A Decade of Change
Aid consists of grants or merit-based scholarships that do not have to be repaid, loans that must be repaid, and work-study that requires work (usually on campus) in exchange for aid. Aid providers use different criteria for distributing aid to students, depending on their goals. Many federal, state, institutional, and private financial aid programs exist to assist students who need financial help with their educational expenses.
The original goal of federal student aid programs implemented as part of the Higher Education Act of 1965 was to provide need-based financial aid to low-income students to increase their access to postsecondary education and give them reasonable alternatives from which to choose an appropriate program. By the 1980s, this goal had been expanded to include making college more affordable for middle-income families as well (Spencer 1999). The 1992 Reauthorization of the Higher Education Act made several major changes to the federal financial aid system: it changed the method for calculating need, making it easier for dependent students to qualify for need-based aid; it raised the loan limits for the Stafford loan program, allowing students to borrow more; and it made federally guaranteed unsubsidized loans available to students regardless of need.1 Within the last decade, the federal government has begun to use the tax code to assist families with annual incomes up to $100,000 with educational expenses, although families with incomes below $20,000 a year typically do not have sufficient tax liability to benefit from these programs (U.S. General Accounting Office 2002). In 2002–03, the federal government provided $71.6 billion in student aid for undergraduate and graduate study—$15.8 billion in grant aid, $49.1 billion in guaranteed loans, $1.2 billion in work-study aid, and $5.4 billion in education tax credits (The College Board 2003b).
States support postsecondary education mainly through operating subsidies to public institutions. State student aid programs have played a secondary role (Hauptman 2001). However, the 1972 reauthorization of the Higher Education Act provided states with incentives to create grant programs, and they responded. By the end of the 1970s, almost all states had at least one need-based grant program, and many have more than one now. States have taken different approaches to eligibility, and rules may vary by program within states (National Association of State Student Grant and Aid Programs [NASSGAP] 2003). For example, some programs limit participation to students at public institutions, while others also include students who attend private institutions. A few are open to state residents regardless of where they enroll, and some are targeted to specific groups, such as prospective teachers or nurses.2 Between 1992–93 and 2002–03, the amount of state grant aid more than doubled, from $2.7 billion (in constant 2002 dollars) to $5.6 billion (The College Board 2003b). State grants were once mainly need based, but the use of merit-based grant programs has grown. In 2002–03, 24 percent of state grants were merit based, compared with 10 percent a decade earlier.
Institutions, especially private ones, have considerable freedom to establish their own criteria for awarding aid. They may distribute aid to achieve a variety of goals, such as assisting financially needy students, attracting students with high levels of academic ability or other talents, enrolling diverse student bodies, or meeting enrollment goals (Redd 2000). Often they try to achieve some or all of these goals simultaneously. In 2002–03, public and private institutions awarded a total of $20.4 billion in grant aid from their own funds, which represented almost half of all the grant aid awarded (The College Board 2003b). Between 1992–93 and 1999–2000, the percentage of undergraduates receiving institutional aid increased, particularly in the higher income brackets (Horn and Peter 2003; NCES 2004-077, indicator 37).
Legislators and policymakers frequently review and adjust the goals of the student financial aid system, the rules for distributing various types of aid, and the amounts available. To inform financial aid debates and measure the impact of changes in laws and policies, the National Center for Education Statistics (NCES) conducts the National Postsecondary Student Aid Study (NPSAS), which has collected information on a nationally representative sample of postsecondary students at 3- to 4-year intervals since 1987. The most recently completed study collected data during the 1999–2000 academic year; the next one covers 2003–04. Among other topics, NPSAS covers the actual charges to students, the amounts students and their families are expected to contribute, and the types and amounts of financial aid students receive from various sources.3 This analysis uses data from the 1989–90 and 1999–2000 studies to examine changes in student financing of undergraduate education over this period.
1The Higher Education Act was reauthorized again in 1998 with only minor changes. The next reauthorization is scheduled for 2004. The Stafford loan program is the major source of funds for undergraduate borrowing. (back to text)
2See NASSGAP (2003) for a comprehensive state-by-state description of programs and funding levels. (back to text)