Making Education Work for the Poor

Making Education Work for the Poor identifies wealth inequality as the gravest threat to the endangered American Dream. Though studies have clearly illustrated that education is the primary path to upward mobility, today, educational outcomes are more directly determined by wealth than innate ability and exerted effort. This accounting directly contradicts Americans' understanding of the promise the American Dream is supposed to offer: a level playing field and a path towards a more profitable future. In this book, the authors share their own stories of their journeys through the unequal U.S. education system. One started from relative privilege and had her way to prosperity paved and her individual efforts augmented by institutional and structural support. The other grew up in poverty and had to fight against currents to complete higher education, only to find his ability to profit from that degree compromised by student debt. To directly counter wealth inequality and make education the 'great equalizer' that Americans believe it to be, this book calls for a revolution in financial aid policy, from debt dependence to asset empowerment. The book examines the evidence base supporting Children's Savings Accounts, including CSAs' demonstrated potential to improve children's outcomes all along the 'opportunity pipeline': early education, school achievement, college access and completion, and post-college financial health. It then outlines a policy that builds on CSAs to incorporate a sizable, progressive wealth transfer. This new policy, Opportunity Investment Accounts, is framed as the cornerstone of the wealth-building agenda the nation needs in order to salvage the American Dream. Written by leading CSA researchers, the book includes overviews of the major children's savings legislation proposed in Congress and the key features of prominent CSA programs in operation around the country today, as well as new qualitative and quantitative CSA research. The book ultimately presents a critical development of the theories that, together, explain how universal, progressive, asset-based education financing could make education work equitably for all American children.

Moving from the Status Quo to a 21st-Century Financial Aid System

With the creation of the first federal student loans as part of the National Defense Education Act of 1958, the US postsecondary financial aid system was set on a path from which it has not fundamentally deviated in the intervening decades. While college financing has trended almost inexorably toward greater reliance on student borrowing as costs have outpaced families’ incomes, the major components of the financing “mix” have remained unchanged. Financial aid policy is sometimes tweaked around the edges to lighten the burden of student debt, give colleges a competitive edge, or address undesirable disincentives. For the most part, however, these reforms bear more resemblance to the classic “shell game” than to authentic innovations. What American students need are more powerful tools with which to approach their futures—tools that help them prepare for higher education, persist to completion, and then leverage returns on their degrees. What they get, however, are repackaged versions of the same blunt instruments. While everyone wants improved outcomes from our financial aid investments, the nation’s apparent inability or unwillingness to innovate truly novel approaches to paying for higher education stands in the way of progress. The goal of financial aid policy has been narrowly framed as only helping young adults pay for college, a low bar that completely ignores the role financial aid could play in influencing early education, postsecondary completion, and post-college financial health. As a result, instead of receiving support at critical junctures along the opportunity pipeline to a prosperous adulthood, students are largely left to their own devices except at the moment when the tuition bill becomes due. To capitalize on the resulting missed opportunities, the United States needs more than different loan repayment schedules or loosened rules on grant disbursement. What we need is a fundamental shift in how we think about financing higher education and what we believe about why it matters.

Student Loans as a Pressure on U.S. Higher Education

The United States has been at the forefront of a global shift away from direct state funding of higher education and toward student loans, and student debt has become an issue of growing social concern. Why did student loans expand so much in the U.S. in the 1990s and 2000s? And how does organization theory suggest their expansion, and the growth of federal student aid more generally, might affect higher education as a field? In the 1960s and 70s, policy actors worked to solve what was then a central problem around student loans: banks' disinterest in lending to students. They did this so well that by 1990, a new field of financial aid policy emerged, in which all major actors had an interest in expanding loans. This, along with a favorable environment outside the field, set the stage for two decades of rapid growth. Organization theory suggests two likely consequences of this expansion of federal student loans and financial aid more generally. First, while (public) colleges have become less dependent on state governments and more dependent on tuition, the expansion of aid means colleges are simultaneously becoming more dependent on the federal government, which should make them more susceptible to federal demands for accountability. Second, the expansion of federal student aid should encourage the spread of forms and practices grounded in a logic focused on students' financial value to the organization, such as publicly traded for-profit colleges and enrollment management practices.

The Role of Institutional and State Aid Policies in Average Student Debt

Rising college student debt levels have received considerable media coverage and have even prompted policy proposals that link rising student debt with tuition inflation. This article examines the role of state aid policies coupled with tuition and financial aid policy and academic outcomes in determining variation in average student debt. A focus solely on tuition as the culprit in rising student debt misses the significant role that state and institutional financial aid policies and student outcomes play in determining debt levels across higher education institutions. Specifically, colleges and universities being need-blind in admissions, meeting-full-need, limiting loans, and graduating students in high paying majors can have a larger impact on student debt levels than can the cost of attendance. Similarly, higher state-provided student aid significantly lowers average student debt at public universities.

Financial Aid's Role in Meeting State College Completion Goals

This brief utilizes the most recent and rigorous financial aid research to inform state higher education leaders about innovative and effective financial aid practices. By simplifying aid eligibility requirements, improving the aid application process, and engaging in early awareness efforts, states could improve the effectiveness of existing aid programs. Additionally, by targeting aid in ways that encourage college completion, more students (particularly those who are most constrained by finances) will improve their chances of earning postsecondary degrees. In recent years, several states have adopted goals of greatly increasing educational attainment levels, so we argue that innovative financial aid policy reform is one of the necessary steps toward meeting these goals. This brief can inform ongoing policy negotiations between state commissioners of higher education, state education task forces, and education and workforce legislative committees.