Report: Needy Students Got Less Scholarship Money
The federal government is reducing the amount of scholarship money for needy students in 2006, even though college tuition prices are rising, the College Board reported today.
While the average price of a year at a public university has been rising about 6 percent — or about $700 annually — for the past five years, the federal government reduced the amount of money it handed out to low-income students in the form of Pell grants by an average of $120 last year. The nation's biggest need-based financial aid program saved taxpayers $900 million by trimming its average award to $2,474. Data for 2006 are not yet available.
Colleges also reduced the percentage of financial aid they dedicated solely to needy students and increased the percentage for scholarships for students with good grades or test scores, the College Board reported. However, the author of the report, Skidmore economist Sandy Baum, could not immediately say whether the total dollars that schools committed to need-based financial aid had also fallen.
State governments slightly increased the amount of money dedicated to needy students but gave a much bigger financial boost to merit-based scholarship programs.
Overall, the amount of money awarded to students as either need-based grants or merit-based scholarships rose by $1.8 billion, or 3 percent, to $59.1 billion in 2006. But because the number of students also increased, the average amount of grant money available per student climbed less than 1 percent, to $4,433.
While merit-based programs are popular, they tend to distribute a disproportionate amount of scholarship money to students from wealthier families, who tend to live in better school districts and can afford test coaches and tutors to help students perform better.
In addition, the bulk of the federal government's education tax benefits go to middle-class and upper-middle-class families, the College Board reported. Almost 9 million taxpayers claimed deductions or credits worth an average of about $670 apiece, the report found.
Thanks to the remaining need-based aid, lower income students still pay significantly less for college than do higher income students. But as a result of the growth in merit aid, the net tuition prices (the price after scholarships and tax credits have been subtracted) for four-year colleges paid by families who earn less than $35,000 has risen by several hundred dollars in the past 12 years. The net price paid by students from upper-middle-class families earning between $63,000 to $95,000, however, has remained flat at public universities and has fallen by almost $900 at private colleges.
Education officials said the reduction in schools' need-based aid was caused by heightened competition among colleges for students who will help raise the schools' grade and score averages. And they said the decline in the size of the average Pell grant was due to a change in the way the Department of Education calculates a student's wealth.
Because grants and scholarships have not been keeping up with tuition inflation, more students have been forced to borrow to cover their educational costs, the report found. The federal government made 12 million student and parent loans for undergraduate studies, up from about 7.5 million in 2001. The government loaned out about $46 billion, up from about $26 billion five years ago.
One glimmer of good news in the College Board report was a decline in the total amount of debt load students are graduating with. The average new graduate of a public university carries only $15,500 in student debt. Five years ago, new public university graduates owed $17,700. But that number may be misleading, since it doesn't consider parent loans or credit card loans, both of which have grown. In addition, the report noted a dramatic increase in private educational loans, which charge higher interest rates and are not considered financial aid. They now total $17.3 billion, more than triple the amount loaned in 2001.
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