Reengineering College Student Financial Aid

Introduction
A year or so ago the editor of the College Board News approached me about writing an article on the imbalance between student loans and grants. As I considered my assigned topic, it became immediately clear that any effort to reduce student borrowing for college costs and increase grant assistance would require restructuring the ways in which all forms of student financial aid from all sources are awarded. In the article, I suggested some general notions about how awarding aid could be altered to reduce student borrowing. In this essay, I have refined my initial thinking about reengineering and offer some additional thoughts about how college student financial aid might be made more logical and effective.

Some Basic Assumptions
Budget reductions and revenue shortfalls at the federal, state, and institutional levels have for a long time threatened financial support for many vital activities, including college student financial aid. Although at the federal level, election year politics may bring a momentary increase in financial assistance for students, over the long run differences can be expected over what constitutes appropriate funding and how it can best be provided.

Requests to expand student financial aid at all levels should certainly be accompanied by demands for greater efficiency in the utilization of scarce resources. Calls can also be expected for more simplicity in the administration of public student financial aid programs, including the imposition of fewer regulations on postsecondary education institutions, states, and private loan sources and the elimination of those that seem unnecessary and excessively costly in money and time. Proposals have been made to consolidate existing programs. Why, for example, is it necessary to have three federal student loan programs and two federal grant programs?

A great deal of public disenchantment or at least cynicism about big government seems to exist, as witness the congressional and, to a lesser degree, state elections in the fall of 1994. Certainly, the most recent federal elections appear to have done little to alter this attitude. This trend, which is related to a desire to balance the federal budget, will continue to strive to bring decisions about policy and the allocation of resources closer to the affected populations and the taxpayers who must support them. An example is the federal government's move to make block grants to the states. To the extent that this approach is successful with welfare and health care, it will be proposed for education. Several candidates for the presidency in the 1996 Republican primaries, it also needs to be noted, advocated abolishing the United States Department of Education.

The issue of the proper role of the federal government in education is an integral part of the debate over big government. The Constitution leaves the responsibility for providing for the education of the citizens with the states. Threats to the security of the nation, as was the case with Soviet space initiatives in the late 1950s, have led to the creation of national education programs. Where civil rights have been denied in the education arena, the federal government has intervened. It is those programs that seem to have their only justification in the often overutilized general welfare clause of the United States Constitution, which should be subject to judicial as well as political challenge.

Difficulties with Change
Few thoughtful individuals would challenge, as a desirable social goal, providing the students of this country with access to higher education. Some might even extend the goal to include reasonable choice among educational alternatives. The problem is that these desirable objectives cannot be achieved under the present circumstances unless some significant changes are made in the way that financial aid for college students is awarded.

Changes in the student financial aid awarding process and funding do not take place easily. The issue at the federal and state level invariably becomes one of which types of educational institutions or categories of students gain and which lose as a result of doing things differently. Over the long history of federal student aid programs, each has acquired its proponents both inside and outside the government. The fact that some of these programs have been named for members of Congress who have had a role in their creation assures that any effort to modify them or eliminate them could be seen as a personal affront. Many of the older colleges and universities have been able to attract vast sums of money from these programs to the point of actually incorporating the resources into their institutional budgets, and any suggestion that they might lose them would produce objections. At Stanford, for example, almost $40 million has been attracted in federal capital contributions for the Perkins (née National Defense, National Direct) Student Loan Program. Interestingly, the existing fund allocation formula for federal campus-based aid greatly rewards those institutions that have been in the programs since their inception as opposed to more recent participants.

A couple of other issues have to be considered in contemplating changes in federal student financial aid. One of these is whether, as the Clinton administration has sought, the Federal Family Education Loan Program (FFELP), which relies on private capital with federal guarantees and subsidies, will be replaced by the Ford Federal Direct Student Loan Program. Joseph P. Steglitz, former chairman of the President's Council of Economic Advisers, argues that the direct loan program "cuts red tape for universities and students and will reduce costs to the taxpayers" (San Francisco Chronicle, September 13, 1995, p. A21). Critics of direct loans challenge the estimated cost savings and question the ability of the Department of Education to administer the program. There seems little prospect that the economy can, or even should, support both Ford and FFELP, and this dispute will have to be decided before the reengineering of federal student aid programs can be effectively accomplished.

