Stop Subsidizing Waste! | Eastern North Carolina Now

    Publisher's note: The John William Pope Center for Education Policy provides a treasure trove of information suggesting the better path forward in regards to North Carolina's number one issue - public education. Public education, at all levels, requires a significant amount of funding from our state government, and all one hundred North Carolina counties, so it is essential that leaders effecting education policy get it right, and know that concerned entities, like the John William Pope Center, will be minding their progress to do so. We welcome the John William Pope Center for Education Policy to our growing readership, and expect our readers to learn all they can to do their part in this wise endeavor to better educate our People.

    The author of this post is Jay Schalin.

    There is a common sense solution to our current wasteful financial aid programs.

    The student loan crisis has been all over the headlines lately - $1 trillion in loans with a default rate that's high and getting higher. But direct grants, or scholarships, by the federal and state governments have just as big an effect on the world of higher education and on the nation. They, too, are in need of reform.

    Both the federal government and state governments provide aid to college students. Some, like the $35.6 billion (in 2010) federal Pell Grant program, are based entirely on need. Anyone who meets the income limits and who enrolls in a college can get a grant, with no academic requirement.

    In contrast, states sometimes provide merit aid. For example, the state of Georgia provides scholarships to all students who get a B average in high school, with little consideration for family incomes.

    Each type of aid - need and merit - brings its own set of trade-offs - and both are costly to taxpayers. Pure need scholarships tend to fund failure - many recipients never graduate - and thus are very wasteful. In contrast, pure merit scholarships generally redistribute wealth from the working class to more prosperous families - something most people find inherently unfair.

    There is an easy solution at hand - replace them with a system in which merit and need are both used to determine grant eligibility.

    The Pell grant program is a good example of how wasteful need scholarships can be. The program was started in 1970 and has grown from 176,000 to 9.6 million recipients in 2010. There is a strong correlation between Pell Grants and a failure to complete school. For instance, at Southern University of New Orleans, which has the country's worst four-year graduation rate at 4 percent, 76 percent of students get Pell Grants.

    A closer look at the numbers confirms that leaving drive, talent, and preparation out of the formula for determining scholarships yields predictably grim results. According to 2009 National Center for Educational Statistics data, well-qualified Pell Grant recipients with SAT scores above 1140 graduate within six years 73.7 percent of the time. Only 34 percent of their counterparts with SAT scores below 850 did the same (the College Board that administers the SATs suggests that 1020 is the minimum required for college-level work).

    It's worse for the 15.8 percent of Pell Grant recipients (using 2008 figures) who have SAT scores below 700 - only 12.9 percent of them earn bachelors degrees within six years. Not funding such highly predictable failure could cut roughly $5 billion from the program.

    When students have little hope of completing an academic program, subsidies are not just a waste of taxpayers' money, but a waste of these young people's time and effort at a crucial age. Too often, they drop out with a sense of failure, poor work habits, and perhaps a sizeable debt.

    In an era of scarce resources, ending pure need scholarships may cause low-income students to make wiser choices about their futures. It would be far better if, instead of floundering in an academic institution, they learned a trade, entered the military, or gained work experience. If they really wish to pursue a bachelors' degree, they can prove themselves worthy of scholarship money by taking classes at low-cost community colleges first.

    At the other end of the spectrum are pure merit scholarships. Based on high school grades and standardized test scores, they make sense only if restricted to truly talented students. Yet, many states now have programs that have grown too large because the eligibility standards are too low.

    Georgia's Hope Scholarships fit that description. A "B" high school average is enough to qualify; that means that at many high schools, the average student is eligible. Since the only income limit is that families cannot make more than $140,000 per year, a large government subsidy is directed largely to middle or upper-middle income families that need no such help to provide opportunities for their children. It has become widely used; politicians who try to end it do so at their peril.

    In fact, the demand for Hope Scholarships has rapidly outstripped the resources; the total cost of the program reached $748 million in 2010. The state has been forced to introduce another program called Zell Miller Scholarships. In order to get the full amount originally intended for Hope recipients, students must now meet the much more stringent merit standards required by the Zell Miller program (for one, an "A" average), while Hope recipients receive lesser amounts.

    The best way to address both of these dilemmas is to use formulas for determining financial aid that include both merit and income measures. The better a student's test scores and high school performance, and the lower his or her family's incomes, the more money he or she receives. The worse a student's grades and scores, or the higher his or her family's income, the less he or she receives. Such a method directs scholarship money to the most deserving students, while students who show less achievement and potential will receive less funding if they are needy and nothing at all if they are not.

    A mixed need-merit aid system will cut much of the waste, the most deserving students will receive ample help, money will not be wasted on undeserving students, and young people will generally be directed toward those activities most likely to offer them a promising future.