This report examines trends and research evidence related to two persistent patterns—inequality in financial access to postsecondary education for low-income students in the U.S. and disparities in financial access across states—and considers the implications for policy in higher education.
Inequality in Financial Access to Postsecondary Education among Income and Racial/Ethnic Groups
- Federal funding for Pell Grants, the nation’s major need-based grant program, increased in the late 1990s and early 2000s. However, as average college tuition costs have increased, the purchasing power of Pell Grants has declined.
- While high school graduates had similar college enrollment rates in the middle 1970s, regardless of racial/ethnic group, a substantial gap in enrollment rates opened in the 1980s for African-Americans and Hispanics compared to whites. This disparity narrowed modestly in the early twenty-first century after an increase in maximum Pell awards.
- Most forms of aid other than need-based grants—including loans and tax credits—make college more affordable for middle-income and high-achieving students, but they do not equalize opportunity for academically average, low-income students compared to their middle- and high-income peers. Institutional grants have eased the impact of the decline in the purchasing power of Pell Grants for some students. State need-based grants have the potential of reducing the burden of unmet need after grants for the average college-prepared, low-income student.
- The average annual net cost of attendance after grants (from all sources) for low-income students in 1999-2000 totaled $9,100 in public four-year colleges, up $1,000 from ten years earlier, even after accounting for inflation (in 1999 constant dollars). At public two-year colleges, the average annual net cost after grants was $7,300 in 1999-2000 for low-income students, an increase of $700 over the preceding decade.
- The average annual net cost of attendance minus grants for lower-middle-income students increased by $1,600 (in 1999 constant dollars) between 1989-90 and 1999-2000 at public four-year colleges. Tax credits, implemented in 1997, covered up to $1,500 of cost for middle-income students, and were almost sufficient to offset the growth in net cost. Low-income families, on the other hand, often lack the tax liability required to fully benefit from tax credits.
- It would be necessary to more than double the Pell maximum award to recover the losses in the purchasing power of Pell. Unless new eligibility guidelines were set to increase the minimum Pell Grant award, this strategy would have a high cost to taxpayers in part because, in addition to providing larger grants for low-income students, it would substantially increase the number of small grants for middle-income students.
Disparities in College Affordability Across States
- Higher state funding levels for both need-based and non-need (merit) grants were associated with higher college enrollment rates in the 1990s, controlling for other state characteristics. However, funding for need-based grants had a stronger effect on enrollment rates than did non-need grants.
- Across states, there was substantial variability in the adequacy of state need-based grants in the 1990s and 2000. Over this period, on average, only four states met a proposed state funding equity standard, defined as per full-time equivalent (FTE) appropriations for grants equaling one-quarter of the average public sector tuition charge.
- Six of the ten states with the most substantial improvement in college enrollment rates between 1992 and 2000 increased investment in either need-based or non-need-based state grants.
- Five of the ten states with the largest declines in college enrollment rates between 1992 and 2000 also had substantial increases in tuition charges without sufficient improvement in need-based grants. The other five states were from the western U.S., where populations grew at a faster rate than opportunities in public colleges.
- State funding for need-based grants did not keep pace with tuition in the 1990s. Nationally, state funding for need-based grants fell short of the proposed equity standard by $316 in 2000, up from a $239 shortfall in 1990.
Benefits of Need-based Grants
- An estimated 1.2 million additional high school graduates would have had the opportunity to enroll in college in the 1990s had all states funded need-based grants at a level meeting the proposed equity standard.
- Had the federal government and states funded the state-federal grant partnership—the Leveraging Educational Assistance Partnership (LEAP) program—at a level equaling the equity standard, an estimated 2.5 million additional students would have had the opportunity to enroll in higher education.
- While a doubling of the maximum Pell Grant award would also address the now-evident inequalities in educational opportunity, the expansion of LEAP represents a strategy that targets low-income students and distributes the cost of improved access to higher education between both the federal government and the states.
- Read the full report (PDF)