As important as the loan issue is, another matter creates an even bigger roadblock to reengineering student aid into a more efficient and less complicated system. It is what to do about proprietary education? At the federal level, can higher education and for-profit vocational education be effectively served by the same collection of programs and procedures? Many higher education administrators are convinced that dealing with both types of education in, for the most part, the same manner has led to an immense regulatory burden and unnecessary complexity in most aspects of the financial aid process. Are the two types of education so different that they need separate administrations, possibly by different departments of the federal government? Whatever decision is reached, the model presented here is directed toward undergraduates in traditional higher education. It is not presented with vocational education in mind or for graduate or professional higher education, where there are many different considerations.

The Evolution of Student Financial Aid
Institutional and private support to help students meet the costs of college goes back before the emergence of federal and state programs. From early on in American higher education, private colleges, in particular, have awarded scholarships, typically to the most promising students and often restricted to those who were preparing themselves for careers in specific fields. Work opportunities for students of limited means were also available on some campuses, as were opportunities for students to secure loans, with the typical arrangement that of the student signing a note for tuition with the promise of paying after graduation. At Stanford, that program was known as tuition notes.

Modern-day student financial aid began shortly after the end of World War II, when thousands of veterans entered America's colleges, universities, and trade schools under the GI Bill (Serviceman's Readjustment Act of 1944). Veterans participating in the program had their tuition paid and received monthly subsistence support, with the length of their benefit payments determined by their months of active service.

Student aid based on financial need--the criterion by which most support was awarded in the second half of the twentieth century--was not yet widely or systematically employed. In the early 1950s, John U. Munro at Harvard was the first to ascertain how much help a student would require by setting a family contribution based on the parents income, assets, and number of dependents. At about the same time Munro was pioneering his need analysis system in Cambridge, the College Entrance Examination Board began considering whether student financial assistance, then almost entirely institutional in nature, should be awarded on the basis of demonstrated financial need or, as had generally been the case before that time, on the basis of academic achievement and promise. The board's concern, which led to the creation of the College Scholarship Service (CSS) in 1954, was that a few institutions with large endowments would "buy" the best students while less-affluent colleges would be unable to attract them. The architects of CSS were Harvard's Munro; Edward Sanders, dean of admissions and a member of the English department at Pomona College; and John Stalnaker, dean of students and professor of psychology at Stanford who went on to establish the National Merit Scholarship Corporation.

The newly founded CSS introduced a common financial statement for students and parents to complete so that colleges and universities using the service could make their assessment of need on the basis of the same data. CSS also offered its users a standard methodology whereby they could determine how much families could contribute toward college costs. In the beginning the organization, in its Statement of Good Practices, pressed its members to base their awards on need. The issue of merit versus need, however, has never been resolved and must be considered in any serious effort to reengineer student financial aid. CSS reluctantly lost its dominant position in the aid field as competing need analysis systems, including a federal one, emerged; CSS's methodology is now used mostly by private institutions that desire larger student and parent contributions than those produced by a federal methodology to award federal aid. The fact that CSS charges a processing fee to its filers, whereas the federal government does not, has also contributed to its diminution.

Federal Programs
Any examination of the evolution of student financial aid must include the categorical federal programs that began to come into existence in 1958. Those programs contribute the most to students seeking help with postsecondary costs. Lawrence Gladieux, in his useful Trends in Student Aid: 1986 to 1996, offers a preliminary estimate that in 1995–1996 those federal programs provided $35.004 billion (Gladieux, Trends in Student Aid: 1986 to 1996 [Washington, D.C.: College Board, 1996], p. 4). What he terms specifically directed aid from the federal government, amounting to $2.361 billion, was also available in 1995–1996 (ibid.). Those programs include veterans' and military grants and loans. In total, then, federal expenditures to aid students in postsecondary education in 1995–1996 are estimated at $37.365 billion (ibid.).

