B-On-Time: Good for Students, Not for Some Schools

Even if state Sens. Dan Patrick, R-Houston, and Jeff Wentworth, R-San Antonio, are successful in their effort to end the practice of setting aside a portion of tuition for financial aid, it would not cut off funding for the set-aside-funded B-On-Time Loan Program for students at public institutions. The program offers sweet savings if you are a student. But if you are an institution of higher education, the program might be costing you anywhere from a few thousand to millions of dollars.

Currently, at each public university, 5 percent of tuition that exceeds a certain level is turned over to the Texas Higher Education Coordinating Board to finance the B-On-Time program, which offers a no-interest loan that is forgiven if students graduate in four years with at least a 3.0 GPA. The loan program is meant to encourage students to accomplish the, apparently, rare feat of graduating in just four years (and with good grades to boot).

The incentive seems to work. According to the Coordinating Board’s financial aid report for fiscal year 2009, students at public institutions who had financial aid other than a B-On-Time Loan had a 19.1 percent four-year graduation rate. For students who had a B-On-Time Loan, the four-year graduation rate was more than double: 38.6 percent. A total of 19,364 awards were given out from 2007 to 2010. For the current academic year, the loan amount is $6,780 per year at a four-year institution and $1,780 per year at two-year institutions.

State Sen. Judith Zaffirini, D-Laredo, who authored the legislation that created the program, calls it one of her “all time favorites.” She said, “The best way to save money is to get a degree as soon as possible. There is just no equal savings to that.”

But despite its apparent effectiveness, the B-On-Time program is a losing proposition for many universities, which do not get back what they are required to invest in the program. According to Coordinating Board data, the biggest loser in terms of dollars is the University of Houston, which turned over $8,684,374 in tuition set aside for the program from fiscal year 2007 to fiscal year 2010. In that same period, $1,497,565 was disbursed to UH, for a total of 292 awards.

There are some universities — just 10 of 35 that put money into B-On-Time — that come out on the winning end. The biggest earner: Texas A&M University, which turned over $12,456,041 from fiscal year 2007 to fiscal year 2010 and got back $17,538,131 in the same period.

It’s difficult to draw a straight line from what a school collects for the program and what it eventually receives back — or from a school that loses money to one that’s raking it in. In addition to set asides, disbursements may also include dollars from general state revenue and other state savings, though most general revenue used for B-On-Time loans goes to students at private institutions, which are not funded by set-asides from public institutions. No set-aside money is collected from community colleges, though their students are eligible for awards.

One of the key determinants in which schools win out monetarily is how strongly the school’s financial aid office, which acts as go-between for the Coordinating Board and the student, promotes the loan. “Institutions typically have a difficult time getting students [to apply], because the perception of it is that it’s another loan program,” said Joe Pettibon, assistant provost for student financial aid at A&M. “We’ve been one of the more aggressive institutions about getting this information to our students and awarding it to them.” Because the program gives priority to renewals, Pettibon said, the more recipients on campus already, the easier it is be to get more loans as time goes on.

Every school in the Texas State University System receives less money in B-On-Time loans than it turns over. Mike Wintemute, a spokesman for the system, said that, especially with proposed cuts to the state’s primary need-based aid program, TEXAS Grants, “there may be a greater desire to keep that five percent at those institutions.”

Zaffirini said the issue of schools losing money through B-On-Time has recently been brought to her attention. “We’ll look into that immediately,” she said. “It seems to be a problem, and if so, we’ll try to resolve it as soon as possible.”

To see how schools fare in the shuffling of B-On-Time Loan dollars, here is a chart of Coordinating Board data showing collections, disbursements and total awards by institution for fiscal year 2007 to 2010. You can also follow this link for a chart of each institutions total gain or loss during that time period.

Editor's note: An earlier version of this story misstated that the bills by Wentworth and Patrick would eliminate the set-asides for B-On-Time. While both legislators are attempting to remove tuition set-asides, their bills preserve the set-aside for the B-On-Time Student Loan Program.