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Business and Policy Areas
Business and Policy Areas

Loan Borrowing Continues to Outpace Grants

October 21, 2005

The growth in loan borrowing for postsecondary education as a proportion of total aid has outpaced the growth in grant aid by 44 percent in the past 10 years. Almost half (47 percent) of the student aid used by undergraduate and graduate students to finance postsecondary education is in the form of loans from the federal government, followed by institutional grants at 19 percent and federal Pell Grants at 10 percent, according to The College Board’s 2005 Trends in Student Aid.  During the 2004-05 academic year, about $129 billion in financial aid was distributed to undergraduate students in the form of grants, work-study, federal loans, and federal tax credits and deduction. The following illustration shows primary sources for student aid in proportion to total aid. 

Loans as a percentage of total student aid increased 130 percent in the past 10 years compared with an 86 percent increase for grants. In 2004-05, students received $57 billion in grant aid and borrowed $76 billion. 

The growth in subsidized Stafford loans has decreased in the past decade (from 54 percent to 36 percent), with growth in unsubsidized Stafford loans remaining steady. The growth in private loans, on the other hand, has increased dramatically (from 6 percent to 18 percent) over this time period (see chart). 

More than 5 million students received Pell Grants for undergraduate study in 2004-05. This number has increased by 44 percent over the past 10 years. The number of students receiving Pell Grants was about 1.4 million higher in 2004-05 than in 2000-01.

Stagnant incomes for families contributed to increased Pell eligibility. Median family incomes for families with heads aged 45 to 54 (most likely to have college-age children) rose by only 3.4 percent between 2000 and 2003, constituting a 3.2 percent decline in 2003 dollars. Median family income declined even more for black and Hispanic families.

Pell Grant awards have been leveling off in the past few years despite the fact that tuition at most institutions has increased. As a result, the proportion of students’ costs for their education that could be met by a Pell Grant has declined.