In the beginning, the federal categorical or generally available programs were established in response to specific international and national crises. In 1958, the Soviet Union launched its Sputnik satellite into space, and concerns quickly surfaced over whether the Russians were vastly outdistancing the United States in science and technology and, in particular, whether its students were falling behind in such areas as science, mathematics, and foreign languages. The response was the National Defense Education Act of 1958, which created a host of programs intended to improve education, particularly in the areas mentioned. One of those programs was the National Defense Student Loan Program, under which the federal government allocated funds to colleges that would match the allocation at the rate of 10 percent and make low-interest loans to their students. The loans were to be paid after graduation, unless the borrower entered the teaching field, in which case all or part of the obligation would be forgiven. Preference was to be given to students who were majoring in fields deemed essential to the national interest.

In 1964, as a part of Lyndon Johnson's War on Poverty, the College Work-Study Program (now called the Federal Work-Study Program) authorized the allocation of funds to institutions that were required to match the funds at the rate of 20 percent. Institutions would pay the wages of students working part-time on campus or off campus at nonprofit organizations. The advocates of expanded federal involvement in student assistance then urged the creation of a grant program. One official in the Office of Education, the branch of the Department of Health, Education and Welfare that administered these programs, saw grants as a much needed third leg of the federal "stool" of student assistance. That program, called Educational Opportunity Grants (now Supplemental Educational Opportunity Grants to distinguish them from another grant program), came into existence as a result of the Higher Education Act of 1965. Colleges and universities wishing to participate applied annually to the federal government for funds they were required to award to students who, without the resource, would be unable to enroll. The grants could not exceed half the aid awarded to the recipient.

The important Higher Education Act of 1965, which has been amended every four years or so, has served as the basic authority for subsequent federal student aid legislation. By its terms, existing loan and job programs, along with the new grant program, were assigned to the Office Education for administration. Since only a handful of institutions of higher education had financial aid administrators at the time, of which I was one at Stanford, I was invited back to help draft the regulations and see to the initial funding allocations for National Defense Student Loans and College Work-Study. The 1965 legislation also established a guaranteed loan program to help students pay the growing costs of higher education. Over time this has been the largest single source of student aid. The terms of the program have changed since then, but generally the loans have been made by commercial sources and guaranteed by state or private agencies. The federal government subsidizes the interest on these loans while the needy borrower is enrolled and reinsures the obligation against default. (I discuss the program in greater detail when I describe the model.)

The 1972 reauthorization of the Higher Education Act of 1965 is particularly important in the evolution of federal student financial aid. Not only were all the existing programs continued, but a Basic Grant Program was added to serve as a foundation for all other assistance. Viewed in some quarters as an entitlement program, student applicants dealt with the federal government or its contractor instead of institutions on matters of grant eligibility and amount. Thus, the institutions were cast as disbursement agents adhering strictly to a federal payment schedule. In part, this new approach reflected congressional concern that some campus aid administrators were using the existing federal programs to promote institutional interests.

In addition to those grants, which were later called Pell Grants after their principal champion, Senator Claiborne Pell of Rhode Island, the 1972 legislation provided for a State Student Incentive Grant Program, whereby the federal government allocated funds on an annual basis to the states to establish or expand their own grant programs. To assure greater liquidity for guaranteed loans through providing for a secondary market and certain warehousing arrangements, the legislation created the Student Loan Marketing Association. Sallie Mae (as it is known), a quasi-federal agency that is now in the process of privatization, was given the opportunity to borrow the funds it needed at the same favorable rates as the government.

The 1972 reauthorization of the Higher Education Act of 1965 meant that the principal federal categorical student financial aid programs were in existence. The exception is the Ford Federal Direct Student Loan Program with which the Clinton administration has sought to replace guaranteed student loans. The latter came to be called the Federal Family Education Loan Program (FFELP).

