Posted by: Discover Scholars | July 17, 2008

The Trouble(s) with Financial Aid — continued

On Monday, we discussed a recent article in the Princeton Alumni Weekly dealing with the problems that come with tying financial aid to individual colleges.

Katherine Hobson summarizes the problem as so:

Some financial-aid experts predict even more pressure to get into the handful of elite schools that can offer the most generous aid. “Not only do people feel like these are the only institutions that count, but it will cost their parents so much more if they go elsewhere,” says Michael McPherson, former president of Macalester College in St. Paul, Minn., and now president of the Spencer Foundation, which funds activities that foster new ideas in education.

That realization could influence the spending decisions of schools that don’t have multibillion-dollar endowments, McPherson says. Such schools will have to weigh whether to redirect funding now targeted for other expenses — like professors, labs, and grants for low-income students, for example — to assist upper-middle-class families, perhaps by using grants based on merit and not financial need. While that has benefits in some cases, “if schools in the same pecking order start bidding for students, they end up with the same students and get less revenue from them,” he explains…

The question that Hobson fails to ask, however, is what changes can be made to the current system of financial aid to alleviate these problems.  On Monday, we hinted at our answer:  decoupling financial aid from individual colleges altogether, and creating other organizations whose goal is to allocate funding to students independently of the schools that they attend.

While it’s true that such separation won’t occur overnight, we believe that it is a goal that higher education should be striving to attain.  Students will reap the benefit of having the same amount of funding to pay for their higher education regardless of which school they wish to attend, letting them make that choice based on schools’ quality and price, rather than financial aid packages.

Schools will have the huge benefit of being able to put their resources into improving the quality of their schools, rather than having to wave lucrative financial aid packages in front of students just to compete with top-tier schools.  This will have the side benefit of allowing all schools to compete for students based on price, further incentivizing schools to keep unnecessary spending to a minimum (as all businesses should) so as to keep tuition and educational costs more generally as low as possible.

And of course, donors who are currently giving to colleges without really knowing where their money is spent will be able to give with the goal of funding students — all while having more transparency into how their contributions are actually being put to good use.

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