Middle Class Feels Strain of Rising Costs of College

When members of Congress soon begin debating how to help middle-income students more with the cost of a college education, they might have in mind the Trust family of Los Angeles.

After being accepted as a freshman at USC this fall, Jeffrey Trust was told that he probably would be eligible for $7,610 in financial assistance through a grant and a work-study program. That estimate would leave Jeffrey and his parents to cover the remaining $16,900 for tuition, books, dormitory expenses and other fees.

The Trusts were shocked. They had hoped for more help because their combined yearly income is between $55,000 and $60,000. To their dismay, they realized that their income, plus the value of their West Los Angeles home--purchased 18 years ago for $35,000 and now worth more than $400,000--hurt them in the complicated formulas used by schools and the government to award scholarships and low-interest loans. The fact that their only other child is finished with college also lowered Jeffrey’s aid offer.

“It’s very frustrating. It’s the middle class that kind of gets cut out,” said Jeffrey’s father, Richard Trust, a computer security expert for an aerospace company and a USC alumnus. He and his wife, Jo, who works part time in sales, said the family cannot afford to send Jeffrey to USC now.

Complaints such as those are echoed by thousands of middle-income families around the country who painfully balance checkbooks against aspirations for their children and worry whether their youngsters will have the same educational opportunities they had. As a result, a debate brewing in Washington will focus on helping the middle class by changing the rules for financial aid.

“There’s no question there are some real strains,” said Samuel Kipp, executive director of the California Student Aid Commission, the state scholarship agency. “You’ve got a situation where it’s tougher and tougher for middle-class families to maintain a middle-class lifestyle, let alone finance an education for their children.”

Brian Fitzgerald, staff director of the congressional Advisory Committee on Student Financial Assistance, said political pressure for change is strong. “We need middle income (people in) these programs . . . . They can’t only be welfare programs. There has to be something there for everybody.”

So, a laundry list of ideas is being examined in Congress, including proposals to:

* Lessen or eliminate the effect of inflated real estate prices on aid. Such change is particularly desired by Californians like the Trusts, who contend their real ability to pay for college is exaggerated by current practices.

* Make all students, regardless of income, eligible for government-subsidized, low-interest, deferred payment Stafford loans. Now students must pass a needs test.

* Tax millionaires to greatly expand loan programs for the middle class and give students up to 25 years to repay the government, a plan being offered by Sen. Bill Bradley (D-N. J.).

Meanwhile, the Bush Administration wants to raise grants to the poor, thereby reducing the pool of grant money available for middle-income students. Larger loans would be made available for middle-income families, however.

But such loans can become a burden for the students when they graduate, said Phyllis Coldiron, financial aid director at Chapman College in Orange, a private, four-year liberal arts college, where tuition alone is $13,324. Room and board adds $5,000 more to the bill.

“When a student has to take out two loans a year, it’s not encouraging,” Coldiron said. “If they want to go on to a graduate school, there are more loans in the air. It might seem unbearable.”

To help students find a way besides loans, Chapman has been offering scholarships based on academic achievement, Coldiron said.

“The financial aid situation has shown no great shift. It’s been a creeping sort of change,” Coldiron said.

Overall, the Bush Administration is seeking $12.6 billion for student grants and loans for the coming fiscal year, up from about $11 billion. However, some financial aid experts are worried that without an even greater increase in funding, changing rules to help the middle class will only heighten competition for money and hurt the poor.

“These are old problems for lower-income people and relatively new for the middle-income,” said Tim Christensen, associate director of the Washington-based National Assn. of Student Financial Aid Administrators. “It’s the middle-income people who vote and form more influential opinions. But nobody should allow the problems middle-income people are having to overshadow those of lower-income people.”

The discussions surround a possible five-year reauthorization of the Higher Education Act, the law that controls, among other things, the eligibility formulas for federal grants and loans. Many schools follow the congressional formulas in awarding scholarships from their own endowments and donation funds. So, arcane accounting details in the legislation can have wide influences on lives and future careers.