State Programs
A few state student financial aid programs predate the existence of the first federal categorical aid program, National Defense Student Loans, which was created in 1958. According to Arthur Marmaduke, longtime director of California's Student Aid Commission, the first state program was in Connecticut in 1909 (Arthur S. Marmaduke, "State Student Aid Programs," in Robert H. Fenske and Robert P. Huff, Handbook of Student Financial Aid [San Francisco: Jossey-Bass Publishers, 1983], p. 57). He noted that by 1958 state programs were also operating in New York, Pennsylvania, Oregon, and California (ibid.). States have sought to help students cope with educational costs through either direct aid or indirect aid or some combination of both. Direct aid consists mainly of grants and scholarships but occasionally of loans and work. Indirect aid involves keeping effective tuition and fee costs to students in public institutions low.

The major increase in state aid programs came as a result of the State Student Incentive Grant Program, which was part of the 1972 Higher Education Act amendments. By 1980, virtually every state and territory had established a program (ibid., p.59). State aid programs serve a variety of purposes: to help needy students, recognize outstanding academic achievement, equalize the tuition differential between public and private institutions, and address occupational needs. According to Lawrence Gladieux, direct state financial aid in 1995–1996 amounted to an estimated $3.021 billion contrasted to $35.004 billion in federal categorical assistance to students (Trends in Student Aid, p.4).

Institutional Programs
Institutional student financial aid has existed since 1643, when Lady Anne Mowlson contributed 100 English pounds to help a needy young man attend Harvard College, and has served a variety of purposes. It has enabled students of limited financial means to participate in higher education, while colleges have used it to attract students of exceptional academic accomplishments and promise, as well as those possessed of desirable skills in athletics, music, and other areas. Some aid has been awarded to students from underrepresented groups to encourage their enrollment or to secure desired student enrollment in certain disciplines. In the past few decades, through an activity known as discounting tuition, private colleges in particular have used aid to ensure constant or increased enrollment.

Lawrence Gladieux's Trends estimates that institutional and other grants amounted to $9.962 billion in 1995–1996 (ibid.). His data, however, do not include the institutional and private loan and job programs that also assist students in paying for their education. The major sources of institutional scholarships have been endowments, where typically only the income is spent, and current gifts. Increasingly, institutions are drawing on their unrestricted income, mostly from tuition and fees, to fund student aid.

Of the total student financial aid of $50.349 billion estimated to have been awarded in 1995–1996 (see table 1), 74 percent came from the federal government, 6 percent from the states in grants, and 20 percent from institutions (ibid.). Neither state loan and job programs nor institutional and private loan and job programs are included in the $50.349 billion (ibid.).

There is concern, particularly in the higher education community, over the fact that almost 81 percent of generally available federal aid is in the form of loans (ibid.). This phenomenon is referred to as the "grant/loan imbalance," in recognition of the fact that two decades ago that ratio was virtually reversed.

Proposed Model
Assuming that college student aid funding for the foreseeable future will be at issue and need continuing justification as well as more efficient utilization, a different approach to ensuring its usefulness is clearly appropriate. The proposed model assigns to the acknowledged existing sources of this aid responsibility for helping fund specific educational expenses, including maintenance, tuition, and other required enrollment fees. The providers of student aid are, as noted, the federal government, state governments, and institutional and private sources.

Federal Role
There seems to be justification for the federal government's support of a national subsistence grant program, something resembling the current Pell Grant Program but with larger stipends

that more reasonably take into account the actual cost of living. The grants should be targeted at students at or below the poverty level and be adjusted for urban and rural cost differences. Such a program is justifiable on the grounds of the equal protection clause of the Constitution. Unlike the present Pell Grant Program, however, these new subsistence grants would not be tied to the cost of tuition but would be the same amount whether the recipient attended the least or most expensive college or university in the land. To be eligible, the student would have to attend at least half-time and the grants be of sufficient amount that part-time students would be encouraged to enroll full time and thus expedite their education.

The new grants would be awarded in response to demonstrated financial need determined on a stricter basis than the current federal methodology, which, for example, ignores a family's home equity no matter how large and fails to set an expected minimum student earnings contribution. Although there have been occasional legislative efforts to tighten up the definition of financial independence, a status that exempts a student from a required contribution from parents no matter how great their financial resources might be, it should be further reviewed.

