On October 15, Brookings hosted a viewing of select clips from The African Americans: Many Rivers to Cross, featuring Henry Louis Gates, Jr., with an introduction by Brookings President Strobe Talbott, followed by a panel discussion to explore the related policy issues featured in the series. The panel was moderated by Glenn Hutchins, chair of the Hutchins Center for African and African American Research at Harvard University and vice chair of the Brookings Institution and included Brookings Senior Fellows Ron Haskins and Isabel Sawhill and Guest Scholar Lois Dickson Rice.

       

SUMMARY

During the 2006-2007 academic year, grants accounted for $52 billion, roughly half of the student aid received by undergraduate college students. The largest grant program—the federal Pell program—provided $13 billion in grants, primarily to lower-income students. Although grant programs provide significant support to students, their impacts have been disappointing— substantial inequalities in college-going and completion rates of youth from different income groups remain large and persistent. Despite extensive research, the impact of grants on college-going remains uncertain.

A recent natural experiment (during which net prices of important categories of colleges declined) provides an opportunity to reassess the effect of grant programs on college-going among lower income youth. Between 1996 and 2002, increases in Pell and other grant awards and relatively stable tuition and fees charges at lower-price public colleges combined to create small but steady declines in net-of-grant prices facing these traditionally underserved youth. During these years, the net-of-grant prices declined by roughly $950 to $1,000 for low-income students (those from families with incomes below $30,000 per year in constant 2005 dollars) enrolled in public two- and four-year (non Ph.D. granting) colleges.

These grant-induced reductions in net prices appear to have stimulated small but meaningful increases in college-going among these youth. Because the Pell program accounted for most of the increases in grant support during these years, the results of this natural experiment indicate that Pell awards are an important contributor to the positive impact of grant-induced declines in net prices on college-going.

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ABSTRACT  

During the past 10 years, tax benefits have played an increasingly important role in federal higher education policy. Before 1998, most federal support for higher education involved direct expenditure programs— largely grants and loans—primarily intended to provide more equal educational opportunities for low- and moderate-income students. In 1997 (effective largely for expenses in 1998 and beyond), Congress enacted a number of tax benefits—credits, deductions, and tax-free savings plans—directed toward helping middle- and upper-middleincome groups meet rising college costs. This shift in goals and strategies raises concerns about the fairness and effectiveness of the evolving federal approach to higher education.

This policy brief analyzes who benefits from the major direct spending program, Pell grants, and the three tax subsidies that most closely resemble grants, the Hope and Lifetime Learning credits and the deduction for tuition and fees (see Burman et al. 2005 for a more complete discussion of these and other programs). In addition, the brief assesses the potential impacts of these direct spending and tax programs on the affordability of college and the college-going rates of potential students. It also discusses options that might improve the effectiveness of these federal policy instruments.

       

House-speaker elect Nancy Pelosi of California has vowed to address key policy areas such as the budget, ethics, minimum wage, homeland security, and higher education in the first 100 hours of legislative business. The Senate begins with a similar agenda, and both houses of Congress face the daunting challenge of Iraq.

On January 3, Brookings Senior Fellow Thomas E. Mann led a distinguished panel of experts in the substance and politics of the initial agenda of the new Democratic majority. Participants included Alice Rivlin, Brookings scholar and first director of the Congressional Budget Office; Lois Dickson Rice, Brookings guest scholar in the Economic Studies Program; and Bruce Riedel, a senior fellow affiliated with the Saban Center for Middle East Policy. Mann, a noted congressional expert, provided opening remarks and moderated the discussion.

       

The 1998 reauthorization of the Higher Education Act (HEA) once again focused on the traditional student aid programs of grants, loans, and work-study. It also created three new initiatives to promote early intervention programs for disadvantaged youth, innovation in technology and distance learning, and improvements in teacher quality.

Although modestly funded and experimental, each initiative recognizes that neither student aid nor the effective use of the technology, by themselves, can motivate youth to stay and excel in school or improve the quality of their education. Taken together, the initiatives hold forth the promise of enhancing the federal role in expanding access to college for targeted groups of students.

Too often, policymakers ignore the many challenges entailed in the effective implementation of new legislation. To address this problem, the Brown Center on Education Policy at the Brookings Institution, in cooperation with the U.S. Department of Education, sponsored a Brookings Forum to develop a framework to help guide the success of the new initiatives.

