Financial Aid in Focus: Arizona’s Role in Enhancing Access and Affordability

1. Financial Aid in Focus: Arizona’s Role in Enhancing Access and Affordability Brian T. Prescott Senior Research Analyst, Public Policy and Research Western Interstate Commission for Higher Education (WICHE) November 8, 2007

2. Presentation Outline • Financial aid overview and context • Arizona’s investment • State grant aid models

3. 25 to 34 45 to 54 OECD Countries 60 50 40 30 20 10 0 Italy Spain Korea Japan Ireland Slovak Poland Austria Mexico Iceland Greece Finland Turkey Norway France Belgium Canada Sweden Portugal Hungary Australia Germany Denmark Netherlands Switzerland Luxembourg New Zealand United States United Kingdom Czech Republic Source: Prepared by NCHEMS from Organization of Economic Cooperation and Development, American Community Survey Percent of Adults with an Associate’s Degree or Higher

4. Age 25-34 Age 45-64 55% 45% 35% 25% 15% Ohio Iowa Utah Idaho Maine Texas Illinois Hawaii Florida Alaska Indiana Kansas Oregon Virginia Nevada Georgia Missouri Arizona Vermont Montana Michigan Alabama Colorado Maryland Wyoming Kentucky Arkansas Delaware California Nebraska Louisiana New York Wisconsin Oklahoma Minnesota Mississippi Tennessee Washington Connecticut New Jersey New Mexico Rhode Island West Virginia North Dakota Pennsylvania South Dakota United States North Carolina South Carolina Massachusetts New Hampshire Source: Prepared by NCHEMS from U.S. Census Bureau, 2000 Census data Differences in College Attainment (Associate and Higher) Between Young and Older Adults—Percent of Adults with College Degrees

5. Arizona High School Graduates, 1991-92 to 2004-05 (Actual); 2005-06 to 2021-22 (Projected) 120,000 100,000 80,000 60,000 40,000 20,000 0 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 White, non-Hispanic Hispanic Black, non-Hispanic Asian/Pacific Islander American Indian/Alaska Native Public and Nonpublic Total

6. Overview of Financial Aid • Types of aid • Grants • Loans • Work-study • Tax credits • Sources • Federal government • State government • Institutional aid • Private scholarships, local government, employers, etc. • Other private sources, i.e., banks

7. The Federal Investment in Financial Aid • Total investment = $86.3 billion in FY07 • Pell Grants ($12.8 billion, 5.2 million recipients) • Subsidized and unsubsidized Stafford Loans ($48.2 billion, 6.1 million recipients) • Tuition tax credits ($5.9 billion) • Other grants and loans programs (including Perkins, GEAR UP, LEAP, etc.)

8. Financial Aid in Context • ATFA (Appropriations, Tuition, Financial Aid) • Appropriations/Institutional support • Capacity (access) • Quality (success) • Tuition • Vital revenue source • Price levels influence access and success • Financial aid

9. What We Know About Financial Aid • It makes a difference. • The difference it makes depends on the student. • Access for low-income students only • Choice • The form the aid takes matters. • Grants impact access. • Loans and work-study generally reduce the burden, but don’t remove barriers.

10. Growth in Loans • Total loan volume for undergraduates grew from about $27.5 million in 1996-97 to $54.8 million in 2006-07 (inflation adjusted). • Average amount borrowed by dependent undergraduates in public four-year insti-tutions increased from $3,970 in 1992-93 to $5,390 in 2003-04, and the share of stu-dents borrowing climbed from 26% to 47%. Source: College Board, Trends in Student Aid, 2007.

11. Changes in Pell Funding • Pell’s purchasing power, measured as a share of the cost of attendance at the average public four-year college, is down to 32% in 2006-07 from 42% in 2001-02 and 52% in 1986-87. • But big increases in Pell Grant expenditures • More eligible recipients (1.5 million within the past decade) Source: College Board, Trends in Student Aid, 2007.

12. Shifting Currents in Federal Grant Aid • Modest efforts to renew commitment to need-based grant aid • Increases in Pell maximum award • New incentives • ACG and SMART Grants (created in 2005) • Deliberate attempt by feds to influence course-taking and career goals • Still tied to need through Pell eligibility, but with new requirements for academic performance

13. ACG/SMART Grants Distribution (2006-07) • Total appropriation = $790 million • Total disbursed = $430 million Source: U.S. Dept. of Education (reproduced by insidehighered.com)

14. Total State-Funded Need-Based Aid to Undergraduates, 2005-06 (in millions) • New York $874.5 • California 757.8 • Pennsylvania 404.0 • Texas 366.9 • Illinois 355.3 • New Jersey 223.5 • Indiana 176.4 • Washington 167.3 41. New Hampshire 3.8 42. Montana 3.6 43.Arizona 2.8 44. Mississippi 2.2 45. North Dakota 1.5 Source: NASSGAP

15. State-Funded Need-Based Aid to Undergrad-uates per Undergraduate FTE, 2005-06 • New York $1,096.36 • New Jersey 854.88 • Pennsylvania 801.03 • Washington 695.21 • Indiana 690.47 • Illinois 679.50 • Vermont 609.49 • Minnesota 583.76 46. Hawaii 9.55 47.Arizona8.02 48.Wyoming7.11 49. Georgia 4.66 50. South Dakota 0 Source: NASSGAP

