception of Alaska and North Dakota, experienced a decline in the share of general fund appropriations from the state between fiscal years 1988 and 1998. Further, since 1992 Western states faced a notable decrease in state appropriations to higher education as a percent of tax revenue."3 If state systems do not restructure their financial base and prepare for this projected increase in services, alternative providers will be ready to fulfill the demand.

Policy Questions:

What is the state’s responsibility for subsidizing higher education through student financial aid?

Does the state have a financial aid policy that prioritizes aid programs to reflect state goals? If so, is it effective for current and future state needs?

Are financial aid programs designed – and allocations determined – in relation to tuition rates, the true cost of education, and affordability?

Challenge #2: 
Grants vs. Loans: How Students Pay for Education

A recent national study, Straight Talk About College Costs and Prices, reported, "Over a ten-year period between 1987 and 1996, the average net price of attending a four-year, public university increased 109 percent, from $5,146 to $10,759. The net price at public two-year colleges increased from $2,808 to $6,761 during this period, a 141 percent change."4

Several higher education financing programs help counter these increases. Student financial aid programs include federal Pell grants, federal direct subsidized and unsubsidized loans, tax credits, merit-based scholarships and need-based grants at both the state and federal levels, and a variety of state and institutional aid and savings programs. "Total student aid from all sources increased by 128 percent from 1987 to 1996. Most notably, institutions increased their aid programs by 178 percent," according to Straight Talk About College Costs and Prices.5

There is growing concern over the amount of debt students incur when financing a college education. The staggering increase in loans as opposed to grants is at the heart of this debate. According to the College Board, Trends in Student Aid, "Loans comprise 60 percent of all aid, compared to just over 45 percent 10 years ago. For the better part of 20 years, federal student aid has been drifting from a grant-based to a loan-based system."6

"Have we truly considered the ramifications to our students’ futures as they carry such large student loan debt burdens? Are we even considering the real economic analysis of such high debt rates, where students’ future income will be directed toward lenders and secondary markets and not into local economies?"

Jim Pritchard, Northern Arizona University

"I believe we will see a decline in alumni giving as a result of such high debt rates. Our future alumni would need to utilize discretionary income to repay their student loans rather than supporting their alma mater."

Judy Belanger, University of Nevada – Las Vegas

In addition, students are attempting to minimize their debt burden by working more hours outside of school as loans are increasingly replacing grants. Student work is becoming a critical issue in relation to student success rates. "Of the students who worked full time, 55 percent reported a negative effect on their grades, while only 17 percent of students who worked 15 hours or less reported any negative effects on their grades," according to the U.S. Department of Education.7

Policy Questions:

Do we know how our students pay for college? Have student financing trends changed in the state? If so, how?

What impact do debt burdens have on graduates’ decisions to remain in-state for graduate work or job placement?

What other state policies work against financial aid policies as students make their decisions about where to go to college or whether to return?

Challenge #3:
Merit-Based Aid vs. Need-Based Aid

Nationally, institutions responded to student competency criticisms by engaging in bidding wars for the top academic achievers. As a result, more university and state aid packages are being designed as merit-based awards. To ensure that need-based aid programs maintain their current levels of funding, it is increasingly important for states to consistently measure levels of unmet need. In determining unmet need, however, institutions and statewide systems run into a number of data collection problems.

The National Commission on the Cost of Higher Education noted that little uniformity of language exists in the lexicons of financial aid programs.8 Such expressions as merit-based vs. need-based aid, state subsidy, unmet need, and financial aid itself hold different meanings for different institutions. Lack of agreement on these terms has stymied data collection and comparability efforts at the institutional, state, and national levels.

"Institutions need assistance with the task of data collection and establishing comparable regional data....There are too many layers regulating data collection for institutional financial aid officers to manage."

Mick Hanson, University of Montana, Missoula

"WICHE members must clarify our definitions and begin using the same terms if we want to develop truly comparative data."

Karl Engelbach, California Postsecondary Education Commission

Policy Questions:

Does the state have a grant-to-loan ratio that influences state policy on financial aid?

How can financial aid policies effectively respond to sometimes conflicting state access and excellence goals without competing with each other as well as various higher education and external priorities? Are excellence goals in conflict with access goals?

To what extent can the state afford a differentiated aid policy for underrepresented groups within lower income levels?

Challenge #4:
Impact of New Federal Aid Programs

The 1997 Taxpayer Relief Act represents two major shifts in federal higher education financing policy. "Firstly, the new law provides financial support under the tax code rather than through grant and loan programs; and secondly, families with annual incomes from $40,000 to $80,000 – not low-income families – will benefit most from the new law," according to Conklin (1998).9

It is important for each state to study the impact of this new approach to financial aid and maximize the federal subsidies with innovative state aid programs. Currently, the average projected tax credit per student among the WICHE states is $626.66.10

It is unclear which federal agency will be charged with collecting actual data on these new tax credit programs. The Internal Revenue Service’s Index Series will contain some information. Unfortunately, IRS data is not very timely or readily accessible. A system for data collection related to the Hope Scholarship and Lifetime Learning tax credit programs is essential if states are to assess the use and degree of family benefit and adjust their state aid programs accordingly.

"Institutions of higher education should not be required to verify student eligibility for the new federal education tax credits. Those benefits should be self-reported by the taxpayer and verified through the audit process, much like other tax benefits."

John Nutter, University of Wyoming

Policy Questions:

Can state policy effectively take into account the impact of new federal aid initiatives (e.g., Hope Scholarships, Lifelong Learning credits, and financial aid for distance education)?

How can state officials and policymakers ensure that they have timely information on the use of federal aid programs?

To what extent are federal aid programs creating additional administrative responsibilities on state and institutional aid officials without providing resources to account for those burdens?

Challenge #5:
The Changing Student Base

The student profile has changed radically in recent decades. Higher education enrollments now include larger numbers of racially and ethnically diverse students and older, often married individuals - many of them parents - with limited means and a tendency to move in and out of the student population on a part-time basis.11 In addition to feeling the effects of ever-changing student demographics, college enrollments are increasing due to population trends and expanded K-12 collaborative efforts to improve access. As states analyze access and affordability issues, this new student profile and the trend of increasing access should be taken into account.

Distant learners are one example of the new way in which students "swirl" in and out of higher education and enroll in multiple institutions. Traditionally, the Higher Education Act and its Amendments excluded distance learners from federal financial aid programs. The 50 percent exclusion rule was designed to protect federal monies from being used for fraudulent educational activities. The rule excluded institutions with 50 percent or more of their student population enrolled in distance education from receiving financial aid. In response, a new federal pilot initiative will allow 16 programs to waive these restrictions for distance education courses. The Western Governors University represents one of these pilot programs.

Part-time students are also often overlooked in financial aid programs. Across the Western region, one-half of all students attend college part-time.12 Colorado is one of the few states that sets aside substantial resources, $1.2 million, for part-timers in the form of need-based grants and merit-based scholarships.13

"We must work toward improving the critical link between K-12 and higher education in an effort to enhance academic preparation. Higher education advocates in my state formalized this relationship by intervening at the fifth grade level via general education presentations that encouraged students to consider attending college and consequently enrolling in more rigorous academic courses."

Lillian Montoya-Rael
New Mexico Commission on Higher Education

Policy Questions:

How well do the state’s financial aid programs fit the needs of students currently in our postsecondary education institutions and those expected to attend in the near future?

Are students who take courses by distance education served by financial aid for those courses?

As students have become more mobile, attending multiple institutions and combining courses from multiple providers, have state financial aid policies allowed portability of aid to respond to new student needs?