The debate is fueled by the growing gap between college costs and ability to pay for them. According to the College Board, per capita disposable income adjusted for inflation rose 18% in the 1980s while the cost of attending and living at a public university rose 40% and 59% at a private one. Meanwhile, overall aid from government and private sources rose only 10%.

Nearly $28 billion in grants, loans and campus employment programs was available last year from federal, state and school programs. About half that was in loans, a share that surprises many families.

Experts say there is no clear evidence that middle-income students are being shut out of college in large numbers. (Several studies show that students from families with incomes under $35,000 attend college at significantly lower rates than more affluent students.) Rather, there is a trend for middle-income students to increasingly choose less expensive alternatives, a UC campus over a private school, or a community college over a UC campus.

Michael Farrell, acting assistant U. S. Secretary of Education for postsecondary programs, said the Administration’s goal is to provide access to college, not necessarily an expensive private college. “You have to make tough budget decisions whether you are running the federal government, a corporation or a family budget,” Farrell said.

In Jeffrey Trust’s case, that means attending Santa Monica College and then possibly transferring to USC. “I didn’t expect a full scholarship,” said Jeffrey. “But if I had gotten a bigger package, I would have gone to USC.”

USC asked the Trusts to submit additional financial data to appeal the aid estimate but the Trusts didn’t, contending that any revised offer would not be high enough.

Catherine Thomas, USC’s director of financial aid, says home equity does hurt some families but she is worried that the federal government may drop that equity from formulas without increasing overall aid monies. “If we extend eligibility without extending funding, all we are going to have is more unmet need,” Thomas said.

There are no simple answers in the world of financial aid.

Every family is unique, with their income, number and age of children, number and age of parents, real estate, savings and a particular college’s costs all considered in the formulas to award grants and loans. And not surprisingly, counselors argue what constitutes middle-income boundaries, with the spread anywhere from $20,000 to over $80,000.

While cautioning that every case is different, the California Student Aid Commission estimates that a two-parent family with two children and a before-tax income of $36,000 and $20,000 in net assets might be expected to contribute $2,747 for education bills this year. A similar family with a $60,000 income and $60,000 net assets probably would be liable for about $11,000. Those figures are subtracted from the cost of a particular college and the net is what is known as need.

The lower-income student would get substantial help both at UC, where total costs are about $10,000, and at more expensive private schools. Because his family is liable for more than $10,000, the more affluent student probably would get no aid at UC but, at most private colleges, would get some combination of grants, loans and a job.

Schools with good-sized endowments and generous alumni say they try to meet 100% of need, or close to it, by adding their own money to the government’s. Still, a promise of meeting all need is hard to keep and more schools are drifting away from it.

The situation is more difficult because of the recession, the increased numbers of students from single-parent families and the increased numbers of non-traditional students, who don’t attend college until their mid-20s or later and are independent of their parents.

While many complain about the system, it undoubtedly helps many middle-income families.

For example, the Whalen family of Sunland will have two students at Loyola Marymount University in Los Angeles this year, Deborah as a freshman and Michael a fifth-year senior. The parents--the father is an information services supervisor for a health plan and the mother a part-time librarian--report their income at about $63,000.

They have substantial home equity in the house they bought 21 years ago for $27,000, and which is now worth more than $200,000. Their expected family contribution is about $11,000 for each child.

Deborah will receive a Loyola Marymount grant of $3,800, $2,200 in work study and a $2,625 Stafford loan this year toward the $19,800 in tuition, dormitory and other costs. Michael will be living at home and is to get a $4,000 Stafford loan; his merit-based scholarship does not extend into a fifth year. But Deborah’s aid probably will be reduced next year because her brother will have graduated and the family presumably will have more available cash.

“The financial aid package I got enabled me to put my kids through a private school for not much more than the cost of a UC school,” said their father, Nicholas. “I have to say it’s fair even though naturally I wish we had gotten more.”

Some congressional staffers estimate that between 200,000 and 1 million families like the Whalens and Trusts would be helped more every year to some degree by a change in how home values are treated.

