As the cost of higher education continues to increase each year, scholarships and grant aid become ever more important to students and families seeking to afford college and manage their out-of-pocket costs. For low-income students, there are a variety of federal and state sources of financial aid (Pell and FSEOG among them) in addition to need-based grant aid offered by the institutions themselves.
Increasingly, however, higher income families are also qualifying for federal and state need-based grant programs and/or being offered generous need-based grants from colleges where they are admitted. In other words, federal, state, and institutional monies earmarked to help low-income students gain access to college are also being awarded to wealthy families who can afford to pay the price. We refer to these families as “Pellionaires.”
Whiteboard sees the Pellionaire trend continuing to evolve, and we offer data insights that allow colleges to more easily identify these families (but more on that later).
Let’s first address how this situation is happening.
By taking advantage of loopholes in the federal student aid calculation of need (via the FAFSA), high-income families can legally qualify for federal and state grants intended for low-income students. (The ethics of choosing to do this are another matter altogether).
The most common Pellionaires we encounter are business owners because they can leverage their businesses to shelter a portion of their financial assets. These families can also manufacture low “income” levels for the years leading up to the time they will complete the FAFSA and their child will enter college.
And they have plenty of help along the way. Financial planners and consultants regularly advise parents at more affluent high schools and/or sponsor community education courses in well-to-do areas. Here’s an actual course description offered by a community education program in one of the wealthiest areas of the country:
Financial aid goes to families who plan in advance — ideally before December 1 of the child’s sophomore year of high school. This course will teach you the concepts and strategies that will help you maximize your financial aid by understanding the process and how implementing strategies may increase a family’s eligibility even if you have a “high income” or own a business. The greatest amount of financial aid goes to the families who act in the years before college. REMEMBER: Procrastination equals less financial aid.
In other words: “For a fee, we will show you how to appear as if you have financial need on the FAFSA so your child will receive need-based grant aid.” These consultants make a living by teaching prosperous families how to game the federal financial aid system. And it’s all perfectly legal.
The first to pay the price is colleges that end up offering millions of dollars in need-based grant aid to families who can afford to pay for college. This places undue financial stress on the colleges because there are limited scholarship and grant funds available to offset increasing educational costs. Many institutions struggle to balance their financial aid budgets while their discount rates rise each year.
But most disturbing is the impact on the truly needy students who want to attend college. These students may receive lower need-based grants because there are more students competing for limited institutional dollars. Or worse yet, they might not receive any need-based financial aid from the college at all.
In terms of awarding wealthy Pellionaires federal and state entitlements intended for low-income students, there’s nothing colleges can do. If a family qualifies for federal and state grant aid after completing the FAFSA and going through verification procedures, their student will receive the money.
Institutions have considerably more control over their institutionally funded grant aid for needy students, however. Just as with academic scholarships, colleges have discretion about how much and to whom their need–based financial aid will be allocated. Most colleges and university administrators rely on estimated family contribution (EFC) data from the FAFSA to make these determinations and sincerely want their need-based aid to be awarded to students who cannot otherwise afford to attend college. That was the original intent, anyway.
The problem is that for the majority of institutions that rely on the federal methodology of calculating student need rather than institutional methodology (which accounts for more of a family’s assets), it is difficult for colleges to tell which families are Pellionaires until too late in the admission process, if ever.
Until recently there’s been no way to gauge a family’s relative wealth to see if it compares to financial information from the FAFSA. At Whiteboard, we provide institutions address-level consumer data such as family income, net worth, purchasing power, and home value. When viewing this information alongside institutional data it becomes possible to identify potential Pellionaires and to reserve need-based grant aid for truly needy students.
For example, if a student has an EFC of $3,000 and our consumer data shows a family net worth of over $1M, a home value greater than $750,000, an “A” ranking for purchasing power, and a relatively high household income, the large discrepancies between the consumer data and FAFSA data may well indicate a Pellionaire. (Of course, there may indeed be circumstances that support the financial neediness of the student and we always recommend deferring to that information.)
In cases where the comparative data doesn’t make logical sense, institutions can take a closer look to determine whether or not to include large, institutionally funded, need-based grants as part of the student’s financial aid package.
As discount rates continue to rise and colleges increasingly look for ways to leverage their financial aid dollars and promote student access, it makes sense to take a hard look at potential Pellionaires among admitted students. Need-based aid — in whatever form it takes — was never intended to subsidize wealthy families.
With the availability of reliable household consumer data, colleges now have the ability to identify Pellionaires early in the process in order to ensure that their need-based grant aid is being awarded to the students and families who need it most.
We believe it’s the right thing to do.