Financial Aid and the Twentieth Century, a Historical Perspective: How did we get to where we are to

1
The following is a presentation prepared for
NASFAAs 2006 Conference in Seattle, WAJuly 5-8,
2006
2
History of Financial Aid

• Kristi Jovell
• Suffolk University Law School
• Moderator

3
Presenters

• Curt Gaume
• Director of Financial Aid
• Canisius College
• Dan Hunter
• Director Emeritus of Financial Aid
• Buffalo State College - SUNY
• Bill Irwin
• Director Emeritus of Financial Aid
• Lock Haven University

4
Historical Review

• Financial Aid began in the Private Sector
• In 1643, it was noted that a private benefactor
  gave financial assistance to students at Harvard
  College
• The college work study concept began when a
  school employed a student of the class of 1657 on
  a part-time basis

5
Historical Review

• In the 1940s it was stated that out of every
  1000 boys and girls in the United States, 580
  reach third year in high school Of these only
  150 enter college and 70 graduate.
• Source Warner, W. L., Who shall be educated?
  Harper and Brothers, New York New York, 1944
• The Presidents Commission on Higher Education
  
• 32 percent of the population has sufficient
  ability to complete advanced liberal or
  specialized professional training, then it is
  obvious that far more than seventy (70) students,
  should graduate from college.
• Source U. S. Government Printing Office, Higher
  Education for American Democracy. Washington,
  1947, Vol. I

6
The Increasing Importance of Higher Education

• Years of Schooling Completed by
• People 25 and Older, 19402004

Source U.S. Census Bureau, 2005, Table A-1.
printed in College Board Education Pays 2005
Update
7
Historical Review

• Early in the twentieth century, states were
  beginning to award financial aid
• 1913 New York State instituted the
• Regents College Scholarship Program
• This was the beginning of this states
  involvement in financial aid for students

8
Historical Review

• The federal government began its role in
  financial aid with the The Veterans
  Readjustment Act of 1944.
• The rationale was that the veteran had earned
  and deserved an education
• The country would benefit from the education of
  the veterans

9
Historical Review

• In January 1950, Dr. Mc Grath stated
• Low parental income is the paramount reason
  why seven out of ten individuals having college
  abilities never finish an undergraduate program.
• Source McGrath, E. C. On the outside-looking
  in, school life, Vol 32.

10
Source

• Major portions of this section of the
  presentation have been extracted from the
  following
• A Faithful Mirror - Reflections on the College
  Board and Education in America
• Michael C. Johanek,editor
• New York College Entrance Examination Board,
  2001

11
Historical Perspective

• The story of financial aid in America is more
  than financial aid. It is a story of American
  Culture and society.
• Need and Worthiness
• Poor and meritorious
• Needy
• Worthy
• Were used to describe the students who should get
  aid

12
Historical Perspective

• Need represented the welfare side of aid
• Worthiness
• Was personal achievement
• The student or students family assume a high
  degree of financial responsibility for getting
  through college

13
Historical Perspective

• Working through college
• It honored personal effort and self-reliance
• Part of the manual college of the 1830s to the
  1850s
• To not only support the college, but to promote a
  healthy unity of mind and body and respect for
  the dignity of labor

14
Historical Perspective

• In 1897 the Students Aid Society of Smith
  College was formed to raise funds for student
  loans
• To reduce the strain of combining academic work
  with employment
• Increased the need for scholarships from some
  sectors
• Insistence on extra merit plus work was a way of
  rationing the aid and making it go further.

15
Culture versus Economics

• Traditional but changing conceptions of who
  should get how much aid what need?
• It has been a way of helping colleges survive and
  advance in the marketplace
• There was little or no state aid and depended on
  tuition revenue and philanthropic gifts to keep
  afloat

16
Culture versus Economics

• Colleges need students and have not always been
  fussy about the moral and mental caliber of
  students receiving financial aid discounts
• Culture and economics have interacted in complex
  ways

17
Pluralism

• The sheer variety of attitudes and issues that
  have been played about it.
• Should aid go
• To the quite needy versus the very needy
• To this or that racial group
• To the pious, the personable, or socially
  virtuous
• To students with scarce or needed aptitudes
• To students in or from a specific locale

18
Targeting

• Financial, social and political arguments were
  the forerunners of raising tuition and fees in
  the public sector while targeting some of the
  increased revenue toward financial aid for the
  neediest students.
• Should zero or low tuition and fees subsidize
  those who could pay more?
• Was it democratic and politically prudent to make
  tuition as cheap as possible ?