If federal resources are in short supply, where are the funds to come from to support these grants? Programs such as Supplemental Education Opportunity Grants (SEOG), State Student Incentive Grants (SSIG), and federal capital contributions for National Direct Student Loans (NDSL) could be eliminated and their funding redirected. In 1995–1996, SEOG, SSIG, and NDSL were authorized to receive an estimated total of $1.6 billion (ibid.). If Federal Work-Study jobs were not funded, another $612 million would be available for the proposed subsistence grants (ibid.).

Although this work program is exceptionally popular and its elimination would face strong resistance, would it not be more beneficial to take its funding and support larger subsistence grants? Are there enough other work opportunities available to students to ensure that the program would not be missed? One complication could be President Clinton's desire to use part of the Federal Work-Study appropriation for his America Reads Program.

The model envisages only one federal student loan program. Recall that three are presently in operation. They are the Perkins Loan Program (formerly called National Direct Loans); Federal Family Education Loans (FFELP), including Subsidized Stafford Loans, Unsubsidized Stafford Loans, and Parent Loans for Undergraduate Students (PLUS); and Ford Direct Student Loans consisting of Subsidized Stafford Loans, Unsubsidized Stafford Loans, and Parent Loans for Undergraduate Students (PLUS). FFELP relies on private capital with the loans insured and interest subsidized, where applicable, by the federal government. These loans are collected by the holder of the note. With Ford Direct Student Loans, the capital goes from the federal government to the participating educational institutions, which make the loans to their students. The government uses contractors to collect the loans. The Republicans have sought to eliminate or at least cap the Ford program; the Clinton administration has strongly resisted all such efforts. The interest rates and repayment terms of FFELP and Ford are basically the same. An estimate for 1995–1996 (see table 2) indicated that Perkins provided $957 million in credit; FFELP, $18.932 billion; and Ford, another $8.452 billion (ibid.).

Why should there be any federal involvement in student loans? One justification is that the mobility of today's college students, combined with the significant defaults on student loans, despite evermore stringent collection efforts, would make it impossible for the private sector or even the states to manage. The interstate commerce clause of the Constitution is a reasonable basis for the involvement, at least insofar as the loan guaranty is concerned. If there is to be an interest subsidy while the student is enrolled in an academic program, it should be based on a means test, although not one as severe as that used to determine the student and parent contribution for the subsistence grants proposed in the model.

The private sector and the states should also be significantly involved in the loan program to ensure efficiency and sensitivity of administration. This consideration argues for a single federal loan program, like FFELP, which uses private capital and involves state and private guaranty agencies. Although the Department of Education has done a commendable job in implementing the Ford Direct Student Loans, its record in administering other programs has been less successful. Should estimates of the funds needed for Ford turn out to be low, monies might be taken from other federal programs, in the case of the model, from the proposed subsistence grants. Again, I assume that a large portion of the population wants less big government and programs administered in greater proximity to the people they serve.

State Role
The United States Constitution has left to the states the responsibility for educating their citizens, and this responsibility most assuredly extends to higher education. With the federal government providing for needy college students through the proposed grants supplemented by guaranteed student loans, the states can concentrate on affording citizens access to and choice of higher education in accordance with each state's duly determined policies and objectives. As noted, this goal can be achieved through direct or indirect financial support or some combination of both. Direct aid would most likely be in the form of grants or scholarships based on financial need, academic promise, or accomplishment. Indirect aid, as mentioned above, consists of low tuition or other required educational fees at the states' tax-supported institutions. Some state constitutions preclude direct support to independent colleges and universities; in those instances the states have made grants available to students who demonstrate that they cannot afford to attend independent institutions without financial support. That approach has enabled those states to achieve the benefits of pluralism in their higher education structure and avoid the large capital expense of building more public institutions when unused capacity exists in the private sector. (Unused capacity in the state's independent colleges and universities was one reason California created a scholarship program in 1955.)

