How Did Financial
Aid Become So
Complicated
Financial Solutions For Families
A
History Of
Financial Aid
Copyright 2003, 2004, 2005, 2006, 2007, 2008, 2009, 2010
By: Educational Literacy Center
All Rights Reserved
No part of this publication may be used or reproduced in any manner
whatsoever without written permission except in the case of brief
quotations embodied in critical articles and reviews.
For More Information Contact:
Chuck Moore, CCFC, CAMC, CAFC
502-721-8646
[email protected]
This publication is general in nature and is not intended to give legal, accounting or investment
advice. Before incorporating any ideas in this publication the reader should consult with their
financial advisor or tax professional. Some of this information is being provided by the Journal
of Student Financial Aid and the American Universities and Colleges, 14th Ed.
HISTORY OF FINANCIAL AID
The following information is being provided by the Journal of Student Financial Aid,
the American Universities and Colleges, 14th Ed., and the Educational Literacy
Center.
Families and individuals in the college planning process should have a basic
knowledge of how college financial aid works and the history that created this funding
for college bound students.
FIRST SCHOLARSHIP - 1643
Financial aid for students attending higher education has been around longer than you
think. A private donor awarded the first university scholarship in 1643 to Lady Anne
Radcliffe Mowlson so she could attend Harvard University.
LAND GRANT COLLEGES AND ROTC - 1862
On July 2, 1862, Abraham Lincoln signed a land grant bill, introduced by Representative Justin Smith Morrill of Vermont. American colleges benefited from the provisions of
the Morrill Act. It gave funds to states to establish colleges that offered programs in
agriculture, engineering, and home economics as well as traditional subjects. The
colleges established on these former federal lands are often called "Land Grant
Colleges." The Morrill Act also established what is now known as Reserve Officers’
Training Corps better known as ROTC. Following the Morrill Act, came the Hatch
Act (1887), Second Morrill Act (1890), Smith-Lever Act (1914), and Rehabilitation
Act (1919), all these Acts benefited colleges in the study of agriculture and science
research.
GI BILL AND COLLEGE SCHOLARSHIP SERVICE- 1944
On June 22, 1944, President Franklin D. Roosevelt signed the Servicemen's
Readjustment Act of 1944, better known as the GI Bill of Rights. This law was very
controversial at the time but has since been recognized as one of the most important
acts of Congress. The GI Bill had the secondary impact of popularizing the idea that
large numbers of people could benefit from a college education.
With the growth of endowments and scholarship funds at colleges across the United
States in the early 1950s, it became necessary for most institutions to develop their
own formula for the distribution of the funds to students. A group of 95 private
colleges and universities in the northeastern section of the country developed what is
now know as the College Scholarship Service (CSS). The reason for establishing
the CSS was to set standards in calculating the financial need of students attending
their institutions. The colleges developed a form to collect financial information from
the parents and students and collected a fee for processing the information. This fee
is still in affect as of today. The CSS need analysis system became the established
method of allocating need-based aid.
FIRST NEEDS ANALYSIS - 1956
In 1956, Rexford Moon from New York began using a needs analysis formula designed
by John Munro, Director of Financial Aid at Harvard. The formula has been refined
over the years by groups of western colleges and universities, which added onto the
original calculations. A group of eastern institutions then brought about a similar
process of refinement, and by 1956 a tentative national system, developed by the
higher education community for use in awarding institutional aid, was in place.
The establishment of a system based upon measuring the student's or his family's
ability to pay for the cost of education provided the beginning of a philosophy that aid
should be awarded on the basis of need.
FEDERAL GOVERNMENT GETS INVOLVEMENT IN HIGHER EDUCATION – 1950s
During most of the 1950s, there was little public demand for the federal government to
become involved in assisting students seeking a college education.
However, in 1957, a worldwide event dramatically changed attitude toward government
involvement in giving aid to students to help pay for college. The event that changed
our government’s attitude was the Soviet launching of Sputnik in the fall of that year.
Many individuals and educational institutions blame the Federal government for not
helping educate the general public in the sciences and many felt we were falling
behind the Soviets in education.
Congress swiftly denied any responsibility for the apparent American inferiority and
blamed our educational system.
