Determined that he and his younger brother would go to college, Eduardo Medina’s parents put money away in a savings account to pay for the tuition.
It never added up to more than $5,000, and before he finished high school on his way to the Ivy League, they were compelled to use it for a different purpose: to help his grandmother avoid losing her home to foreclosure.
Much of the rest of the family’s income went to pay for the cramped two-bedroom apartment in a San Diego suburb where they moved because the schools were slightly better than in the city.
What has happened to Medina since is a case study in the way some government, university, and private programs to help Americans pay for college have become more likely to benefit wealthier students than even the most academically talented lower-income ones.
But such reforms are given long odds even by the people who support them. Meanwhile, still more obstacles are being put up in the way of the same low-income students politicians and university officials say they want to help.
Medina’s father is an administrator at a Navy hospital; his mother, a Mexican immigrant who works for AT&T. Neither was aware of college-savings accounts called 529 plans that the federal government makes tax-free as a way of easing the burden of paying tuition. Only one in 10 families that earn less than $50,000 knows about 529 plans, a survey by the investment firm Edward Jones found; 70 percent of these accounts are held by households with incomes of $150,000 or more, according to the research and consulting firm Strategic Insight.
Accepted to Cornell, Medina, whose friends call him Eddy, didn’t apply for any private scholarships like those provided by Rotary Clubs and other civic groups and businesses. More than $16 billion a year is made available by organizations like these, College Board figures show, but the U.S. Department of Education reports that more of it goes to students from families that earn $106,000 and up than to those with incomes under $30,000. This is largely because wealthier families know to apply for private scholarships or their kids go to private or suburban high schools that have savvy college counselors. By comparison, Medina said he met with the overworked college counselor in his school only twice in four years.
There was a limit on how much work Medina could get. Money for the federal work-study program is divided up under a 50-year-old formula based not on how many students at a university actually need it, but on how much the university received the year before, and how much it charges. So, a quarter of the students who receive it come from families whose annual income exceeds $80,000, and one in 10 from households with $100,000 in earnings or more, federal data show. And wealthier recipients get more of it, on average—$2,300 for students from families that make $100,000 or more versus $2,100 for recipients whose families make less than $20,000.
Medina’s parents also didn’t know they could qualify for federal tax credits to offset the tuition they were paying. The federal government gives $18 billion a year in tuition tax breaks to “make college affordable for all Americans,” as President Barack Obama put it when he pushed for them. But more than a fifth goes to families earning more than $100,000 a year, according to the Congressional Research Service, largely because those families tend to send their kids to colleges and universities that charge more for tuition. And those families get an average of $1,900, versus about $1,100 for the lowest-income households. (Another analysis suggests it’s people earning between $65,000 and $106,000 who disproportionately benefit from these tax credits.)
Medina and his family struggled to stay afloat. His mother had to take money out of her 401(k) to keep up with the bills from Cornell, paying a penalty to do it. With nearly $14,000 worth of federal student loans already, he applied this year for a $38,000 private loan to stay in school. Loans like those generally carry higher interest rates than federal loans, can’t be deferred, and don’t qualify for new types of repayment plans based on income. Only after he finally got one did he learn he couldn’t use it to cover the $6,500 he owed Cornell from last year, including late fees.
In January, documents provided by Medina show, the university kicked him out, and said he couldn’t come back until he paid. After weeks of hacking his way through further red tape, he managed to use his new loan to cover his old balance—and the additional $350 late fee the university charged him.
Not all of these payment-assistance programs were intended solely to help low-income people. Nor is it easy even for families in higher income brackets to pay the rising cost of college without help. When people wonder “how in the world are policymakers and schools providing benefits and aid to people in these [higher] income groups, it’s because they’re getting nailed, too,” said Jason Delisle, the director of the Federal Education Budget Project at the nonpartisan think tank New America.
Proposals to reform these programs have had scant success. One bill that passed the House of Representatives would have lowered the maximum income at which families are eligible for the tuition tax credit from $180,000 to $160,000. It died without being taken up in the Senate. Nor has there been much support for an idea floated by a coalition of advocacy groups that would block the tax credits from being applied to tuition paid to institutionss with low graduation rates, small numbers of low-income students, and high levels of student debt.
