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Use Grants, Not Loans, for Getting Low-Income Hispanics to College

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Title: Use Grants, Not Loans, for Getting Low-Income Hispanics to College
Language: English
Authors: Adam, Michelle
Source: Education Digest: Essential Readings Condensed for Quick Review. Apr 2007 72(8):51-55.
Availability: Prakken Publications. 832 Phoenix Drive, P.O. Box 8623, Ann Arbor, MI 48108. Tel: 734-975-2800; Fax: 734-975-2787; Web site: http://www.eddigest.com/
Peer Reviewed: N
Page Count: 5
Publication Date: 2007
Document Type: Journal Articles
Reports - Descriptive
Education Level: Higher Education
Descriptors: Foreign Countries, Grants, Educational Policy, Educational Opportunities, Student Financial Aid, Low Income Groups, Access to Education, Hispanic American Students, College Bound Students, Disproportionate Representation, Higher Education
Geographic Terms: Canada
ISSN: 0013-127X
Abstract: The Educational Policy Institute (EPI) is an international think tank launched in 2002 "to expand educational opportunity for low-income and other historically underrepresented students through high-level research and analysis." Financial aid to students is a major element in expanding opportunity and thus is a major focus of EPI. Alex Usher, vice president of EPI International and director of EPI Canada, spent years exploring data in this arena. He wanted to determine, in particular, the actual value of grants, with the goal of helping focus policy more intently on aid to people who truly need it. This article discusses the report of Usher on the subject, "Grants for Students: What They Do, Why They Work," which includes a summary of current research. Usher's report offers evidence of the need for more focused grant aid, but it is up to politicians, who often happen to be coming from the middle class, to look beyond their own lives and their own experiences in order to be able to provide help for those who are really the most in need of help. It is then, and only then, according to Usher, that higher education can serve as the equalizer of classes and provide opportunities for all groups.
Abstractor: ERIC
Entry Date: 2007
Access URL: https://www.eddigest.com/index.php
Accession Number: EJ769494
Database: ERIC
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  Value: <anid>AN0025057094;edd01apr.07;2007May17.14:32;v2.2.460</anid> <title id="AN0025057094-1">Use Grants, Not Loans, for Getting Low-Income Hispanics to College </title> <p>THE Educational Policy Institute (EPI) is an international think tank launched in 2002 "to expand educational opportunity for low-income and other historically underrepresented students through high-level research and analysis."</p> <p>Founded by Watson Scott Swail, president and Chief Executive Officer (CEO), who also founded the Pell Institute, EPI has offices in Canada, the United States, and Australia. Swail has walked the walk, as a public school technology teacher in the United States and in his native Canada. Financial aid to students is a major element in expanding opportunity and thus is a major focus of EPI.</p> <p>Alex Usher, vice president of EPI International and director of EPI Canada, spent years exploring data in this arena. He wanted to determine, in particular, the actual value of grants, with the goal of helping focus policy more intently on aid to people who truly need it.</p> <p>Usher's report on the subject, Grants for Students: What They Do, Why They Work, was released in August of 2006. It includes a summary of current research.</p> <p>According to EPI, "Usher argues that grants are required to entice low-income students into post-secondary education because a variety of factors, both real and perceived, lead them to underestimate its true long-term financial benefits. While this analysis provides strong analytical support for targeted grants to low-income students, it also strongly suggests that students from higher-income families, who are better prepared for post-secondary education, are far less price-sensitive and consequently in much less need of nonrepayable aid such as tax credits."</p> <p>"I believe strongly that public dollars are precious. You don't use public dollars lightly. And when it comes to access to education, we are using these dollars lightly They reduce the net cost of tuition, but who are we giving this to? Do they go to people who really need it?" asks Usher.</p> <cn>Never Attending</cn> <p>"The grants may ease the payments of the middle class, and, of course, we don't want to pinch their spending power. But that is a different mission for public aid. If the middle class doesn't get grants, they'll find a way to get to college, but the lower-income families may not.</p> <p>"I wanted a coherent theory as to why spend it on Hispanic students, or those underserved groups, and then go mess around with the middle class. The priority should go to the lower-income groups."</p> <p>Usher examined research aimed at testing the hypothesis that lower levels of net price of college lead to better access to postsecondary education. Some reports demonstrated that grants did not change the number of disadvantaged students going to college. Others found a clear connection between price and enrollment. Various research papers concluded that the net price of school had the greatest impact on lower-income students.