The Secret World of Financial Aid Packaging

As our friends at Education Trust have noted, more and more colleges are using their institutional financial aid dollars to lure the highest achieving students to their campuses.

Under the practice, known in the higher ed world as "financial aid leveraging," colleges take money that would normally go to admitted, but financially needy students, and instead give it to admitted, high achieving high school students who overwhelmingly come from wealthy families.

As the Atlantic Monthly has described, the thinking is that a college is better off providing four scholarships of $5,000 each to high achieving rich kids, who probably would attend another institution without the discount, than it is in providing a single $20,000 grant to one low-income student. Once an upper income student is lured in, his or her parents will be able to pay off the balance of the outstanding tuition costs--which means more revenue for the college. And enrolling high achieving students will improve the college's rankings and thus its desirability--which means even more revenue for the college.

So what's wrong with that? Nothing, until you see what financial aid leveraging does to socio-economic diversity. We at Higher Ed Watch wouldn't object if financial aid leveraging colleges were willing to admit that they no longer care about equal opportunity and equity in higher education and therefore be willing to give up all the public subsidies they now receive. But we're not holding our breath.

Let's be clear. Without grant aid, low and even moderate income students will no longer be able to attend career minting, expensive, eilite institutions of higher education, or will have to take on dangerous levels of student loan debt, including high price private student loans, to do so. Is it a coincidence that financial aid leveraging strategies are touted by enrollment management companies owned by for-profit student loan companies like this subsidiary of Sallie Mae? We think not.

Of course, financial aid leveraging practices -- which are utilized at public as well as at private colleges -- are devised behind closed doors, and the students who are affected are left in the dark about them. Federal regulators are too, despite the fact that the government provides tens of billions of dollars of financial aid each year to these institutions.

Congressional leaders have been talking about shining sunshine on the deals that colleges are making with student loan companies. While they're at it, they should also require more disclosure from colleges about their financial aid packaging policies.

Actually according to testimony provided during a hearing held by the Senate Committee on Health, Education, Labor, and Pensions this month, the Department of Education already has the authority to require such disclosure--through the Student Right to Know Act.

The Student Right to Know Act dates back to the early 1990s when Congress and watchdog groups demanded that colleges disclose detailed data on graduation rates and campus crime. But the Act, which has been modified throughout the years, also requires colleges to "accurately describe the student financial assistance programs available to students who enroll at such institution[s]" and "the methods by which such assistance is distributed among student recipients who enroll at such institution[s]."

What are "the methods by which such assistance is distributed" but practices that are now claimed to be confidential and proprietary? Isn't sunshine already required?

It's not as though all administrators are comfortable with what is done on their campuses. Some college presidents and deans, when they find out how financial aid works, have been known to rebel against the schemes that disadvantage their needy students, only to find out that getting out from under the hegemony of the enrollment-management industry (i.e. the student-loan industry) cannot be easily done unilaterally.

For that it will take federal leadership, if not from the Department of Education, then hopefully from Congress. We hope leaders at the Department of Education will act first.