Workforce Contingent Financial Aid: How States Link Financial Aid to Employment
A rapidly growing phenomenon, workforce-contingent financial aid (WCFA) programs assist individuals with their education expenses in exchange for work in either specified fields or specified locations. In 2001–2002, 43 states supported programs that either (1) provided financial aid to students while they were enrolled in school in exchange for a future workforce commitment or (2) repaid an existing educational debt in exchange for specified work. Commonly referred to as loan forgiveness and loan repayment programs, respectively, this report introduces the terms “In-School WCFA” and “On-the-Job WCFA.” In-School WCFA programs support students while in school and On-the-Job WCFA programs attempt to attract workers by repaying existing student loans. The new terms reflect the importance of the link between financial assistance and a work obligation.
Through a survey of state financial aid administrators and information gleaned from state higher education Web sites, this study identified 161 different WCFA programs in 43 states. Three states—Maryland, Mississippi, and Texas—had more than 10 programs each. Based on the 100 programs that provided data, over 26,000 individuals received support from In-School or On-the-Job WCFA programs in the 2001–2002 academic year. Teaching, nursing, and medicine were the most frequently supported occupations. In-School programs accounted for about 75 percent of all programs and supported approximately 90 percent of all identified participants. However, between 1998 and 2002, On-the-Job programs appeared to be increasing in number at a faster rate than In-School programs.
Beyond the work requirement imbedded in both In-School and On-the-Job WCFA programs, other aspects of these programs tended to vary widely. Some of this variation is highlighted below:
In-School WCFA Programs
- Residency. 90 percent required participants to be residents of the state.
- Selection criteria. States tended to use both academic merit and financial need to select participants, but academic merit was a more common criterion.
- Years supported. Most programs supported students for more than one year.
- Annual support. Most programs provided between $2,000 and $5,000 per year, but support ranged between $500 and $25,000 per year.
- Number of recipients. The 76 programs that provided data supported about 24,000 students.
- Workforce requirements. Beyond working in the funding state and in a specific field, the most common stipulation was the type of employer. Most programs that supported teachers, for example, required employment in a public school. Some programs also required working in specific geographic or high-need areas.
- Amount of financial assistance forgiven. Most programs required recipients to work a set amount of time for each period funded (e.g., a year of work for a year of funding). Some required a set number of years regardless of the number of years of financial assistance and others excused a percentage of the total funding amount for each year of work.
- Failure to complete work obligation. Recipients who did not complete the required work typically had to repay the support they had received. Interest rates, the time at which programs started applying interest, and the length of time individuals had to make restitution varied considerably.
On-the-Job WCFA Programs
- Workforce Requirements. To have an existing educational loan repaid, recipients were required to work but typically did not have to be state residents.
- Continuation. Most programs required annual employment verification.
- Length of support. Most programs granted loan repayment for up to 4 or 5 years.
- Amount of loan repaid. Most programs repaid a set amount of educational loans for every year of work. The amount ranged from $1,000 a year to $30,000 a year.
Although this study did not intend to determine the effectiveness of WCFA programs, it did ask states about evaluations they had conducted. Very few studies emerged that evaluated either the financial aid or the workforce aspects of these programs. Further, very few studies exist at the national level.
This study concluded with a number of questions that need to be addressed to determine whether WCFA programs should continue to proliferate:
- Do students who are asked early in their education to declare majors and work intent remain in their initial major and field?
- Are WCFA programs attracting individuals who otherwise may not have entered that occupation or specialty?
- Are WCFA programs attracting the “best and brightest” individuals to the occupational areas supported?
- What are the implications of limiting participation to state residents?
- Are WCFA programs excluding individuals?
- What are the administrative costs associated with WCFA programs?
- How effective are WCFA programs relative to other types of financial aid?
WCFA programs may very well be effective in addressing the escalating price of college and/or workforce shortages. However, the growth of both In-School and On-the-Job WCFA programs cannot be attributed to research. The following statement by a state legislator typifies the political expediency and appearances that drive the growth of these programs:
What could possibly be wrong with a program that provides financial assistance for students to attend college while also addressing state workforce shortages?
Given the growing popularity of these programs, strong evaluations of both In-School and On-the Job WCFA are needed to answer questions like this.