Do Popular Student Financial Aid Programs Meet Goals—Easing Workforce Shortages, High College Prices?

Washington, DC – Programs that attempt to fill workforce shortages and ease college prices by “forgiving” or repaying college loans are increasingly popular politically, but a new report shows that the jury is still out on their effectiveness. Known as workforce-contingent financial aid, these programs provide money for college in exchange for an individual’s commitment to work in occupations or regions that have difficulty attracting employees. Despite their worthy goals, virtually no reliable data exist to show the programs actually work. 

“Right now, what we don’t know about workforce-contingent financial aid programs far outweighs what we do know—most of which appears in this report for the first time,” said the report’s lead author, Rita Kirshstein, a managing director at the American Institutes for Research (AIR).

The AIR report, Workforce Contingent Financial Aid: How States Link Financial Aid to Employment, funded by Lumina Foundation for Education, is the first comprehensive state-by-state study of the history, origins, and characteristics of such programs. The authors identified 161 different programs in 43 states. The 100 programs that reported participation data cited 26,000 individuals receiving support in the 2001-2002 academic year. 

Only about 50 programs studied for the report were able to provide data about how many students fulfilled their work commitment. “When state budgets are tight and college prices are continuing to rise, it’s essential that we know which loan programs are working and which are not, or what needs to be changed to make some of them work better,” said Kirshstein.

Among the findings in the report:

  • Three-quarters of the programs are “in-school” programs (often referred to as “loan forgiveness” programs) providing financial aid to students while they are enrolled in school in exchange for a future workforce commitment. The remainder are “on-the-job” programs (often referred to as “loan repayment” programs) which repay existing education debt in exchange for specified work. 
  • Most programs do not take financial need into account. Most do require state residency and consider academic merit.
  • Rare before the 1990s, on-the-job programs are increasing more rapidly than in-school programs, more than doubling between 1998 and 2002.
  • The design of on-the-job programs gives them certain advantages over in-school programs: they are lower risk, as even those who drop out have provided some service.  Recipients need only to be monitored while working, not both as students and employees.  Individuals make work decisions after completing a major and are not asked to choose a major and a future career prematurely to receive financial assistance. 

“No reliable evidence exists that these increasingly popular forms of student financial assistance actually address the problems that make them so appealing. Programs that link college loan repayment to a workforce obligation give the impression that they address two widespread economic problems—rising college prices and shortages in occupations such as teaching, nursing, and medicine, particularly in some remote or low-income areas,” said Andrea Berger, a senior researcher at AIR and a co-author of the report. ”In conducting our research for this report, we were concerned to find how little study or follow-up has been done to determine whether these programs do a good, bad, or indifferent job of living up to their promise.”

Among the unknowns about workforce-contingent financial aid programs:

  • Do they help reduce workforce shortages?
  • How well do they help individuals cover educational expenses?
  • How many participants drop out of on-the-job programs before fulfilling their work obligation?
  • To what degree do students honor their commitments to in-school programs after graduation?
  • Do students required to declare majors and work intentions as early as high school or the freshman year of college remain in their declared fields, and is it wise or practical to require such an early commitment?
  • Do they attract people who might not otherwise have entered the occupation or specialty?
  • Do they attract the best and brightest, most committed workers?
  • Is the effort required to track graduates of in-school programs cost-effective?

Workforce-contingent financial aid has been attractive to both state and federal legislators. In 2003, the U.S. House of Representatives passed the Teachers Recruitment and Retention Act by a vote of 417 to 7.  This Act provides up to $17,500 in loan forgiveness for some math, reading, science, or special education teachers who work for five consecutive years in schools in which at least 30 percent of the students come from low-income families. In 2002, President Bush signed into law the Nurses Reinvestment Act, which includes loan-repayment funds for nurses who work as nursing faculty or in facilities with a nursing shortage.

“Legislators seem to like these programs because it’s assumed they tackle two economic problems simultaneously,” said Kirshstein. “We need far more research to discover whether the programs actually do what they appear to do.”

The American Institutes for Research, founded in 1946, is a leader in the behavioral and social sciences. AIR is a non-partisan, not-for profit organization engaged in domestic and international research, development, evaluation, analysis, product development, training, and technical assistance and assessment.

Lumina Foundation for Education, a private, independent foundation, strives to help people achieve their potential by expanding access and success in education beyond high school. Through research, grants for innovative programs and communication initiatives, Lumina Foundation addresses issues surrounding access and success—particularly among underserved student groups, including adult learners.

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