Current perceptions of college affordability, student aid, and student debt are, to a great extent, outgrowths of the financial crisis of 2008 and the ensuing recession. Rapid changes in college enrollment and in the resources available to pay for higher education produced tremendous anxiety about the financial aid system and the general problems of college finance. During the recent recession, both enrollment and tuition prices increased rapidly, the size of the Pell Grant program nearly doubled, and education borrowing grew dramatically. Some of these trends have abated or even reversed in recent years, but the perception that higher education finance is in a state of escalating crisis persists.

Despite improvements in the economy, significant financial strains remain for student and families, for colleges and universities, and for the federal and state budgets on which we rely to fund significant portions of the cost of higher education.

Still, the data tell a somewhat more encouraging and more complicated story than popular discussions of affordability convey. As it has for over 30 years, Trends in Student Aid provides detailed information about the aid that undergraduate and graduate students receive from federal and state governments, their institutions, and their employers and other private sources. Together with its companion publication, Trends in College Pricing, this report can help inform the public discourse about how students pay for college.

Most of the conversation about financing higher education focuses on undergraduate students. This is not surprising since 86% of postsecondary students are undergraduates and undergraduate education is now considered necessary for economic success for most people. As Trends in Student Aid documents, the vast majority of grant aid goes to undergraduates. But graduate study is a prerequisite for many professions and master’s degrees are sometimes referred to as the “new” bachelor’s degrees. The federal government provides generous access to loans for graduate students and monitoring the amounts these students borrow and the outcomes they achieve is increasingly important.

The Context of College Finance

The data in Trends in Student Aid 2016 indicate that student aid patterns continue to reflect the recovering economy. Undergraduate student borrowing, in total as well as per student and per borrower, continues to decline. The same is true of both total expenditures and the number of Pell Grant recipients. Yet grant aid in 2015-16 constitutes a higher percentage of the funds undergraduates use to supplement their own and their families’ resources than at any other time in at least 20 years. In contrast, graduate student borrowing is no longer declining, and the trend is worth watching closely in the coming years.

Total education borrowing fell in 2015-16 for the fifth consecutive year, leading to a 15% decline from the 2010-11 peak (Figure 5). Undergraduates and their parents borrowed 18% less in 2015-16 than five years earlier; graduate students borrowed 6% less. The Pell Grant program distributed 28% less in inflation-adjusted dollars in 2015-16 than in 2010-11 — but still 82% more than in 2005-06.

Continuing problems in the for-profit sector of postsecondary education, with declining enrollments and large institutions closing their doors, are likely to have a notable impact on the student aid scenario for some time to come. The rapid growth in this sector over the past decade, the high levels of debt accrued by these students, and the disproportionate share of student loan defaults associated with for-profit students have contributed significantly to the overall impression of skyrocketing student debt and prevalent student distress. If the institutions that survive and thrive in this sector are those that serve students well, the overall sense of crisis in higher education may well diminish.

Student Borrowing and Student Debt

As Figure 1  and Figure 7B  reveal, graduate students on average borrow much larger amounts than undergraduates. The share of aid in the form of grants rather than loans has increased steadily for undergraduates over the past decade. Graduate students are much more dependent than undergraduates on loan financing. The median debt level of $45,890 for those entering repayment in 2014 who borrowed only for graduate school, reported in Figure 11A, was about twice as high as for undergraduates at four-year institutions. Despite these differences in borrowing, graduate students are less likely to default on their loans. However, current law allows graduate students to borrow up to the cost of attendance less other financial aid for as long as they are in school. It also allows them to enroll in income-driven repayment plans and have remaining debt forgiven after 25 years. The implications of these policies for the long term are not yet clear, but it would not be surprising if difficulties emerge for both students and taxpayers.

Types of Student Aid

Trends in Student Aid reports on a complex array of grant, loan, tax-based, and work programs that support postsecondary students. Grants and loans get most of the attention, but federal subsidies to students through tax credits and deductions now reach almost 14 million students at a total cost of more than $18 billion per year. Although many students and institutions value the Federal Work-Study program, only 632,000 students benefited from the $982 million federal allocation to this program in 2015-16 (Figure 6A and Table 1).

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 many students with limited resources, grant aid makes pursuing postsecondary education a possibility for them. For some 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.

Federal Pell Grants, which are targeted to low- and moderate-income students, constituted 26% of the grant aid received by undergraduates in 2015-16 (Table 1A). The distribution of federal education tax credits and deductions is quite different. As Figure 24A reveals, 24% of tax credits and 57% of savings from the tuition tax deductions go to taxpayers with incomes between $100,000 and $180,000.

About three-quarters of state grant dollars are allocated on the basis of financial need, but patterns vary considerably across states: 26 states considered students’ financial circumstances in allocating at least 95% of their state grant aid in 2014-15, while 14 states considered these circumstances for less than half of their aid (Figure 21B).

Monitoring the distribution of student aid is at least as important as monitoring its level in assessing how well these funds serve to help students overcome the financial barriers to postsecondary access and success.

The Student Aid System

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. Work-study earnings frequently replace other earnings, but may increase the employment opportunities available for students. Understanding what the components of the system are; how grants, loans, tax benefits, and work-study aid are distributed; and how they have changed over time is critical.

But the growth in aid dollars has meaning only in the context of the growth in the price of college and in the number of students enrolling — information included in Trends in College Pricing 2016.

The student aid system is continually evolving. The federal government has recently made considerable progress in simplifying the application process. A potential policy direction on which consensus is growing is that instead of automatically enrolling borrowers in a 10-year level payment plan if they do not actively choose an alternative, the federal government could enroll all borrowers in an income-driven plan basing monthly payments on their incomes. Enrollment in these plans is growing rapidly and, in 2015, 25% of borrowers, holding 43% of outstanding debt in repayment, participated in them (Figure 10A). But as this option becomes the norm, it will be critical to review the details of the plans, including the provisions for determining both monthly payments and eventual loan forgiveness.

Much of the data on which Trends in Student Aid is based comes from the Federal Student Aid office of the Department of Education, which provides precise information about the volume of federal student aid disbursed. The figures for 2014-15 in Trends in Student Aid 2016 are revisions of the numbers we published last year, based on the Department of Education’s updated data. Next year we will revise the 2015-16 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 2014. 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 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. Last year we moved from defining four-year colleges as those awarding any bachelor’s degrees, in accordance with the National Center for Education Statistics, to defining this sector as including only institutions where at least half the degrees awarded are bachelor’s degrees or higher. In Trends in Student Aid 2016, we have modified our analysis of federal tax credits and deductions based on new evidence.

Please feel free to cite or reproduce the data in Trends for noncommercial purposes with proper attribution.