The White House tried to reduce the $1.6 billion-a-year cost to the Treasury, in forgone revenue, of those tax-deductible 529 college savings plans—the recipients of which the U.S. Government Accountability Office says have a median household income of $142,000. The Obama administration wanted to tax withdrawals from the plans, which are now tax-free. That idea, which administration officials said was a response to the fact that the benefit does little to help the lower or middle classes, was branded by Republicans as a tax increase, and was dropped within days.
Now the president has proposed, in his 2017 budget, a seemingly insignificant change in the federal Pell program, which are awarded to students of families earning around $40,000 or less. Colleges and universities apply these grants to tuition first, leaving low-income students little or no tuition costs to claim under the tax credit. The Obama plan would let them use their Pell grants for living expenses first and tuition second, nearly doubling the proportion who would become eligible for those tuition tax breaks from 44 percent now to 82 percent, according to calculations by New America. The Obama budget has already been rejected by Republicans, however.
All of this comes against the backdrop of other money meant for low-income students relentlessly being shifted to their higher-income classmates. The financial aid given out by colleges and universities themselves, for instance, has steadily moved from lower-income to higher-income students. Wealthier students still pay more to attend, but the gap is closing as universities offer deeper discounts to families that can afford to pay the rest of the tuition and whose children went to better high schools and arrive with strong test scores and grade-point averages that are factored into rankings by the likes of U.S. News & World Report.
The proportion of the highest-earning families who get financial aid in the form of so-called merit grants from universities is up from 23 percent a decade ago to 28 percent today, the government’s National Center for Education Statistics found, while the proportion of the lowest-earning families getting aid has dropped from 23 percent to 20 percent.
States, too, have started awarding financial assistance based not only on need, but on grades and other measures, mostly to keep top students from moving somewhere else. Nearly a quarter of state financial aid now goes to students for reasons other than financial need, the College Board reports. As recently as the 1980s, none of it did.
Other state policies also take a toll on low-income students, researchers and advocates contend. The new movement by states to underwrite public universities based on things such as their graduation rates, instead of simply on the number of students they enroll, one study found, has pushed colleges to give even more financial aid to families that may not need it, as they try to attract the students most likely to succeed. Flagship public universities also are increasingly using financial aid as a weapon in their escalating battle to lure out-of-state students, who pay more than in-state ones. One in five public colleges and universities now gives financial aid to 20 percent or more of its freshmen who don’t have financial need, New America reports. Such policies leave fewer seats and less money for lower-income, in-state students.
To try and ease the burden of the loans taken out by 69 percent of undergraduates such as Medina—who now has borrowed $52,912 toward his education, with a year still left to go—the government has instituted a program tying graduates’ monthly payments to their income. Under the plan, which applies only to federally subsidized student loans, any remaining debt is forgiven after 20 or 25 years.
But even this well-intentioned scheme, called income-based repayment, tends to favor wealthier students. That’s because more of them go on to graduate and professional schools, for which even more borrowing occurs, studies show; though they’re more likely to earn high salaries as a result, the income-based repayment scheme slows down their repayments enough that they’re less likely to end up paying off their entire debts before the balance is forgiven, leaving the rest to be covered by the government. “That’s a high subsidy to someone who went to graduate school who isn’t poor,” Delisle said.
As for Medina, he’ll be spending the summer on a side project with a classmate: developing a micro-loan concept they call a “social collective investment option,” encouraging the working poor to save by letting them invest as little as $30 at a time in local small businesses with good prospects for returns. Medina said the idea was inspired in part by his own experience. “How can I fix this?” he said he asked himself. “How can I help my family maximize their income? Help people with very little money make more of it?”
Meanwhile, Medina expects to have to borrow even more next year to finish his degree in industrial and labor relations, with a concentration in developmental economics and social finance. After graduating, he plans to continue working on his social investment idea. At least he knows now how the college-financing process works, he said. But Medina said it still leaves him with self-doubt.
“Is this system really this hard to understand,” he asked, “or is it just me?”