The Economy and Student Financial Aid: Troubling Trends-And the Silver Lining

By Chitty, Haley | University Business, January 2009 | Go to article overview

The Economy and Student Financial Aid: Troubling Trends-And the Silver Lining


Chitty, Haley, University Business


THE ECONOMIC DOWNTURN is sweeping the nation, affecting nearly everything and everyone. Financial aid is no different. The shaky economy has sparked several trends threatening to place unprecedented strains on financial aid programs and budgets. Many aid administrators are predicting that an increasing demand for assistance will coincide with a decreasing supply of student aid dollars as federal, state, institutional, and private aid providers wrestle with difficult budget decisions.

Dave Gruen, director of financial aid at the University of Wyoming, says he and his colleagues are noticing increasing anxiety among students and parents and a greater demand for student aid. "We are starting to see the beginning swells of potential tsunami waves reaching our shores," explains Gruen, who is the 2008-2009 national chair of the National Association of Student Financial Aid Administrators (NASFAA).

Aid administrators across the country are reporting similar troubling trends. But despite that, there is some good news. Unlike some sectors, the financial aid sector is in relatively good shape. Recent action by Congress and the Bush administration has helped insulate financial aid from the economic turbulence.

GREATER DEMAND, GREATER ELIGIBILITY

Several factors are contributing to the high demand for higher education and financial aid. Historically, demand for higher education increases during times of economic distress as job losses and a weak job market drive people back to college to retrain and gain new skills. Higher education institutions are beginning to see an uptick in adult learners returning to college concurrently with the graduation of the largest population of high school students looking to attend college.

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At the same time, the economic downturn has hurt these students' ability to pay for college, causing more of them to apply and qualify for financial aid. Financial aid offices at IHEs across the country are seeing an increase in the number of students and families who are eligible for financial aid because of deteriorating financial situations like loss of income or declining assets. Many NASFAA members predict that this trend will become even more prominent in coming years.

The impact of this increased demand is being felt in the Federal Pell Grant Program. Roughly 786,000 more applicants have received a Pell Grant this year compared to the same time last year. This has caused a $6 billion shortfall in the program. Congress provided $2.5 billion to pay down this shortfall when it passed the continuing resolution (CR) to extend the federal budget. The CR also forbids the U.S. Department of Education from reducing any Pell Grant recipient's award until the CR expires on March 6.

Higher education associations, including NASFAA, have urged Congress to eliminate the remaining $3.5 billion shortfall and increase the maximum Pell Grant by $500 as part of economic stimulus legislation. "Congress would immediately provide economic relief for college students and their families, as well as adults returning to college to learn new job skills, by providing a $500 increase in the maximum Federal Pell Grant," NASFAA President and CEO Philip Day wrote in a letter to lawmakers.

STUDENT LOANS

Instability in the student loan industry has caused much anxiety for students, financial aid officers, and lawmakers. The freezing of the credit markets has caused many student loan providers to suspend lending and/or stop lending to certain students at certain types of higher education restitutions.

This spurred quick action. Congress passed the Ensuring Continued Access to Student Loans Act (ECASLA), giving the Department of Education the authority to purchase student loans and provide liquidity for lenders to make more loans. To date, NASFAA knows of no student who has been denied access to a federal student loan.

Fortunately for students, Congress passed several student aid bills before the economic downturn fully hit. …

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