Introduction

Trends in Student Aid 2017 provides a detailed look at the sources and distribution of grants, loans, and other student aid for the most recent academic year and how this funding has changed over time. The federal government provided two-thirds of all student aid in 2016-17, but only one-third of the grant aid. In the context of uncertainty about the timing of the reauthorization of the Higher Education Act and the impact of federal budget changes on student aid, focusing on the evolving sources of grant aid and the distribution of that aid is critical to evaluating the effectiveness of the billions of dollars spent each year on making postsecondary education more accessible.

After increasing gradually in inflation-adjusted dollars from the mid-1990s through 2007-08, federal grant aid grew dramatically to a peak of $52.2 billion (in 2016 dollars) in 2010-11. By 2016-17, it had fallen to $40.2 billion, declining from 44% to 32% of all grant aid, but still a larger share than it was in 2006-07 at 28%. The institutional share of grant aid increased from 35% in 2010-11 to 47% in 2016-17, the largest share in at least 20 years. Grants from states, employers, and other private sources made up less of the total in 2016-17 than in 2006-07.

Institutional grant aid makes college more affordable for many students. But it represents a discount from the rising published tuition prices reported in Trends in Student Aid’s companion publication, Trends in College Pricing. Together, the data in these reports provide a starting point for better understanding how much students are paying for college and how they are financing that investment.

At the same time that federal grants have declined as a share of all grant aid, the composition of federal grant aid has changed. Pell Grants declined from 75% of the total in 2010-11 to 66% in 2016-17; veterans benefits increased from 21% to 32%. The recently enacted “Forever GI Bill” promises to reinforce this trend. In 2016-17, 7.1 million low-income recipients received Pell Grants averaging $3,740; 793,000 students received an average of $14,980 from the Post-9/11 GI Bill.

The data on loans reported in Trends in Student Aid 2017 indicate that annual borrowing continues to decline, with federal education loans totaling $94.9 billion in 2016-17, down from a peak of $117.2 billion in 2010-11. Average federal borrowing for undergraduate students declined for the sixth consecutive year, but average federal loans per graduate student increased to $17,710 per FTE student in 2016-17, compared with $4,620 for undergraduates. The share of federal loans going to graduate students increased from 30% in 1996-97 to 35% in 2006-07 and to 39% in 2016-17. The impact of this borrowing, both in terms of increasing access to and success in higher education and in terms of affecting students’ lives after they leave school, deserves the attention of policymakers and researchers, in addition to colleges and universities.

The Distribution of Student Aid

The effectiveness of student aid in increasing educational opportunities depends to a great extent on how the funds are distributed to students in different financial circumstances. For students with limited resources, grant aid makes pursuing postsecondary education possible. For others, grant aid makes going to a particular institution or type of institution feasible. For the remaining students, aid is a pure subsidy, reducing the price of the educational paths they would take even without assistance.

In 2015-16, 47% of federal Pell Grant recipients were dependent students; almost three-quarters of these students came from families with incomes of $40,000 or less, including 38% with family incomes of $20,000 or less.

Unlike Pell Grants, federal tax credits and deductions, which now reach more than 13 million students at a total cost of about $18 billion per year, are not targeted at low-income students. The shares of the benefits going to households at both the lower and upper ends of the income distribution have increased over time. In 2014, 24% of tax credits went to taxpayers with adjusted gross incomes between $100,000 and $180,000 and 24% went to those with incomes below $25,000.

More than three-quarters of state grant dollars are allocated on the basis of financial need, but patterns vary considerably across states. Half of all states considered students’ financial circumstances in allocating at least 95% of their state grant aid in 2015-16, while 16 states considered these circumstances for less than half of their aid.

Monitoring the use of need-based and non-need-based grant aid by states and institutions is critical to ensuring the effectiveness of these funds in increasing educational opportunities and attainment.

The Student Aid System

Trends in Student Aid reports on a complex array of grant, loan, tax-based, and work programs that support postsecondary students. Grant aid and tax benefits lower the overall price of education for students and families, making the net price of college less than the published price. Education loans do not lower the price, but they do make it possible to spread payments out over time. The Federal Work-Study program is small relative to other federal programs: only 619,000 students benefited from the $990 million federal allocation to this program in 2016-17. From the students’ perspective, these dollars are compensation for their work, not financial assistance. Work-Study earnings frequently replace other earnings, but may increase the employment opportunities available for students.

Understanding how these forms of funding—grants, loans, tax benefits, and Work-Study aid—are distributed and how the distribution has changed over time is critical to understanding the effectiveness of the student aid system and evaluating potential changes.

The student aid system is continually evolving. Actions by Congress and the current administration may alter the amount, form, and distribution of available federal funds, as well as the institutions in which students enroll and where they use their federal aid.

Monitoring impending policy changes is vital to the future of the federal funding available to support students’ postsecondary pursuits, which totaled $153.9 billion in 2016-17.

Similarly, state and institutional policies change over time. These sources provided $10.6 billion and $58.7 billion, respectively, in grant aid in 2016-17. If well designed and targeted, these funds can go a long way toward diminishing financial barriers to educational attainment.

Much of the data on which Trends in Student Aid is based comes from the Federal Student Aid office of the U.S. Department of Education, which provides precise information about the volume of federal student aid disbursed. The figures for 2015-16 in Trends in Student Aid 2017 are revisions of the numbers we published last year, based on the Department of Education’s updated data. Next year we will revise the 2016-17 figures in accordance with their updates.

Some of the other figures reported here are less precise. For example, the latest data on federal tax credits and deductions are for calendar year 2015. We have developed a methodology to translate IRS data into estimates of the benefits of these policies for tax filers. Similarly, our estimate of the volume of nonfederal student loans is based on reports from MeasureOne and estimates of their share of the market. We base our estimate of private grant aid on information from the 2012 National Postsecondary Student Aid Study and more recent information from the College Board’s Annual Survey of Colleges. These and other figures represent best estimates of the amount of aid students receive, rather than exact reporting. Each year we review our data sources and methodology and make some modifications.