Year of Publication

2006

College

Martin School of Public Policy and Administration

Degree Name

Master of Public Administration

Executive Summary

Affordability is an essential element of college opportunity. The federal government and the states have acknowledged this belief by adopting policies to ensure that no academically qualified student who desires an education is limited access due to a lack of financial resources. But, many lower-income families today are having trouble paying for college due to a unique set of circumstances. First, the cost of higher education as a percentage of income has been increasing for over a decade, causing families to spend increasingly larger proportions of their incomes to afford postsecondary education. Second, the federal government has shifted its emphasis from providing aid through grants, which tend to benefit lower-income students, to loans and education tax benefits, which tend to benefit wealthier students. Third, many states have created merit-based financial aid programs, which also benefit higher income students, as achievement tends to be positively correlated to income. Combined, these elements have put higher education out of reach for many low-income students and families. These trends have been especially acute in Kentucky.

The purpose of this paper is to introduce a relative measure of ability-to-pay for higher education services. In the process, this study

  • identifies the factors that have contributed to the affordability problem
  • surveys the various federal and state financial aid programs currently available to Kentucky students and families
  • designs and estimates the cost of a comprehensive program which targets financial aid to Kentucky’s poorest students

The approach designed in this study was modeled after a widely-used policy for providing property tax relief to low-income and elderly homeowners. Named for how they are activated, circuit breakers provide benefits only when property taxes exceed a certain percentage of a taxpayers’ income and tend to direct benefits to the most disadvantaged taxpayers. The cost of the program was calculated using enrollment and cost of attendance data obtained from an affordability study conducted for the Kentucky Council on Postsecondary Education in 2005. The results of this study indicate that such a program could serve as a reasonable program for supplementing need-based aid to Kentucky’s most disadvantaged students.

The study recommends that the state conduct studies to examine the benefits and costs of adopting an approach based more on a student’s ability to pay. In line with the 2005 affordability study, this paper also recommends state policy makers develop a standard measure of affordability for the state and to begin gather longitudinal student data to better estimate how ability-to-pay affects college choices. Targeting benefits to those students that need them the most may be the only way to ensure that all high-ability students have equal access to higher education regardless of income.

Developing new affordability measures and methods that target financial aid to low-income and disadvantaged students will help reduce financial barriers and enhance access to and participation in higher education in Kentucky. Although most evidence suggests that the benefits from college tend to be distributed to the individuals consuming higher education, it provides a number of positive externalities to society such as better citizenship; higher degrees of compliance with public laws, increased per-capita income. In the end such policies will improve the overall lives of Kentuckians and provide a more promising future for the state.

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