The Trend of Federal Funding for Loans versus Grant

Current Law:

• There is a growing imbalance between authorizing additional loan eligibility and funding grant aid. Aid packages reflect this imbalance, thereby increasing substantially total debt upon graduation.

Issue:

• The federal government provides over 70% direct aid to college students, almost 60% of this is loans.

• Over the past decade total aid has increased approximately 80% in constant dollars. The loan programs were responsible for almost two-thirds of this increase.

  • The increase in loan funding can be contributed in part to the increased eligibility to borrow under the Federal Stafford Loan program with raised loan limits and creation of the unsubsidized version of the program in 1992. In addition, the Federal Perkins Loan program increased its loan limits when the Higher Education Act of 1965 was amended in 1998.

• The increased reliance on the loan programs from a population that was not intended to borrow. The low-income disadvantaged student is increasingly relying on loan programs to bridge the gap between the increased cost and the decreased value of federal grant programs.

• The lost purchasing power of the Federal Pell Grant.

  • In the late 1970s the maximum Federal Pell Grant covered three-quarters of the average cost of a public four-year college and one-third cost of a private four-year institution. Today the maximum Federal Pell Grant covers only one-third the average cost of attending a public four-year college and one-seventh the cost of a private four-year college.

• Substantially raise Federal Pell Grant funding to its authorized levels.

• Budgetary issues at the federal level.

• Explore the current proposals for Pell Grant front-loading to determine if they warrant implementation. The proposals generally seek to have decreased or no borrowing the student's first two years of education with increased Pell Grant and then have either decreased or no Pell Grant their final two years with increased borrowing. The Higher Education community has expressed both interest and concern for this type of program.