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

3. 3 Percent of Adults with an Associate’s Degree or Higher

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

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6. 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. 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. 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. 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. 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. 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. 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. 13 ACG/SMART Grants Distribution (2006-07) Total appropriation = $790 million Total disbursed = $430 million ACG SMART Grant RecipientsDisbursedRecipientsDisbursed U.S.299,089$233,038,41060,976$195,544,735 Arizona1,448$1,095,3882,460$7,591,975 Arizona Rank 383988 Source: U.S. Dept. of Education (reproduced by insidehighered.com)

14. 14 Total State-Funded Need-Based Aid to Undergraduates, 2005-06 (in millions) 1. New York$874.5 2. California757.8 3. Pennsylvania404.0 4. Texas366.9 5. Illinois355.3 6. New Jersey223.5 7. Indiana176.4 8. Washington167.3 41. New Hampshire3.8 42. Montana3.6 43. Arizona2.8 44. Mississippi2.2 45. North Dakota1.5 Source: NASSGAP

15. 15 State-Funded Need-Based Aid to Undergrad- uates per Undergraduate FTE, 2005-06 1. New York$1,096.36 2. New Jersey854.88 3. Pennsylvania801.03 4. Washington695.21 5. Indiana690.47 6. Illinois679.50 7. Vermont609.49 8. Minnesota583.76 46. Hawaii9.55 47. Arizona8.02 48. Wyoming7.11 49. Georgia4.66 50. South Dakota0 Source: NASSGAP

16. 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. 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. 18 State Financial Aid Philosophies Four key factors 1.Clear goals 2.Clear rationale/philosophy 3.A program that supports the goals and rationale 4.A winning coalition to sell the program

19. 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. 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. 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. 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. 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. 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. 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. 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. 27 Early Commitment Indiana’s 21 st 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. 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. 29 Shared Responsibility Partners State share - fills the gap State Federal share - includes Pell & tax credit Federal Parents’ share - determined using federal methodology Parents Student share as principal beneficiary - pegged to reasonable work effort or a % of attendance costs - from work, savings, scholarships, and/or borrowing Student Public 2-yr $12,985 Private $25,700 Public 4-yr $16,217

30. 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. 31 Contact Information Brian T. Prescott, Ph.D. Senior Research Analyst Public Policy and Research, WICHE 3035 Center Green Drive Boulder, CO 80301 303.541.0255bprescott@wiche.edu