Since the passage of the Higher Education Act in 1965, providing financial assistance to students has been the principal way the federal government has supported higher education. Title IV of the HEA includes the major federal student aid programs: Pell grants, student loans, and campus-based programs. It also contains the so-called TRIO programs, which provide a range of support services for disadvantaged students. Other HEA titles provide categorical aid to colleges and universities, including libraries, international programs, cooperative education, and innovation. In fiscal year 2000, funding under this legislation was $15.5 billion, with the Title IV programs comprising nearly 90 percent of the total (Table 1 [see PDF]).

There is little doubt that federal student aid programs contribute greatly to the expansion of educational opportunities. Millions of students who otherwise could not afford college have enrolled because of the availability of federal dollars. Still, despite the federal investment of more than $100 billion in student aid over the past three decades, students from low-income families are only two-thirds as likely to go to college as students from high-income families, and minority students are only three-fourths as likely as white students to continue their education beyond high school. Low-income and minority students are also disproportionately enrolled in two-year and vocational institutions. Clearly, student aid alone has not succeeded in remedying these inequities.

The Three New Higher Education Initiatives

As with previous renewals, the debate over the 1998 HEA reauthorization focused on the federal student aid programs. Congress, for the most part, made only minor modifications to them, but wisely moved to enact three important new initiatives proposed by the Clinton administration—GEAR-UP (Gaining Early Awareness and Readiness in Undergraduate Programs), LAAP (Learning Anywhere Anytime Program), and Title II Teacher Quality. Each recognizes that the quality of K-12 schooling must be improved, particularly for disadvantaged youth, who need better teachers, greater access to new technologies, more and better support services, and guarantees of college financial aid delivered at a much earlier age—challenges that all go far beyond those confronted by traditional student aid programs.

GEAR-UP

Privately-funded early intervention programs such as “I Have a Dream” are highly successful. Such efforts seek to reach students well before they are ready to enter college, providing them with an enriched curriculum, tutoring, mentoring, and support services, and guarantees of future aid if they perform well in school. The benefits are clear. For example, in a New York City school with a projected high school graduation rate of 25 percent, 90 percent of the first “I Have a Dream” class finished high school or received a General Educational Development diploma (GED). In Houston, a similar program increased by two-thirds the number of students completing high school and by fivefold the number entering college. GEAR-UP seeks to build on the successes of such private programs through the creation of partnerships among colleges and universities, middle schools, community groups, and businesses. GEAR-UP also incorporates an existing program that encourages states to start or expand their early intervention efforts.

LAAP

Distance learning through the use of educational technologies is critical to meeting the growing demand for higher education, particularly among older students and those seeking training and retraining. But until recently, the federal government has played a minor role in promoting the use of technology as an alternative to traditional modes of instruction. LAAP expands the federal role through matching grants designed to foster new partnerships, thereby leveraging federal dollars to promote innovation in distance learning and technology at traditional colleges and universities and to encourage the creation of new institutions and consortia using emerging technologies.

Title II Teacher Quality

Current and projected shortages in the number of qualified elementary and secondary teachers is a daunting problem. In the next decade, the nation must recruit an estimated two million new teachers. These shortages are a function of the burgeoning Baby Boomer generation, whose children and grandchildren are crowding the nation’s schools, and of the inability of colleges and universities to produce teachers competent in both pedagogy and subject matter. The Title II Teacher Quality provisions attempt to address these concerns by consolidating the disparate teacher programs in earlier federal legislation, and by making grants to: institutions and consortiums that seek to improve the quality of teacher training in nontraditional ways; states to improve teacher preparation, licensing, and retraining; and partnerships between colleges and community groups to recruit and provide support to new teachers.

How the Initiatives Differ from Student Aid Programs

Mike Smith, Acting Deputy Secretary of Education at the time of the Forum, set the stage for the discussion, saying that the three initiatives represent a real change in the federal role, particularly because they are being implemented in a different style and with a different conception of the final product. His comments and the ensuing discussion identified three significant differences between the initiatives and traditional student aid programs. First, unlike student aid programs, the initiatives seek to achieve higher standards and quality through better academic preparation of students and improved instruction, thereby reinforcing the goals of the Elementary and Secondary Education Act. Second, the initiatives promote much needed new links among schools and colleges, business, local communities, and states. Third, as part of its implementation, each initiative demands ongoing monitoring, including measurement and evaluation of results, so quality programs can be replicated in other environments.