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Targeting

• Targeting issues also involved student work
• In 1830s a school introduced compulsory
  domestic work for all students to keep the
  costs down as well as bestowing the moral
  benefits of work
• Others pursued a higher tuition and using some of
  the money for financial aid
• Debate about class, community and work

20
Targeting

• Think of the rules for the Federal College Work
  Study Program
• Community Services requirement
• America reads
• On-campus versus off-campus opportunities
• Career versus service opportunities

21
Trends in College Costs

• Not much data
• Limited to tuition and living costs
• At Harvard These costs did not rise relative to
  national median incomes from 1650s, or the 1860s
  to the early 1960s
• Full tuition did rise in relation to room and
  board
• Real costs shot up in the 1940s 60s as they did
  in the 1980s 90s

22
Changes Over Time in Tuition, Fee, Room and Board
ChargesConstant (2005) Dollars, 1975-76 to
2005-06 (Enrollment-Weighted)

• Average
• Published
• Tuition and
• Fee
• Charges

Average Published Tuition, Fee, Room and Board
(TFRB) Charges at Four-Year Institutions
Source College Board Trends in Pricing -2005
23
Some History in the Northeast

• At Harvard in the 1700s, Bowdoin, and Amherst in
  the 1820s and New York University in the 1820s,
  one-third to one-half of the students received
  substantial scholarships.
• These proportions were not reached again until
  the 1950s
• As colleges upgraded, financial aid fell behind
  other college spending

24
Some History in the Northeast

• A study of Salem, Massachusetts, in the 1740s
  60s has found that families of local Harvard
  scholarship students were poorer than other Salem
  Harvard students but richer than Salem families
  as a whole. Two hundred years later, studies by
  concerned Harvard deans found the same to be
  true of Harvard scholarship students compared
  with other Harvard students and all American
  families
• Source Holtschneider, Institutional Aid to New
  England College Students33n Richard G. King.
  Financial Thresholds to College. College Board
  Review (Spring 1957)22 Harris, The Economics of
  Harvard, 97-98

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Some History in the Northeast

• In the 1920s many four year colleges offered no
  scholarships
• State scholarships offered some help but often
  they could not be used in the private sector
• Big contrast was the GI Bill of World War II
• In 1947 the high point of the GI Bill, 49 of
  all college students were veterans receiving
  tuition, maintenance and books from the federal
  government

26
Motives and Target Groups

• Need-related aid had many purposes
• American ideal of extending opportunity and
  upward mobility
• A more defensive guard against downward mobility
  (colonial preference for extended kin)
• Bringing together different students to learn
  from each other (a goal from the 1930s)

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Motives and Target Groups

• Other motives ( may or may not include a need
  requirement)
• Attracting and developing star talent
• Moral and political claims of special groups,
  from Veterans to ethnic minorities
• Memorializing a deceased dear one (common after
  World War I)
• Assisting students from ones hometown or high
  school (colonial vintage)

28
Motives and Target Groups

• Enabling a campus to look democratic
• Obtaining a wider pool of good recruits for a
  college
• An occupation (historically the church)
• Or in modern times, national leadership and
  citizenship

29
Motives and Providers

• Colleges a form of discounting price to increase
  enrollment and net revenue, and seeking
  scholarship endowments has been a means of
  raising money more generally
• For States
• District based scholarships spread college
  opportunities between different political areas
  of the state
• Keep talent in-state
• Support private schools by making them available
  at private and public institutions

30
State Grants to Undergraduate Students

• Total Need-Based and Non-Need-Based State Grants
  in Constant (2004) Dollars, 1969-70 to 2003-04

Source Based on annual survey of National
Association of State Student Grant and Aid
Programs (NASSGAP).
31
Motives and Providers

• Some private donor student aid was used to
  exclude as well as recruit
• Defined geographical area
• Rural students vs. urban students
• Requirement to be native-born
• Specific religious affiliation

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Todays Motives

• Motives for financial aid have been economic
• Some schools do it to increase enrollment
• A matter of institutional advancement
• Ideological and educational
• Getting diverse talent to look good and do well
  in the marketplace
• Changing cultural attitudes has been important in
  determining what kind of diversity is valued

33
Motives and Outcomes

• Increase of 18-24 year olds from 3 in 1890 to
  18 in 1950 as higher education became the
  gateway to good jobs
• This made student borrowing more acceptable as
  personal investment.
• Growing importance of a college education put
  pressure on state and federal government to
  provide their own student aid
• As more and more sought a college education,
  there was a demand for governments to promote
  college access through portable student aid as
  well as low-tuition public colleges

