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Trusteeship Magazine

Financial-Aid Policies for the Common Good

By Tori Haring-Smith
September/October
2013

The first decade of the 21th century has been a time of increasingly progressive rhetoric yet increasingly regressive action with respect to financial-aid practices in America. While our higher education institutions profess a commitment to improving access and making college affordable, we have developed a system of admissions and financial-aid practices that subverts that commitment.

Although need-based aid increased by 100 percent between 1999 and 2009, merit aid increased by 150 percent over the same period. According to the report “Time to Reexamine Institutional Cooperation on Financial Aid,” based on College Board data from 946 institutions, in 2008 $3.3 billion in aid was awarded in excess of need while $2.4 billion in need went unmet. Thirty-five percent of this unmet need was at public institutions, while 21 percent was at privates.

The tension between awarding aid based on merit or on need arose as early as 1643 when Harvard University awarded a scholarship endowed by Ann Radcliffe and intended to provide “yearly maintenance [for a] poor scholer [sic]” to the son of a trustee who made a good living. American colleges historically have been places of privilege where wealthy and powerful families educated their children. Financial assistance was allocated only to an isolated number of “charity cases” until the passage of the 1944 G.I. Bill, which made college attendance more widely possible. With the establishment of Pell grants in 1972, access to higher education became a national budgetary priority.

To respond to the call for greater access and to compete with public institutions with tuitions kept artificially low through public subsidies, private colleges and universities initiated need-based aid programs. Before the creation of FAFSA in 1992 provided a standardized means of assessing a family’s financial state, private colleges formed groups to determine how best to assess individual financial need. By the 1970s, more than 100 institutions were meeting in at least 25 different groups to discuss the financial needs of their commonly admitted students.

The Overlap Group, consisting of 23 institutions, including the Ivies, the Massachusetts Institute of Technology, and some highly selective small colleges, was the most visible. Collectively, they committed to need-blind admission, to meeting students’ full need, and to offering only need-based aid. But in the early 1990s, the Justice Department charged the group with “illegally conspiring to restrain price competition for financial aid.” Rather than engage in a long and expensive legal battle, the group’s institutions signed a consent decree, agreeing not to cooperate on matters of financial aid. MIT challenged the department, but eventually settled. After this capitulation, other groups also stopped meeting.

The basic terms of the MIT settlement became law through Section 568 of the Improving America’s Schools Act, passed by Congress in 1994. Section 568 (now known as The Need-Based Educational Antitrust Protection Act) prevents colleges from discussing common financial-aid policies (for example, awarding only need-based aid) unless they admit all students need-blind. Only about 25 institutions qualify for this exemption.

To make college more affordable and to increase access for all qualified students, we must improve the system used to award institutional financial aid in America. Since no single institution or group of institutions can alter their policy for awarding financial aid without disadvantaging themselves within the market, to reform financial-aid practices, institutions must be allowed to discuss shared financial-aid policies, and public institutions must join with private institutions so that the two sectors remain in balance. The issues are complex, and resolving them will not be easy. But working together, we can create the change that is needed.

When Section 568 of the Improving America’s Schools Act comes up for renewal in 2015, Congress has an opportunity to loosen the requirements that colleges must meet in order to work together to lower prices and award aid in a more equitable manner. Board members should discuss financial-aid policies with their institution’s top administrators and prepare to help them lobby Congress to give the higher education sector more latitude in developing financial-aid policies for the common good.

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