Financial Aid Trends
By Dr. Gayle Saunders, president of Richland Community College
Originally presented at ICCTA's Sept. 13, 2002
"Trends in Financial Aid" seminar in Springfield, Illinois

Just over a half-century ago, American higher education was transformed by the GI Bill and its underlying premise that the federal government would provide significant financial assistance to college students. Today, the student financial aid provided by federal and state governments stands as the most prominent symbol of the nation's commitment to higher education opportunity. Student financial aid programs at all levels of government enjoy broad bipartisan support. If the nation is to uphold its commitment to democracy through higher education opportunities, policies must be pursued that will advance that ideal.

According to an old adage, "Before you know where you are going, you've got to know where you have been!" This adage is very appropriate as we look at financial aid trends, past, present, and future.

As many of you know, prior to World War II, attending college was an activity reserved primarily for the few who could afford it or who were bright enough to work their way through, but most Americans thought of it as a privilege that was unavailable to them. After World War II, college for the elite was ended with the GI Bill. A grateful country offered to pay the tuition costs of returning veterans for attendance at the college of their choice. Colleges were bursting at the seams with the return of GIs eager to advance themselves.

The GI Bill constitutes higher education's first federal financial aid program by rewarding veterans for the sacrifices they had made. The bill also assisted the economy by providing opportunities for veterans to pursue training and education to increase the number of employable persons. Today, those who perform military service are still rewarded with financial benefits that assist them through college.

The second major event evoking federal financial aid efforts was the 1957 launching of Sputnik I. Congress approved the National Defense Education Act. It offered educational loans to students who would pursue programs in math, science, or modern language. This act also established the notion that students would be the primary beneficiaries of student aid, not the institution where the students attended.

Also, in 1957, Illinois lawmakers were creating what we call today the Illinois Student Assistance Commission (ISAC) to ensure that financing a college education did not prevent Illinois students from realizing their postsecondary educational goals. Today, as in 1957, that priority continues to focus on making postsecondary education accessible for students and families in Illinois.

In the next few years, more legislation was passed, creating an array of national and state programs designed to create educational opportunities offering grants, jobs, and government-sponsored commercial loans to prospective students who would not otherwise be able to attend college.

The Higher Education Act (HEA) of 1965 was the next significant student aid legislation. The HEA of 1965 is the current legislation that provides for funding of federal student aid programs. It is reauthorized every other year. During reauthorization, Congress often makes changes and improvements in the legislation, such as adding new programs, streamlining existing programs, and increasing authorized funding levels. The next reauthorization of the Higher Education Act will occur in 2003.

The Higher Education Act has multiple components (or "Titles") relating to specific areas of education. The portion of the HEA that deals specifically with student aid programs is Title IV of the HEA. Most of the federal student aid programs fall under this title. These programs are in place specifically to assist students and families with meeting the costs associated with pursuing a post-secondary education.

Title IV federal financial aid programs were established to provide financial assistance to low-income students who could not otherwise afford a college education.

In 1972, the Basic Grant (now Pell Grant) program was created. It was conceived as a new surge of support for higher education to America.

At that time, higher education was clearly viewed as the ticket to a rich future for our country. We had moved from a mentality that new aid programs would address our fears to a concept that aid enabled education, and education was now the avenue to success and growth for our country.

In the late 80s and 90s, the focus was on educational loans as a favored method for students to finance their education. With that emphasis, we have a new set of opportunities and issues to address when speaking about access and opportunity to higher education.

It is an interesting journey that we have taken since 1944, swinging this way and that in the use of higher education to nurture our GIs, to help us beat the Russians, and to give us new hope for a brighter tomorrow. Financial aid was and is still part of the impact higher education has on us as a nation and as individuals.

Trends in financial aid throughout the years have been political and symptomatic of what has been going on throughout the United States.

The most prominent trend in student assistance today has been the growing reliance on borrowing for higher education. Federal government has largely fueled this trend. They provide 70 percent of all direct aid to postsecondary students. Almost 60 percent of all aid is now in the form of loans.

Private and state loan programs for students and parents grew in the 1980s as college prices outpaced inflation and federal aid failed to cover the difference. It is estimated that for 2000-2001, non-federal loan volume exceeded $4.5 billion, up from $3.5 billion a year earlier and $1.5 billion just five years ago.

Over the last decade, total aid has almost doubled in constant dollars, but the growing reliance on loan programs has been responsible for two-thirds of this increase.

Loan aid has increased by 136 percent during the past decade in constant dollars, while grant aid only increased by 64 percent. Loans comprise 58 percent of total aid available to students, compared to 49 percent 10 years ago, and 41 percent in 1981.

Over the past quarter century, federal student aid has drifted from a grant-based to a loan-based system, producing a sea of change in the way many students and families finance postsecondary education.

Another trend has been the loss of purchasing power for the Pell Grant program. Recent increases in Pell Grant appropriations have helped to stabilize the overall loan-grant balance, but the maximum Pell at $3,300 in 2002 remains far below the purchasing power it had two decades ago.

Originally designed as the foundation for student aid packaging, the Pell Grant now covers only 40 percent of the average fixed costs (tuition and fees, room and board) at four-year public colleges and only 15 percent at a private four-year college.

During the last decade, state grant funding has increased by 90 percent. State grant funding accounts for only 6 percent of total student aid to students.

Our Illinois State Monetary Award Program, known as MAP, is the second largest program of its kind in the country, annually awarding over $300 million in grants to 128,000 undergraduates who demonstrate financial need for such assistance. For some of the neediest MAP applicants, ISAC provides other aid as well. One grant, the Illinois Incentive for Access grant, is available to freshman students who have no financial resources of their own to pay for college. Other gift aid programs offered by ISAC are more targeted in nature. They range from those that recognize academic achievement or a chosen field of study to those that reward military service. Collectively, these targeted scholarship and grant programs award an additional $32 million in gift aid to qualified applicants each year.

