Federal Funding of Student Aid for Competency-Based Education Programs

By Jenny Helms


In 1996, the Clinton Administration’s Department of Education (DoE) began a wave of grants offered to higher education institutions in developing new and innovative ways that would address the rising costs of a college degree and the alignment with new technologies. Constituents were inundating policy makers with clarion calls for postsecondary education reform because of affordability and accessibility obstacles. With federal grants and DoE encouragement, Western Governors University (WGU), Southern New Hampshire University (SNHU), and other selected institutions concentrated their efforts on accelerated degree pathways, prior learning assessments (PLA) enhancements, distance education, and competency-based education (CBE). 

Nine years later, Congress modified the 2005 Higher Education Reconciliation Act (HERA) with a provision allowing federal student aid funding for CBE Direct Assessment programs, thus making CBE more sustainable. Most institutions rely heavily on the federal government’s annual $150 billion in grants, loans, scholarships, and fellowships (Porter, 2014) and cost-shift resources in order to generate new revenue streams. 

However, the current federal student aid policies still revolve around the 14-16 week semester and are not compatible with the self-paced CBE program. Federal student aid needs to reflect an “open enrollment and open ending” process, which transcends the semester timeframe and/or shortens the distribution time to reflect faster degree progression depending on the student’s movement through the education program (Porter, 2014). This research paper intertwines this current federal funding issue through emphasis of the CBE’s mission and criticisms, accessibility, and affordability.

CBE’s Mission and Criticisms

CBE centers on the assessment of defined learning outcomes, regardless of where the learning occurs, and branches into discrete “competencies” that indicate a student’s mastery of critical learning concepts. This new format is self-paced and channels through online, blended, and/or classroom learning mediums. The CBE option is important because colleges can expand their revenue streams and services in discouraging economic times and when government funding and consumer discretionary income drops. Most significantly, non-traditional students have increased access to higher education.

On the other hand, many academic professionals and alumni have voiced valid and various concerns about the quality of CBE programs versus the traditional, in-person classroom programs. For example, student knowledge compression, CBE curriculum design and implementation, CBE faculty professional development, subject matter expertise of CBE faculty, staff workload distribution, online testing integrity, student support services, and pricing models surround the issues aired. Some individuals value the teacher-centered approach, the personal transformational learning moments that occur between a student and professor, and the suffer-through-16 weeks degree trajectory, which culminates in a rite-of-passage graduation.

Regardless of the controversy, CBE is moving forward. In April 2014, the DoE provided the latest round of grants, specifically for CBE program development to approximately forty colleges that will be expanding their services portfolios soon.

CBE’s Accessibility

Accessibility is a key reason why CBE programs are in existence today. WGU was founded in 1999 after an agreement between governors of 18 western states and the governor of Guam to address the educational public policy issues of affordability and accessibility. Many of their constituents are in small, remote communities (Witkowsky, 2006). Because of the seed money received from the 1996 and 1998 DoE grants, WGU was able to enjoy a jumpstart that was not available to other distance education and CBE programs.

Today, WGU is considered a distance education rather than a CBE college because it converts the curriculum competencies into credit hours to avoid any issues with Title IV federal aid legislation (Neem, 2012). Only two colleges (SNHU and Capella University) of the estimated thirty CBE colleges have been approved by the DoE to utilize the 2005 HERA’s Direct Assessment provision. The risk is too high for these institutions to lose their federal financial aid funding received under the DoE’s acceptable credit hour/competency conversion.

WGU serves as a paid consultant to many other start-up CBE college programs including the four community colleges in Florida, Ohio, Texas, and Kentucky. Beginning this fall, Kentucky’s community college system will offer online CBE associate degree programs, which a student can quickly complete without visiting a college campus.

In the Dowd and Grant (2006) study on revenue disparity among US community colleges, vertical equity is a means of providing greater resources for students with greater needs. This concept fits the conventional CBE student. Consider the NC mountain student who may be 25 or older, economically challenged, and able to utilize internet and online technology to expand his or her education. Due to family obligations, this student may not be able to afford the time nor financial resources to drive to a community college campus. If the same student has been responsible for the family’s woodworking business, why should the student not have the opportunity to receive academic credit for their business and trade acumen if mastery is accurately measured and recognized? CBE provides vertical equity. Studies have shown that if the student receives PLA credit, graduation is more likely. The learning opportunity of the NC mountain student is much different from a typical 18-year-old student who just graduated from high school. 

Over the past year, the NC Community College System (NCCCS) has formed exploratory committees to explore the CBE option. To date, no formal action has been undertaken. Startup cost, opportunity cost, and decreasing government allocations have hurt NCCCS’ education innovation. NCCCS may also not be ready for cultural change, but the student market may soon speak through attendance of other colleges such as Kentucky’s online CBE program.