In 1958, Congress passed legislation to provide aid to education in the United States
at all levels, public and private. The legislation purpose was to stimulate the
advancement of education in science, mathematics, and modern foreign languages. It
also provided aid in other areas as well, including technical education, area studies,
geography, English as a second language, counseling and guidance, school libraries
and librarianship, and educational media centers.
The legislation also provided institutions of higher education with 90% of capital funds
for low-interest loans to students, gave federal support for improvement in elementary
and secondary education, contained statutory prohibitions of federal direction,
supervision, or control over the curriculum, program of institutions, administration or
personnel of any educational institution, and established the National Defense
Student Loan Program (NDSL).
This student loan program offered long-term, low-interest loans to qualified students,
first in the targeted fields of mathematics, science, and foreign languages, and later in
all academic majors. The National Defense Student Loan Program was later renamed
the National Direct Student Loan Program (NDSL). Today it is known as the Federal
Perkins Loan Program.
FIRST FEDERAL GRANT PROGRAM – EARLY 1960s
By the early 1960s the College Scholarship Service (and its parent organization, the
College Entrance Examination Board), had developed influence over national policy,
as had the umbrella Presidential Higher Education Association, and the American
Council on Education (ACE).
The EOG Program was the first federal grant program providing federal student
assistance in the form of gift aid. This program was intended to help the neediest
students. Over the years the EOG grant was renamed the Supplemental Education
Opportunity Grant Program (SEOG) and then renamed the Federal Supplemental
Education Opportunity Grant (FSEOG).
WAR ON POVERTY - THE BALLOON STARTS TO GROW - 1964
The Economic Opportunity Act signed into law on August 20, 1964, by President
Lyndon B. Johnson recognized that education was crucial to fight the nation's War on
Poverty.
This legislation created the College Work-Study Program (now known as the Federal
Work-Study Program) which gave federal funds to schools so they could provide
needy students with part time employment opportunities while pursuing their college
degree.
Although designed primarily to combat poverty wherever it existed in the United States,
this act directly affected higher education in a number of ways. It not only involved
colleges and universities in the administration and operation of such programs as
Head Start, Upward Bound, Vista, and Job Corps, but also made available a
combination work-study program for economically deprived college students, which
later was transferred to the Office of Education.
ESTABLISHMENT OF THE FEDERAL STUDENT AID PROGRAMS - 1965
The Higher Education Act of 1965, which has been amended many times since it was
enacted, forms the basis of current law authorizing the federal student aid programs.
The student aid programs administered by the U.S. Department of Education are
contained in Title IV of the HEA, which is why they are referred to as "Title IV
Programs."
This comprehensive piece of higher education legislation established federal
scholarships for needy undergraduate students and made provision for
government insurance on private loans to students. It consolidated laws
authorizing the National Defense Student Loan Program and the College Work-Study
Program, created two new programs: the Educational Opportunity Grant Program
and the Guaranteed Student Loan Program.
THE BABY BOOMERS COME OF AGE – 1970s
In the 1970s, due to the baby boomer generation, the college population increased
significantly. Many needy students were unable to attend post-secondary institutions
because of limited funds and also due to an uneven distribution of campus-based
funds. Funds for the campus-based programs are generally very limited. And, a
student's ability to receive funds to meet his or her need for attendance at a particular
institution had always been based on whether that school had funds available to offer
an award.
COLLEGES NEED MORE MONEY TO HELP STUDENTS – 1972
The Higher Education Amendments responded to the disparity of funding among
institutions by creating in the Basic Opportunity Grant Program, known as the BEOG
Program or "Basic Grant." This program is now known as the Federal Pell Grant
Program.
Basic Grants were intended to serve as the "floor" or "foundation" of an undergraduate student's financial aid package. Other financial aid, to the extent that it was
available, would be added to the Basic Grant up to the limit of a student's financial
need. The BEOG Program introduced the concept of portability in the federal student
financial aid programs. As opposed to Campus-Based Aid, where the College makes
the determination of which students will receive funding and in what amounts. By
providing portability, BEOG offered students not only access to post-secondary
education; but, for the first time choice among institutions.
