Higher Education Cost and Financial Aid:

Unraveling the Pieces

Larry WarderActing Chief Operating Officer

Federal Student Aid

2

Lagging performance internationally• The United States ranks 18th among OECD nations in

college graduation rates, a drop from 12th

• The U.S. ranks 1st among OECD nations in college dropout rates

• The U.S. ranks 21st among OECD nations in high school graduations rates

• While the U.S. leads the world in the percentage of its population aged 55 to 64 with college degrees, we drop to 10th among those aged 25 to 34

• The U.S. ranks first among OECD nations in total expenditure on higher education as a percentage of GDP

3% of students that benefit from public aid

Tuit

ion

and

fees

Source: OECD, Education at a Glance 2007

Australia

Austria

Belgium (Fr.)

DenmarkFinlandFrance

Iceland

Italy

Japan

Netherlands

Spain

Turkey

United States

Poland0

1500

3000

4500

6000

0 25 50 75 100

Sweden & Norway

Czech Republic

4

Rising Higher ED Costs in Every SectorCost of attendance in constant (2005) dollars

$27,317

$21,170

$12,108

$6,492

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

1992 1994 1996 1998 2000 2002 2004

Public 2-Yr

Public 4-Yr

Private 2-Yr

Private 4-Yr

5

Growth of Cost Outpaces Family IncomePercent increase (constant dollars)

53.28% Priv. 2-Yr

48.33% Pub. 4-Yr

33.61% Priv. 4-Yr

24.96% Pub. 2-Yr

9.04% Med Inc.

-10%

0%

10%

20%

30%

40%

50%

60%

1991 1993 1995 1997 1999 2001 2003 2005

6

Triple the Investment, but Enrollment and Attainment are Virtually Flat

Constant 2005 dollars

$0

$20

$40

$60

$80

$100

$120

$140

$160

92-93 94-95 96-97 98-99 00-01 02-03 04-05

% pop age 20-21 Enrolled in College

% of pop age 25-34 with B.A. or Higher

25%

20%

30%

35%

40%

45%

50%

55%

60%

Federal Grants

Federal Loans

Non-Federal Aid

7

1992-93

2005-06

$0

$10

$20

$30

$40

$50

$60

$70

$80$bn

Everyone is Doing More… Estimated student aid by source for 1992-93

and 2005-06 in current dollars (in billions)

8

…Burden is Shifting Percentage of student aid by source for 1992-93

and 2005-06 in current dollars (in billions)

1992-1993

20%

10%

16%41%

5%

7%7%

51%

9%

6%

2005-2006

19%

5%

4%

Education Tax BenefitsPrivate & Employer Grants

Institutional GrantsState GrantsOther Federal Programs

Federal LoansPell Grants

9

Buying Power of Pell VariesLeast power in states with fastest growing youth population

In th

ousa

nds

Source: Award Year 2005-06 Pell Grant Sample File. Unmet need is average cost of attendance, as defined in statute and reported by institutions, minus the average Pell Grant.

$0

$5

$10

$15

$20

$25

$30

Puert

o Rico

Mississ

ippi

Arkan

sas

Oklaho

ma

North D

akota

Alaba

maKa

nsas

North C

arolinaIda

ho

West Virg

iniaHawaiiTe

xas

Louisia

naUtah

Wyoming

Nebras

ka

Montan

a

New Mexi

co

South

Dakota

Michiga

n

DelawareMain

e

Nevada

Washing

ton

Wiscon

sin

Oregon

Tenn

essee

South

Carolina Ohio

Califo

rnia

Kentu

cky

Missou

ri

Virgini

aIllin

oisFlo

rida

Marylan

d

Vermon

tAlas

ka

Indian

a

New Je

rsey

Colorad

o

New Yo

rk

Minneso

ta

Georgi

aIow

a

Penn

sylva

nia

Conn

ecticu

t

Rhod

e Isla

nd

Massach

usetts

New Ham

pAriz

ona

District

of Colu

mbia

Average Pell Grant Average Cost of Education

10

Income Quintile KeyCurrent Dollars (2005)

