Grant/loan imbalance improves: heavy reliance on loans continues, but grant aid shows recovery - Financial Aid Watch

University Business, Dec, 2002 by Nicole Rivard

According to the College Board's 2002 Trends in Student Aid report released in early Q4 (www.collegeboard.com), there may be some glimmers on the horizon for a return to a more balanced loan/ grant picture. It's no secret that the growing imbalance is causing a great deal of concern to students, parents, and the press: In 1991-92, of total student aid, 50 percent was in the form of grant aid; 47 percent in loans; 2 percent in work-study aid. By 1997-98, 60 percent of all student aid was comprised of loans, and only 37 percent in grants.

But the new report shows that though the imbalance still persists, for the second year in a row, grant aid growth is on the upswing and loan aid percentages are dropping. Because of the addition of tuition tax credits to the total aid pool in 1998, loan aid has pulled back to 54 percent of total aid in 2002, while grants have risen to 39 percent. (Tax credits make up another 6 percent, and work aid 1 percent of total.) A simplified extrapolation of the trends reveals the potential for a re-balancing of loan and grant aid, sometime in the next decade or so.

There is unsettling news for lower-income college aspirants, however: While grant aid per student remains significantly higher for low-income students and lowest for high-income students, data from the report shows that the gap is narrowing as federal aid becomes less and less targeted on students with need:

* More than three-quarters of state-funded financial aid remains need-based, but while need-based state grants grew 50 percent in inflation-adjusted dollars during the 1990s, merit-based state grants more than tripled in constant dollars between 1990-2000.

* At the federal level, non-need based unsubsidized loan volume has increased almost 50 percent in constant dollars over the past five years. Need-based subsidized lending did not keep up with inflation between 1996-2001.

* Need-based Pell Grants grew by 23 percent in 2001, but this increase is much higher than the long-term trend.

* The new tax credits are not need-based, and provide small benefits to those at the bottom of the income distribution, with the largest credits going to those in the $60,000-$80,000 income range.

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(Source: The College Board 2002 Trends in Student Aid)