16. Institutional Aid Partially Fills the Gap in Arizona • ABOR policy requires a 14% of tuition revenues set aside for need-based aid, equal to $47.9 million in FY07 ($35.8 million for Arizona resident undergraduates). • ABOR institutions awarded $164.2 million in aid. Of that amount, $136.5 million went to undergraduates, $75.1 million of which went to students with demonstrated need. • Total institutional aid per FTE = $1,486.18 • 1,115 undergraduates received state grants. • 37,685 undergraduates received institutional grants, 24,969 of whom were needy. Source: ABOR, Student Financial Aid Report FY2007; Enrollment History (http://www.azregents.edu/1_the_regents/reports_factbook/fb_files/enroll-table.html)

17. Aid at Arizona’s Community Colleges • Last year of data: FY2005 • State and local financial aid = $1,734,721 • Institutional aid = $16,472,309 • Institutional aid per FTE = $141.08 Source: NCES IPEDS

18. State Financial Aid Philosophies • Four key factors • Clear goals • Clear rationale/philosophy • A program that supports the goals and rationale • A winning coalition to sell the program

19. Clear Goals • The evolving debate over need vs. merit aid: “blended” aid programs • Need-based aid • Defining who is needy • Restrict to the very neediest → Pell • Low plus moderate income → progressive need analysis • Let someone else decide → federal methodology • Identifying the responsible parties • To what extent do you want to influence behavior? • Rewarding achievement or rigorous preparation • Retaining the best and brightest

20. Rationale/Philosophy • Tailored to the state’s needs and culture • The options • Delegate to institutions • A little is better than none • More is better and never enough • Buying the best • Early commitment • Leveraged partnerships

21. Building a Program • Predictability and stability • Students and families • Institutions • Transparency: it is easily understood, with little or no “hocus pocus” • Efficiency • Ensure program leverages scarce dollars towards state goals • Stays within bounds of state’s capacity to provide funding • Ease of administration • Need a reliable implementation plan and set of tools • Implementation costs will likely be modestly funded

22. A Winning Coalition • Appeals to all the stakeholders • Governor • Legislature • Higher education institutions: public 4-year, public 2-year, independents • Students • Business community and taxpayers • Financial aid community • Identifying components that generate support

23. Delegate to Institutions • Idaho, Arizona • Goals: Institutional goals = state goals? • Rationale: Founded on trust in institutions • Program • Administration is inexpensive • Fails on transparency and predictability • Unclear on efficiency and effectiveness • Coalition-building is relatively pain-free

24. A Little is Better Than None • Montana and Utah • Goals: Access on the cheap • Rationale • A foot in the door to build upon • Incremental funding won’t bring it to scale • Rationale is weak since funding levels make success very uncertain • Program • Requires an infrastructure to administer, inefficient • Low scores on predictability and transparency • Coalition • Relatively non-threatening due to its cheapness

25. More is Better and Never Enough • Standard approach, exemplified by California, old Oregon grant • Goals: Meeting “unmet need,” typically in concert with federal needs analysis • Rationale • Tie to federal approach (external validity) • Relatively simple solution • Program • Relatively simple implementation, but requires rationing which can be arbitrary • Piggybacked targeting, cliffs • Uncertain predictability and assurance of affordability • Coalition-building is made easier by: • Tie to federal approach means not “reinventing the wheel” • Doesn’t incite many turf battles • Flexibility to ration arbitrarily • Genuine support is elusive since it lacks linkages to the state context

26. Buying the Best • Broad access merit approach: Georgia, New Mexico, Florida • Goals • Make college as free as possible for as many as possible (who meet certain conditions) • Retain talent and create incentives • Economic development • Rationale: Remove price as an obstacle and reward good behavior • Program: • Predictable and transparent • Exceptionally expensive • Very inefficient as it generally has little impact on access • Administrative infrastructure can be streamlined • Coalition • Very popular, especially among those most likely to vote • Strongest supporters are typically in the political arena

27. Early Commitment • Indiana’s 21st Century Scholars and Oklahoma’s OKPromise • Goals: Access and success through improved preparation • Rationale • Provide clear signals and incentives • Program • Early notification → predictable, transparent, and stimulates planning • Administration and data requirements are significant • Focuses on access students and gives them tools for success • Coalition • Popular and growing in both states

28. Leveraged Partnerships • Shared Responsibility in Minnesota and Oregon • Goals: Assure affordability • Rationale • Identifies responsible partners, including the student, the family, the federal government, and the state • As primary beneficiary, the student is expected to assume an explicit share of the costs, which is typically larger than traditional aid programs • Program • High marks on predictability and transparency • “Taps out” the other partners before state taxpayers are asked to contribute • Expensive • Flexible and accommodates adult learners • Rationing is possible, but can diminish the core rationale • Coalition • A strong and appealing philosophy built on affordability • Need-based aid that reaches a wide swath of the income distribution • Where does the money come from?

29. Private $25,700 Student share as principal beneficiary- pegged to reasonable work effort or a % of attendance costs - from work, savings, scholarships, and/or borrowing State Public 4-yr $16,217 Federal State Parents’ share- determined using federal methodology Public 2-yr $12,985 Parents Federal State Federal share- includes Pell & tax credit Parents Federal Student Parents State share- fills the gap Student Student Shared Responsibility Partners

30. The Bottom Line • Student-centered • Early notification • Simplicity and transparency • Balances incentives (full-time, preparation, etc.) • Portability between sectors and flexibility • Integrated with tuition and fees levels and state appropriations to public institutions • Accountability and evaluation efforts that are consistent with expressed state goals

31. Contact Information Brian T. Prescott, Ph.D. Senior Research Analyst Public Policy and Research, WICHE 3035 Center Green Drive Boulder, CO 80301 303.541.0255 bprescott@wiche.edu