Emphasizing Better Schooling

In his keynote remarks at the Forum, Representative Chaka Fattah of Pennsylvania, a key sponsor of GEAR-UP, emphasized the importance of programs to supplement student aid. He noted that of the first 500 students to participate in the “Philadelphia Futures” program, not one dropped out of high school after getting a commitment that their college costs would be met, and 94 percent actually enrolled in postsecondary institutions. The goal of GEAR-UP, Fattah said, is to give students from low-income families the same expectations about their future as middle-class students. To succeed, GEAR-UP must provide students with the courses they need to succeed in college, tutoring and mentoring, and the certainty that college assistance will be available. Like many other speakers at the Forum, he stressed the importance of cooperation among business, schools, colleges, and communities.

Building Partnerships

Much of the Forum focused on the importance of building new partnerships, in contrast to the federal student aid programs, which are the foundation upon which other sources of aid are built. That the federal government now provides or sponsors three-quarters of all financial aid underscores the near-exclusive federal role.

Many of the proposed partnerships are fairly traditional: federal-state, public-private, and school-university. But some are not, such as building bridges among various federal programs and creating consortiums of institutions, which is especially critical in the distance learning and teacher quality initiatives. Business is also a nontraditional partner with higher education. Unlike K-12 education, where the private sector has taken the lead in school reform, business has been less involved in efforts to improve higher education access and quality. The new initiatives seek to change this imbalance.

Requiring Evaluation and Feedback

Each new initiative contains a strong evaluation component and builds on continuous feedback. The emphasis on research and measurement of performance contrasts with the federal student aid programs in which few evaluations exist and standards of performance are weak. Under the aid programs, students maintain their eligibility for federal aid simply by showing “satisfactory academic progress.” Little federal aid is awarded based on student merit, and there are few incentives in the programs for institutions to improve student retention and graduation rates. By emphasizing evaluation, the new initiatives represent an opportunity to strengthen the federal role in improving the quality of higher education.

Four Steps to Ensure the Success of the Initiatives

• Securing adequate funding to maintain the momentum generated by the initiatives.
• Building better bridges and partnerships among colleges and universities, and with other groups, including the business community and K-12 education.
• Focusing on the outcomes of higher education rather than simply access to educational opportunity.
• Building strong and mutually reinforcing relationships among the new initiatives, the existing student aid programs, and TRIO support services.

Adequate Funding

Like many new programs, the initiatives face a familiar obstacle: some educational constituency groups simply favor more funding for existing student aid and support services programs. More than 600 colleges and universities and 80 percent of the states applied for GEAR-UP grants in the first year, and a similar number of institutions applied for LAAP, including nearly 400 partnering organizations. Despite this high level of interest, many higher education associations oppose funding the initiatives until Pell Grants and the other student aid and support programs receive additional funding. Most Forum participants stressed that the initiatives complement the student aid programs and should not be viewed as competing for scarce resources. Without adequate funding, the new initiatives are likely to falter. However, the emphasis on partnerships, consortiums, and matching funds in each of the initiatives should leverage federal funds.

Critics of the new initiatives, especially GEAR-UP, point out that the TRIO support service programs have been operating for more than thirty years with a good record of achievement. They would prefer to fund TRIO more adequately rather than divert resources to GEAR-UP and the other initiatives. But the TRIO programs help less than 10 percent of the eligible population, and they do not extend to middle schools—the primary focus of GEAR-UP.

Building Better Bridges Among Higher Education, K-12, and Business

Steven Zwerling of the Ford Foundation spoke of the foundation’s experience in supporting reform of schools and colleges to help low-income students advance. After traditionally funding K-12 education separately from higher education, the foundation now emphasizes a cross-sectoral approach that recognizes the interconnection of the different levels of education. Zwerling said the country needs to think in terms of “education reform,” as opposed to “school reform,” and to focus on the entire educational and training spectrum. This conclusion prompted Ford to provide “the connective tissue to make the initiatives work” and partner with the Department of Education, community, and educational groups.

In his luncheon address, Ray Orbach, chancellor at the University of California at Riverside, struck a similar theme. He attributed his institution’s successful efforts in increasing the enrollment and graduation rates of minority students to a comprehensive approach that involves the entire campus—faculty, students, and administrators—with local schools, students, parents, businesses, and community groups. The Riverside program includes extensive outreach, revised institutional student aid policies (especially reductions in loan burdens), learning centers on campus, and efforts to improve the curricula and course offerings for low-income students.