The issue especially effects homeowners in expensive places like California and New York who bought their houses long ago. They say the message they get is to borrow against their house equity. But their reply is that they can’t afford to pay for such second mortgages. Recognizing that, some schools make adjustments, but the government does not.

“Home values hurt the middle class the most,” said Otto Reyer, financial aid director at UC Irvine. “But California really gets hit because property values here are much higher than practically anywhere else in the country.”

The problem of using property value with financial aid formulas hits residents in Orange County harder because the area has higher real estate value than other parts of the state, Reyer said.

“In New England, $100,000 can get you a fairly good house,” Reyer said. “In California, you can get maybe half a condo for that price. But the same formula is used nationwide. That affects our people very hard in the middle-income area.”

Reps. Pat Williams (D-Mt.) and Richard Gephardt (D-Mo.) recently introduced their Middle Income Student Assistance Act, which would eliminate home equity from consideration altogether. That could mean a family of four with a $40,000 income, $100,000 home equity and $20,000 in savings might become eligible for $5,000 more in aid, according to the California commission.

“We should not ask families to choose between selling or mortgaging their home or sending their children to college,” Williams said. The bill would also eliminate the financial needs test for the government-subsidized Stafford loans, repayment of which is deferred until after graduation with interest rates of from 8% to 10%. Students with family incomes over $50,000 now are generally ineligible although they can obtain other loans with less favorable terms.

The Bush Administration proposes eliminating home equity in formulas for families with incomes under $20,000. And Sen. Edward Kennedy (D-Mass.), in a plan supported by the College Board and the organization of financial aid counselors, wants to cap equity at three times family income if that figure comes to less than home equity.

But Thomas G. Mortenson, a financial aid expert who recently worked for Washington State Higher Education Coordinating Board, contends that eliminating the home equity factor would be unfair to lower-income renters. He says such plans are being considered because politicians fear a middle-class backlash.

“There are families that should have and could have saved, but didn’t,” he said. “They then turn to government to ask for expanded middle-class eligibility. And if the overall funding doesn’t grow, as it probably won’t, they’ll be taking it from the lower-income families. And I think that’s dead wrong.”

Conversely, there is much controversy about disqualifying middle-income students from Pell Grants, federal awards between $200 and $2,400 a year depending on need and costs at the student’s college of choice.

The Bush Administration is proposing that the Pell Grants be increased to a range of $400 to $3,700. The increase and proposed tightening of rules in the program would eliminate about 400,000 students nationally. Farrell, the assistant education secretary, said the White House philosophy is to concentrate grants on the most needy and most likely to default on loans--those with family incomes below $20,000.

Partly to offset any resulting losses among middle-income groups, the White House also wants to raise the ceiling on Stafford borrowing from $17,250 to $22,000 per student. But citing spending limits, the Administration would keep the Stafford income-eligibility tests that were instituted during the Reagan Administration . “The fact of the budget is the fact of the budget,” said Farrell.

Bradley’s “Self-Reliance Scholarship Program,” would start with a 10% tax surcharge on incomes above $1 million a year. There would be a lifetime borrowing limit of $33,000 per student, regardless of family wealth. Students would have 25 years to repay.

The senator suggests that his plan would avoid many of the arguments about eligibility, including home equity. “I think there should be an increase in Pell Grants, but I also think we need to reduce the financial pressure on middle-income families. I don’t think the way you do that is to pit the have-nots against the have-not-enoughs.”

Colleges are watching the debate with concern that they could lose middle-class students and wind up with the rich and the poor.

Donna M. Palmer, director of financial aid at Loyola Marymount, said there are still plenty of families willing to sacrifice for their children’s education if some help is available. But the help, she said, increasingly is coming from the school’s own funds, not from the government. (Nationally, since 1980, the federal share of available aid decreased from 83% to 75%, while aid from schools grew from 12% to 18% of the total.)

“It’s not a problem yet. But we’re very worried as an institution that we can keep attracting the middle-income group,” she said. “When you start getting all rich or all poor or only those two groups, then you have problems socially and academically, on campus and in society.”

VARIED SOLUTIONS

Families use different ways to meet education costs. A28