Federal Financial Aid Policy: Then, Now, and in the Future


naspa divisions groups public policy division

Author
Matt Aschenbrener, Assistant Vice Chancellor for Enrollment and Retention, University of Wisconsin, Whitewater

Published
March 10, 2016


Fifty years ago, President Lyndon Johnson signed into law the Higher Education Act of 1965 and established the US federal government as the primary provider of financial aid. Title IV of the Act established the Educational Opportunity Grant (EOG) Program, which allocated funds directly to colleges. A couple of things have happened in U.S. higher education since 1965 (really), but what didn’t happen was the development of a unified or consistent financial aid policy. Since 1965 federal aid to support students has mushroomed into a complicated myriad of programs and options including loans to students and parents, grants, work-study, tax credits and other state programs. According to the National Center for Educational Statistics (2015), 82.7% of first-time, full-time students in 2012-13 qualified for federal financial aid, with 45.5% receiving federal grants.

In 1965 most college students were recent high school graduates who were attending full-time and financial aid was focused on students with low incomes. In 1972, the EOG program was split into the Federal Supplemental Educational Opportunity Grant (FSEOG) program, a program that delivered funds directly to colleges, and the Basic Educational Opportunity Grant (BEOG) program (renamed the Pell Grant in 1980), which delivered funds directly to students.

Significant changes in federal financial aid policy started in 1978 with the Middle Income Student Assistance Act of 1978, which opened eligibility for subsidized loans to all undergraduates, regardless of need. It also expanded eligibility for Pell Grants to middle-income students. A few years later in 1980, the Pell grant was awarded to part-time students as well as to students at vocational or community colleges. In the 1990s PLUS loans were established, the Hope and Lifetime Learning tax credits allowed families of college students to offset their educational costs with tax credits, and unsubsidized Stafford Loan were introduced. PLUS loans open to the parents of all college students, regardless of need and allow parents to borrow up to the full cost of attendance, including room and board for full-time students.

I mention these programs and changes a federal financial aid programs have grown and transformed into multiple programs. The reauthorization of the Higher Education Act (HEA) is unlikely over the next year. But, like the reauthorization, in 2008, a substantial amount of changes could be made to student-aid policy through other means. For example, The Higher Education Reconciliation Act of 2005, the College Cost Reduction and Access Act of 2007, and the Ensuring Continuing Access to Student Loans Act of 2008,all attempted to streamline federal student financial aid outside of the 2008 provisions in the HEA.

There is no shortage of people offering advice on the financial aid process. National Association of Student Financial Aid Administrators (NASFAA) and the Bill and Melinda Gates Foundation partnered in 2013 to reimagine financial aid. In some ways the federal government has listened and implemented some of the “low-hanging fruit” and the financial aid process has become easier for some consumers. The Net Price Calculator and more consumer information has turned the veil of secrecy about federal financial aid slightly more translucent.  Completing the FAFSA earlier by using Prior-Prior Year (PPY) tax information will help students learn their expected family contribution (EFC) (a figure that drives need-based aid from the government and most colleges) before they make their final enrollment decision and be able to compare the EFC at various institutions.

So, what do I think? For the past ten years I have supervised the financial aid office at two institutions. I have heard from many students, parents (a lot of parents), and financial aid staff. First, more education about college and access to college has to happen earlier. Our middle school counselors need to be involved in the process; yes, I went there. During a meeting with my child’s counselor about her transition to high school, the counselor talked about differences between high school and middle school and asked her to think about taking courses that were required for college entrance (clearly the counselor didn’t know what I did for a job). However, the counselor didn’t take the next step and talk to her parents (my wife and I) about preparing her (and us) for college. If my counselor is not having that discussion with me and my child, is it happening anywhere? Waiting until October of your senior year of high school is clearly too late and the federal government should provide resources (written material, not money) to assist with this process.

Second, encourage legislatures and boards that set tuition policy to do it earlier. An unintended consequence of using PPY is that there are steps in determining costs and aid for students. Most colleges and university boards have not set their tuition rates for the next year in October, when students can start submitting their FAFSA for the next academic year. Most institutions have not awarded scholarships to incoming students; state agencies have not set their funding amounts. I’m assuming some of this will change, but I am fearful most of it won’t. Thus, students are only going to receive a partial picture of their true costs and financial aid offices will send out revised award letters once the tuition rates are set.

Third, eliminate higher education tax benefits. Coming from a person who still tries to do his own taxes, these words seem insane. However, financial aid should be targeted to students at the time they need it most, when their tuition bills come due. To me these programs seem poorly timed.

Finally, many legislators have been in discussion about moving to one grant program and one loan program. I wholeheartedly support this. I don’t believe people were upset about the end of the Perkins Loan Program. Rather they were upset with is the removal of $1.2 billion in financial funds from the tool belt to pay bills. Perkins was designed for students with “exceptional financial need”. The grant and loan programs need to be simplified so they are easily understood by students and parents who are the borrowers. It then needs to be fully funded by Congress so the Department of Education can create policies and processes that encourage access and provide predictable funding.

I don’t know if Representative Edith Green or Senator Wayne Morse would recognize the significance of the two bills they introduced in 1965 that became the Higher Education Act. Similarly, we can only image what the next 50 years are going to be like for higher education in the United States. While parents can hope for a FAFSA-EZ (like the 1040EZ?), students can hope for simplified and easily understood aid programs that will give them lots of money for college; they can always hope. Financial Aid administrators can hope for fewer programs and only one award letter. The key word here is “hope.” But, I’ve heard a thousand times, “hope” is not a plan, and that is what we need, a plan.


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