Glitches Feared in Clinton Plan for College Aid

Ask David Merkowitz what he thinks of President Clinton’s tax proposals to help families finance higher education and he’ll tell you a funny story about his car insurance.

Merkowitz, who has a daughter in college, receives a discount on his premium if she keeps a B average--a break that works like the $1,500 tax credit proposed by the president.

The only problem is that Merkowitz’s daughter attends an experimental college that doesn’t give out grades--and he had a tough time last year convincing his insurance company that she was in good standing.

To be sure, Merkowitz, a spokesman for the American Council on Education, and numerous other education analysts are thrilled that Clinton has put education at the top of his second-term agenda.

Middle-class Americans have become increasingly worried about the costs of college tuition and fees, which are expected to increase at nearly twice the rate of inflation. Education analysts predict that college costs will be at least 80% higher by 2005 than they are today.

Thus, many experts consider the president’s goal of helping parents finance higher education for their children an important and positive message.

At the same time, however, they fear that a patchwork of logistic--and possibly even ethical--glitches could emerge as the administration tries to apply the program nationwide to thousands of widely diverse colleges and universities.

Traditionally, college financial aid has come in the form of government-financed grants that are awarded to the neediest students and through private, government-backed loans--the mainstay of middle-class attempts to finance a college education. Nearly two-thirds of U.S. college students borrow money to go to school, according to the National Assn. of Student Financial Aid Administrators. And Department of Education figures show that total loan volume increased 50% from 1992 to 1996.

Never before has student aid come in the form of tax relief.

As a result, the proposals have raised some troubling questions. Will the tax credit, for example, put the IRS in the position of checking up on student grades? And, in an attempt to ensure that a B is a B, will Uncle Sam impose a new level of regulation on higher education?

Institutions envision a paperwork nightmare in attempting to administer the plan, particularly juggling the requirements of the typical financial aid year--where the work gets done between July and the following June--with tax issues, which are tied to the calendar year.

Some critics also have raised the disturbing possibility that such tax breaks will inspire tuition hikes and that the president’s proposals, aimed squarely at the middle class, will make it even harder for lower-income students to go to college.

The centerpiece of Clinton’s plan is the “Hope scholarship” tax credit of up to $1,500 per student for the first year of college and an additional $1,500 for a second year, as long as the student earns a B average during the first year.

The proposal, estimated to cost $18.6 billion over five years and help 4.2 million middle-income students by 1998, is modeled after a Georgia state program with the same name.

But unlike Georgia, which has statewide standards for grades, “there is no national standard for what a B average is,” said Marvin Carmichael, chairman of the National Assn. of Student Financial Aid Administrators and director of the financial aid office at Clemson University in South Carolina.

“What’s a B at one school isn’t necessarily a B at another school,” he added.

Numerous educators point out that students who leave high school face unusual adjustments and new pressures during that critical first year of college, a situation that could make maintaining good grades difficult.

“It’s unrealistic to expect that students who come in with a B average [from high school] will keep it, especially that first year,” Carmichael said. “At Clemson, about 30% to 40% of our students have a B average or better--but 85% come in with it.”

Some suggest that students even might decide to choose easier courses during their freshman year to ensure their grades will preserve the financial help.

“Students who come into programs thinking they’re going to be engineers are bowled over by physics and calculus,” said Catherine Thomas, an associate dean at USC. “They’re not necessarily going to have a 3.0 [B] at the end of the first year, although they’re terrific students.

“You could get a student fluent in Spanish coming in and being a Spanish major,” she said. “It would affect the choices of courses, to ensure the 3.0, instead of encouraging students to take the courses that are best for them and their long-range plans.”

Experts are eager to know the extent of IRS involvement in requiring proof of grade average. Would the agency, for example, ask for college transcripts? This potential has already raised privacy-violation concerns among educators.

“The last thing we want is the federal government determining what a B average is,” Merkowitz said. “Records now are highly protected, and colleges do a very good job protecting privacy.”

Lawrence Gladieux, a policy analyst for the College Board, expresses similar concerns.

“A distortion of the market could result from this.” But, he added, such “tinkering with the tax code could have unintended consequences. It could take us into a whole new territory of regulation of higher education by the IRS, and colleges and universities won’t like it. They will have to start policing students to ensure they have a B average and are drug-free.”

Some critics have also predicted that college fees could rise in response to the program, offsetting the potential benefits--although others insist that it is too soon to tell.

Lois Dickson Rice, an education finance specialist at the Brookings Institution think tank in Washington, said: “I think it depends on the plight of institutions and the states, and how they will respond to price changes.”

Merkowitz said he believes that some colleges could respond to the tax credits by lowering fees.

“Private institutions devote 50% or more of marginal revenue they gain from increased student aid back into student aid, so that [costs are] discounted for other students,” he said. “If anything, I think, the additional student aid will bring less pressure on institutions--which may mean further moderation of tuition increases.

“Higher education is a market, a highly competitive market. There is not a lot of price elasticity. . . . We know Harvard could charge whatever it wanted and there would be people who would pay it. But they don’t. For most other private institutions, it’s a very competitive market sensitive to price changes. Some schools are lowering tuition because such a high percentage of their students were getting aid and not paying the full price.”

Those schools found they could actually make more money by lowering tuition because they then attracted more students who could pay their own way, he says.

David Longanecker, assistant secretary of Education for higher education, said he believes that there could be a nasty public backlash if colleges respond to the program by hiking tuition.

“We’re very hopeful that higher education recognizes the intent of this and doesn’t undercut it,” he said. “This has a lot of public appeal. If this passes, people will be expecting the benefit to accrue to them. If they find out that the institutions are taking advantage of that, there are going to be a lot of unhappy campers.”