34
Motives and Outcomes

• For the decades after the GI Bill, it was cited
  as a precedent for civilian, need - related
  student aid bills
• A new bidding war for top students increased
  college spending on merit scholarships
• In response, elite colleges gathered together to
  apportion aid more closely and consistently on
  the basis of need

35
Motives and Outcomes

• The College Scholarship Service, in 1954, began
  to operate Americas first collective
  methodology for assessing student financial
  need
• Financial Aid History shows it was a joint
  product of ideology
• A social concern for needy students
• Economic pressure

36
A Conclusion

• In our own time, consensus on how to measure
  student need has weakened, and new kinds of price
  discounting have emerged, often favoring less
  needy students. Student financial aid in
  American History has always lived a life of
  contest between different principles and
  practices.
• SourceMichael C. Johanek, editor. A Faithful
  Mirror, Reflections on the College Board and
  Education in America. New York. College Entrance
  Examination Board. 2001

37
1950s

• 1954 Establishment of the College Scholarship
  Service of the College Board
• National Defense Education Act of 1958
• The act specified that in the selection of
  students to receive loans special consideration
  shall be given to
• (a) students with a superior academic
  background who express a desire to teach in
  elementary or secondary schools, and
• (b) students whose academic background
  indicated a superior capacity or preparation in
  science, mathematics, engineering, or a modern
  language.

38
Source

• Major portions of this section of the
  presentation have been extracted from the
  following
• The History of Need Analysis College
  Scholarship Service, The College Board
• 2002

39
History of Need Analysis

• Early in the 1950s a survey of colleges
  included, from Harvard, the criteria that they
  used known as the 15 percent rule.
• The committee would calculate 15 of the
  families net income and subtract 100 for each
  other child attending a public school and 200
  for each in a private school or college.

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History of Need Analysis

• Rarely did this rule give consideration to
• Assets of the family
• The applicants savings
• An assessment of the applicants earnings
• It was not relevant to special family financial
  problems

41
History of Need Analysis

• In 1953 a symposium was held and a number of
  papers were presented
• One presenter noted that a change was taking
  place in the philosophy underlying scholarships
  while need continued to be a part, the
  scholarships were beginning to be used
• to strengthen their student bodies through
  diversification, embellishment and enlargement
• Ability was in terms of music, athletics or
  special intellectual accomplishments
• Some focused on geographical goals
• Some problems Can colleges afford the amount,
  inflation of awards, massive recruitment
  campaigns and multiple applications?

42
History of Need Analysis

• John Munro from Harvard noted two basic
  considerations
• The college costs (included tuition fees, room
  and board and a set amount for books, personal
  expenses and recreation)
• Student resources (made a distinction between
  students and familys)
• Aid applicant was to work during the summer and
  save an amount toward colleges cost
• Student savings were pro-rated over the number of
  years of college that were left
• Any outside awards were accepted at full value
  and added to students other resources

43
History of Need Analysis

• The Harvard system established the data needed to
  be collected
• Parents employment status
• Dependents
• Income from all sources (past year year ahead)
• Itemized business expenses
• Federal income taxes
• Extraordinary expenses
• Included reported assets and indebtedness
• Contribution was separate for income and assets
• Contribution developed in relation to the average
  offerings of the families of the students at that
  time

44
History of Need Analysis

• Checked the calculated contribution versus the
  actual family offer
• If a disparity existed, they checked for special
  circumstance
• Some sort of compromise was sought
• This system ultimately became the basis for a
  need analysis system

45
History of Need Analysis

• The CSS developed the Parents Confidential
  Statement (PCS) which helped eliminate the many
  forms which were developed by the colleges
• An advisory committee was formed
• The central role was to collect a single set of
  financial aid data from the student and his or
  her family. This was distributed to the colleges
  chosen by the student.

