Congress Addresses Scholarship Displacement; Front-Loaded Financial Aid
By Claire Berge Schmidt
Over the past few months, Congress has debated and made progress on a few options to address the student debt crisis. The discussions culminated September 28, when Congressman Andy Kim (NJ-03), Congressman Rodney Davis (IL-13) and Congressman Mike Kelly (PA-16) announced two separate bills addressing key issues related to students who have earned scholarships.
Here’s our brief overview of the key components of the bills, and what the impact could be on students.
Helping Students Plan for College Act
What problem does the Helping Students Plan for College Act address?
This bill, officially endorsed by Scholarship America, is a first step in addressing the problem of scholarship displacement. Financial aid or scholarship displacement happens when colleges subtract institutional grants from a student’s total financial aid package by the amount equal to the scholarship award—a process that can end up taking money right out of students’ pockets.
As Representative Kim describes, “if Student X received an outside scholarship [for $10,000], a school that engages in scholarship displacement will likely reduce the financial aid package for Student X by $10,000 and the student will not benefit from the outside scholarship they received.”
What the Helping Students Plan for College Act Does
The proposed legislation would require colleges to “notify prospective and enrolled students of the school’s policy on private scholarships, and how receipt of such scholarships may impact a student’s eligibility for institutional aid dollars.” Knowledge is power, and the Helping Students Plan for College Act will ensure students know on the front end just how their private scholarships will be treated.
Additionally, the act would direct the Government Accountability Office (GAO) to conduct a study and compile a report on scholarship displacement, which would be submitted to Congress and made publicly available.
Scholarship America’s position on the Helping Students Plan for College Act and scholarship displacement
Scholarship America wholeheartedly supports the bill and has signed on as an official endorser. (See the full overview and list of supporters.) Financial aid displacement has been a top priority in Scholarship America’s policy efforts for the past few years and we are excited that this issue is getting more attention.
Scholarship America has also been involved in displacement legislation at the state level in California, supporting AB 288 as it makes its way through the legislative process. You can find out more about that work, in partnership with the Northern California College Promise Coalition, here.
The Front-Loaded Aid Transparency Act
What problem does the Front-Loaded Aid Transparency (FLAT) Act address?
From Congressman Andy Kim (NJ-03) and Congressman Rodney Davis (IL-13): “A number of colleges and universities engage in front-loading of financial aid. This potentially deceptive practice occurs when a school provides more institutional grant aid to students in their first year than in subsequent years, in order to attract students to enroll in the school. Incoming first-year students are often not aware that their financial aid will decrease in the following years.”
According to a study by the National Center for Education Statistics (NCES), “Eighty-three of the top 100 highest-ranked colleges in the country front-loaded their financial aid. Of these 83 colleges, the average first-year student received $2,411 more in institutional grant aid than second-, third-, and fourth-year students. For the three colleges that front loaded their financial aid the most, that number increased to a $9,000 difference.”
What the Front-Loaded Aid Transparency (FLAT) Act does
The Front-Loaded Aid Transparency (FLAT) Act would direct the Government Accountability Office (GAO) to conduct a study aimed at uncovering the prevalence, extent, and impact of the practice of front-loading institutional grant aid at accredited colleges and universities in the United States. The study would include the impact of front-loading on important outcomes such as student loan borrowing, student retention, enrollment intensity (i.e. taking fewer courses), transfer rates, and graduation rates. Importantly, it would also look at whether schools that engage in front-loading inform prospective students about how their aid packages are likely to change after their first year of study.
Scholarship America’s position on the Front-Loaded Aid Transparency (FLAT) Act
Scholarship America supports the Front-Loaded Aid Transparency Act. A pillar of Scholarship America’s platform is that we should take steps to reduce a student’s debt on the front end. This bill will help address a part of that concern and help gain more insight into the impact front-loading aid has on student debt.