The second trend is that whether students graduate or drop out of college depends almost entirely on one factor: their parents’ income. Children from families who earn more than $90,000 a year have a 1 in 2 chance of getting a bachelor’s degree by age 24, but that falls to a 1 in 17 chance for those earning less than $35,000.
For all the talk about how more Americans are going to college than ever before, nearly all of that growth has come at the top of the income scale. In the past decade, the percentage of students from families at the highest income levels who got a bachelor’s degree has grown to 82 percent, while for those at the bottom it has fallen to just 8 percent.
“It’s hard to ignore the deepening inequality in higher education,” said Hilary Pennington, a vice president at the Ford Foundation.
This week the Ford Foundation gathered a small group of executives from other foundations, advisers to philanthropists, college leaders, and student advocates to discuss a key hurdle in college affordability: scholarship support.
Simply put, scholarship aid is not keeping pace with the rising price of college. While half of all families use a scholarship of some type to pay for college, much of that money is coming in the form of “discounts” off the tuition bill. Tuition discounts grew from $30 billion in 2007 to more than $50 billion in 2015, according to the College Board.
While tuition discounts are marketed as scholarships in a student’s financial-aid package, they are not really scholarships. It’s not like a donor gave money to support a needy student with academic or musical talent. Rather, the scholarship money was diverted from another student’s tuition check.
Last year, the average tuition discount for first-year students reached a staggering 47 percent — that’s nearly half off the published sticker price of tuition, up from about 40 percent just seven years ago.
Many of those discounts go to middle-income families, and in some cases wealthier students, in the form of “merit” aid that’s meant to entice them to enroll. Instead of giving a $30,000 full ride to a truly needy student, sophisticated “enrollment management” algorithms suggest colleges give $7,500 discounts to four wealthier kids, for example, allowing the institution to pull in at least some tuition revenue from each of them.
But real scholarships that come from private sources, such as donors or employers, make up just 14 percent of all grant aid to students. That’s far less than what comes from colleges themselves through discounts (41 percent) or the federal government in grants (37 percent).
Private dollars for scholarships have lagged rising tuition prices even as donations to colleges have reached record highs in recent years. Donors, it seems, don’t want to give to scholarships. And it’s not just individual donors. American foundations have funneled some $81 billion to education since 2006, according to Brad Smith of the Foundation Center. But just about $8 billion has been earmarked for scholarships.
“It all goes to buildings,” said Don Graham, former chairman and CEO of The Washington Post and founder of TheDream.US, a scholarship fund for undocumented immigrants.
It also goes to academic programs, faculty research, or projects to increase retention and graduation rates. Graham noted at the Ford gathering that many foundations explicitly point out in their goals that they don’t provide financial support to scholarships. “They consider them old and boring,” he said.
Encouraging more support for scholarships also requires a different approach from colleges. Rampant tuition discounting tends to give the appearance to donors that colleges don’t need cash for scholarship aid. After all, the message to prospective students is that college is affordable no matter where that money comes from.
What’s more, needy students on private scholarships need additional financial help beyond tuition, for living expenses or learning opportunities, such as study abroad or unpaid internships. As one scholarship student put it at the Ford Foundation meeting, “we’re always aware how much money we have in our wallets at social events.” So for donors, the price of ensuring students have a successful undergraduate experience just keeps getting more expensive.
The only way some foundations and donors might be encouraged to give more to scholarships is if the federal government steps in. The tax-exempt status of foundation and university endowments is a perennial issue in Congress. Lawmakers could place restrictions on how endowment money is spent or require universities to put a certain share toward student aid if they want to keep their tax exemption.
Even in an improving economy, how to pay for college is weighing on the minds of many American families. According to a recent survey, 29 percent of families said they were frequently or constantly stressed about education expenses, twice the rate of those who felt stressed about medical and housing expenses. Encouraging foundations and private donors to create and give to scholarships is an important step toward alleviating that stress and will greatly help in shrinking the growing economic divide that is pervasive throughout higher education.