Let us assume that the states' tuition-pricing and aid programs would reflect their particular needs. They might, for example, seek to maximize educational opportunity for all citizens, ensure that certain skills needed in the labor market are met, or provide choice for the most gifted. In 1994–1995 more than twenty states either started or increased grant programs that do not use financial need as a criterion. One of the largest programs is in Georgia, which draws on the profits of its state lottery ($100 million a year) for funding (Chronicle of Higher Education, June 14, 1996, p. A12). If, as is sometimes a concern in discussions of expanding state responsibility, a state were to discriminate against any of its citizens, legal remedies could obviously be invoked. To the extent a state has too many or too few students wishing to pursue higher education, it could make its grants or scholarships portable and thus usable in other states, as happens in a few instances now. In cases where a state lacked certain education programs, it could work out reciprocal arrangements with its neighbors. Also, the use of collaborative groupings of states, as with the current Western Interstate Higher Education Commission, might evolve to foster economy and efficiency.

Although the Clinton administration, in its zeal to replace FFELP with the Ford Direct Student Loans, has seemed to want to put the state loan guaranty agencies out of business, this model envisages them, as now, guaranteeing loans made under FFELP with federal reinsurance in effect. States would benefit from developing their grant and loan strategies side by side. Some relief from the grant/loan imbalance could be realized if states were mindful of the loan indebtedness levels of their students while sharing a role in the administration of loan programs. When a state did not wish to serve as a guarantor of loans, it could contract with private agencies. Absent a federal interest subsidy for loans, states might decide, for example, that it was desirable to provide an in-school interest subsidy for its citizens or even a loan forgiveness program. State involvement in student loan administration brings the entire process closer to the people it serves and could reduce a federal bureaucracy that has too often been committed to excessive rule making and the creation of red tape.

Institutional Role
Since the model envisions that the federal government will provide, in terms of the actual cost of living, reasonable subsistence grants for low-income students while the states ensure access to higher education for their citizens through direct financial aid or pricing policies, it can logically be asked what role remains for institutions and private organizations? Lawrence Gladieux has reported in his latest Trends that an estimated $9.962 billion in grants was available from these sources in 1995–1996 (Trends in Student Aid, p. 4). He has told me that it is not possible to disaggregate the total between the two sources, but my own long experience in the field prompts me to believe that the vast majority of those funds are institutionally provided or controlled. As he explains in his publication, the almost $10 billion does not include institutional student employment or loans (ibid.), which at Stanford amount to 7 percent of the aid awarded to undergraduates ("Undergraduate Financial Aid at Stanford," Stanford University, November, 1996).

The scholarship and grant resources awarded by colleges and universities come, for the most part, from three sources. Endowments, whereby the institution receives an endowment gift and can in perpetuity spend all or part of the annual income for awards, are clearly the most desirable source of this type of aid. Other gifts--often referred to as current gifts to distinguish them from endowments--are typically restricted to aiding students and usually in amounts smaller than an endowment. Those come in and are spent in their entirety in a specified period, most frequently a year. In the last few decades, many institutions have begun using increasing amounts of their unrestricted income from tuition and other sources to fund scholarships and grants. This practice, often referred to as discounting tuition, has been employed to enhance the academic profile of the entering class or to ensure that enrollment goals are met. One colleague told me that as much as 30 percent of his institution's annual unrestricted income was being spent on its student aid program. Where a percentage of that magnitude is being used for student aid, the funding of other critical areas such as competitive faculty compensation, adequate library collections, and aging infrastructure can be jeopardized.

Other private awards come from a variety of sources. Programs like those sponsored by the National Merit Scholarship Corporation are well known and prestigious. Colleges often point with pride to the number of National Merit Scholars who have chosen to enroll, although institutions may themselves choose to sponsor those awards. A vast number of foundations, large and small, make awards each year, as do businesses to their employees and their children. Community groups, along with secondary schools, also sponsor awards. Some colleges, particularly those that claim to have met the full computed financial need of their students, reduce institutional support when students receive external awards. Outside award sponsors who object to this practice let it be known that their awards will not be available to institutions making such reductions.

