Contained within the Student Aid and Fiscal Responsibility Act (PDF) is a proposal to reform the Perkins loan program by increasing its funding to $6 billion and distributing this money through three separate formulas. According to the legislation, one-quarter of this funding, or $1.5 billion, would be given to schools through a new low tuition incentive formula, which rewards institutions for charging tuition and fees below their sector’s average or providing significant amounts of non-federal aid.

An analysis by Education Sector found that this formula would disproportionately benefit four-year institutions, which comprise 53.5 percent of all institutions, but would receive $1.3 billion, or 86.8 percent of all funds. Private, not-for-profit schools within this sector are estimated to receive $740.8 million, just under half of all available money. By contrast, two-year public institutions make up more than one-quarter of all schools (and an even larger percentage of enrollment), but would receive $106.7 million, or just 7.1 percent, of the available low tuition incentive funds.

The table below shows estimated statistics for the recipients of the new tuition incentive amount Perkins funds, broken down by institutional sector type. A methodology for how the amounts were determined can be found here. A large (over 1 MB) spreadsheet with the data used can be found here.

On a school level, the analysis found that the biggest beneficiaries of the new low tuition incentive formula would be Brigham Young University (BYU), with an estimated award of $12.8 million, and the University of Florida, which is estimated to receive $12.1 million. These are well above the average estimated award of $464,253 for all schools.

The disproportionate benefit given to four-year institutions is a result of the low tuition incentive formula. A school’s amount is determined by adding two separate calculations. First, the institution calculates the difference between the average tuition and fees for schools in its sector and the tuition and fees it charged each undergraduate and graduate student with financial need. If the school is below the sector average, then it calculates the sum of this difference for all students with financial need. Schools with above average tuition and fees would not receive any low tuition incentive amounts under this part.

As designed, this half of the low tuition incentive formula rewards schools that keep their tuition below other institutions in their sector. This is borne out by the estimated recipient analysis: Of the top 10 recipients in each of the nine institutional sectors, only seven had tuition and fees that exceeded the average within their sector. But this formula is also biased toward low-tuition schools within high-tuition sectors. BYU, for example, had tuition and fees that were more than $15,000 below its sector’s average. A two-year public school that did not charge tuition or fees would only come out $2,298 below its sector average.

The second component of the low tuition incentive formula looks at non-federal aid. It is composed of two main data points: (1) the total amount of non-federal grant aid an institution provides to undergraduates to meet financial need* and (2) the sum of the tuition and fees an institution charges each student with financial need less the total amount that same individual would be charged based upon average tuition and fees for an institution in the same sector.

There are three possible outcomes for the non-federal need part of this calculation. If the tuition differential is greater than the aid amount, then the school will not receive a low tuition incentive award. If the tuition differential is greater than zero but less than the total aid amount, then the difference between the two is the school’s award amount. If the tuition differential is less than zero, then the school’s low tuition incentive amount is the sum of its non-federal aid plus the other half of the formula already described above.

The financial aid part of the formula provides a way for schools with above average tuition to still receive a low tuition incentive amount. For example, St. John’s University in New York charges over $7,900 more in tuition and fees than the average institution in its sector. But it would still receive an estimated low tuition amount of $5.4 million because of the large amount of non-federal aid it provides.

Incentives, but for what goals?

The Perkins loan program expansion is designed to provide an alternative to expensive private student loans.  But creating incentives for low tuition won’t singlehandedly reduce private student loan borrowing. Nor for that matter, will the other two Perkins loan distribution formulas, which involve the number of graduates who received a Pell Grant and the amount of unmet financial need of students. All of these formulas target worthwhile priorities: graduating low-income students, keeping tuition and fees low. But making them a catchall for every higher education access issue means that some problems, such as private loan borrowing, will slip through the cracks.

If shifting students away from expensive debt is a true priority of the new Perkins loan program, then there should be rewards for schools that demonstrate sizeable reductions in private loan volume. There should also be funding set aside for inexpensive pilot programs to figure out ways to reduce private loan borrowing. This money could support initiatives such as the one undertaken by Barnard College, which lowered its private student loan volume by $1 million in a single year by having financial aid officers talk to potential borrowers about the importance of maxing out existing federal student loan eligibility.

When it was first announced, the Perkins loan program modifications sounded like an exciting opportunity to take meaningful steps to lessen private loan borrowing. But without more aggressive and targeted efforts at that stated goal, these changes will yield little more than another complicated formula that does little to change the status quo.

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* The exact language is problematic for two reasons. First, it only includes undergraduates, whereas the other part of the formula looks at tuition and fees charged to undergraduate and graduate students. Second, the school must calculate aid provided to meet financial need, not aid to students with financial need. This language could be construed to allow so-called “merit” aid, since that is money provided for a student to meet the financial need of paying their school’s costs.