Here’s How Federal Aid, Tuition Assistance and Private Scholarships Work Together

As anyone who’s gotten a financial aid award letter knows, the world of college funding is complex. There are grants, loans, work-study funds and scholarships to think about; assistance can come from private funders, institutions, state governments and Uncle Sam. The FAFSA provides a common starting point, but every college and every state has its own method for calculating aid once it’s filed.

It’s an incredibly complicated ecosystem—and it works best for students when all of the moving parts mesh. That’s why, last month, Scholarship America joined 575 nonprofits, institutions and employers in signing a nationwide support letter from the Student Aid Alliance.

The letter urges Congress to “protect the federal student loan program and strengthen Pell Grants, which are the nation’s most important investment in higher education.” Those grants are the bedrock of need-based federal student aid. And, in some surprising ways, they’re also vital to the ongoing viability of private scholarships, “free tuition” plans and institutional financial aid.

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The Goal of Federal Grants: Helping Those Who Need It Most

In the 40 years since the federal Pell Grant was instituted as a way of helping low-income students attend college, more than 60 million Americans have used Pell funding to pursue higher education. The grants have led to a significant increase in college attendance for underserved populations, particularly rural and African American students. According to data from Fastweb, more than 95 percent of Pell Grant recipients come from families with an adjusted gross income of $50,000 or less. The grants bring college into the realm of possibility for millions of students each year; just this week, a group of higher education leaders made the case to Congress for strengthening the program.

For those in extreme need, the federal Supplemental Educational Opportunity Grant (SEOG) provides another option. The grants, recently renewed by Congress for the next academic year, provide funding to Pell Grant recipients who still have outstanding financial need after exhausting the Pell’s annual maximum (this year, that’s $5,920). Work-study funds also offer federal aid, paying students who take on-campus jobs. The Student Aid Alliance reports that 675,000 students received work-study funding in 2016-17.

The qualifications and mechanisms of these federal grant programs differ, but the goal remains the same: covering a large percentage of college costs for the students in the most financial need. When it works, it means more students from all income levels get through college with less reliance on student loans.

The Loan Question

Of course, for millions of students, loans remain a necessary part of the financial aid picture. Ideally, loans help students bridge gaps between their family contribution, their grant aid and the cost of their dream college -- and programs like Public Service Loan Forgiveness and income-based repayment help students lessen the post-graduation burden as they embark on their careers.

Unfortunately, loan debt has grown to crisis levels, exceeding $1 trillion across the nation. There are myriad reasons for this massive growth. At least a few can be traced back to the Great Recession. Starting in 2008, states almost uniformly began cutting spending on public higher education; this disinvestment led to an across-the-board increase in the cost of attendance, and shifted a historically large percentage of the cost burden onto families.

As reported in U.S. News, “The one-two punch of state divestment and increasing tuition shifted much of the financial burden to students and families … [S]tudents paid an average of 50 percent of the cost of public college in 2014, compared with 36 percent in 2008.”

The increased burden had a ripple effect: federal grants weren’t designed to cover that much need; private scholarship providers cut their own funding in the wake of the 2008 financial market collapse; and, for millions of students, loans became a primary source of funding rather than a “last-dollar” stopgap.

As the economy recovers and the impact of this loan bubble becomes clearer, states are devising ways to bring the financial aid equation back into balance for their students. Some, like California, are beginning to bring education budgets back to pre-recession levels. Others, like Tennessee and New York, are going a step further and experimenting with free-tuition programs at community colleges and/or public universities. These new investments are intended to help the whole system regain equilibrium among family contributions, federal assistance, state aid and student loans.

Free Tuition Doesn’t Mean Free College

Programs like New York’s, which promise in-state students at a certain income level free tuition at public schools to , are a welcome and promising change from the post-recession disinvestment by states. They are not, however, a solution to college costs for every single student. For those whose dream career means going to an out-of-state school, federal and institutional funding is still vital. And for those who do get free tuition, the costs of room, board and fees often remain an insurmountable burden.

Once again, it’s vital for federal, state and private funding to work together in order for “free tuition” to deliver on its promise of expanded college education. If the neediest students continue to be served by robust Pell Grant and SEOG aid, state funding can stretch further and help more people graduate.

And if government and institutional aid is reaching more students, private-sector scholarship dollars can be used in more innovative and impactful ways—not just by helping with tuition, but by extending to textbook costs, room and board, equipment and supply fees and even emergency expenses.

Degrees, whether two-year, four-year or advanced, are becoming more and more important across the American workforce. At the same time, more and more college students are balancing school, work and family obligations. This ever-changing student cohort needs a flexible, responsive and robust system of financial aid. With federal, state and private support working together, we can ensure that they have it.

Click here to read our Public Policy Agenda

Posted in financial aid, Education Policy

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