State Aid and Federal Appropriations
Although financial aid in some form has been around since colonial days of North America, the organized version that is used currently stems from the Higher Education Act of 1965. This law came to formalize public grants, federal loans, work study, direct and Perkins loans, and the first calculation of student need. Essentially, the point at the time was to bridge the gap between affordability and accessibility (Franklin & Marshall College, 2013).
Since creation of the Higher Education Act of 1965 there have been dozens of additional laws and provisions which have gone into effect in order to maintain programs which will continue to afford students opportunity to attend colleges and universities. Many of these new laws ensure specific interest rates, increase the amount of grants awarded, and extend the terms of loans for graduate students in professional fields. Additionally, the federal government has used federal appropriations as a means to stimulate the economy during tough economic periods (Department of Education, 2013).
Types of Federal Aid
Primarily federal appropriations are proportioned into two main categories - loans and grants; however, there are several tax credit subcategories and other sources which can be utilized to pay for school. In terms of loans the primary source comes from a direct loan which means it originates from the federal government. Usually this is broken down into subsidized and unsubsidized amounts which vary in interest rate and terms depending on undergraduate/graduate, and the type of aid (New America Foundation, 2013).
Pell Grants are awarded to students also based on need. However, there is no lending practice involved. Instead this money is awarded only in an effort to reach out to the lowest income students. As of the 2013 - 2014 aid year students can be offered up to $5,785 dollars per year in aid (New America Foundation, 2013).
Trends in Data
In the 2011 - 2012 school year nearly 38% of all undergraduate students utilized student loans, 26% used federal grant money, and another 9% were able to take advantage of federal tax incentives in order to maintain the affordability of their education which amounts 185.1 billion dollars. Since 2001 there have been marked increases in the amount of aid given students by the federal government. Over that time frame (2001 - 2012) grant amounts have nearly tripled, and loan utilization has almost doubled. In terms of an actual dollar value in the timeframe - awarded grant amounts have steadily increased from $4,309 to $6,932 dollars while loan awards have risen from $3,152 to $5,056 (College Board, 2012).
Federal funding has also become a large source for graduate students. Primarily, the federal government has been a large source of aid with 67% of all graduate enrollees utilizing student loans which amounts to nearly $36 billion dollars. The federal loan amount has seen a large spike over the monitored period (2001 - 2012) with an increase in lending from $14.8 billion to nearly $34.5 billion. In total, this amount translates to per student awards starting at $9,997 in the 2001 - 2002 period to a 2011 - 2012 number of $16,796 (College Board, 2012).
Another increasing trend over the last decade has seen positive trends in specific types of loans and grants being used. Federal grants have increased from 29% in the 2001 - 2002 cycle to 44% in the 2011 - 2012 period. Among loan types, federal unsubsidized have seen the largest increase over that time frame, growing by 6%. In terms of student loans this also means the total debt amount has also increased by nearly $6,000 per borrower on average (College Board, 2012).
Issues and Criticisms
One of the largest criticisms of federal appropriations is that it leads to a great deal of students who have accrued a debt of which they are unable to pay back. In 2001 only 5.4% of all students who were in a repayment phase of their loan defaulted. Looking forward to 2010 that number almost doubles to 9.1%. In addition, data shows that of those students who started paying on their loans as of 2009 - 13.4% of them had defaulted within a three year period (Stratford, 2012).
Defaulting on student loan rates is problematic for a few reasons. First, even though there are several measures the federal government can take to recoup the borrowed money, it is less likely that they will ever regain the full amount from a borrower. Primarily, because they have to put additional collection resources into place on top of settling on a modified payment (New American Foundation (b), 2013).
Second, if a student has to default this usually leads to financial repercussions later on in their life. Because it negatively effects their credit some employers may not consider them a suitable candidate for hire and thus they are unable to maintain a qualified work status. Although this is troublesome for the student, it also comes back to reflect negatively on the institution as their job placement rate for graduates may drop because of loan defaults (New America Foundation (b), 2013).
Aside from the issue of loan defaults some critics feel that federal appropriations provide institutions with the opportunity to unfairly increase their tuition rates. This stems primarily from the idea that because students are fronting no money at the beginning of their educational career they are less likely to be as proactive about competitive tuition rates. Although most researchers disagree with this notion, the College Board says there is some truth in the fact that it does, however, lead to price inflation across the country - hence the raising of tuition is a more passive process (Lederman, 2009).
New Approaches to Federal Appropriations
Despite the negative impacts of financial aid there are some who are looking to reform the process. One of the first steps to completing this task is simplification. Many of the federal programs are considered complicated, difficult to understand, and inaccessible. The College Board (2008) makes the recommendation that not only should the FAFSA process be simplified but the language used to explain federal loans and grants should be more plainly stated. Additionally, predicting award amounts should be much easier for institutions as well as students to translates.
Another suggestion from the College Board (2008) is to widen the parameters on grant aid. With increased tuition costs, it is difficult for even middle-income families to avoid reliance on federal aid. Granted, expanding Pell would lead to a loss of government money but it would also help to control outstanding or defaulted loans which are also a detriment to appropriations.
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