Book Calls for Revision Of Financial-Aid System

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WASHINGTON--The federal government must dramatically expand its financial-aid system, and state governments should follow with steep increases in college tuitions to ensure that the poorest students benefit from the federal aid, two economists argue in a new book.

States' current practice of keeping tuition at their two- and four-year schools as low as possible ends up having the effect of subsidizing middle- and upper-income students more than it does low-income students, the authors say.

Under the system proposed in the book, the authors say, states would raise their tuitions to capture more federal dollars, enabling more poor students, who are more responsive to financial aid than wealthier students are, to obtain a post-secondary education and to choose their institutions regardless of price.

"Our proposal would increase the role of 'ability to pay' financing of educational costs by expanding the role of income-tested federal student aid," Michael S. McPherson and Morton Owen Schapiro write in their book, Keeping College Affordable: Government and Educational Opportunity.

"At the same time, it would reduce the size of the 'across the board' subsidies that states now provide to public colleges and universities by increasing these institutions' reliance on tuition," the authors continue.

Mr. McPherson, an economics professor at Williams College, and Mr. Schapiro, chairman of the economics department at the University of Southern California, co-direct the Williams Project on the Economics of Higher Education.

In separate interviews, the authors said that, because of the dire financial status of many states, public institutions of higher learning are at a difficult crossroads.

Either, the authors conclude, states are going to have to choose dramatic tuition increases, which would create an even more elitist higher-education system, or states are going to have to accept a decline in higher-education quality because they do not have the money to keep top scholars, offer numerous classes, or attract leading students.

By expanding federal financial aid, they say, the federal government would assume a greater responsibility for financing higher education, and states would be able to use the extra money they received to bolster their institutions, apply it to elementary and secondary programs, or reduce taxes.

'Who Has the Money?'

"People have looked at the book and said, "We're trying to nail the rich,' "Mr. Schapiro said. "That's not our intent at all. You have to look around and see who has the money."

Under the authors' proposal, the current system of federal aid--including Pell Grants and Stafford Student Loans--would be replaced by one need-based grant program modeled on the Pell Grant.

The proposal would require an estimated $14.3 billion a year for the grants ($2.1 billion would go to students attending private schools) in addition to the $5.4 billion distributed under the Pell program in the fiscal year that ended on Sept. 30.

Those costs would be offset by the elimination of $1.2 billion in other aid programs as well as between $1.4 billion and $2.3 billion in loan-interest subsidies, the authors propose.

The tuition increases would bring states $23.3 billion, the book says, and, unless states used part of that increase to expand their own aid programs or to increase spending on higher education, the net effect of the proposal would be to reduce combined government spending on undergraduate education by between $11 billion and $12 billion.

Vol. 11, Issue 05, Page 12

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