Federal Spending on Student Aid Jumps as College Prices Go Up Again

A big jump in federal spending for grants is limiting the effect of tuition increases—at least for those students who qualify.

The federal government spent $41.3-billion on grant aid for undergraduate and graduate students in 2009-10, the most recent year for which data are available, according to one of two reports released Thursday by the College Board. That’s up from $25.2-billion the year before, an increase of about 72 percent, or $16.1-billion in constant dollars.

The report, “Trends in Student Aid 2010,” examines financial aid for the 2009-10 year, while its companion report, “Trends in College Pricing 2010,” considers what colleges charge through the current academic year.

The increase in federal spending on grants was driven by large increases (all in constant dollars) in the Pell Grant program for low-income students and in aid for military veterans.

Total spending on the Pell Grant rose 58 percent, from $17.9-billion to $28.2-billion between 2008-9 and 2009-10. That jump was driven by a 16-percent increase in the maximum Pell Grant, the largest one-year increase in its history. When the maximum grant amount is increased, more students become eligible for the grant: 7.7 million students received Pell Grants in 2009-10, up from 6.2 million the previous year.

Aid for military veterans grew from $4.1-billion in 2008-9 to $9.5-billion in 2009-10, a 131 percent increase—the result of the Post-9/11 GI Bill, which was available for the first time for the 2009-10 year.

All this grant spending helped to hold down the amount the typical undergraduate paid for college out of pocket. For example, the net price of tuition and fees at a four-year public college was $1,140 in 2009-10, down from $1,680 the year before. At private nonprofit colleges, net tuition and fees dropped from $11,720 to $10,270 during the same period.

Of course, not everyone is eligible for aid meant for low-income students and military veterans, said Sandy Baum, an independent policy analyst for the College Board and an author of the reports. That suggests middle-income families may be feeling squeezed, she said.

One form of aid that does help such families is the new American Opportunity Credit, a tax break included in the federal stimulus bill. The reports underestimate the amount of money families received from the credit, Ms. Baum said, as data did not become available until shortly before the reports’ release.

Over all, undergraduates received an average of $11,461 in aid per full-time-equivalent student in 2009-10, including $6,041 in grants from all sources and $4,883 in federal loans.

Total federal borrowing—including by parents and by graduate students—grew 14 percent from 2008-9 to 2009-10, while nonfederal borrowing from state-sponsored and private sources decreased 22 percent, to $8.5-billion, after falling 53 percent the year before. Private loans dropped to $7.7-billion in 2009-10, from $10.1-billion the year before. While the College Board’s figure on nonfederal loans is an estimate, it’s the best available number, based on information from private lenders and from Student Lending Analytics, a private research company.

The report found that students’ average debt at graduation at both public and private four-year colleges actually decreased slightly, when adjusted for inflation, between 2007-8 and 2008-9. It found that bachelor’s-degree recipients who borrowed had an average debt of $19,800 at public colleges and $26,100 at private colleges for 2008-9. Those figures, said Ms. Baum, “don’t show any dramatic increase in student borrowing.” Ms. Baum added that the figures do not include the debt levels for students at for-profit colleges, who tend to borrow more.

The report also includes the much lower average debt for all graduating students, including those who did not borrow—$11,000 at public colleges and $16,900 at private colleges for 2008-9. The authors did not calculate combined debt figures for all four-year graduates.

College Pricing

The published price of college continued to climb in 2010-11. The average sticker price of tuition and fees to attend a public four-year college in-state rose from $7,050 in 2009-10 to $7,605 in 2010-11—an increase of 7.9 percent. Out-of-state students saw a smaller increase of 6 percent, and are now charged an average of $19,595. (All averages are weighted for enrollment to reflect what the average student is charged, rather than what the typical college charges.)

Published tuition and fees also rose by 6 percent at public two-year colleges, from $2,558 to $2,713. The unusually low sticker prices and large enrollments of California’s community colleges drive this figure down, the report notes—the average price for community colleges outside California is $3,076.

The increase in sticker price for tuition and fees was smaller at private nonprofit four-year and for-profit colleges, though these institutions have higher published prices. At private four-year nonprofits, the published price of tuition and fees rose 4.5 percent, from $26,129 in 2009-10 to $27,293 in 2010-11. At for-profits, tuition and fees rose by 5.1 percent, from $13,256 to $13,935.

Room and board prices increased by less than 5 percent at both public and private nonprofit four-year colleges.

The report estimates that net tuition and fees rose in the two-year public, four-year public, and private nonprofit sectors between 2009-10 and 2010-11, after several years of decreasing, as grant aid did not increase enough in that one-year interval to make up for increases in published tuition and fees. Net tuition and fees were $1,540 at public four-year colleges in 2010-11, up from $1,140 the year before. At private nonprofits, net tuition and fees grew from $10,270 to $11,320 in the same period.

Still, the average net price of tuition and fees in all three sectors is lower than it was five years ago. “Recently, grant aid has gone up more than enough to compensate for tuition increases,” Ms. Baum said. “I think that the real issue is this net-price-versus-sticker-price issue.”

Net price for tuition and fees has not been going up faster than inflation—but the grant aid holding down average net price is only available to some students.