Income Quintile Income Range

I < $30k

II $30k - $50k

III $50k - $75k

IV $75k - $100k

V > $100k

11

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

I II III IV V I II III IV V16.3%1%

Full-Time, Full-Year Dependent Undergraduates at Public 4-Year Institutions

Full Aid Covers Cost of Attendance for Increasing Number of Students

Income Quintiles 1993 Income Quintiles 2004

12

0%

2%4%

6%

8%10%

12%

14%16%

18%

I II III IV V I II III IV V

Aid Plus EFC Does Not Cover Tuition for Increasing Number of Students

Full-Time, Full-Year Dependent Undergraduates at Public 4-Year Institutions

16.3%1%

Income Quintiles 1993 Income Quintiles 2004

13

Aid Available from Multiple Programs…

Pell GrantsOther Fed GrantsWork Study

Non-Fed Need-Based Aid

Non-Fed Non-Need-Based Aid

Fed Student Loans

Federal Parent Loans (PLUS)

Non-Fed LoansTax Benefits

Aid

Amou

nts

per

Stud

ent

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

I II III IV V

Income Quintiles 2004

14

Unmet Need, an Undue Burden on Low and Moderate-Income Families

Additional Family Contribution

EFC

Full-Time, Full-Year Dependent Undergraduates at Public 4-Year Institutions

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

I II III IV VIncome Quintiles 2004

COA

min

us A

id p

er S

tude

nt

15

Among Traditional Students at 4-Year Public Schools, About 40% Need a Quarter to a Third of Income to Complement AID Package

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

I II III IV V I II III IV V

Annual Cost

36%

22%

17%

13%

10%

33%

18%

14%15

%

10%

Unmet need as % of family income

Income Quintiles 1993 Income Quintiles 2004

Under Secretary’s Listening Tours

Real stories from students

17

What is needed

• Access to student financial aid needs to be simplified

• Student financial aid needs fewer programs better targeting recipients

• Student financial aid should facilitate attainment of a postsecondary credential

18

The Department of Education’s Focus Areas:

• Refocus the Federal investment toward simplified access and increased attainment

• Enable more student access to a rigorous and aligned curriculum

• Help more adults attain their first postsecondary credential

• Engage families and students before high school to prepare for postsecondary education

• Increase transparency and information available to students and families

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• Almost half of 17-year-olds are not proficient enough in math for factory floor jobs

• Two-thirds of college-bound high school graduates are not ready for college-level math and one-third for college-level English

• Only 4% of low-income high school students complete a rigorous college preparatory curriculum

Enable more student access to a rigorous and aligned curriculum

20

Help more adults attain their first postsecondary credential

• Greater numbers of adults are looking for ways to upgrade or expand their skills

• Nearly 40% of today's postsecondary students are self-supporting adults age 24 and up, almost half attend part-time, more than 1/3 work full-time and 27% have children

• 44% of Americans don’t believe they have the education they need for the jobs they want

• 32 states do not have enough young adults in the pipeline to replace college-educated, retiring Baby Boomers

• There are 32 million adults who started, but did not complete, a college education

21

Engage families and students before high school to prepare for and participate in postsecondary education

• Research shows that most students have some post-high school educational or job plans by the ninth grade

• Nearly 2 million low and moderate-income students a year do not apply for federal financial aid

• Financial obstacles will prevent over 400,000 college-qualified students from attending a four-year college and nearly 170,000 will attend no college at all

• By age 24, 75% of students from the top-income bracket have earned a degree, while less than 9% of low-income students have earned one

22

What has to happen outside the Federal government?

• Aligning high school, college, and work expectations• Serving adults and other nontraditional students• Increasing need-based aid• Improving affordability, reducing costs, and

increasing productivity• Supporting and emphasizing student learning

outcomes

23

• Access– Redesign services to improve pathways to and

within postsecondary education for all students

• Affordability– Increase need-based aid– Develop strategies that reduce overall

institutional cost

TO DO: Institutional Leadership

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• Accountability– Create ownership at the institutional

level for designing measures of student learning and achievement that are linked to mission and publicly communicate the results

TO DO: Institutional Leadership

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• We've spent a year ensuring "buy-in" for the problem

• We've identified the areas that can have the greatest impacts

• We know what has to be done – by the Federal government and others

• We're turning the spotlight towards solutions• And we're holding ourselves and the others who

must act accountable

Conclusion