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Analysis: Meltdown Could Force College Aid Shift

Johnny is a middle-class student who worked hard to get good grades and a high SAT score. Jane’s record isn’t as good, but her family is low-income, and without help she might not be able to go to college at all.

Who should be first in line for help from the government to pay for college?

It’s a debate that hits hot-button questions about fairness and opportunity, and lately, many experts think the middle class has been winning.

But the economic meltdown could be shifting the playing field, as the government and colleges themselves are forced to focus on helping the neediest students and try to head off a wave of dropouts.

Some experts think that could prove one of the few beneficial outcomes of the downturn.

“For a long time, the discussion was about the middle-income squeeze: wealthy people could pay for (college), poor people were getting grants, people in the middle were having a hard time,” said Vanderbilt University education professor William Doyle. While ideally college would be cheaper for everyone, he said, the research is clear that “the most efficient way to spend the money is to focus on the margins, people who wouldn’t otherwise go.”

Over the last decade, nearly every state has started or expanded politically popular “merit aid” programs that reward students with high SAT scores or grade point averages, even those whose families could afford college costs.

Colleges have done the same with their own money, dangling financial aid to attract students who will improve the college’s ranking and reputation. But sometimes that means well-off students get both a free ride and a new ride (when their parents reward a scholarship by using the college fund to buy them a car).

The federal stimulus package President Barack Obama signed into law Tuesday, however, was notably focused on helping the poorest families through college, with the largest increase ever to the Pell Grant program, which mostly supports students from families earning under $30,000 a year.

Merit-based aid, meanwhile, has taken a hit in several states. New Jersey recently imposed tougher standards and cut back on its Student Tuition Assistance Reward Scholarship. Michigan may have to reduce its Promise Scholarship. Nevada has already moved money out of a program that gave as much as $10,000 to top high school graduates.

Cutting merit aid won’t necessarily translate into more need-based aid in these tough times. But there are signs it’s a higher priority. In Virginia, Gov. Tim Kaine’s proposed budget would boost need-based aid $26 million even as it imposes big cuts elsewhere to close a two-year, $2.9 billion budget hole.

Some educators criticize merit-aid programs for distributing public money where it is not necessarily needed, but they also do a lot of good.

They raise the academic reputations of state universities by keeping bright students from moving elsewhere. And they encourage high school students to work hard, knowing there’s a financial reward.

And of course, students from low-income families who get good grades are eligible, too (in some states, merit scholarship programs have need-based components).

But many people are surprised to learn how much financial aid ends up helping families who aren’t necessarily the neediest.

Twenty-eight percent of state financial aid was awarded for merit in 2006-2007, up from 15 percent a decade earlier, according to the National Association of State Student Grant & Aid Programs.

The trend is more pronounced when colleges hand out their own money. Families earning more than $100,000 get grants that average $6,200, the most recent federal figures show. That’s $1,500 more than colleges’ average award to families earning under $20,000. (One reason is athletic scholarships, which are tilted toward sports well-off kids play; there are 900 more NCAA scholarships available for golf and tennis than there are for basketball).

To be sure, middle-class families have legitimate gripes about college costs, which hit $6,585 this year at the average four-year public college.

For the middle 20 percent of families, that means college now costs 25 percent of income even after financial aid according to a recent report from the National Center for Public Policy and Higher Education. That’s up from 18 percent of income nine years ago.

But for the lowest 20 percent of families, the real cost of college has risen from 39 percent of income to 55 percent.

Merit aid programs, while desirable, may be deemed a luxury in tough times.

In West Virginia, a report found efforts to control costs by toughening standards for the state’s PROMISE scholarship program have come at the expense of lower-income students, and asked the legislature to cap the awards at $4,500. A private college president there called the program a welfare program for better-off families.

Meanwhile, the stimulus plan raises the maximum Pell Grant, from $4,731 currently to $5,350 starting July 1.

“I hate that it comes because of a recession and this is the only way we can get the Pell increase, but I think it’s going to help a lot of students,” said Lloyd Dixon, interim financial aid director at Mississippi Valley State University, where about 95 percent of students receive Pell Grants among the highest rates in the country.

The stimulus also helps low-income families by making the tuition tax credit partly refundable to those who don’t earn enough to pay taxes. Currently, about 60 percent of the benefit goes to families earning more than $100,000.

Some experts, like Penn State’s Donald Heller, think merit aid programs are too popular for the balance to change much. But Doyle, the Vanderbilt professor, is cautiously optimistic.

“If we come out of this with a recognition of where the college access problems really are, that’s going to be a good foundation,” he said.

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