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New Pell Grant, Federal Loan Data Reveal Changing Tides in Financial Aid

Published:  September 12, 2013
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New data published by the U.S. Department of Education and by the Congressional Budget Office reveal changing tides in the American higher education system. And they uncover some interesting – and previously unknown – facts about federal financial aid.

The Department of Education’s Federal Student Aid (FSA) Data Center recently released data on the number of federal loan recipients and the total amount of loans disbursed in the 2012-13 academic year. (You can see those preliminary data by school in our easy-to-use database, the Federal Education Budget Project.) For the first time, the FSA data contain a breakdown between how much undergraduates and graduate students are borrowing, rather than rolling graduate and undergraduate Unsubsidized Stafford loans into one figure.

It’s a very important distinction. The data show that a whopping 41 percent of loan issuance in AY 2012-13 was for graduate and professional students. Meanwhile, graduate students were only 17.5 percent of all student loan recipients.

gradloanrecips.png   gradloandisburse2.png

Sources: New America Foundation, Federal Student Aid Data Center

Most people typically have undergraduates in mind when they think about the federal loan program, but in reality, the program is nearly as much about financing graduate studies as it is about undergraduate programs. Sure, graduate school can cost more than an undergraduate education, but that’s not necessarily why graduate loans feature prominently in the breakdown. Actually, it’s because the federal government does not limit how much graduate students can borrow for PLUS loans (and limits Graduate Stafford loans to $20,500 annually), but it imposes annual caps as low as $5,500 on undergraduates.

There’s another reason worth separating out loans for undergraduates and graduate students in the data. Under a bipartisan bill passed earlier this summer, interest rates will no longer be the same for Unsubsidized Stafford loans for graduates and undergraduates (both loan types had been set at 6.8 percent prior to AY 2013-14). Instead, starting this year, undergraduates will pay much lower interest rates on their loans (3.86 percent) than will graduate students (5.41 percent).

And that’s not the only news in federal student aid. Remember the Pell Grant funding cliff? For years we've heard about an impending drop-off in funding for the program – and it’s still baked into the budget, albeit a few years further out than first estimated. The Congressional Budget Office (CBO) reminds us of that looming funding cliff in a new report called The Federal Pell Grant Program: Recent Growth and Policy Options.

The CBO uses data on Pell grant aid and recipients to give policymakers an idea of what has driven costs in the past, what types of changes would reduce costs, and by how much. (Heads up: the biggest single cost-saver would be to allow only the lowest-income of the current Pell grant-eligible population to receive grants by requiring that they have a zero “expected family contribution” [$10.0 billion in 10-year savings], while the greatest cost would be increasing the maximum grant to $6,400 in AY 2014-15 [$5.3 billion over 10 years]).

Another interesting point in the CBO paper looks at the skyrocketing costs of the Pell Grant program. The big cost increases in the program in recent years owe a lot to community colleges. Much of the increase in the number of Pell recipients is due to a growing share of Pell students, more so than other factors, like growing enrollment. We wrote about that in 2011 after arriving at the same conclusion. Even so, Pell students still make up a far smaller share of total enrollment in community colleges than in the for-profit sector.

Both sets of data offer interesting insights into the growing and changing beast of federal student aid programs. The FSA data show the dramatically oversized influence of graduate and professional students in the distribution of loans, while the Pell data show the evolving nature of undergraduate aid. Both are work a close look as Congress returns to Capitol Hill and gets back to legislative business, so check out the Federal Education Budget Project to find your state or college.

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