Recent Financial Aid Proposals Strike a Nerve With the Middle Class

Policy
Posted By Abby Perkins on February 27, 2015 at 9:00 am
Recent Financial Aid Proposals Strike a Nerve With the Middle Class

Paying for college isn’t easy for most families. And with tuition costs on the rise, it doesn’t look like it’s going to get any easier. The price of college increased at more than double the rate of inflation last year, and, according to recent projections, elite 4-year institutions could cost as much as $334,000 in the next 4 years.

But it’s not all bad news. In response to rising college costs, President Obama has proposed new financial aid legislation that includes free community college for students that qualify, and other lawmakers have recently backed proposals that would make public university tuition free for some or all of a student’s degree.

The only problem? Some people think that these proposals – as well as traditional financial aid measures like institutional grants – forget about the middle class, leaving average Americans to fend for themselves when it comes to paying for college. But is this accurate – and if it is, is it a problem? We’ll take a look at both sides of the issue below.

On one hand: No aid for the middle class

President Obama’s recent financial aid proposal originally included taxing 529 plans, which are used to help families save for college – and which currently have the advantage of special tax breaks.

The president argued that most families that rely on 529s to pay for college are wealthy enough to not require as much financial aid. His plan? To tax withdrawals from 529 plans, and use the resulting revenues to help lower-income families. However, after being met with immediate criticism – from other politicians as well as families who use 529s – President Obama ultimately pulled that part of the proposal, saying that it “wasn’t worth it.”

Even though the 529 proposal was withdrawn, the sentiment remains: middle-class families just aren’t getting the help they need to pay for college. As Danielle Douglas-Gabrielle at the Washington Post writes, “Federal dollars are divvied up in a way that tends to shut out families making more than $50,000 and less than $100,000. Pell grants generally wind up in the hands of students whose families earn less than the median household income of $53,000.” On the other hand, “[E]ducation tax credits mostly go to families making at least $100,000.”

You might be thinking, “So what?” There are a lot of families who make significantly less than $53,000 a year – and who are, arguably, more deserving of financial aid. But some believe that as tuition costs rise to increasingly overwhelming levels, so should financial aid – including for the middle class.

On the other hand: They’re doing just fine

Other critics argue that the middle class isn’t getting left out of financial aid at all – in fact, they’re doing just fine.

Slate’s Jordan Weissmann writes, “Thanks in part to a shift toward awarding grants based on academic ‘merit’ instead of need (merit can be a pretty loose term) colleges today are fairly generous toward families in the middle of the income pack.”

According to the NCES’s 2011-2012 National Postsecondary Student Aid Study, at public four-year colleges, around 20% of families who earn between $150,000 and $250,000 per year get financial aid, compared to about 30% of families who earn under $65,000. Most students, regardless of what income bracket they fall under, get less than $9,000 in aid.

Private institutions are even more generous – around 70% of students whose parents earn between $150,000 and $250,000 a year receive some financial aid, and nearly 40% of them get more than $20,000 a year. (Of course, that money doesn’t stretch as far as it would at cheaper public institution).

Weissmann also argues that, while Pell grants do target lower-income families, upper- and middle-class families both benefit from educational tax breaks. According to Education Pays 2013, a College Board report, tax-based student aid is relatively evenly distributed by income quintile, at least as correlated with postsecondary enrollment rates. The middle quintile received around $6.9 million in tax-based financial aid in 2013, with an enrollment rate of 65%.

Tax-based financial aid by income quintile. Image: Slate.com

Tax-based financial aid by income quintile. Image: Slate.com

The bottom line

 Does the middle class receive enough financial aid? It’s hard to say. What is clear is that almost everyone wishes they had more help when it comes to paying for college. According to a recent Gallup poll, 77% of American adults agree that higher education institutions should reduce tuition and fees, while 59% and 55% respectively agree that state governments and the federal government should provide more assistance. As for whether or not the middle class will get more help from recent financial aid proposals, we’ll have to wait and see.

Abby Perkins
Email | Twitter | LinkedIn Abby Perkins attended Davidson College, where she graduated with a B.A. and Honors in English and wrote for The Davidsonian newspaper. Abby's work has been featured on Yahoo! Finance and Entrepreneur. As Managing Editor, Abby is a regular contributor to the GoodCall newsroom, covering education and financial aid.

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