Through the process of reauthorization, Congress examines the status of each
program and decides whether to continue that program, and whether a continued
program requires changes in structure or purpose. The campus-based programs have
been reauthorized every five or six years beginning in 1972.
ELIMINATION OF INCOME RESTRICTIONS FOR STUDENT LOANS - 1978
In 1978 Congress passed the Middle Income Student Assistance Act (MISAA).
This legislation eliminated all income restrictions for the Guaranteed Student Loan
Program (GSL), which effectively extended eligibility to middle and upper-middle
income students. MISSA also expanded eligibility for Basic Opportunity Grant (BEOG)
for these same students.
STUDENT WERE NOT PAYING THEIR LOANS BACK - 1979
Higher Education Technical Act was passed in 1979, authorizing the
"Commissioner" of Education (now the Secretary of Education) to collect defaulted
National Direct Student Loans on behalf of institutions. This provision was significant,
particularly for state institutions that previously were unable to "assign" such loans to
the Department for collection because of state laws barring the assignment of state
assets.
PARENT LOAN FOR UNDERGRADUATE STUDENT (PLUS) - 1980
In 1980 the Higher Education Amendments renamed the Basic Education Opportunity
Grant Program the Pell Grant Program after Rhode Island's Senior Senator Claiborne
Pell.
Because of the 1980 Amendments, the Parent Loan for Undergraduate Students
(PLUS) Program was also established. Middle-income families were now able to
borrow $3,000 a year for each dependent child in school regardless of parent income.
STUDENTS MUST SHOW FINANCIAL NEED FOR GUARANTEED STUDENT
LOANS - 1986
The Education Amendments of 1986 restricted eligibility for federal educational loans
by requiring all applicants for Guaranteed Student Loans to demonstrate financial need
for the interest subsidy, regardless of income and limited the PLUS Loan Program to
parent borrowers.
The amendments eliminated graduate students and independent undergraduate students for PLUS loans and created the Supplemental Loan to Students (SLS) to
provide loans to graduate and professional students and independent undergraduate
students. Other changes included established limits on duration of student's eligibility
for Pell Grant funds, restricting such eligibility to a specified number of years of full-time
enrollment, linked Pell Grants and SEOG, and by giving Pell Grant recipients priority
for the SEOG.
The amendment also gave student financial aid administrators broader authority to
exercise their professional judgment in all the Title IV programs to reflect a student's
exceptional circumstances, changed the name of the National Direct Student Loan
Program to the Perkins Loan Program in honor of the late Congressman Carl D.
Perkins, a long time advocate of student aid.
MORE AMENDMENTS – 1992
In 1992, several amendments were incorporated for higher education. Below is an
overview of the major changes:
��
Mandated sole use of a single, free application for Title IV funds (Free
Application for Federal Student Aid, or FAFSA)
��
Mandated a single need analysis methodology, called the Federal Need
Analysis
��
Methodology (FM), a single set of cost of attendance components
��
Established a statutory definition of an academic year with a minimum
number of hours and weeks
��
Required pro-ration of Federal Pell Grants and Stafford Loans for
undergraduate students enrolled in programs that do not meet the
statutory definition of an academic year, as well as for undergraduate
students enrolled in a remaining portion of an academic year
��
Mandated development of a common FFEL application and promissory
note, and a common form for processing FFEL deferments
��
Mandated standardization in FFEL lenders and guarantor forms and
procedures
��
Required negotiated rulemaking for Part B (FFEL Program), Part G
(General Provisions), and Part H (Program Integrity) of the Higher
Education Act
��
Changed the names of the loan programs. The Guaranteed Student
Loan Programs had often been (and still are) referred to as the "Part B"
Programs, because they are addressed in part B of Title IV of the
Higher Education Act. The 1992 HEA renamed the Part B Loans as a
group to the "Federal Family Education Loan Program" or the FFEL
Program. The Guaranteed Student Loan Program itself was renamed
the Federal Stafford Loan Program in honor of Senator Stafford
��
Increased annual and aggregate loan limits while PLUS loan limits were
eliminated
��
Created a separate Federal Unsubsidized Stafford Loan Program for
students who did not qualify for a subsidized loan, or whose
subsidized eligibility was limited to borrow additional funds
��
Authorized a new William D. Ford Federal Direct Loan Demonstration
Program, designed to permit a small group of schools to offer loans
similar to those under the Federal Family Education Loan Program and
allowed the Department of Education to provide students loans directly
through schools rather than through private lenders
��
Changed the structure of loan limits under the Federal Perkins Loan
Program
��
Enhanced the purpose of the Federal Work-Study program by adding a
community service requirement and
��
Eliminated financial restraints on eligibility for less-than-half-time
Because of the 1992 HEA mandate for a free financial aid application and federal
methodology for need analysis, there was no longer a need for the CSS financial
aid application. Some institutions were philosophically opposed to the changes
in need analysis adopted by Congress. For example, many opposed the decision
to exclude home equity as a factor in determining ability to pay. As a result, CSS
developed the Profile, a supplement to the government's free application, which
many private schools use to award private funding.
