Ending Scholarship Displacement Is Long Overdue

Washington -- In the last post, I noted that there is incredibly wasteful federal higher education spending that could and should be redirected to decades-old programs that actually work, but are underfunded.

I'm thinking mostly of (1) wasteful spending on the tax expenditure side of the budget in the form of ineffective higher education tax credits and deductions, and (2) the not only wasteful but harmful spending on for-profit schools that demonstrably set students back in life with worthless degrees and unmanageable debt. We are talking tens of billions of annually wasted dollars that could be used more effectively in the array of cooperative federalism programs that work through campus-based and state-based matching efforts.

But there are also wasteful practices within otherwise good programs that need to be rooted out. Prime among them is the practice of scholarship displacement, as was recently pointed out in an op-ed by Michele Waxman Johnson, vice president of Central Scholarship. Displacement occurs when colleges take grant aid intended to help low income students and use it to reduce their own institutional aid rather than reducing students' loan and work burdens. This is akin to taking candy from a baby, because the process is often done behind closed doors, in the context of innocent-sounding "enrollment management." The awards appear in students' financial aid packages, but equivalent amounts are quietly taken out the back door, leaving the awards essentially worthless.

Displacement occurs with both private and public grant funds. It's most easily understood when viewed from the institution's standpoint. The goal of most colleges and universities is to enroll the greatest number of students at the least cost to the institution. That often means not applying outside money to reduce students' debt load, but to helping the institution's own bottom line. This is one reason why total student debt in the country is now $1.3 trillion. This is one reason why the federal Pell Grant program has never been able to hold down student borrowing as advertised.

The National Scholarship Providers Association (NSPA) has recommended a stop to displacement, which undermines their efforts. Displacement is also fundamentally deceitful, I would add. In her op-ed, Michele Waxman Johnson writes, "[W]e support the recommendations of NSPA, and ask the federal government to modify federal student aid policy to mirror the NSPA recommendations." Such a move would reduce student loan burdens on the low income by several billion dollars annually. It is long overdue.