Monetary awards to Illinois community college students increased from $22 million in FY93 to $41 million in FY01. Other state tuition waivers totaled $800,000 in FY93, compared to $3 million in FY01.

As we are all aware, Illinois' recent economic conditions resulted in budget cuts for the Monetary Award Program. For FY03, the Illinois Student Assistance Commission has received $38 million less funding than was received in FY02. Never in its 32-year history has the program sustained such a substantial year-to-year reduction. As many as 12,000 of Illinois' most needy college students were told that as a result of state budget cuts, they would no longer be eligible for state financial aid. Of the 12,000 students, 7,000 lost funds because it was their fifth year of eligibility. The Commission reduced all announced 2002-03 MAP grants by 5 percent below the calculated eligibility.

The federal government has a matching program through the LEAP (Leveraging Educational Assistance Partnership, formerly SSIG) program that contributed $31 million to state need-based grant programs in 2000-2001, down 60 percent compared to a decade ago. LEAP has provided an important incentive for states to maintain or bolster their need-based grant efforts, including Illinois. LEAP and other state grants to Illinois community college students totaled $8 million in FY93, compared to $10.4 million in 2001.

In recent years, federal policy makers have increasingly questioned the continued need for the program, pointing out that nearly every state now has a need-based grant program and that states have substantially increased their spending on these grants since the advent of SSIG or LEAP. We need to increase funding for the LEAP program and should oppose any efforts to scale back or discontinue it. The Illinois Community College Trustees Association and the Association of Community College Trustees have and are playing significant roles in the creation and funding of the LEAP program that benefits many Illinois students.

Institutions also supplement student finance packages with grants accounting for nearly 20 percent of total available aid. Since 1991, the estimated amount of institutional grant assistance has almost doubled in value for students in Illinois.

Tuition increases outpaced growth in personal and family income during the 1980s and 1990s. While tuition was flat in the 1970s, average tuition at both public and private four-year institutions more than doubled from 1981 to 2000. At the same time, median income for families has been relatively stagnant, rising only 27 percent since 1981. Median family income, however, tells only part of the story, because incomes steadily grew less equal during the 1980s and 1990s. The share of family income required to pay college costs has increased for many families, but it has gone up the most for those with low to moderate incomes.

Over this same period, 1981-2000, aid per full-time student increased in total value but did not keep pace with growth in tuition levels. However, this growth in aid came largely in the form of loans.

The proportion of federal aid that is awarded on the basis of need has been declining since the mid-1980's, primarily because of the growth in unsubsidized, non-need-based borrowing. While need-based assistance accounted for about 80 percent of all federal aid a decade ago, it now accounts for less than 60 percent.

Three quarters of state financial aid remains need-based, but especially since the early 1990's, the states in general have taken a sharp turn in the direction of non-need merit scholarships. Non-need state aid has grown 336 percent while need-based aid has grown 88 percent. The American Association of Small Colleges and Universities recently identified as part of its 2002 Policy Agenda the need to address the trend of increased student aid programs emphasizing academic achievement and middle-class affordability rather than financial need.

Parallel trends in the distribution of institutional aid reflect rapid growth of spending on merit and other non-need-based aid at a wide range of institutions, as well as a shift in need-based awards to more affluent students. The largest increases in average institutional grants at private institutions in the 1980s and 1990s were for middle-income and high-income rather than low-income students.

Another trend that has occurred over the past several years has been the lost ground in college affordability by many Americans. Over the last decade, the cost of attending two- and four-year public and private colleges has grown more rapidly than inflation and faster than family incomes. Families are expected to pay more toward education than ever before. Colleges have recently reported an extraordinary number of appeals for increased financial aid packages due to sudden layoffs, slashed stock portfolios, the tragedy of September 11, and corporate fraud.

The presidents of the Illinois community colleges are grateful for the support and legislative advocacy provided by the Illinois Community College Trustees Association, the Association of Community College Trustees, and the American Association of Community Colleges that have resulted in policy changes and increased funding for Illinois community college students.

Future legislative priorities have been identified by ACCT, AACC, and others. They are important considerations for discussion with our legislators and well as ISAC members as they particularly affect our student body. They include:
  • Increasing the Pell Grant Program and lobbying for it to become an entitlement program
  • Modifying the penalties tied to loan default rates that particularly affect community college students
  • Revising student aid eligibility rules to allow full use for all instructional delivery formats, including distance education delivery
  • Reviewing and pursuing legislation to reduce growing institutional reporting and other related disclosure requirements imposed by the Higher Education Act that do not support the success of students
  • Eliminating loan origination fees
  • Revising Title IV refund policy which is unduly harsh on high-risk, low-income students
  • Eliminating non-germane student aid eligibility requirements such as selective service registration and drug convictions

The community college represents the primary gateway to higher education and employment for those who might not otherwise have access. Affordable access to higher education is the key to continued economic prosperity and to extending its benefits to all sectors of our society. Each year, community colleges educate more than half of America's undergraduate students, and provide training for millions of others seeking to upgrade their skills for the new economy. To assist community colleges in this vital role, Congress must pursue an agenda that makes higher education and training top priorities, both in the investment of federal resources and in other policies that affect community college access and opportunity.

For information on the next ICCTA seminar, contact ICCTA at 1-800-454-2282.

In Association with

Illinois Community College Trustees Association
401 E. Capitol Ave., Suite 200
Springfield, IL 62701-1711
217-528-2858 (phone)
217-528-8662 (fax) (e-mail)

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