Bloomberg News

Poor Scholars Hit by Money Squeeze From Wealthy Colleges

March 07, 2013

Poor Scholars Hit by Money Squeeze From Colleges

Boston College said its policy evens the playing field for financial-aid students, according to Bernie Pekala, director of student financial strategies at the private institution. Photographer: Chitose Suzuki/AP Photo

Octavio Brindis thought he had it made when he won a scholarship funded by Microsoft Corp. founder Bill Gates to help him go to college tuition-free.

The second of five children of Mexican immigrants, Brindis has a father who works in a wine company warehouse and makes less than $40,000 a year. His mother is unemployed. Yet, financial-aid officials at Boston College, where it costs about $60,000 to attend, told Brindis he needed to pay about $2,500 a year -- part of a mandated student contribution. Lacking the cash, he took out $5,000 in loans over two years, he said.

The aid officer “would tell me that I was contributing such a small percentage to what my education costs, but she didn’t understand that small percentage was a much bigger percentage to my family,” Brindis, 21, said.

Scholarship programs funded by some of the nation’s biggest donors, including Gates, Coca-Cola Co. and Michael Dell, are taking aim at practices used by wealthy colleges, such as Boston College, which has a $1.65 billion endowment, Amherst, with a $1.64 billion fund and Barnard, with $216.4 million. They say the schools hurt poor and minority students by rescinding aid once they find out they have awards from outside sources or by banning use of the funds to cover some student contributions. Donors complain that, in some cases, their gifts are boosting a school’s bottom line rather than the students they seek to help.

Boston College said its policy evens the playing field for financial-aid students, said Bernie Pekala, director of student financial strategies at the private institution.

A ‘Conundrum’

Any student receiving financial aid from the college must still fork over what is known as the summer contribution, though students can earn the amount during the school year or borrow.

Letting students like Brindis use outside grants to cover the contribution “would be unfair to all the other ones who didn’t win the Gates,” Pekala said.

Similarly at Amherst College, a wealthy liberal arts school in Massachusetts, students can’t use outside scholarships to pay their “summer contribution,” which can run as high as $1,600, said Tom Parker, dean of admission and financial aid.

“Here’s the conundrum. You want to treat everybody as equally as you can,” Parker said. “Morally it’s a difficult question.”

Scholarships have become more valuable as tuition increases have outpaced the inflation rate for four decades, saddling student borrowers with $1 trillion in education loans. President Barack Obama and Congress are pressing colleges to control costs and ease the financial burden on students and their families.

Job Disadvantage

To require students to net several thousand dollars in a summer job adds to their financial strain, said Harley Frankel, executive director of College Match, a nonprofit group in Los Angeles that helps low-income students get into top colleges.

“A lot of times, low-income kids can’t get summer jobs, especially in this economy,” which forces them to borrow, said Frankel, who had run the national Head Start program. The savings requirement also prevents most students from taking unpaid summer internships, which puts them at a disadvantage later in the job market, he said.

Established in 1999 with an initial $1 billion from the Bill & Melinda Gates Foundation, the Gates Millenium Scholars program bestows 5,000 awards annually to low-income, minority students. It gave $86 million in the current academic year, and the average annual award was $11,593 in the decade through 2010.

Fee Waived

“Students end up with loan debt that is unnecessary because the institutions are forcing them to take out loans they should not have to,” said Larry Griffith, vice president at the United Negro College Fund, which administers the Gates program.

Griffith flew to Boston to argue on Brindis’s behalf, though he was unable to reverse the school’s decision about the summer expectation for his first two years. Boston College agreed to waive Brindis’s contribution this year because he had an unpaid internship last summer with the Education Department that fit in with the school’s service mission.

“For low-income students, the amount of money can sometimes be as much as 10 to 15 percent of the family’s annual income,” Griffith said, referring to the student contribution.

Brindis said he has received almost $96,000 in grants from Boston College that cover his first three years there.