46
History of Need Analysis

• CSS was able to collect data from the students
  family and able to refine the need analysis
  system using the advisory group.
• The original system (1956-1959) was processed by
  hand with the complicated cases reviewed by a
  jury of admission and financial aid administrators

47
History of Need Analysis

• By 1957, a national system had been developed.
• Some modifications
• Lower expected contributions from average or
  lower income families
• Reduced contribution from assets
• Gave special consideration to those with unusual
  circumstances
• Working wife was given an allowance of up to
  1000
• Allowances for relatives other than children who
  were being supported
• Against family assets was an allowance given to
  non-liquid holdings and other allowances given
  before determining the net amount

48
History of Need Analysis

• The National Defense Student Loan Program (1958)
  increased the number and types of programs
  needing central processing and analysis of
  financial need.
• Need Analysis forms were now submitted by all
  students, not just freshmen.
• Now there were single independent and married
  students.
• In 1961 there was a Married Student Supplement
  which later became the Students Financial
  Statement (SFS)

49
History of Need Analysis

• A need for economic logic and rationale for the
  system was evident
• In 1962 some major changes were introduced
• Up to certain level, considering family size, all
  the familys income was required for basic
  maintenance
• Above the so-called level of living, a family
  does have income to be used on discretionary
  expenses which can include postsecondary
  education.

50
History of Need Analysis

• Using an effective income concept (familys
  earnings (-) allowances) allowed more equitable
  treatment of applicants
• In 1963, an overhaul of the treatment of assets
  occurred
• All assets were treated as being of equal value
• Allowable debts were deducted
• Modest / adequate levels of retirement were
  established
• Remaining discretionary net worth was converted
  to an income flow which can be added to familys
  effective income and a rate of contribution can
  be determined

51
History of Need Analysis

• In 1974, the National Task Force on Student Aid
  Problems was chaired by Francis Keppel, former
  U.S. Commissioner of Education
• Outcome was Uniform Methodology (UM)
• A coordinated schedule for the financial aid
  delivery system
• Recommended research into the construction of
  Student Budgets
• Recommended equity approach to packaging
• Cited Training and professional development needs

52
History of Need Analysis

• In 1976, the CSS introduced the Common Form.
  The Financial Aid Form (FAF). It replaced the PCS
  and the SFS.
• Some questions were added to accommodate state
  grant programs.
• This lead to state specific forms.

53
History of Need Analysis

• In 1973, the federal government introduced a
  separate application for the Basic Education
  Opportunity Grant. (BOG / BEOG)
• Reasons
• CSS / ACT forms required a fee.
• Not all the data was needed
• May have had some different deadlines

54
History of Need Analysis

• In 1977, U.S. Dept. of Education agreed to allow
  data from the CSS and ACT forms to be used for
  the BEOG eligibility.
• This became the concept of Multiple Data Entry
  (MDE). This standardized the data collection and
  instructions.
• Ultimately this led to the Uniform Methodology
  (UM) of need analysis.

55
History of Need Analysis

• MDE processing provides applicants with a single
  application for federal, state, campus based and
  institutional funds with some exceptions Some
  schools did use separate applications for their
  funds.
• UM provided the financial aid administrator with
  a consistent and reliable formula for measuring
  need.

56
History of Need Analysis

• In 1988-89 the Congress put Congressional
  Methodology (CM) as part of the Higher Education
  Amendments of 1986.
• This began a federally prescribed system of need
  analysis. The Pell Grant still maintained a
  separate system of eligibility.

57
History of Need Analysis

• CM established automatic criteria for the
  independent student.
• Displaced homemakers and families qualified for
  Simple Needs Test (SNT)
• Simple Needs Test (SNT) for dependent students
• National standards for minimum student
  contributions
• Allowed for allowance if parent(s) enrolled at
  least half-time
• Treatment of VA benefits as part of SC or as
  student resource

58
History of Need Analysis

• CM only allowed the educational costs of the
  applicant to be a part of the cost of attendance
• The expenses of the spouses and children became a
  part of the Standard Maintenance Allowance (SMA)
• Other items
• Development of master calendar
• Formation of Independent Advisory Committee on
  Student Financial Assistance

59
History of Need Analysis

• Higher Education Amendments of 1992 consolidated
  the Pell Grant Formula and CM into a single
  methodology known as Federal Methodology (FM).
• Became effective for the 1993-94 academic year
• Established an automatic zero Expected Family
• Contribution (EFC)
• Established the Free Application for Federal
  Student Aid (FAFSA)

60
Today

• CSS has introduced a new form known as Profile
• Standardized Institutional Methodology with a
  number of variations available to the schools
• We are close to having, again, a single form as
  the FAFSA will be used for the federal and some
  state (New York State /TAP) funds.