Sally Klausen, president of Southeastern Louisiana University (SLU), emphasized the importance of building bridges with the surrounding community. At SLU, the need for remediation among new students fell sharply and graduation rates improved because the university provided financial incentives to faculty willing to work with local schools.

Throughout the Forum, participants emphasized the need for partnerships with business, states, and communities to leverage the modest federal funds devoted to the new initiatives. But how can these traditional and not-so-traditional partnerships succeed? David Mundel of IBM Research argued that long-term incentives may be critical. He urged policymakers to consider rewarding performance over time at the community or state levels.

Improving the quality of teaching is another obvious way to strengthen the connection between K-12 and higher education. Michael Timpane of the RAND Corporation noted that the new Title II initiative is a rediscovery of an earlier federal mission of supporting the reform of teacher education, a mission from which the government has removed itself. Terry Dozier of the U.S. Department of Education noted that the preparation of teachers must be a university-wide commitment, not just the responsibility of schools of education. Others suggested there must be strong collaboration between the arts and science faculty and education faculty. They also suggested the potential for partnerships involving consortiums of higher education institutions with local school districts and nonprofit organizations, along with integration of technology in curriculums and instructional practices on university campuses and in-school classrooms, and support services from colleges for newly-graduated teachers.

The Title II initiative encourages cooperation between higher education institutions and states that are responsible for licensing and certification. Ed Crowe of the U.S. Department of Education suggested that the key to successful change is the involvement of top state policymakers: governors, legislative leaders, higher education officials, chief state school officers, and business leaders.

Measuring Student and Institutional Performance

Emphasizing and rewarding outcomes in each of the new initiatives was a prevalent Forum theme. Performance measures include: increases in the number of at-risk students who go to college and receive their degrees; gains in the competencies of students who enroll in distance courses; and improvements in the training, retraining, and licensing of teachers.

David Longanecker, who was Assistant Secretary for Postsecondary Education when the initiatives were enacted and who now heads the Western Interstate Commission for Higher Education, said that it will be difficult to evaluate the initiatives if policymakers do not adequately measure program effectiveness. He suggested that nontraditional measures may be needed, including efforts to discern the value added in what students learn.

The discussion at the Forum emphasized that technology is critical in improving student performance and outcomes. Technological advances expand opportunities to measure value added under a wide range of education formats. Bob Albrecht, head of the new Western Governors University, spoke of the potential for competency-based distance education in which both initial student capabilities and subsequent achievements are measured through standardized competency tests. The need to measure performance and outcomes reinforces the importance of adequate evaluations of the initiatives so that successful experiments are allowed to multiply while unsuccessful ones are abandoned.

Strengthening the Connection Between Student Aid and the Initiatives

Because of the differences between the new initiatives and traditional student aid and support service programs, change must occur in two ways. The initiatives must complement the student financial aid programs and student financial aid policies should be designed to improve the new initiatives’ chances of success.

Linda Shiller, of the Vermont Student Assistance Corporation, which directs two TRIO programs and has received a GEAR-UP grant, stressed the importance of building partnerships and mutual support between GEAR-UP and TRIO. Take the best of both, Schiller said, and create new strategies for promoting the goal of improving educational opportunities for disadvantaged students. The Forum also made clear that it is not enough for the initiatives to reinforce the goals of the student aid programs. Rather, student aid programs must be modified to ensure the success of each of the initiatives.

For GEAR-UP, the most crucial task may be to simplify the student aid application process. At-risk students need an early understanding of their eligibility for the amount of student aid necessary to cover college costs. One of the more intriguing ideas to emerge from the Forum came from Juliet Garcia, president of the University of Texas, Brownsville, who suggested creating “education empowerment zones.” Under her proposal, which is similar to Representative Fattah’s original legislation, all students in high-risk schools would automatically qualify for student aid simply because they attended those schools.

For LAAP, critical issues include how to price distance offerings and whether to conform student and eligibility for distance learners with current definitions or develop a new framework. Should distance learners be fully eligible for federal student aid? Should living expenses be included when calculating the eligibility of distance learners, or should allowable costs be limited to tuition, fees, and equipment such as computers? These and other questions may be addressed through the distance learning student aid demonstrations, which also were authorized in the 1998 legislation and are intended to allow both new and more traditional institutions to experiment with different forms of student aid delivery for distance learners.

