Introduction

“Even after adjusting for inflation, the growth in student aid has been dramatic. In terms of what the dollar was worth in 1982, there was $1.7 billion in aid  available in 1963-64, $10.9 billion by 1970-71, and $18.2 billion by 1975-76.” The New York Times reported this information in its Jan. 16, 1984 report on Trends in Student Aid: 1963 to 1983.1 The headline, “Study Finds Significant Drop in Financial Aid for Students,” suggests that the student aid story was not much easier to understand 30 years ago than it is today.

In the 30 years since the College Board began publishing its annual reports on student aid, all of the numbers have changed by orders of magnitude. Since 1982-83, total fall enrollment in degree-granting postsecondary institutions has increased from just over 12 million to about 21 million; total federal aid has grown from $29 billion (in 2012 dollars) to $170 billion in 2012-13; and total student aid from all sources has increased from $36 billion to $238 billion.

In 1982-83, the average student received $2,130 (in 2012 dollars) in grant aid and borrowed $1,720 in federal loans. Thirty years later, we are reporting $7,270 in grant aid per full-time equivalent (FTE) student and $6,370 in federal loans. Over the same period, average tuition and fees at public four-year colleges and universities rose from $2,423 (in 2012 dollars) in 1982-83 to $8,646 in 2012-13. (The average price in 2013-14 is $8,893.)

Concerns over college prices and how students can pay them have persisted over all of these years. A July 21, 1983, headline in The New York Times reported “College Costs Up 9–10% a Year” — up to three times faster than the general rate of inflation.2 A 1985 article gave advice on “Coping with College Costs.”3

The Trends in Student Aid series has evolved since 1983 to include more information about the funds available to help  students pay for postsecondary education. We have added text that highlights and explains key elements of the data reported. We have developed a website that allows users to find current and historical information and to download data easily. We rely on many sources to help us gather the data we include. Colleagues with the U.S. Department of Education, state student aid agencies, the National Association of Student Financial Aid Administrators, the National Scholarship Providers Association, MeasureOne, the Consumer Financial Protection Bureau, and the National Association of State Treasurers all provide invaluable assistance.

Since 1998, Trends in College Pricing has been the companion publication to Trends in Student Aid, reporting on changes in college prices over time; on the variation in prices across sectors, states, and regions; on some of the revenue and expenditure factors contributing to the prices  charged; and on the net prices students actually pay after taking financial aid into consideration.

In 2013, two additional reports supplement the Trends reports. Education Pays 2013: The Benefits of Higher Education for Individuals and Society is the fourth edition in this series, begun in 2004 to elucidate the monetary and nonmonetary benefits of higher education, as well as the differences in participation and success across demographic groups. A second 2013 report, How College Shapes Lives: Understanding the Issues, focuses on the
variation in the returns to postsecondary education and sheds light on some of the methodological and conceptual complexities underlying the issues covered in Education Pays.

Trends in Student Aid

This report documents grant aid from federal and state governments, colleges and universities, employers, and other private sources, as well as loans, tax benefits, and Federal Work-Study (FWS) assistance. It examines changes in funding levels over time, reports on the distribution of aid across students with different incomes and attending different types of institutions, and tracks the debt students incur as they pursue the educational opportunities that can increase their earnings, open doors to new experiences, and improve their ability to adapt to an ever-changing society. The report puts recent  changes into historical context and provides important background information for ongoing conversations about the roles of federal, state, institutional, and private partners in helping students and families finance postsecondary education. Only policy reforms based on reliable data and analyses can assure that  the financial aid system continues to increase educational opportunities for students and to support the development of a more productive labor force and a more educated society.

Total Student Aid

The dramatic economic disruptions of the Great Recession had a major impact on colleges and universities, their students, and the multifaceted financial aid system that has developed to help students and their families pay for higher education. The data reported in Trends in Student Aid 2013 reveal that the sharp increases in federal grant aid and in student borrowing that accompanied the financial crisis have not been repeated. Indeed, while the federal government   continues to play a large and increased role in funding students, inflation-adjusted spending on both federal grants and federal loans decreased in 2011-12 and again in 2012-13.

Table 1 of Trends in Student Aid reports on the total funds available to postsecondary students, both undergraduate and graduate, to supplement family and student payments over the decade from 2002-03 to 2012-13, making higher education financially accessible.  Increases in total funds are important  indicators of the resources being devoted to student assistance. But these figures may create an overly optimistic view of the benefits available to individual
students because they do not account for increases in the number of students enrolled in postsecondary education.

