Student Aid Remains a State Priority

Even as the economy began to collapse in 2008, most states found a way to protect from cuts the grant aid they give state residents to attend college, a new study finds.

The annual survey, by the National Association of State Student Grant and Aid Programs (or NASSGAP), reveals that in the 2008-9 fiscal year, state spending on need-based and non-need-based grant aid for undergraduates rose by 5.6 percent over 2007-8. (Over all, state spending on financial aid rose by 2.7 percent over 2007-8.) That's less than in the several preceding years, and the smallest increase since 2002-3. But it both exceeded the expectations of, and pleasantly surprised, officials at the state aid association, who had feared that the recent upturn in state spending on financial aid would reverse itself given the general economic woes.

“States know that even with the economic difficulties they face, they need to continue to invest in the education of the work force,” said Lois Hollis, special assistant to the deputy commissioner of the Texas Higher Education Coordinating Board and president of the association of state aid programs. "When you think about the tough choices that every state has been facing, the fact that they found a way to put more money into their aid programs says a lot."

Hollis attached one significant caveat to her assessment, noting that 2008-9 represented the first time in at least a decade that there was essentially no increase in state-based grant aid in current (inflation-adjusted) dollars. With the inflation rate running at 5.6 percent during much of the July 2008 to June 2009 period covered by the NASSGAP survey, the aid that states meted out just kept pace with students’ rising costs.

And given that in-state tuition rates at four-year public colleges rose by an average of 6.4 percent during 2008-9, according to the College Board, many students may have lost ground when it came to their state financial aid.

Undergraduate financial aid that is based purely on need grew by a rate of 5.0 percent, to $6.014 billion, while aid based on academic merit and factors other than need rose by 7.3 percent. to $2.324 billion.

The proportion of undergraduate financial aid money that was awarded based solely or partially on need rose sharply in 2008-9, to 69.9 percent, from 64.8 percent in 2007-8, but the proportion that was based exclusively on need was 47.8 percent, compared to 47.9 percent in 2007-8. Of the rest of the 2008-9 funds, 14.6 percent was based on a mix of financial need and other sorts of merit, 19.2 percent was distributed based purely on non-financial factors, and states allocated the rest for a variety of “special purpose” reasons, which can include military aid or retraining.

Most states increased the amount of aid they awarded over all, as seen in the table below. States such as Oregon and North Carolina sharply increased the amount of need-based financial aid they awarded, both as part of carefully crafted statewide strategies.

Predicting what the NASSGAP report will look like a year from now is a dicey proposition. State budgets faced more stress in the 2009-10 academic year than they did in 2008-9, but many states may have used federal stimulus dollars to ward off big cuts in student financial aid. The big hit may not come until the 2010-11 fiscal year, which many states just began, if economies do not recover and, as is likely, the stimulus funds largely run out.

"Our feeling is that we haven't seen the worst of it yet," Hollis said.

Total Aid Awarded by States, 2008-9 and 2007-8

Source: National Association of State Student Grant and Aid Programs