CBE’s Affordability

Another driving motivation of CBE is affordability. Higher education costs have increased by 600% since the 1980’s while the perceived value of the degree has dropped considerably, as employers claim that graduates do not have adequate job skills and many graduates find themselves jobless (Schejbal, 2014). Policy makers are desperate to find solutions that make college affordable while meeting employer, constituent, and academia needs.

SNHU is a for-profit, private college, which realized the need for new revenue diversification in the mid-1990’s or it risked becoming obsolete. Their CBE startup costs were provided by three major sources: the federal government, the college, and employers. Their CBE program is sustained by those employers, which includes ConAgra, FedEx, and Anthym, and only accepts students from those business partners.

CBE targets non-traditional, working adult students who are in a low to middle class income status. These students may have achieved some college credit but have left higher education for various reasons including family commitments, other financial obligations and/or poor academic performance in a campus setting.Merit-based and need-based financial aid funding are being studied and debated within the academic community. Controversy stems from whether the transition of merit-based student aid is “crowding out” the need-based financial aid (Doyle, 2010; McLendon, Tandberg & Hilman, 2014). With merit-based aid, students perform at a certain level or they lose their aid. With need-based funding, students are eligible based on income criteria.

Merit-based funding does not coincide with CBE programs. With CBE, a student is on a pass/fail, not a GPA, scale. The student both knows the material and performs well on projects, papers, interviews and/or tests or the student does not proceed through the CBE program. Unless the student is employer-sponsored, the student will typically rely upon need-based financial aid funding for the vertical equity. A “crowding out” effect could have drastic implications on CBE programs and its consumers.


To resolve this federal funding issue of time/payment disbursements described at the beginning of the paper, Congress should amend the Title IV of the 2014 HERA to allow federal financial aid policy adjustments for self-paced CBE programs. Senator Kay Hagan is introducing a bill addressing this issue and is expecting her peers to review the legislation after the November 2014 elections (NC Political News, 2014).

Until Hagan’s or a similar bill is ratified, some CBE programs may continue to utilize the credit hour/competency conversion. Another idea would be to change their CBE pricing model to allow for delayed payments and new student payment policies. Other options include third-party (employer) financial reliance for the colleges while possibly relinquishing some curriculum and program control.

CBE’s mission, accessibility, and affordability provide an interesting mechanism to attract non-traditional students back into academia and deliver revenue diversity to the participating institutions. Federal funding policies need modification to reflect the modern educational experience. The public good (more tax revenues, better citizenry, federal government’s goal of postsecondary achievement, etc.) and the private good (better employment, better salaries, etc.) will grow. For every employer that benefits from educated employees through workforce productivity, for every college that offers CBE educational services and profit, and for every student that increases their self- and market-worth through gained knowledge and skills, a marginal benefit is received.


Bradley, M. J., Seidman, R. H., & Painchaud, S.R. (2012). Saving higher education: The integrated, competency-based three-year bachelor’s degree program.San Francisco, CA: Jossey-Bass.

Dowd, A. C., & Grant, J. L. (2006). Equity and efficiency of community college appropriations:The role of local financing. Review of Higher Education, 29(2), 167-194.

Doyle, W. R. (2010). Does merit-based aid “crowd out” need-based aid? Research in Higher Education, 51(5), 397-415.

Fain, P. (2013). Zach Sherman, College for America’s first graduate Experimental College’s First Graduate. Insidehighered.com. Retrieved from: http://www.insidehighered.com/news/2013/08/16/new-form-competency-based-learnings-first-batch-graduates

McLendon, M.K., Tandberg, D.A., & Hillman, N.W. (2014). Financing college opportunity: Factors influencing state spending on Student financial aid and campus appropriations, 1990-2010.The ANNALS of the American Academy of Political and Social Science, 655 (143), 143-162. doi: 10.1177/0002716214540849

NC Political News (2014). Hagan cosponsors competency-based education act to allow students to learn at their own pace. Retrieved from: http://www.ncpoliticalnews.com/?p=9787

Neem, J. (2012). A university without intellectuals: Western Governors University and the academy’s future. National Education Association. Retrieved from: http://www.nea.org/home/53413.htm

Porter, S.E. (2014). Competency-based education and financial aid. North Carolina State University. Retrieved from: http://www.thehatchergroup.com/wpcontent/uploads/Competency-Based-Education-and-Federal-Student-Aid.pdf

Schejbal, D. (2014). Competency as one answer. Insidehighered.com. Retrieved from:

Witkowsky, K. (2006). Remote access: Western Governors University offers “competency-based” higher education, at a distance. The National Center for Public Policy and Higher Education. Retrieved from: http://www.highereducation.org/crosstalk/ct0206/news0206-wgu.shtml


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