App’s Private Aid Algorithm Promises Fast Cash

Emergency grants were especially in demand at the beginning of the pandemic. Students -- sometimes stranded with no income and no place to go -- looked to their colleges to help them pay for food, housing, transportation, technology and other basic necessities. Meanwhile, colleges needed to quickly distribute millions in federal relief dollars earmarked for direct student aid.

In theory, it sounds like a problem with a clear solution: colleges and universities could take the money provided by the first federal relief package, the CARES Act, and use it to quickly fund emergency grant requests before students went hungry, fell behind on rent or missed a utility payment.

But in reality, the situation exposed an administrative bottleneck at campuses across the country.

Many colleges don’t have a system in place to evaluate emergency aid requests and instead fell back on students’ existing financial aid information from documents like the Free Application for Federal Student Aid. While the FAFSA paints a picture of a student’s family income history and financial situation, it does not accurately estimate a student’s immediate financial need because it is based on income from previous years, not up-to-the-minute information.

Some colleges lack the staffing necessary to sort and approve emergency aid requests. They’ve struggled to hand out the money fast enough to be helpful to students.

A start-up company called Edquity is stepping in to try to remove those bottlenecks. Using a proprietary algorithm, it can decide for colleges which students get aid -- fast. The company's app essentially takes over the entire emergency aid application, decision-making and disbursement process.

But colleges have to decide if the need for speed is worth making financial aid decisions with an algorithm they don’t control.

Sara Goldrick-Rab, chief strategy officer at Edquity, built the algorithm the company uses to sort and approve student aid applications. As a professor of sociology and medicine at Temple University and longtime advocate for emergency aid grants, Goldrick-Rab had been looking to build a similar app to help colleges administer student aid even before she joined Edquity.

If it works, emergency aid should increase equitable outcomes for students, she said. It should identify the students that are least likely to graduate without financial assistance and get them the cash they need to stay in class through crises.

Awarding Aid by Algorithm

The Edquity app prioritizes students who are facing material hardships -- like food and housing insecurity -- and who are least likely to graduate without financial assistance to meet those needs. Other expenses, like tuition costs, don’t qualify students for emergency aid.

Students at participating colleges can apply for a grant through Edquity by filling out an application that asks students about their immediate financial needs and how close they are to graduating.

“The algorithm takes the data from the application and figures out who is most likely to need and benefit from the help. Every student gets a score,” Goldrick-Rab said.

Students with higher scores are prioritized for assistance. A low score does not necessarily mean a student won’t receive aid -- it depends on how much money the college has to give out. When two students are equally qualified to receive an emergency grant and the college does not have enough money to fund them both, the app flips a coin.

Random selection among equal candidates allows colleges to keep distributing aid quickly. Goldrick-Rab likened the process to how overwhelmed hospitals distribute resources.

“The process in place in emergency rooms for ventilator distribution is called prioritize and randomize,” she said. “You divide people into groups based on priority, and when you have too many people in a group and not enough ventilators, you randomize.”

Edquity shares details of its algorithm with participating colleges, but students cannot see it. It is not public.

Evaluating proprietary algorithms is difficult, said Robert Smith, a senior research fellow at University College London who specializes in artificial intelligence and bias in algorithmic systems. Algorithmic bias is well documented across many different services, and it’s difficult to evaluate potential biases when an algorithm itself is kept private.

But there are ways to head off bias, Smith said. He encourages companies to be as transparent as possible without giving away proprietary secrets. He also encourages companies to adhere to a set of third-party ethics guidelines -- for example, those created by the Alan Turing Institute, the European Union and the Institute of Electrical and Electronics Engineers. He also said that companies with proprietary algorithms should have a process in place to re-evaluate their methods should biases arise that algorithm designers didn’t anticipate.

Goldrick-Rab is well aware of algorithmic bias. It’s why Edquity doesn’t ask students for demographic information, like race, gender and ethnicity, she said. It also doesn’t ask students about family income history.

This is a good idea, Smith said, but companies should beware potential demographic proxies. For example, in some scenarios, income could be a proxy for race, because the two factors are sometimes correlated.

“I think it’s good that they’re not including demographic factors, and they’re trying to focus on the evidence entirely,” Smith said. “However, the possibility does exist that there could be proxies for demographics in the features they’re using, which we don’t know.”

