Education Funding

Grants’ Share of Financial-Aid Pie Increasing

By Sean Cavanagh — October 30, 2002 4 min read
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As tuition at four-year colleges jumped over the past year by the greatest amount in a decade, the slice of the overall financial-aid pie awarded in grants increased faster than the share for loans for the second straight year, according to College Board data released here last week.

Read the studies, “Trends in College Pricing” and “Trends in Student Aid,” from the College Board. (Requires Adobe’s Acrobat Reader.)

The slight shift toward grant aid for higher education may reflect pressures on colleges and states to lure cash-strapped students to campus, even as those institutions and governments face budget burdens of their own.

Overall, loans still constituted the majority of all student aid—54 percent, or $48 billion—while grants amounted to 39 percent, or $35.3 billion, of all aid in 2001-02, according to one of two annual reports released by the College Board on Oct. 21.

But grant aid—which does not have to be paid back—rose by 12 percent, as opposed to loans, which increased by only 9.6 percent, the report titled “Trends in Student Aid, 2002" found. A second annual report, “Trends in Student College Pricing, 2002,” came out the same day.

“It’s a pricing strategy of institutions,” said Sandy Baum, a professor of economics at Skidmore College in Saratoga Springs, N.Y., who College Board officials invited to a Washington press conference to help explain the new data. “People can’t afford to pay, unless they get that kind of grant aid.”

College Board officials noted that, when adjusted for inflation, prices rose faster during the 1980s than during the last decade. But still, many undergraduates today are scrambling for financial aid of any kind. The average annual tuition and fees at public four-year colleges in 2001-02 rose 9.6 percent, from $3,725 to $4,081, the steepest hike since 1991-92. The annual cost for private colleges increased 5.8 percent, from $17,272 to $18,273. At two-year public institutions, annual tuition and fees rose to $1,725, up 7.9 percent from last year.

The majority of grant aid in 2001-02, or $16.9 billion, came from colleges and universities themselves, compared with $9.9 billion in federal Pell Grants for low-income students and $5 billion in state grants.

“People are finding ways of creating grants, and that’s a good thing,” College Board President Gaston Caperton said. The College Board, a nonprofit organization in New York City, provides students with information about financial aid, admissions, and other aspects of higher education and owns the SAT, the most widely used college-admissions test.

Shifting Focus

But David L. Warren, the president of the National Association of Independent Colleges and Universities, also noted the heavy burden many higher education institutions were taking on, handing out grants and other aid, and suggested that corporations and foundations could do more to assist students by giving out scholarships of their own.

“It’s the single, simple, most powerful thing they could do to put money in the financial-aid pot,” said Mr. Warren, whose Washington organization serves about 1,000 institutions.

Ms. Baum of Skidmore College also echoed an observation by many financial-aid observers in recent years: Among state governments, a rising amount of grant aid is being awarded to students on the basis of factors other than income level, such as student achievement. While a majority of grants are still given on the basis of need, the shift reflects a push toward helping more middle-income students, she said.

Overall, students nationwide received $89.6 billion in financial aid, the highest total ever, and an increase of 11.5 percent in 2001-02. Forty- six percent of it, or $41.3 billion, came through federal loans. Grants from colleges and other institutions amounted to 18.9 percent, or $16.9 billion.

Several financial-aid experts who spoke at the Washington gathering on the College Board data saw a familiar culprit behind rising college costs: declines in funding from state governments with shaky budgets.

But some saw another factor at work. Colleges of all sizes are under increasing pressure to spend money on upgrades to their campuses, from computers to construction, in an attempt to impress prospective students, some experts suggested.

“If you go to your children’s schools, or your grandchildren’s schools, the consumer is demanding things they weren’t before,” Mr. Caperton said. “And that raises the costs.”

At the same time, the vast majority of college students do not pay top dollar. The largest percentage of four-year undergraduates, or 38.2 percent, go to schools charging under $4,000 per year, and 29.7 percent are charged between $4,000 and $8,000.

And when adjusted for inflation, Mr. Caperton noted that College Board’s “Student Aid” study showed tuition at public institutions rose 58 percent from 1981-82 to 1991-92 in constant dollars, compared with 38 percent from 1991-92 to 2001-02. At private schools, again accounting for inflation, tuition jumped 37 percent during the last decade, versus 62 percent during the prior decade.

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