HOPE AND LIFETIME TAXES CREDITS AND OTHER INCENTIVES - 1997
The Tax Payer Relief Act established new tax credits were made available for higher
education expenses including the HOPE Scholarship Tax Credit which gave up to
$1,500 of credit for each of the first two years of college, and Lifetime Learning Tax
Credits.
The law also allowed interest paid on qualified education loans to be tax deductible,
taxpayers were allowed to contribute annually to an educational IRA for each child
under 18, and penalty-free withdrawals from existing IRAs for higher education
expenses were allowed. The act also allowed greater flexibility for families saving in
qualified state pre-paid tuition plans, an income exclusion for up to $5,250 in employer
education benefits, and tax-free loan forgiveness for certain community service.
CONCLUSION
Is college financial aid causing college costs to rise? Let’s take a look.
In the 1990s, enrollment in college fell for the first time in well over a century, even with
all the financial aid available. Federal financial aid went from $19 billion in 1990 to
$63 billion in 2000. Aid for students more than doubled even after adjusting for
inflation and during this time we had a slowdown in college enrollment.
Based on these figures, it does not seem that financial aid is causing tuition to
increase. However, I do feel financial aid is causing a rise in college costs. Recent
articles from publications like Inside Higher Education have reported - many colleges
are shifting from need-based aid to merit based.
By increasing tuition and discounting the cost for the most selective students and less
for non-selective students has discouraged many student from attending college due to
the higher cost at many private college. Many state supported colleges are increasing
tuition in order to give more financial aid to more needy students. To me this does not
make any sense what so every; however that is what is being reported.
Recent reports from the College Board and other educational publications show that
less than one-half of all students entering college on a full-time standpoint fail to
graduate within six years. Is this due to the lack of financial aid or is it due to ill
prepared students to do college work?
Why are colleges and universities raising tuition – BECAUSE THEY CAN!
When an item is in demand (gas, food, etc.) the provider can increase the cost
knowing individuals will pay regardless of the cost. This is what has happen in the
rising cost of a college education.
Student and parents are told that the only way to succeed in today’s economy, the
student MUST HAVE A COLLEGE EDUCATION.
Richard Vedder, Ph.D., Director of the Center on College Affordability and
Productivity and author of Going Broke by Degree said:
“ For each one dollar in grant aid leads to tuition fees some-where around 35
cents higher than would other-wise be the case. Just as third-party payments in
medicine have led to escalating health care costs, so increased student financial
payments have contributed to soaring tuition costs.” He went on to say, “When
the feds created tuition tax credits in the late 1990s, I called it the "faculty salary
enhancement act," since colleges could capture much of the tax break by raising
tuition fees and then used some of the money to reward their staff.”
I feel that the student loan crisis we are seeing today, would not be a problem if the
Federal government would not have made it so easy for 18 year old students to borrow
money for college.
College costs are going to continue to rise as long as our Federal and state
governments continue throwing money at our colleges and universities.
If you don’t know where to start or need help with college issues, then you may need
to seek out the help and advice of your high school guidance counselor or a qualified
College Consulting Expert.
If you need more information or have any questions, please give me a call.
For More Information Contact:
EDUCATIONAL LITERACY CENTER
Chuck Moore, CCFC, CAMC, CAFC
502-721-8646
[email protected]