College policies rescinding or cutting funding because of outside scholarships “takes away a reward that the student earned through hard work and concentrated effort,” according to a report to be released this month or in April by the National Scholarship Providers Association.

NSPA Recommendations

“There is no net financial gain to a student despite winning a private scholarship, and therefore no additional improvement to his or her ability to pay for college,” the authors wrote in a draft version provided to Bloomberg.

The Boulder, Colorado-based group, whose 320 members include Gates, the Coca-Cola Scholars Foundation, Michael & Susan Dell Foundation and Walmart Foundation, is recommending schools waive minimum contributions and summer work expectations for low-income students.

At Barnard, students must fill a summer savings requirement ahead of each school year, averaging about $2,200 annually, according to Nanette DiLauro, director of financial aid. Students can either earn the money through a job or take out a loan to cover the cost. As at Boston College, Barnard says it wants to be consistent in its aid policy and can’t waive the requirement for some students, she said.

Aid ‘Displacement’

“It’s not fair to do it for a Gates recipient,” DiLauro said. “We do our best to really work with our students, especially our low-income students.”

In some cases, students with outside scholarships find their colleges reducing the grant they had been awarded. The colleges say the practice, called displacement, lets them give financial aid to other needy students.

Amherst, Cornell University and Dartmouth College displace institutional aid, according to the schools.

At Amherst -- where the school’s average aid package was about $44,000 in 2011-2012 -- outside scholarships are applied to a student’s $1,800 work expectation during the school year, and can be used to buy a computer. Leftover funds then replace the school’s direct aid, said Parker, the admissions dean.

Amherst doesn’t require students to take out loans, and in some cases can make exceptions on summer earnings expectations for needy students who get unpaid internships, Parker said.

‘Universities Profit’

While displacement has been around for years, scholarship providers are concerned it may become a larger problem if colleges become more strapped for money, said Amy Weinstein, executive director of the NSPA, whose members collectively grant more than $1 billion each year.

The financial-aid money that schools save doesn’t always go directly to other needy students, and can be used to fund other parts of a college’s budget, said Griffith, of the Gates program.

“Universities profit from attracting talented kids who bring scholarships in tow,” said Michael Mallory, executive director of the Ron Brown Scholar Program, which funds high- achieving, low-income African-American students.

In the Dell Scholars’ first two years, about 60 percent of recipients reported some form of displacement, said Oscar Sweeten-Lopez, director of the Austin, Texas-based program that began in 2004. If recipients have to take on loans, they can defer their scholarship and use it toward loan repayments, he said.

“That’s a solution, but it still doesn’t address the problem,” Sweeten-Lopez said.

An ‘Oversight’

Winston-Salem State University gave De’Jana Parker, 19, of Harvey, Louisiana, a scholarship covering all educational costs, including tuition, fees, room and board and a $250 book voucher each semester, according to a March 2011 letter to Parker, now a sophomore and biology major.

Once the university was notified Parker was a Gates recipient, it rescinded some of its own funding, Griffith said. Parker said she was dismayed by the North Carolina school’s change in award, which was fully made up by Gates.

“I couldn’t believe the university would promise me a full scholarship and not come through,” said Parker, who wants to pursue a medical degree and Ph.D. in microbiology or immunology.

After the Gates program inquired about Parker’s case last month, Winston-Salem e-mailed the organization, indicating there had been an “oversight” in monitoring her award. The school said it had made adjustments and would be returning $17,143 to Gates for the 2011-2012 year and $9,106 for the current year, according to Griffith.

The university’s Chancellor Scholars Program insures that students don’t incur loans and there is no federal work study required, Provost Brenda Allen said in an e-mailed statement last week. Winston-Salem is reviewing its process with regards to the Gates program, she said.

To contact the reporter on this story: Janet Lorin in New York jlorin@bloomberg.net

To contact the editor responsible for this story: Lisa Wolfson at lwolfson@bloomberg.net


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