A Failing Financial Aid System Keeps Students Out of College

Airis Graham thought she'd be spending this fall in grad school, working toward a pharmacy degree. Instead, she's still one year away from a bachelor's, working 9 to 5 weekdays as a low-paid pharmacy technician at a chain store. On Friday evenings, she walks to the almost furniture-less apartment she shares with her sister, rests for a few hours, and then takes a bus to start her second job—the all-night weekend shift at a McDonald's.

Graham, a B-minus biotech major, has had to leave school and work 70 hours a week for 15 months because the scholarships she got to attend Claflin University in Orangeburg, S.C., didn't keep up with the college's tuition increases. She borrowed and worked as much as she could, but she couldn't scrape up enough to pay her junior-year tuition bill. Claflin now insists that she pay the $7,000 overdue bill before it will release her transcript so Graham can transfer and finish her degree at a less expensive public university near her hometown of Carbondale, Ill.

The oldest daughter of a single mom, Graham believes education is her ladder out of poverty. But can she afford to finish the climb? She's on track to make her last payment to Claflin by the end of the year. But she doesn't quite know how she will scrape together the $7,000 more she'll need to pay her final year's tuition. "I got good grades. I was doing what I was supposed to be doing. But I feel like I've been dealt a bad card," she says. "The only ticket out of poverty is an education, and the only reason I'm not in school is because I don't have any money."

Big numbers. The American dream is founded on the notion that anyone who is smart and disciplined can get an education and succeed. But the financial aid system meant to help needy students afford college is cracking under the strains of skyrocketing tuition and a crumbling economy. This is happening even though taxpayers, colleges, charities, and employers are collectively spending more than ever on financial aid—an estimated $74 billion in grants this academic year, more than double the amount handed out in 2000.

The basic problem is that this big number has been overwhelmed by some bigger ones. In the past decade, college enrollment has jumped by nearly 4 million to more than 18 million, and the annual costs of the typical four-year college have almost doubled to more than $14,000. The result of that one-two punch: The total amount of grant money handed out nationwide per student has risen by less than $2,000 over the past decade. The sticker price for a year at a typical public university, meanwhile, has risen by almost $6,600.

The mismatch between demand for and supply of financial aid is a main reason a panel of the nation's leading education experts is readying a call for dramatic reforms for what even the U.S. secretary of education calls a "fundamentally flawed" system.

Worsening the shortage of funds, they say, is the haphazard and often mysterious way the scarce funds are distributed. The system has become so complicated that more than a million students per year who might qualify for aid fail to pursue it. Students not lucky enough to have grown up in one of the towns or states with generous financial aid or smart enough to win admission to the handful of rich, highly selective schools are often heartbroken because the government and the colleges have unrealistically high expectations of what they can afford. Meanwhile, a growing number of schools and states are choosing to divert scarce financial aid dollars to good but comparatively wealthy students. Studies show states that fund merit grants through lotteries, such as Georgia, Tennessee, and Florida, generally funnel money away from poor, uneducated ticket buyers to wealthier families, who can afford to give their teens the tutoring they need to get good grades and test scores. One researcher estimates that $2.3 billion in state, private, and school scholarships is awarded annually to students from the richest 10 percent of families.

The result: Some smart, diligent, but relatively poor kids are being priced out of college. The College Board calculates that fewer than 30 percent of low-income, college-qualified students are earning college degrees. Almost 75 percent of their rich peers are getting degrees, however. This educational gap appears to be getting worse. The Department of Education reports that 8 percent of academically elite but low-income college freshmen who started in 2004 had dropped out—at least temporarily—by 2006, the latest year for which data are available. That's almost twice the stoppage rate of similar freshmen who started in 1996.