Trends in Postsecondary Education - Students Like Grants

As much as three-quarters of all financial aid for higher education comes from the federal government. The largest federal aid program is the Pell Grant. It is sometimes supplemented by a Federal Supplemental Educational Opportunity Grant (SEOG). The graph shows that the dollar amount of the average Pell Grant rose steadily throughout the 1990s, from $1,507 in 1995 to an estimated $2,310 in 2001, a 53% increase. Most Pell Grants go to low-income students with annual family incomes below $20,000 (see table, below).

Between 1985 and 2000, college costs rose more than 150%. Considering average annual total college costs (tuition, room and board, fees, etc.) of upwards of $7,000, we see from this chart that grants are a drop in the big tuition/fees bucket. They have to be supplemented by some other kind of aid. These days, that means loans (see next panel).

Government assistance for college is a fairly recent phenomenon. It started with the 1944 Serviceman's Readjustment Act, better known as the GI Bill. At the time of its passage, more than half of Americans had no more than an eighth-grade education. Remembering how millions of veterans had returned from World War I to face unemployment, Congress provided funds to help the economy by educating and training veterans. The GI Bill, regarded by historians as one of the most enlightened pieces of legislation ever enacted by Congress, offered veterans up to $500 a year for college tuition and fees ($5,051 in 2002 dollars).

College enrollments soared. By 1950, 1.7% of the population was enrolled in college (it's 5.6% today). After the Russians launched Sputnik in 1957, a need to extend higher education to more Americans was seen. Great Society initiatives of the 1960s made it possible for low-income students to earn a college degree. These programs were never intended to pay the entire cost of college, but for a while, a federal grant took a lot of the pain out of financing an education.

From the recipient's point of view, aid in the form of a grant is always preferable to a loan. Grants don't need to be repaid. Pell Grants reached their peak value in the 1970s. According to Business Week, in 1975 the maximum Pell Grant covered 85% of the cost of four years at a public college.

Despite a continued federal commitment to assisting every qualified person willing to make the effort, federal grants haven't kept up with tuition costs. By 2000, the maximum Pell Grant of $3,300 covered an average of 39% of the cost of a year at college.

Percentage of Undergraduates Receiving Any Federal Aid and Receiving Federal Grants: 1999-2000

	Any aid	Grants
Total	39.1	23.1
Dependency and 1998 income level
Dependent	43.7	20.1
Less than $20,000	70.0	65.9
$20,000-39,999	56.3	43.6
$40,000-59,999	40.8	8.9
$60,000-79,999	36.9	1.4
$80,000-99,999	32.5	0.5
$100,000 or more	24.5	0.4
Independent	34.6	26.0
Less than $10,000	67.4	63.1
$10,000-19,999	50.4	37.9
$20,000-29,999	35.1	24.9
$30,000-49,999	20.4	11.6
$50,000 or more	7.8	0.2

The table shows the income status of 1999-2000 undergraduates who received federal grants. "Dependent" means dependent on the family. Nearly 40% of all students received some type of federal aid. Federal grants averaging $2,281 went to 23% of those students. Fifty-five percent of undergraduates received aid (loans, grants, scholarships) averaging $6,265. As tuition goes up, the purchasing power of grants dips. Loans must supplement grants to a greater degree than ever before.

Analysts predict that the college applicant pool in the first decade of the 21st century will include a larger proportion of students from low-income families than ever before. At the same time, college will become increasingly less affordable for the lower and middle classes. How will they finance the part of their education not covered by grants?

The next panel looks at student loan activity. It's way up.

Source: Chart: Statistical Abstract of the United States: 2001. Table 276. Table: NCES. National Postsecondary Student Aid Study: Student Financial Aid Estimates for 1999-2000. NCES 2001-209. Malizio, Andrew G., Project Officer; Table 3. "College Crunch." Business Week. 27 August 2001, p. 126. Sanchez, Yojairy. "The Top 4 Sources of Aid." Careers & Colleges. (November 2000), p. 20. Brownstein, Andrew. "Tuitions Rise Sharply, and This Time Public Colleges Lead the Way." Chronicle of Higher Education. 2 November 2001. Online. Available: http://chronicle.com. March 12, 2002. Ikenberry, Stanley O. "Higher Education and Market Forces." USA Today (Magazine) March 2001, p. 34. Snyder, Tom. 120 Years of American Education: A Statistical Portrait. NCES. (1993).