61
A Look at the Federal Programs

• Major portions of this section of the
  presentation have been extracted from the
  following
• Handbook of Student Financial Aid Programs,
  Procedures and Policies
• Robert H. Fenske, Robert P. Huff and Associates
• San Francisco Jossey-Bass Inc., Publishers. 1983

62
Federal Financial Aid Programs - NDSL

• National Defense Student Loan established for
  the 1958-59 academic year
• Provided long term, extended payment and low
  interest loans
• Federal Contribution 9 for 1 from school
• Loan repayments are deposited in a fund for
  future borrowers
• First program required a needs test

63
Federal Financial Aid Programs - NDSL

• Contact and agreement between school and federal
  government
• Students had to be full-time
• Demonstrate need and maintain good standing
• Preferred eligibility for students enrolled in
  science, mathematics, teaching or modern foreign
  language to meet national needs
• Interest rate for 1958 to 1980 was 3

64
Federal Financial Aid Programs - NDSL

• Forgiveness for teaching handicapped students or
  in elementary or secondary schools with a high
  concentration of low-income students
• In the 1960s cancellation was available for
  military service and almost any type of teaching
• These were rescinded in the 1970s
• Renamed the National Direct Student Loan and
  today its known as the Federal Perkins Loan
  Program

65
Federal Financial Aid Programs - CWSP

• College Work Study Program (CWSP) created in
  1964- Part C of the Economic Opportunity Act
• The Act was designed primarily to combat poverty
  in the U.S. Some of the provisions included
• Employment limited to 15 hours / week
• Earnings were a match of 80 federal and 20
  school
• Later came the Job Locator Program
• Many changes later Federal Work Study Program
  is still with us

66
Federal Financial Aid Programs - EOG

• Educational Opportunity Grants (EOG) established
  in the 1965 Higher Education Act
• Originally for only low income students and a
  limit of one-half of the aid offered
• Helped generate efforts by schools to recruit
  minority and economically disadvantaged students
• Funds came through a state allotment formula and
  later by institutional application
• In 1972 became the Supplemental Educational
  Opportunity Grants (SEOG)

67
Federal Financial Aid Programs - BEOG

• Basic Educational Opportunity Grant (BEOG)
  authorized under the Education Amendments of 1972
• First portable grant, separate formula for
  eligibility
• Funds directly from Federal government
• School did not determine eligibility
• No grant could exceed ½ of the cost of education

68
Federal Financial Aid Programs - BEOG

• BEOG eligibility was expanded through the Middle
  Income Assistance Act in 1978
• Grant size also increased
• In 1980 as part of the Education Amendments the
  program was renamed the Pell Grant program to
  honor Senator Claiborne Pell of Rhode Island
• Today maximum Grant is 4,050 (2006-07)
• First years maximum was 452 (1973-74)

69
Federal Financial Aid Programs - GSL

• Guaranteed Student Loans (GSL) was authorized by
  the Higher Education Act of 1965
• The first guaranteed loans were started by the
  states of Massachusetts and New York in the 1950s
• New York State adopted a partial interest subsidy
  in 1958
• Original interest rate was 6
• The early loans only had interest subsidy for
  families with income at or below 15,000

70
Federal Financial Aid Programs - GSL

• 1972 Sallie Mae was established
• 1976 Income for interest subsidy was increased to
  25,000
• 1978 Middle Income Student Assistance Act the
  income limit for interest subsidy was eliminated
  interest rate became 7
• Under Education Amendments of 1980, the interest
  rate became 9
• In 1982 came the PLUS and ALAS loan programs

71
Federal Financial Aid Programs - GSL

• Many changes along with renaming the program to
  the Federal Stafford Loan lead us to our current
  status
• The Federal Ford Direct Student Loan Program
• Variable loan interest rates
• Subsidized and Unsubsidized (1992-93) loans have
  grown significantly

72
Ten-Year Trend in Funds Used to Finance
Postsecondary Education Expenses, 1994-95 to
2004-05

73
Total Student Aid by Type

• Estimated Student Aid by Source
• for Academic Year 2004-05 in Current Dollars (in
  Billions)

74
New Issues

• Role of tax credits in financing higher education
• Electronic applications
• Staff and budget support by institution
• Role of staff training and professional
  development
• Merit vs. Need based financial aid
• The impact of the economy

75
New Issues

• Institutional Aid
• Non-Federal Loans
• Community Service and Federal Work-Study
• Counseling versus Operations
• New aid Programs
• Reauthorization
• Insights for the Future

76
Aristotle once said

• To give away money is an easy matterand in any
  mans power. But to decide to whom to give it,
  and how large and when, for what purpose and how,
  is neither in every mans power nor any easy
  matter. Hence it is that such excellence is rare,
  praiseworthy and noble.
• Source Web site www.finaid.org, Mark
  Kantrowitz, Publisher

77
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