Federal Student Aid Funding Department Term Paper

Despite increased student fees, the UC still encountered a $500 million shortfall or $2,500 per student. It has been undergoing severe pressure from the impact of the cuts. The quality of education at the U.S. has remained high, but there have been disturbing signs of erosion, nevertheless. The widening gap between the UC and the best private university has been alarming because the UC competes for the top teachers and students with these private universities. This widening gap should be a critical concern to the state and the federal governments because even excellent private universities are too small to meet California's or the nation's needs for a well-educated workforce in the future, to come up with innovations needed to fuel the economy and to generate jobs, and to introduce medical advances for the use and care of the sick and disabled. In the past decade, California's private research universities, Stanford, University of South California and California Tech, had a combined enrollment of only 1,500. In comparison in the same period, UC had a 42,000 enrollment. The California population was projected to grow to 50 million in the year 2025 and California public universities will need to respond to a swelling population in pursuing and achieving more critical social educational, health and economic objectives (Darling). This is the challenge.

One area, which accounts for the widening gap between public and private universities, is that of faculty salaries (Darling 2005). UC faculty salaries have been falling behind those of competitive private universities. The gap at only 3% in 1980 is now 22% below these private institutions. UC is now driven to spend more of its already limited resources in maintaining its faculty by making salary counter-offers. Another consequence was a fall in its student-faculty ratio, which was also way behind that of competing universities. It is not difficult to conclude that this condition adversely affects the student's learning experience and the teacher's teaching experience. Moreover, fewer public universities land among the top 10 in national rankings than they used to two or three decades ago. The federal budget necessarily reflects the state's situation. Federal funding is critical to a public university like the UC. It is the primary source funding for faculty research, for Medicare and Medicaid to support UC's teaching hospitals, for student grants, work-study, and loans and for its three Department of Energy national laboratories. In 2004, the UC received more than $8 billion of federal funding. From this total, $4.1 was given to the three Department of Energy national laboratories, $4 billion to its educational programs, $2.6 billion for research, $1.4 billion for Medicare and Medicaid revenue, and $242 million for student grants and work-study. UC students and their families also obtained $714 worth of student loans. That spending trend expired on November 18, 2005. The President's Budget Request for the fiscal year sought funding for the programs, which fund the University. But the same budget did not include the funds for the wars in Afghanistan and Iraq or recovery efforts from the ravages of hurricanes Katrina and Rita. Emergency funding for these events took away from that of University programs. As a result, the Senate and the House signed spending reductions at $39 billion and %50 billion, respectively, in the next five years. These cuts translated into $8 to $15 billion worth of student loan programs, and close to $6 billion for Medicare, $4 o $9.5 billion for Medicaid. These acts of Congress represented the biggest net cuts to federal need-based student aid since the beginning of these programs.The cuts have not only entailed higher average loan costs to college students by several thousand dollars but also an across-the-board cut of up to 2% on all domestic discretionary federal spending in the past year. This across-the-board cut would further injure the University and its students (Darling).

Financial aid means radically different things to different institutions, according to William College economic Gordon Winston (Clinton 2002). It can mean price discounts to attract customers or improve student quality, or income redistribution policies. It is most difficult for the private and not-too-wealthy institution, which shades price to improve or maintain its quality in the face of other institutions' shading prices. Many institutions refuse to acknowledge the kind of financial aid they provide. The fact is that they are cutting prices and cutting deals with bright students as well as steal good ones from other schools. These acts ultimately hit people with the greatest need, ultimately, according to Macalester College President Michael McPherson. With a sudden drop in state funding, these schools resort to huge tuition increases in order to keep their programs going. Wealthy student who attend low-cost institutions can afford those increases, but those with high needs cannot. McPherson stressed that this law of life in our society makes people in extreme need and with low income to be the hardest hit rather than most helped. Institutional funds are important but state aid remains the most volatile source. States assert a greater impact on equalizing opportunity with the reduced purchasing power of federal grants. Private schools can adapt well to the circumstance as they have no problems raising tuitions to give for aid, as long as they maintain philanthropic support somewhere. But if public universities must raise tuition to provide more grants, they are really taxing one group of students by subsidizing another. They replace tax dollars with tuition and then use the tuition revenue to help the other group. It foments a social justice condition when these institutions raise tuition charges for student aid. In most states, aid significantly goes down with each increase in tuition and need. In some states, tuition continues to go up, while other states try to adjust to financial changes along with state policies. When the states do not provide the aid, schools try to compensate by discounting price in order to retain enrollments. They find that whether they make up for the lost money or not, their net revenue gets reduced. If they do not compensate for some of the money not provided by the state and keep their enrollments, they spend extra money. If not, they lose the enrollment. These institutions try to respond to individual circumstances in the hope that the family circumstances would improve. But reductions of state funding in the form of scholarships and grant programs or subsidies to public institutions may be entirely new and their returns still substantially un-tested (Clinton).

Bibliography

Clinton, P. (2002). The student aid conundrum. University Business: 4 pages.

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Darling, B.B. (2005). Hearing testimony. 5 pages. California Senate Subcommittee on Higher Education. Retrieved January 26, 2007 at http://www.ucop.edu/uersvp/speeches/Speier_Hearing_Nov_9_2005.pdf

Dervarics, C. (2006). Congress approves cuts to student loan 1 page. Diverse Issues on Higher Education: Cox, Matthews and Associates

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Hokkin, L. And Richter, a. (2006). Governor calls on Congress to reject cuts to critical Oregon.gov......