Figure 1 shows the funds detailed in Table 1 divided across full-time equivalent (FTE) students. Between 2002-03 and 2012-13, total FTE postsecondary  enrollment increased by 27%, with 2.9 million more FTE undergraduates and 481,000 more graduate students enrolled at the end of the decade. The 96%  increase (after adjusting for inflation) in total financial aid over the decade amounted to a 54% increase in aid per FTE student.

The data in Table 1 have been adjusted for inflation. Similar tables in current dollars (unadjusted) that include data going back to 1963 and that separate undergraduates from graduate students are available online.

Types of Student Aid

From the student’s perspective, grant aid, which is a pure subsidy not requiring repayment, is the most desirable form of financial aid. Tax credits and  deductions are also pure subsidies, but the fact that the savings generally materialize months after the tuition bills have been paid makes them less effective  in facilitating college access.

Education loans postpone, but do not eliminate, student payments. However, because most federal loans do reduce the overall cost of education for students — although by much less than the face value of the loans — they qualify as a form of student aid. The government pays the interest on Direct Subsidized Loans and Perkins Loans while the student is in school. Other federal loans also carry interest rates that are controlled by legislation and most include  protections for repayment difficulties. In contrast, nonfederal education loans from banks, other private lending institutions, and (on a smaller scale) states and postsecondary institutions are generally not subsidized at all. Their value is in providing liquidity for students who have no other means of accessing  funds. We report on nonfederal student loans because of their importance, but since they do not carry subsidies, we do not include them in our measures of student aid.

A small amount of student aid comes from the Federal Work-Study Program, under which the federal government provides funds to institutions to subsidize wages for some student workers with documented financial need. Although these funds are packaged along with grants and loans to help students pay their bills, from the students’ perspective they are wages received for services performed. We include only the federal share of FWS earnings in our measure of  student aid.

As Figures 4A and 4B reveal, graduate students rely more heavily than undergraduates on loans. Grants constituted 52% of the funding for undergraduates in 2012-13, but made up only 30% of the student aid and nonfederal loans received by graduate students. The teaching and research assistantships from which many graduate students benefit are a form of compensation and are not included here.

Federal Aid

Like other need-based aid programs, the Pell Grant program bases eligibility on the information provided by students and parents on the Free Application for Federal Student Aid (FAFSA) and the Federal Methodology (FM) formula. Eligibility for Pell Grants does not differ depending on the charges at the school attended. In contrast, Direct Subsidized Loan eligibility, limited to undergraduates, is based on both the student’s financial circumstances and cost of  attendance. Campus-based federal funds, including FWS, Federal Supplemental Educational Opportunity Grants (FSEOG), and Perkins Loans, are also need-based. However, these funds are distributed to institutions based on a complex formula, and the institutions allocate them to students with financial need.

Direct Unsubsidized Loans are available to students regardless of their financial circumstances and PLUS Loans require only the absence of adverse credit.  Figures 8A and 8B illustrate the distribution of these various forms of aid to students at different types of institutions. Aid to veterans and military personnel now constitutes 28% of all federal grants awarded to students, and federal tax credits and deductions provide about 43% as much assistance as all forms of federal grants.

Grant Aid

Grant aid comes from the federal government, state governments, employers, and other private sources, and from colleges and universities in the form of discounts applied to the published price. Led by a near doubling in federal grants to postsecondary students, total grant aid increased by 45% in constant dollars between 2008-09 and 2010-11. But a 10% decline in federal grants over the next two years contributed to a 1% decline (in constant dollars) in total grant aid between 2010-11 and 2012-13.

The rapid rise in expenditures during the worst of the recent economic downturn has increased the policy focus on student aid at both the federal and state  levels. The evidence that this spike did not signal a new long-term growth pattern may calm some of the tension over the issue. But the renewed focus on the effectiveness of grant aid, and on its role in supporting student success in addition to access to postsecondary education, is likely to continue and could generate significant reforms to existing programs.

In addition to total and per student amounts of grant aid, Trends in Student Aid reports on the distribution of grant aid among students. Some parents are able to provide their children with the financial resources necessary to pay tuition and fees, as well as other costs associated with going to college, without serious difficulty. For many others, postsecondary education would be out of the question without generous subsidies from the government, their colleges and universities, or other sources. As college prices and the other expenses associated with college attendance continue to rise more rapidly than incomes, more students and potential students fall into the second category.