Approval Within 24 Hours

Students who are approved for a grant via Edquity will be notified within 24 hours. After they’re notified, students provide Edquity with bank information, and the app deposits the money immediately. Those without a bank account receive a prepaid debit card. Students who are denied are pointed to a financial resources list provided by their colleges, as well as public benefits programs.

The grant money provided by the colleges is housed in an institution-owned custodial bank account to which Edquity has access. The company has the authority to manage the funds in the account. The college maintains ownership of the bank account and the money. Grants move directly from the institution to the student, Goldrick-Rab said.

Edquity averages three stars in Apple’s app store, with 51 reviews. Several one-star reviewers said their applications were processed quickly but that it took several days for the grants to land in their bank accounts.

Goldrick-Rab said those reviewers are from a Dallas college Edquity worked with that asked the company to process student applications and make aid decisions. But the college disbursed the grants itself, she said.

“We don’t mind,” Goldrick-Rab said. “If college financial aid offices got reviewed on the App Store, it would have zero stars. Students who don’t get money are always upset, and it’s our job to handle that for colleges so their staff can focus on case management.”

Whether or not a student is approved for aid depends somewhat on how much money their college has to dole out. For example, consider a student who reports that they can’t afford a textbook but also says that they’re not likely to drop out without the book.

“If we were working at Harvard -- and say Harvard has a huge student emergency aid fund -- that student who couldn’t buy the book might get a higher score because there’s money, and Harvard could afford to fund students with low scores,” Goldrick-Rab said. “At Compton College, they can’t afford to fund low scores. The kind of students who get funded at Compton College are people who are facing housing insecurity or who can’t get to school because they can’t afford gas.”

A New Way to Outsource

A long history exists of colleges outsourcing pieces of financial aid administration, from document collection to compiling aid packages, said Chris Chumley. Chumley is chief operating officer at CampusLogic, a company that creates digital tools for colleges to streamline financial aid processes and promote student financial success.

While Chumley wouldn’t recommend outsourcing all of a college's financial aid decisions, he said that partnering with companies like Edquity could be a good solution for colleges that don’t have the infrastructure to manage emergency aid.

Some higher education officials have worried in the past about the privatization of nonprofit higher education, saying that procedures at third-party companies are less transparent that those within the college.

Goldrick-Rab noted that colleges’ own financial aid decision making is often opaque.

“Staff make decisions and have a hard time sharing reasons, the data aren’t standardized or tracked, and there is pressure to fund students to avoid complaints,” she said in an email.

So far, Edquity has worked with approximately 30 colleges. Compton College in Southern California is one of the institutions that partnered with Edquity this past year. Goldrick-Rab knows Compton well -- she has spoken on campus and included a guest post from Keith Curry, president of the college, on her blog.

For its first contract, Compton asked Edquity to distribute about $90,000 in student emergency aid. Compton provided the aid dollars and paid a processing fee, and Edquity provided marketing materials, collected student applications, made grant decisions and distributed the money to students.

The contract covered only a fraction of the CARES Act dollars that Compton was required to dole out as student emergency aid. Between the spring of 2020 and winter of 2021, the college disbursed more than $1.2 million in emergency student aid via 2,839 grants.

Edquity’s pricing model has changed since it first launched. For a while, the company charged a fee based on the number of students that applied. Now it charges a 3 percent fee based on the amount of money the college sets aside for student emergency aid grants. Edquity’s fee doesn’t directly come out of the money earmarked for student aid -- the college pays for it from other revenue sources.

The company recently released a report showing the effects of emergency aid grants on student success at Compton College. Students who received aid grants were twice as likely to graduate than students who were not approved -- 22 percent compared with 11 percent, according to the report.

“Students like the app. They like the fact that people are trying to find ways to support them,” Curry said. “The data tells the story.”

The college is planning to scale up its contract with Edquity. Curry has proposed awarding another $3 million in aid through Edquity. The Compton Community College District Board of Trustees must approve the new contract and will consider it at an April 19 meeting.

“Colleges need to make their own decisions about what fits them, but Edquity works for Compton,” Curry said. “It fits our needs.”