For improving teacher quality, the traditional approach of providing loan forgiveness for students who become teachers could be supplemented by new efforts to provide financial incentives to good students who enter and remain in teaching. Less traditional approaches should also be explored. Dickinson College, for example, offers $20,000 to students who study to become teachers. Half the sum is used to reduce their loan burden and the other half is available for teaching aids, such as technology and other materials, once they begin teaching.

Conclusion

The Forum emphasized that education is a continuum and that critically-needed education reform demands a cross-sectional approach that encompasses all education and age levels. The new initiatives, both individually and collectively, provide incentives to improve the link between postsecondary institutions and elementary and secondary schools as well as with the providers of training and retraining for older students.

As policymakers debate future federal education legislation, including the upcoming renewal of the Elementary and Secondary Education Act, they should explore ways to encourage more partnerships among businesses, communities and educational institutions at all levels.

       

President Clinton proposed and the Congress enacted earlier this year the most extensive use ever of the tax code to help families pay for college. Students in the two top income quartiles will be the principal beneficiaries of the new education tax provisions. Low- and moderate-income students—the traditional focus of federal student-aid efforts—will receive little tax relief.

Policymakers must now turn to the scheduled reauthorization of the Higher Education Act, which includes grants, loans, and work-study programs. Enactment of the education tax provisions provides an unusual opportunity to reconfigure federal student-aid programs in ways to mesh them with the new tax provisions and to enhance the historic federal goal of equalizing educational opportunities for the neediest students.

POLICY BRIEF #28

Seeking to make the first two years of post-secondary education universally available and to provide relief to overburdened middle-class parents facing rapidly rising college costs, President Clinton took the unprecedented step of making tuition tax breaks for college students a centerpiece of both his 1996 reelection campaign and his negotiations with Congress over the balanced budget legislation. The President recognized that tax-based policies provide few benefits to the neediest students, so he also proposed a rise of 10 percent to $3,000 in the Pell Grant maximum award. While this larger grant will certainly help low-income students, under the current Pell formula, any increase in the maximum award also expands eligibility to more middle-income students—the principal beneficiaries of the tax credits.

Congress modified the President’s tax plan, but the basic elements survived—the HOPE and Lifetime Learning tax credits for current educational expenses, and tax incentives for savings to help meet future college costs. Congress also reinstated tax deductibility of interest on student loans.

When fully implemented, the new education tax provisions, along with those already on the books, will become an equal partner with the traditional federal student-aid programs—grants, loans, and work-study—in assisting college students and their families. Each will cost between $10 to $15 billion annually, either in lost revenues or direct federal spending.

Now attention must turn to the required reauthorization of the Higher Education Act, which includes most of the federal student aid and support service programs. Historically, this act has sought to enhance the educational and hence the social and economic opportunities of students with the greatest need.

The education tax proposals are in place. Now the challenge is to develop policies that mesh them with the existing federal student-aid programs in ways to maximize the effectiveness of both.

At worst, policymakers will once again tinker with the traditional student-aid programs and make little effort to coordinate them with the new tax provisions. If so, the historic federal emphasis on need-based aid will be diminished if not transformed. Without entitlements of grants to low-income students, we shall have created through the tax code a new set of middle- class entitlements and rewards for those with the ability to save and borrow for college.

At best, Congress should modify federal student-aid programs to assure that they and the new tax benefits are distributed as progressively as possible. Specific steps include refocusing Pell and other federal grants and loan subsidies on those students who benefit the least from the new tax provisions; setting up college accounts at an early age for low- income students whose families do not qualify for the new $500 child tax credit; tying funding of pre-college and in-college support services to the funding of the Pell Grant program; and, possibly, paying institutions for each Pell recipient they graduate. Federal policies should also be modified to incorporate a role for states and institutions in the student-aid equation.

Impact of New Tax Provisions

Of the many new education tax provisions, the Lifetime Learning credit may have the most positive impact on enrollment decisions. It could encourage more individuals throughout their careers to seek training and retraining and also relieve the growing pressure on the student-aid programs to expand eligibility to a broader population of non-traditional and part-time students.

This positive feature, however, will be offset by a lack of progressivity in the distribution of benefits, and by additional administrative complexities for institutions as well as for students and families who will have to opt, in most cases, for just one of the many new tax provisions.

