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A Few Strings Attached: State Retention Programs

By Jennifer LeClaire

September 03, 2008

How would you like to be rewarded for all those skipped parties, midnight cram sessions (and the good grades they got you) with a scholarship to Hometown U?

OK, would you still like it if the administration told you that you’d have to take a job with a company in the state and keep working there for several years, despite other potentially lucrative career opportunities elsewhere?

It’s a decision that some college students may get to make, if state proposals in Indiana and Wisconsin pan out. Indeed, there’s a move afoot to tie college students to their home state with merit-based scholarships designed to stem the brain drain.

While the concept – dubbed state retention programs – is stirring controversy in education circles, some funding specialists believe a short-term commitment to work in the state that educated you is a small sacrifice in the face of rising college costs. Read on and decide for yourself.

State retention 101

The concept is similar to federal loan forgiveness programs that seek to attract students to specific careers, like teaching or nursing. Perkins Loan borrowers, for example, can have up to 100 percent of their loan cancelled over a five-year period if they go into teaching.

However, state retention programs like the ones proposed in Indiana and Wisconsin don’t necessarily care what field you go into. They just want you to stay on the home front. In other words, the scholarships are tied to residency requirements instead of career requirements.

Governor Mitch Daniels is proposing a purely merit-based scholarship that would provide $20,000 for residents who pursue a four-year degree at private or public institutions in the state, and $5,000 for students who go after two-year degrees.

These scholarships take the form of forgivable loans that would not have to be repaid if the student stays in Indiana to work for three years after graduating. It’s called the “Hoosier Hope Scholarship” and franchising the Hoosier Lottery to a private contractor would fund it.

Maine just passed a bill that gives tax credits to lower the costs of student loans for those who stay in state. This program, called , requires students to attend a two- or four-year college in the state and work in Maine after graduation.

Details of the Wisconsin program haven’t been hammered out yet. Perhaps ironically, just as these new programs are being debated, Maryland, the only other state in the union to embrace the concept, is phasing out a similar program that offers merit-based scholarships with residency strings attached in favor of needs-based programs.

No strings for me, thanks!

Donald Heller, senior research associate at the at Penn State University, expects that most of Indiana’s merit-based scholarships would wind up in the hands of students with wealthy parents or high-GPA kids who could get other merit-based scholarships without strings attached.

“If you can get an offer without strings attached, then these state retention funds probably wouldn’t be that attractive to you,” Heller says. “If you are planning to go to a state college and work in the state anyway, it may be attractive.”

This is not a good deal for students, according to Robert Shireman, president of . He likens the proposals to putting state troopers at the borders to keep people from leaving.

“What’s in a student’s best interest is to go wherever their skills will be most productively used,” Shireman says. “Money being poured into these programs could be used to keep tuition lower for all students instead.”

Take the money – and stay

Alisa LeSueur, a Texas-based certified college funding specialist who has written two books on paying for school, has a different take.

First, she disagrees that most of the scholarships would go to students with wealthy parents. Second, there are far more needs-based programs than merit-based programs, she says, and we need more of the latter. And third, she doesn’t view the three-year post-graduation residency requirements as a jail sentence.

LeSueur believes students who perform well, regardless of income, should be rewarded as much, if not more, than students who have average grades and may not even make it through college. Merit-based programs reward hard-working students, she says.

“If you are a resident of Indiana, this program can help you pay for college,” LeSueur concludes. “It’s not like going to prison. You can leave any time you want if you want to pay back the scholarship. Or you can just stay for the required time. Many people stay in their home state your whole life anyway.”

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