In the conversation about college affordability, a centerpiece of President Barack Obama’s State of the Union address this year and a renewed point of contention as Congress debates renewing a cap of federal student loan interest rates, state-based grant programs have been largely overlooked. While the $9.2 billion that states spend on student aid is dwarfed by the more than $35 billion that the federal government pumps into Pell grants, if spent wisely, state grants could still have a tangible impact on the dual goals of increasing college access and completion.

A new paper from the Brookings Institution offers some guidance to states on getting the most for their money. In short, its authors suggest a transition to more need-based aid, as opposed to merit-based scholarships, while finding ways to tie grants to progress in the classroom.

“If you want to affect behavior, then you have to target your aid to students who are financially constrained, students whose probability of success will be improved by receiving the aid,” said Sandy Baum, senior fellow at the George Washington Graduate School of Education and Human Development and the paper’s lead author, during a Brookings panel discussion. “State aid is not by itself going to close the gaps in educational attainment, but it’s one of the few tools available and it has the potential to make a big difference.”

The report cited research that found the graduation rates of low-income students at public universities are associated with the net tuition they pay, while the graduation rates of higher-income are not. Students with fewer financial means therefore have a greater chance for success if state aid programs target them, Baum said.

Each state has a unique program and a distinct set of circumstances guiding its policies, Baum said. Nationwide, the average percentage of state grant aid based on need is 73 percent, but individual state figures range from 0 percent to 100 percent. But even those numbers can be deceiving. Baum offered Georgia and Vermont as examples: technically, 0 percent of Georgia’s state aid is need-based, but, because of the state’s lower average income, most of its money is probably reaching low-income students. Vermont, on the other hand, directs 100 percent of its aid based on need, but its average income is higher.

Despite these differences, the authors assert that successful state programs would have some common characteristics. For starters, they could be simpler: tie specific amounts of aid to specific income levels (say, $4,000 annually for a family income of $20,000 and move incrementally to $500 for a family income of $55,000). State should also encourage timely completion: West Virginia, for example, requires aid recipients to complete 30 credit hours each year while maintaining at least a 3.0 GPA. These steps would direct grants to the neediest students, while protecting the state’s return on its investment.

“These are programs that periodically need to be refreshed and rethought,” said Jane Wellman, executive director of the National Association of System Heads, which represents the leaders of state higher education systems in all 50 states. “We need to transition into thinking about aid as a mechanism for student success.”

The ideas presented in the Brookings paper are sound, but they must be pursued in tandem with efforts to control the general cost of higher education, said Brit Kirwan, chancellor of the University System of Maryland. Grant aid as a percentage of total state higher education spending has increased from 9.7 percent in 2006 to 11.7 percent in 2011, according to Brookings, but overall state higher education spending has declined. That means the boost in aid has merely kept up with escalating tuition (an average increase of 7.4 percent in 2011).

Maryland garnered praise from President Barack Obama for its plan to make college more affordable: a four-year tuition freeze that, coupled with the state increasing the percentage of state aid based on need to 95 percent, led to record college enrollment. The freeze ended in 2010 as the economic downturn took its toll on the Maryland budget, but its success demonstrates the impact that such policies can have, Kirwan said.

With state budgets recovering from the recession (29 states are expecting surpluses at the end of the current fiscal year), there could be a renewed opportunity for states to invest in higher education. Obama called for increased spending during his State of the Union address. As with most other issues, movement in Washington has stalled (a plan to freeze student loan interest rates passed by the House would likely be vetoed by Obama, while a Senate plan was blocked by Republicans this week). That leaves states as the most promising venue for action, the panelists agreed.

“College completion has become the social equity issue of our time,” Kirwan said, and state student aid has a critical role to play in that effort. But without reining in the cost of college, he said, reforms to state grant programs “will amount to rearranging the chairs on the Titanic.”

Grant Aid Based on Need: 2009-2010
<10% <50% <75% <99% 100%
SOURCE: National Association of State Student Grant and Aid Programs annual survey, U.S. Census Bureau