</p> <cn>Three Influences</cn> <p>For example, in one 1988 study, the number of low-income students enrolling in college increased 20 to 40% in response to reductions in price and grants. In another example, net prices had the greatest impact on the retention of low-income students and no impact whatsoever on the retention of high-income students. Three factors which were seen as influencing this outcome were net price, the amount of cash which was available to pay for school at the time, and the consideration of debt aversion.</p> <p>Despite there having been frequent claims that lower-income students tend to be more debt averse than other students are, Usher argues that "There is little empirical evidence that shows that lower-income students are debt averse."</p> <p>Usher writes that there were definitely some reports which demonstrated that grants were more effective than loans were in the matter of improving college persistence, but that "studies often do not compare the effectiveness of grants versus loans."</p> <p>One authoritative summary of policy and literature on college access in the United States, done in the year 2002, showed that a decline in grants during the decade of the 1980s fueled a widening gap between whites, blacks, and Hispanics. This study claimed that loans were more effective for middle-class and upper-class students, but that the converse was true for lower-class students.</p> <cn>Outside the U.S.</cn> <p>Examining studies on grants which were made outside of the United States, Usher cited research that showed that the size of the grant package was more important than the balance which existed between the loan and the grant. A study which was conducted in Australia demonstrated that, when the Australian government abandoned a merit-based equity scholarship for aboriginal students in the year 2000, there was actually a 15% decline in enrollment.</p> <p>One conclusion which was drawn in Usher's report was that grants and net price do have a great impact on the matter of retention, but their correlation to access is less clear and harder to measure.</p> <p>What did become evident, however, was that grants and price impacted low-income students more than they impacted other students.</p> <p>Admittedly, the latter would seem as though it would just be common sense. But, in the course of the study he was conducting, Usher didn't want to be relying on common sense. Rather, he wanted clear evidence to document what was happening.</p> <cn>Becker's Theory</cn> <p>Usher began this process of seeking clear evidence by looking at Human Capital Theory, a well-known theory of late-20th-century economics and one that has been associated with investment in higher education. Developed by Nobel Prize-winning economist Gary Becker in the early 1960s, Human Capital Theory claims that people invest in their own level of training and education based on the same kinds of rate-of-return calculations that they use when they are making other kinds of investments, such as in the areas of stocks and bonds.</p> <p>Using thinking that would be based on this theory, all students--lower-income and otherwise--would be willing to invest in their education, and would be willing to take out loans, because the return on education is worth it (it has been clearly shown that those individuals who have a degree in higher education greatly increase their earning potential throughout their lifetime). This theory, according to researcher Usher, has been used for the purpose of explaining the benefit of loans over grants for all students.</p> <p>"What stood out for me is how little attention has been paid to human capital work," said Usher. "All of the theoretical work on student loans is related to two pieces of work, Becker being one of them. There is no reason grants should work using Becker's theory. But grants play a role in changing the payoff of education. Becker wouldn't recognize that grants affect one group over another."</p> <cn>Low Income Hurts</cn> <p>Contrary to the concepts which are contained in Becker's theory, Usher points out that there is plenty of research showing that the cost of education has disproportionate effects on people who happen to be from the lower-income levels.</p> <p>Some possible explanations that Usher addressed include the following: This lower-income group has a rational reason to expect lower-than-average returns; this group is underestimating the costs and returns which are associated with an education; the group's members use high personal discount rates; and this group has an aversion to the idea of borrowing.</p> <p>Usher's paper looks more closely at these four possible explanations to lower-income students being most impacted by high costs of education, despite the possibility of loans as a means of paying for education. The first point addressed was that lower-income students may have a sense that those from their income bracket tend to do worse in college than higher-income students (and therefore don't end up with the same belief in the rate of return on their educational investment).