The biggest source of free money for college can’t keep up
Many years ago, a federal grant could cover all tuition and fees for the most needy students. And although the rising cost of college has slowed significantly over the past decade, the impact of the Pell Grant has shrunk to a fraction of what it once was.
My mother relied on the Pell Grant – the largest source of federal grants – in the 1980s, raising three children on her own and working full time. This was before online classes, and she was commuting both to work and then to the next town to go to school. At the time, the maximum Pell Grant covered more than the average tuition and fees at public four-year institutions. In the early 2000s, I did the same, pursuing my undergraduate studies while working in retail and raising my daughter as a single mother. Then, the maximum Pell grant covered 91% of these costs. Today, a few decades later, it only covers 68%.
The Pell is not only for non-traditional students like my mother and I, but also for low-income traditional students. In the 2021-22 school year, approximately $26 billion was distributed through the Pell program. But that money isn’t going as far as it used to, compounding the burden of student and parental debt for those who can least afford it.
Over the past 20 years, the price of attending the most affordable colleges has increased by 64% after adjusting for inflation. The maximum Pell grant only increased by 6%.
Note: The maximum Pell Grant for the 2023-24 school year will be $7,395, up from $6,895 in 2022-23, an instant improvement.
Grants, unlike loans, are widely considered “free money” for the university – they do not need to be repaid. And because they come from a small pool, most are reserved for students who need financial aid the most.
A student may qualify for a grant from federal, state, institutional, and private sources, and meet their remaining financial need with student loans.
This gap – between what is provided by scholarships and what is needed – has widened, increasing reliance on student loans. In 2016, the latest year for which data is available from the National Center for Education Statistics, 57% of all student dependents (those dependent on their parents) relied on student loans, up from 44% in 1996.
This does not mean that subsidies in general do not increase. In fact, the total distribution of all types of grants more than doubled between the 2001 and 2021 school years, with the growth of institutional grants – from the schools themselves – growing at the fastest rate.
The amount of a Pell Grant (or other need-based grant) a student is eligible for is based on the information they submit each year in the Free Application for Federal Student Aid. Big changes, including a simplified FAFSA and expanded Pell eligibility based on poverty guidelines, are planned for the 2024-25 school year — both improvements are welcome.
Goal: Graduate with less student debt
Maximizing grants isn’t just about paying for school (and graduating with less debt), it’s about increasing the chances of graduating in general. At best, financial stress is a distraction from learning. At worst, the inability to get to college without going into heavy debt or a full-time job may cause students to leave school before this goal is achieved.
Complete the FAFSA as soon as possible. The FAFSA, which must be submitted every year, is the key to determining a student’s eligibility for scholarships and other financial aid, including federal student loans. Application usually opens in October for the upcoming school year, although this year’s updated FAFSA is already delayed until at least December, according to the Department of Education. Since many grant and scholarship funds are first-come, first-served, parents and students are asked to complete and submit the application immediately, for each year the student plans to attend school. .
Apply for scholarships, every year. High school students are encouraged to apply for scholarships from any background, at any level, for any institution they even plan to attend. But the pursuit of scholarships shouldn’t stop when they reach their freshman year of college. Continue to research scholarship opportunities through school, community organizations, parents’ employers, and wherever available. The Ministry of Labor Search for scholarships provides a good starting point.
Parents: Think critically before borrowing to fund your child’s education. The use of Parent PLUS loans has grown alongside the use of student loans over the past few decades. But parents who take out loans to help pay for their children’s college education could jeopardize their own long-term financial goals. Parents should prioritize their retirement savings — they won’t be able to borrow for it.