Top Colleges' Change on Aid Could Help the Middle Class

New York Times
July 27, 2003

Eager to bring some uniformity to the otherwise unruly field of financial aid, more than two dozen of the nation's most selective universities have started looking at home equity in a new light, a change that could significantly benefit middle-income families.

No longer will the colleges count the market value of a home as if it were a more liquid asset, like stocks, that could readily be converted into tuition. Starting with this year's incoming class, financial aid calculations at the colleges have been inextricably tied to a family's income, not the whims of the housing market.

Take the Bhambis, for instance. Some 20 years ago, when they first saw the old boarding house that would become their home, scruffy-looking men spent their days sleeping off hangovers in its rooms and breathing in oily fumes from the basement heater.

The Bhambis' $90,000 investment could hardly have been a better one, since houses in their neighborhood outside Boston sell for six times as much today. But to Meena Bhambi, such good fortune masks a simpler truth. She is a widow now, fretting over how she will put her daughter through college on a day care worker's pay.

"There is no way I can sell my house," she said. "Where would I live?"

In the past, the tenets of financial aid have at best made erratic accommodations for those like the Bhambis, families that are house rich and cash poor. However small their incomes, their homes could essentially be held against them.

"The whole point of what we're trying to accomplish and recognize is that home value is often inflationary and out of proportion to a family's ability to pay," said James A. Belvin Jr., the director of financial aid at Duke University, who is also the chairman of a committee of the participating universities. "What we wanted to do was soften the impact."

The approach — adopted by institutions like Stanford and Yale, the Universities of Chicago and Pennsylvania, Columbia and Cornell, Williams and Wesleyan — will still count homes as an asset, and expect families to contribute as much as 5 percent of their equity toward an education. But it will cap that equity at 2.4 times a household's income, whereas before the entire market value of a home could be considered.

At the economic extremes, the new approach will probably have little effect, financial aid officers said. Some wealthy families may earn too much to reap benefits, just as those who never had enough money to buy a house will notice nothing. But for those caught between, the middle-income families whose fortunes are tied up in their homes, the change is likely to be significant.

Mrs. Bhambi's daughter, Priya, a transfer student headed for Emory University this fall, received an extra $6,000 in scholarship money because of the new guidelines. In fact, nearly one in six of Emory's incoming freshmen qualified for more aid under the guidelines, the university said, and their average grants grew by about as much as Ms. Bhambi's.

The colleges settled more than a dozen other scholarship questions, too. Mr. Belvin said that the beneficiaries at Duke could see their awards go up by $500 to $1,000.

The colleges involved are known as the 568 President's Working Group, named for the federal provision that allows them to set common principles for financial aid, without fear of running afoul of antitrust law. How many other colleges will ultimately adopt the new approach is unclear.

"It would have been very, very difficult to go to school" without the changes in home equity, Ms. Bhambi said. "I don't know if it would have been a possibility at all."