Families with incomes between $40,000 and $80,000 will be the primary beneficiaries of the nonrefundable HOPE and Lifetime Learning tax credits. Students with lower incomes will benefit far less because either they or their families do not pay enough income tax to take advantage of the credits or because, in determining eligibility for the credits, federal and other grant aid will be subtracted from tuition costs.

The education tax package also contains a number of provisions intended to encourage families to save for future college costs, including: permitting penalty-free withdrawals from existing IRAs, establishing new Education IRAs, and expanding existing tax advantages for participants in prepaid tuition plans. Families with incomes as high as $160,000 will be able to take advantage of the new savings provisions. These provisions could prompt an unintended shift of existing assets into designated educational accounts rather than any increase in overall savings. Allowing penalty-free withdrawals from existing IRAs could actually reduce savings and deplete parental assets needed for retirement. And, providing additional tax benefits to participants in state prepaid tuition plans could lead to higher, not lower, tuitions if institutions raise their charges for students whose families did not prepay to make up for the reduced revenues from plan participants.

Finally, families anticipating a tax credit to offset tuition expenses when their children enter college may actually be discouraged from saving when their children are younger. Thus, the two major policy thrusts—tax credits for current educational expenses and incentives to save for future costs—could actually contradict each other.

While reinstatement of the deductibility of interest on student loans may be politically popular, it could lead to even more borrowing, and the benefits will be tilted toward those who are fully capable of meeting the costs of borrowing.

Improving Access and Completion Rates

The new tax provisions were enacted to address middle-class concerns about the rising costs of college. For nearly two decades, tuitions at both private and public institutions have grown at twice the rate of inflation. As a result, more and more Americans now consider college outside their economic reach.

But hardship is relative. In reality, the burden of rising college costs has fallen disproportionately on students from families in the bottom income quartile. As Figure 1 indicates, average costs of attendance in both the public and private sectors have stayed fairly constant as a percentage of income for all families, except those in the lowest income groups, and these are the families who will benefit little from the new tax provisions because they do not pay income taxes.

The growth in college costs relative to family income is reflected in the patterns of college participation. Access to college is still uneven (Figure 2). Students from the bottom income group are still only two-thirds as likely to go to college as those from the top income group. And minority students are still only three-quarters as likely to enter college as majority students. In addition, low- and moderate-income students and those from ethnic/racial minorities continue to be disproportionately concentrated in public two-year institutions.

Falling retention and graduation rates are other vexing problems in much of American higher education. More than half of all entering students do not complete their degrees within a reasonable period of time. Graduation rates improved dramatically between 1950 and 1975—nearly a threefold increase for all students—but since then there has been little progress. As with access, there are great disparities in retention and completion rates. Low-income and minority students remain far less likely to complete their degrees.

Achieving Greater Policy Coherence

When the Higher Education Act was enacted in 1965 and the Pell Grant program established in 1972, the federal role and goals of the various programs were to equalize educational opportunities. But over time, this philosophy of aid which once guided the programs and their interrelationship has eroded. This has occurred, in part, because there is now little deliberate policy relationship among the various aid programs. What students receive in one federal program typically does not affect the amount they receive in others.

Pell Grants have not become, as originally intended, the foundation for all other student-aid programs. Instead, loans once intended to supplement Pell and other federal grants are the dominant form of aid, as they constitute two-thirds of all aid and pay for one-third of all college costs. Students borrow in multiple loan programs with no overall debt limits, helping to explain the imbalance between loans and grants.

Moreover, what students receive from the federal government is unrelated typically to the growing amount of aid they may receive from states and institutions. In the last decade, the amount of state grants to students has increased by 50 percent in constant dollars. The amount of aid that institutions provide in the form of discounts from the sticker price has doubled in real terms and now exceeds the total amount of federal grant aid. To the extent that state and institutional aid is now spread more broadly up the income scale than federal grant aid, the lack of coordination among federal, state, and institutional aid practices contributes to a lessening focus on the neediest students.

Layering a new set of tax-based provisions on top of the current array of student-aid programs will only worsen the existing lack of coherence. An important objective, therefore, in the ongoing debate over the student-aid and related programs should be to rationalize the span of federal efforts which help students and families pay for college.