Federal grants are targeted at low- and moderate-income students, but both states and institutions frequently consider factors other than, or in addition to, financial circumstances when allocating their aid. Figures 17A and 17B show changes over time and variation across states in the distribution of need-based and non-need-based grant aid. Despite a long-term trend in many states toward state grants based on academic qualifications alone, the percentage of state grant aid distributed at least in part based on financial circumstances increased from 71% in 2010-11 to 74% in 2011-12, and 22 states considered ability to pay in the allocation of at least 95% of their grant funds.

Loans

The federal government offers several different types of loans. As of July 1, 2010, the federal government no longer guarantees education loans made by  banks and other private lenders, but funds these loans through the Federal Direct Student Loan Program. Major federal education loan programs include those for undergraduate students with documented financial need (Direct Subsidized Loans), for undergraduate and graduate students (Direct Unsubsidized Loans), for graduate students only (Grad PLUS), for parents (PLUS), and for students with high need at some institutions (Perkins).

The conditions and interest rates vary by program. As of 2012-13, interest accrues on all of the loans taken by graduate students, but almost half of the  undergraduate Direct Loans carry the in-school interest subsidy.

Figure 12B reports on default rates for federal student loans. In the current weak economy, default rates have risen measurably, although the current 10.0% two-year cohort default rate (CDR) is much lower than the peak of 22% in FY 1990. The federal government is in the process of extending the window for  inclusion in the official measure of default from two years to three years after entering repayment. Students who default later in the repayment period will still be excluded from the official count.

As Figure 12A reports, about 1.6 million students are now enrolled in income-based repayment plans, limiting their payments on federal loans to a specified percentage of their discretionary incomes. If more students took advantage of these options, inadequate earnings would not lead them to default on their student loans. Nonfederal loans, however, are not eligible for this protection.

The private loan market is an important supplementary source of funds for some students, but the loans generally have higher interest rates over the long term and have less favorable repayment provisions than federal loans. As Figures 9B and 9C reveal, reliance on these loans has declined significantly in  recent years. The totals for nonfederal loans reported in Table 1 and elsewhere in Trends in Student Aid also include the loans that states and institutions make to students. Like our estimates of grants fromprivate sources, our estimates in this area are less precise than most of the data on student financial aid that we report.

Total education borrowing declined from $120.1 billion (in 2012 dollars) in 2010-11 to $110.3 billion in 2012-13. But the total borrowed is 69% higher than it was a decade earlier. Interpreting the growth in total education loan volume is difficult because it is partially a reflection of both increases in enrollment and declines in the availability of other appealing sources of borrowing, such as home equity loans. The real concern about student loans is the amount of debt that individual students accumulate. Student loans make it possible for many students who could not otherwise pay for college to acquire the  postsecondary experience they need to improve their life prospects. Just as most small business start-ups would be impossible to launch without loans that can be repaid out of future earnings, many students would be unable to invest in themselves without debt financing. Although postsecondary education has a higher success rate in terms of future earnings than small businesses, excessive debt and barriers to managing that debt create major difficulties for many students.

Stories in the press about individual students with startling amounts of debt obscure actual borrowing patterns. As Figure 11C reports, only 2% of students who first enrolled in 2003-04 had borrowed more than $50,000 by 2008-09. The vast majority of these borrowers had earned bachelor’s degrees by that year. In contrast, over 40% of those who did not borrow or who borrowed less than $10,000 were no longer in school in 2008-09 and had not earned a degree or certificate.

As Figures 10A and 10B indicate, the average debt of bachelor’s degree recipients who graduated from the public four-year institution at which they began their studies has grown more rapidly since 2008-09 than it did during the preceding decade. In contrast, average debt levels for private nonprofit bachelor’s degree recipients have risen very slowly in recent years. About two-thirds of all bachelor’s degree recipients graduate with education debt.

The Consumer Price Index

We provide much of our data in constant dollars, adjusting values for changes in the Consumer Price Index (CPI). We use the change in the CPI from July 2011 to July 2012 to compare the value of aid in 2011-12 to the value in 2012-13. The CPI increased by 1.4% between July 2011 and July 2012.

1. http://www.nytimes.com/1984/01/16/us/study-finds-significant-drop-in-financial-aid-for-students.html
2. http://www.nytimes.com/1983/07/21/us/college-costs-up-9-10-a-year.html
3. http://www.nytimes.com/1985/12/07/business/your-money-coping-with-college-costs.html