The efforts of CSS in the early 1950s to base awarding scholarships on demonstrated financial need, in part to avoid the colleges and universities that had the largest financial resources from gaining a disproportionate share of the most talented students, have fallen short of the hopes of the organization's founders. Although the bulk of institutional scholarship and grant aid does require a means test, the number of institutions awarding support on the basis of academic merit is extensive. My survey in 1974 of 1,875 four-year public and private colleges found that 54.5 percent of the 859 respondents awarded merit scholarships and that the average annual award was $1,910 in 1995 dollars (Robert P. Huff, "No Need Scholarships: What 859 Colleges and Universities Said about Granting Money to Students without Regard to Financial Need," College Board Review, 1975, pp. 13–15). In a 1983 College Board/National Association of Student Financial Aid Administrators survey of undergraduate need analysis policies, practices, and procedures at two-year as well as four-year colleges, 74.9 percent of the responding institutions awarded scholarships for academic merit without regard to financial need. The average annual value of these awards was $1,824 in 1995 dollars. (William Van Dusen and Hal Higginbotham, The Financial Aid Profession at Work: A Report on the 1983 Survey of Undergraduate Policies, Practices and Procedures [New York: College Board, 1984], p.31.)

At present only a handful of the private sector's most selective colleges and universities, led by the Ivy League and the Massachusetts Institute of Technology, base the amount of aid to a student only on financial need and subscribe to "need-blind" admissions, separating the decision on a student's admission from the determination of financial aid. Even some of these institutions take academic promise into account in setting the proportion of self-help, loan and term-time employment in their packages. (Most do not apply need-blind admissions to their foreign applicants.) Besides considerations of need and merit, other factors that can affect the financial aid decision are athletic prowess, leadership, race, gender, religious affiliation, and skills in music and other arts. Some of those preferences are open to judicial challenge, although the law is anything but clear.

A program of more realistic federal subsistence grants and guaranteed loans and more-structured state programs offering direct or indirect aid would afford institutions of higher education more flexibility with their own resources. (I presume that their governing boards would redirect those funds freed by changes in federal and state aid and not simply use them to enhance their recruiting positions.)

A few examples show how the flexibility resulting from implementing the model would benefit higher education. Institutions committing a high percentage of their unrestricted income to student aid could reassign some of those resources to other critical needs. It is perhaps not too fanciful to visualize a situation wherein institutions could slow the rate of annual tuition increases because of less need to provide ever-larger levels of student aid. At higher-cost institutions, where federal and state support still leaves a sizable need gap for low-income students, those released resources should prove useful. To reduce the grant/loan imbalance, released resources might lower borrowing levels, subsidize interest rates, or even finance loan forgiveness.

Summary
American society continues to value higher education and desires to have it in the reach of deserving students, although differences of opinion arise over the definition of deserving and who should pay for that education. Generally, this value is considered to extend beyond the individual to apply to society as a whole. In a time of limited financial aid resources, those resources must be used efficiently. Many citizens, as revealed by the 1994 and 1996 congressional elections, appear to want to downsize big government, with its bureaucracy and red tape, and bring determinations of policy and resource utilization closer to the affected populations and the taxpayers who must support them. There is also concern about the extent to which students are going into debt for their education and, in too many cases, failing to pay back their obligations.

The model introduced in this essay seeks to assign to the three sources of student financial aid--the federal government, state governments and the institutional and private sector-- responsibility for helping fund specific college costs that students and their parents are unable to pay in their entirety. In the case of the roles stipulated for government (federal and state), the model adheres to the provisions of the federal Constitution. The model, as proposed here, does not seek to spell out in minute detail how the roles would be fulfilled, opting instead for flexibility within the intentionally broad guidelines.

No change in federal financial aid policy can come about without objections from the proprietary segment of postsecondary education, which will most assuredly oppose altering the way federal aid is administered for its students, if it is different from how it works for traditional college students. Reducing the multiplicity of federal student aid programs through the elimination of redundancies will be challenged by those who contend that their largesse from Washington will diminish. Resistance to change will be couched in a variety of ways, including the argument that the federal aid programs have worked well over time and that, as the nation's economy becomes stronger, there will be adequate funding to continue them without change But there are compelling reasons, it is hoped apparent in this essay, for reengineering all of student financial aid now.