Despite Fiscal Woes, Spending Rose on Student Aid in Many States in 2010

July 11, 2011

At first glance, it looks like a bright spot in an otherwise bleak year for higher education: State aid for students appeared to rise by a small amount in the 2010 fiscal year.

But look again and the picture is less sunny: Nearly half of the states surveyed cut their need-based grants, even as demand for financial aid went up because of booming enrollments and higher tuition.

State financial aid for college students, including grants, work-study, and loans, rose by nearly 4 percent last year, according to a report released this week by the National Association of State Student Grant and Aid Programs. At the same time, overall state spending on higher education fell by more than 1 percent—and would have declined by 3.5 percent without the infusion of federal stimulus money.

Even more surprisingly, the amount of money spent on need-based grants grew faster than the amount spent on merit-based grants. In fact, need-based grants grew at only a slightly slower pace than nongrant aid, such as loans and tuition-forgiveness programs. In recent years, merit aid and loans have usually increased at a far faster rate than need-based grants.

The figures are a sign that policy makers and elected officials are doing their parts to help students complete college and to provide well-trained workers for the economy, said the association's president, Vicki B. Merkel, who is associate director of student financial assistance at the State of Washington's Higher Education Coordinating Board.

"It's good that leaders are connecting the dots between education and employment," she said.

But beneath the overall increase, the annual report reveals more troubling numbers.

Ohio cut need-based grants the most last year, with a 66-percent decrease, while Alaska and Michigan cut them by more than half. Both Hawaii and Utah slashed need-based grants by nearly a third.

That trend has continued in many states during the most recent lawmaking sessions, which are not reflected in the survey.

In March, Georgia lawmakers agreed to limits on the Hope Scholarship program, which had paid for tuition and some books at the state's public colleges for residents who graduated from high school with at least a B average.

But with the program facing a $244-million shortfall, the state legislature approved a proposal by Gov. Nathan Deal, a Republican, to cut award levels for most recipients. The move came despite vocal opposition from many students and families.

Of the 12 states with similar programs, five—Arkansas, Florida, Georgia, New Mexico, and Tennessee—have proposed legislation to cut or freeze award levels. Key members of South Carolina's legislature are talking about making cuts in the scholarship program there next year.

Some larger states did raise their financial aid in 2010, including California, where need-based grants went up by nearly 19 percent.

But even states that increased spending on financial aid may not have kept up with demand, Ms. Merkel said. Washington State, for example, increased need-based grants by more than 7 percent in 2010 but has seen a 57-percent increase in student-aid applications. While 70,000 students received the state need grant, the state ran out of money and rejected awards for another 22,000 students, about two-thirds of whom were attending community colleges, according to data from the state's coordinating board.

Ms. Merkel said she expected the trend in increasing aid to continue, though many states have just completed their budgets and still face slow economic growth and stagnant tax revenues.

"For now it looks positive, ... but it's cautious optimism for the future," she said.