Students Aren't Only Ones Confused by Federal Financial Aid

Yesterday, the House Subcommittee on Higher Education and Workforce Development convened a hearing to discuss ways to improve federal student aid. Members of the committee paid particular attention to reducing the complexity of the system and stemming the growth in college costs and student indebtedness. But amongst broad concerns that would require sweeping legislative changes, one issue that could be addressed under current law piqued Chairwoman Virginia Foxx’s (R-NC) interest: How might giving out financial aid incrementally over the course of the semester, instead of in one lump sum, impact student success?

Rep. Foxx’s question was directed at JoEllen Soucier, Executive Director of Financial Aid for the Houston Community College System (HCC). Soucier has been participating in an experiment with MDRC for the past three years evaluating how bi-weekly disbursements may better enable students to keep up with costs and improve retention and degree completion. The study is aptly called Aid Like A Paycheck (ALAP).

For most people, spikes in income -- like seasonal or commission-based work -- can make it tough to plan for the future. College students are no different: Managing a large financial aid disbursement upfront and ensuring it lasts over many months while juggling coursework and competing demands is often a major stressor.  

To help smooth income shocks that arise from receiving massive financial aid disbursements at the beginning of the term and nothing toward the end, colleges in the HCC system have been distributing Pell Grants, other grants, and federal loans in regular allotments over the course of a payment period. After the colleges withdraw tuition, and the student receives any funding necessary to cover other direct costs like books and supplies, all remaining aid to help with living expenses is disbursed bi-weekly. While the experiment has not yet produced conclusive evidence about its benefits, researchers can confirm that students have not been negatively impacted by receiving aid in this way.

Touted by members of Congress, and with nothing to lose but a lot to gain, why are more colleges not taking advantage of this opportunity to help students? Turns out, it’s not just students who are confused by the financial aid system.

While some colleges may not have heard of ALAP or may believe they do not have the resources to implement it, conflicting messages from the Department of Education are also to blame for many administrators' reluctance. Although Congress explicitly requires colleges to offer no fewer than two financial aid disbursements per payment period (which, at many colleges, means a single semester or quarter), they are seemingly free to otherwise disburse aid more often. The Department’s handbook that aid administrators are expected to follow confirms that colleges can generally disburse federal aid  “at such times and in such installments within each payment period as will best meet students’ needs.”

But according to a separate section in the Department’s canon of regulations, loans unlike federal grant aid, may only be disbursed multiple times over a payment period if each disbursement is “substantially equal.” The phrase “substantially equal” is unclear and could mean one of two things: Either the aggregate amount of loans a college disburses over the course of each payment period needs to be the same or every disbursement within the payment period must be equal. If all disbursements within the payment period have to be equal, this would prevent ALAP from functioning effectively since students need a larger disbursement at the beginning to cover books and supplies if they are not included within the price of the program. This opacity has made administrators hesitant to be on the wrong side of the Department’s guidance.

Although it could be awhile before Congress reauthorizes the Higher Education Act to address many of the issues brought up at yesterday’s hearing, students and colleges don’t have to wait to benefit from Aid Like A Paycheck. If lawmakers want to encourage colleges to disburse aid incrementally instead of in one lump sum, Congress should ask the Department to stop sending mixed messages.