</p> <cn>Won't Risk It</cn> <p>"Lower-income students are less likely to say that education is a likely investment," he said. "Why do we need grants? … It is not that they are averse to debt but that they genuinely don't think it's worth the risk. Grants lower the risk."</p> <p>Usher argues that students might also underestimate the benefit of education because they aren't getting the right information-about it. In addition, students from lower-income families tend to have different discount rates--they are likely to view the value of a long-term investment like education differently than those from middle- to upper-class families. According to the report, long-term poverty inspires short-term thinking, and students who value money more in the present than in the future end up being less likely to make an investment.</p> <p>"If the precondition for borrowing is that you prefer present pleasure to future benefits, you may be likely to borrow," said Usher. "However, with education, it is a problem--the payoff for education is far into the future. Grants increase the pleasure now."</p> <p>The last point which is considered in looking at why the price tag of education might have a different effect on lower-income students than it has on others has to do with the belief that lower-income students are more debt averse. This point had yet to be truly proved by studies, according to Usher.</p> <p>In the course of concluding his report, Usher argued on behalf of providing grants primarily to lower-class students and avoiding a policy whereby there would be a diluting of the funds so that middle-class students or even upper-class students receive grants.</p> <cn>Makes a Difference</cn> <p>As Usher pointed out, "for middle- to upper-class students, grants are not the difference between going or not going to school, but for many Hispanics and many low-income students, it often does make a difference."</p> <p>Usher added, "My impression is that the Clinton administration put much more into the Pell Grant than before. But the price for doing this was the big increase in tax credits. I'm not sure the administration needed to appease the middle Class."</p> <p>The Pell Grant, which represents the primary form of federal assistance to students that doesn't require them to pay back the money, has experienced little growth since the year 1997, according to Usher. The policy of tax credits has been frozen into place since then. Keeping this focus on maintaining tax credits for middle-class students is hurting lower-class students, he argued.</p> <cn>Helping the Needless</cn> <p>"We have about $24 billion now in grant aid, with $10 billion in tax credits going to the middle class who don't need it," said Usher. "We need more and more highly focused grants. The Pell has a laser focus on income [versus the concept of paying money based on the price of the school] and that is really good. But we have put the emphasis on how to help the middle class--that is helping people who are already in the system. We need to look at who is not going and why. Clear finances are a key reason."</p> <p>Usher's report offers evidence of the need for more focused grant aid, but it is up to politicians, who often happen to be coming from the middle class, to look beyond their own lives and their own experiences in order to be able to provide help for those who are really the most in need of help. It is then, and only then, according to Usher, that higher education can serve as the equalizer of classes and provide opportunities for all groups.</p> <aug> <p>By Michelle Adam</p> <p></p> <p>Michelle Adam is a Contributing Editor to The Hispanic Outlook in Higher Education. Condensed from The Hispanic Outlook in Higher Education, 17 (January 29, 2007), 10-11. Published at 210 Route 4 East, Suite 310, Paramus, NJ 07652.</p> </aug>
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  Data: The Educational Policy Institute (EPI) is an international think tank launched in 2002 "to expand educational opportunity for low-income and other historically underrepresented students through high-level research and analysis." Financial aid to students is a major element in expanding opportunity and thus is a major focus of EPI. Alex Usher, vice president of EPI International and director of EPI Canada, spent years exploring data in this arena. He wanted to determine, in particular, the actual value of grants, with the goal of helping focus policy more intently on aid to people who truly need it. This article discusses the report of Usher on the subject, "Grants for Students: What They Do, Why They Work," which includes a summary of current research. Usher's report offers evidence of the need for more focused grant aid, but it is up to politicians, who often happen to be coming from the middle class, to look beyond their own lives and their own experiences in order to be able to provide help for those who are really the most in need of help. It is then, and only then, according to Usher, that higher education can serve as the equalizer of classes and provide opportunities for all groups.
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