Achieving a More Progressive Distribution of Benefits

One way to achieve greater coherence in federal policies is to distribute the combination of student aid and tax provisions as progressively as possible. Consider the distribution of Pell Grants, loan subsidies, and the new HOPE tax credit. More than two-thirds of all Pell Grant dollars go to students from families with incomes below $20,000, and the Pell award is far larger than what lower and moderate income students receive in loan subsidies or from the HOPE tax credit.

Contrast this with intercommt subsidies in the federal loan programs where only one-third of the benefits go to low-income students. As Figure 3 shows, loan subsidies rather than Pell Grants are far more valuable to middle-income students. Moreover, since costs of attendance are a factor in determining eligibility for subsidized loans, students with family incomes of $100,000 or more can receive interest subsidies if they attend high-priced institutions. As Figure 3 shows, for students with family incomes above $40,000, the new tax credits provide more benefits than either Pell Grants or loan subsidies. The net result of the new tax provisions is that they will flatten the cumulative distribution of federal aid and tax benefits.

Directing Pell Grants toward students with family incomes below the median would improve the progressivity of the overall federal aid structure. This approach would recognize that the new tax provisions mostly benefit students who are not eligible for Pell Grants—those above median income, graduate and professional school students, and part-time lifelong learners.

Federal policies should also aim to reach the initial goals of Pell Grants—to raise the aspirations of low- and moderate-income students by providing them with early and certain knowledge that they can afford college. Pell Grants have not achieved this purpose, in part because under current program rules, students still have to apply in the 12th grade based on their family’s circumstances. Making Pell Grants an entitlement would not solve this timing problem.

New approaches are necessary to provide the early assurance of aid contemplated in the original Pell Grant legislation. For example, for low-income students whose families do not pay enough federal income taxes to qualify for the new $500 child and education tax credits, the federal government could deposit funds into interest-bearing accounts in a student’s name as early as the sixth grade, to be used only if the student enters college. These accounts could be supplemented through other contributions from government and philanthropy. The funds reserved should not detract from a student’s eligibility for Pell Grants.

Putting more dollars into the hands of students, however, is not the answer to improving access, retention, and degree completion. A growing number of college students arrive without adequate preparation and require remediation. Federal student-aid programs may also be contributing to poor retention rates in that they are not performance-based. Students must merely maintain the amorphous standard of satisfactory academic progress. Nor are any of the new tuition tax breaks likely to have much of a positive impact on completion rates.

Greater emphasis on support services may be more effective in promoting greater retention and completion than increased funding of the student-aid programs. The TRIO programs, often overlooked in the student-aid debates, provide a range of pre-college and in-college support services. But federal funding for TRIO is now less than 5 percent of what is spent on federal aid and serves only 10 percent or less of the eligible population.

To enhance support service efforts, a portion of Pell Grant funds could be set aside and distributed to institutions on the basis of the number of Pell Grant recipients they enroll and graduate, thereby providing an incentive for institutions to address falling completion rates among disadvantaged students.

Recognizing Only a Portion of Attendance Costs

Another way to achieve greater policy coherence and better target federal subsidies is for federal policies to recognize only a portion of a student’s total costs of attendance in calculating eligibility for subsidized loans. Since 1992, the Pell Grant formula has used a standard amount for living expenses and the two new education tax credits recognize only a portion of tuition, so there is indeed precedent for such an approach. Since 1981, the federal loan programs have used total costs of attendance in calculating eligibility for interest subsidies. As such, the existing federal-aid formulas fail to take into account the growing amount of aid which students now receive from states and institutions.

Using only a portion of the costs of attendance in determining eligibility for subsidized loans would also help to address continuing concerns that federal aid contributes to tuition inflation. Burgeoning loan availability has no doubt facilitated the ability of both public and private institutions to charge higher tuitions and also played an important role in allowing private colleges to stabilize their share of total enrollments.

Conclusion

To achieve greater policy coherence in federal efforts to aid post-secondary students, there should be a philosophy that: 1) seeks a progressive distribution of aid and tax benefits, and 2) recognizes the growing role of institutions and states in the aid equation by using only a portion of the total costs of attendance in the calculation of eligibility for subsidized loans.

This new philosophy could then serve as a framework for achieving the broad historic goals of federal policy: to equalize educational opportunities for low- and moderate-income students; to provide all students with a choice of a broad range of institutions; and to enable individuals throughout their lifetimes to receive both training and retraining. Realizing these goals is critical if the American work force is to remain competitive in the global marketplace.