College Board Considers Change in Financial Aid Assessment Formula

A rising tide lifts all boats, and with the higher education trend throughout the country of increasing financial aid, Harvard may once again be swept away in greater grants.

This time, the instrument of change is the College Board, the organization that runs the SAT program, and which also plays a large role in the world of financial aid.

Experts at the College Board maintain a formula officially known as the Institutional Methodology, but commonly referred to as the IM, which is the basis for figuring out how much money a family can afford to put towards a college education.

The IM is used at nearly 400 colleges and universities, including Harvard. Director of Financial Aid James S. Miller calls the IM the "backbone" of need calculation at Harvard.

But now it looks like a change is in order. Created in the 1950s, the IM has been modified very little since its conception and the College Board now seeks to update it.

The College Board hopes to unveil a new version of the IM by this July. It will then be up to the individual schools to start using the new formula to determine financial need.

The IM worked well for very low income families, but middle income and upper middle income were "really getting whacked pretty hard," said Stanley G. Hudson, an MIT dean and financial aid officer, who is on the advisory committee looking into the IM.

"There has been a disincentive to save," Hudson says. "That was the most important concern--people at universities have seen that."

Concerns about the current aid formula resulted in a proposal by the College Board to change the IM, a proposal which is now being reviewed by financial aid offices across the country.

"In general," says Jack Joyce of the College Scholarship Service (CSS), the financial aid arm of the College Board, "[The change] would result in increased aid for many families," both in larger need assessments and also in more families qualifying for financial aid.

A New and Improved Formula

The proposal has three basic parts. The first major change addresses the apparent disincentive to save.

Because the IM now only looks at "a snapshot" of a family's income and assets, examining them only at one point in time, some families feel as though their savings are counted against them.

"It doesn't take brain science for some people to say, 'I should take my money and spend it, rather than put it in the bank,'" Hudson says.

The Board's solution: leave a certain chunk of a family's assets out of the picture when calculating how much money they can afford to give up. The size of this portion is custom-tailored for a given family, based on the number of children and their ages.

Knowing that this chunk is exempt from consideration should inspire families to save, though Hudson adds families are supposed to save for a portion of the college cost.

The advisory committee's proposal is also designed to correct an outdated assumption about retirement savings.

According to Joyce, when the IM was created in the 1950s, very few employers offered retirement savings for their workers. But the situation has changed, he says, and now it is safe to assume that families with an income over a certain amount will have some retirement money provided for them.

The proposal would lift the protection on retirement savings for some income levels.

Hudson says this move could counteract the first change, depending on the size of the family. For a small family, this could lead to less aid but for a large family it could lead to more aid.

"It's hard to predict," he says.

The final amendment on the table would change the connection between income and assets in the IM.

"Families with moderate incomes can have high assets," says Hudson, "Families with high incomes can have very few assets."

The new system would protect families from being over-assessed (or under-assessed) because of the disparity between the amount of money they make and the amount of money they have.

The bottom line is that more need will be determined, and for schools that have pledged to meet all need, like Harvard, more money will be dished out.

But the ultimate payout to students is unknown because the IM is not the final say in financial aid. Like most schools, Harvard deviates somewhat from the IM's recommendations.

"The IM is the starting point--we use it as a foundation," Miller said in an interview last spring.

But Miller also told The Crimson that his office would "absolutely" follow the changes the College Board advocates.

According to Miller, "It'll probably be more in line with us now anyway."

Both Hudson and Joyce say the reaction to their proposal has been positive thus far.

"We had a meeting at the College Board last week and in general there was really widespread support fir the changes," Hudson says.

The only call for change in the proposal, Hudson says, is for separate treatment of students' and parents' assets. Money in a student's name is seen as more expendable than money in a parent's savings, and this encourages families to move their money around--to the student's account for tax purposes and then back to the parent's for financial aid calculations.

The IM is used by hundreds of schools some of which can more easily afford to meet greater financial need. The real trick, Joyce says, is steering between the competing needs of large, affluent schools and others that are less well-funded.

"There's always a conflict between doing the right thing versus funding," Joyce says.

The advisory committee has been meeting for three years examining the IM and is comprised of financial aid officers and economists. College Board staff members, like Joyce, sit in on the meetings.

The committee will next meet in December to discuss the feedback on the proposal. At the College Board's February regional meetings, the organization will then decide whether or not to implement the changes.

Finally, at the national conference on financial aid this July, the new IM will be unveiled, in Hudson's words, "in all its glory and excruciating detail."

A New and Improved Formula

The proposal has three basic parts. The first major change addresses the apparent disincentive to save.

Because the IM now only looks at "a snapshot" of a family's income and assets, examining them only at one point in time, some families feel as though their savings are counted against them.

"It doesn't take brain science for some people to say, 'I should take my money and spend it, rather than put it in the bank,'" Hudson says.

The Board's solution: leave a certain chunk of a family's assets out of the picture when calculating how much money they can afford to give up. The size of this portion is custom-tailored for a given family, based on the number of children and their ages.

Knowing that this chunk is exempt from consideration should inspire families to save, though Hudson adds families are supposed to save for a portion of the college cost.

The advisory committee's proposal is also designed to correct an outdated assumption about retirement savings.

According to Joyce, when the IM was created in the 1950s, very few employers offered retirement savings for their workers. But the situation has changed, he says, and now it is safe to assume that families with an income over a certain amount will have some retirement money provided for them.

The proposal would lift the protection on retirement savings for some income levels.

Hudson says this move could counteract the first change, depending on the size of the family. For a small family, this could lead to less aid but for a large family it could lead to more aid.

"It's hard to predict," he says.

The final amendment on the table would change the connection between income and assets in the IM.

"Families with moderate incomes can have high assets," says Hudson, "Families with high incomes can have very few assets."

The new system would protect families from being over-assessed (or under-assessed) because of the disparity between the amount of money they make and the amount of money they have.

The bottom line is that more need will be determined, and for schools that have pledged to meet all need, like Harvard, more money will be dished out.

But the ultimate payout to students is unknown because the IM is not the final say in financial aid. Like most schools, Harvard deviates somewhat from the IM's recommendations.

"The IM is the starting point--we use it as a foundation," Miller said in an interview last spring.

But Miller also told The Crimson that his office would "absolutely" follow the changes the College Board advocates.

According to Miller, "It'll probably be more in line with us now anyway."

Both Hudson and Joyce say the reaction to their proposal has been positive thus far.

"We had a meeting at the College Board last week and in general there was really widespread support fir the changes," Hudson says.

The only call for change in the proposal, Hudson says, is for separate treatment of students' and parents' assets. Money in a student's name is seen as more expendable than money in a parent's savings, and this encourages families to move their money around--to the student's account for tax purposes and then back to the parent's for financial aid calculations.

The IM is used by hundreds of schools some of which can more easily afford to meet greater financial need. The real trick, Joyce says, is steering between the competing needs of large, affluent schools and others that are less well-funded.

"There's always a conflict between doing the right thing versus funding," Joyce says.

The advisory committee has been meeting for three years examining the IM and is comprised of financial aid officers and economists. College Board staff members, like Joyce, sit in on the meetings.

The committee will next meet in December to discuss the feedback on the proposal. At the College Board's February regional meetings, the organization will then decide whether or not to implement the changes.

Finally, at the national conference on financial aid this July, the new IM will be unveiled, in Hudson's words, "in all its glory and excruciating detail."