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Despite Economic Distress, States Increased Funding for Student Financial Aid

July 29, 2009

In spite of the current economic recession, total state funding for financial aid for college students grew 7.2 percent last year, according to the 2007-08 Annual Survey Report of the National Association of State Student Grant and Aid Programs (NASSGAP). Collectively, states awarded about $10 billion in student financial aid in 2007-08, compared with. $9.3 billion in aid awarded in 2006-2007.

The majority of state aid is in the form of grants. In 2007-2008, about $8 billion were awarded in need and nonneed-based grant aid, an increase of about 5.3 percent from the $7.6 billion provided in 2006-2007. Of the grant funds awarded in 2007-08, 73 percent was need-based and 27 percent was nonneed-based, almost the same percentage as seen in 2006-2007.

Funding for undergraduate need-based grant aid increased from about $5.3 billion in 2006-2007 to more than $5.7 billion in 2007-2008. This represents an increase of more than 8 percent. At the same time, states provided more than $1.9 billion in nongrant student aid, including: loans, loan assumptions, conditional grants, work-study, and tuition waivers. Exclusively need-based aid constituted 48 percent of all aid to undergraduates, while exclusively merit-based aid accounted for 19 percent.  The remaining 33 percent was comprised of other programs and by programs with both need and merit components.

Nine states (California, Illinois, Indiana, New Jersey, New York, North Carolina, Pennsylvania, Texas, and Washington) collectively awarded more than $3.8 billion in undergraduate need-based grant aid, accounting for about 68 percent of all aid of this type. South Carolina, Washington DC, Georgia, and Tennessee provided the greatest amount of grant aid on a per capita basis and along with Kentucky and West Virginia were the largest providers of aid per capita for the population between ages 18 and 24.

A recent article in the Chronicle of Higher Education, however, makes the case that states' increases in student aid won't last. "The 50 states, the District of Columbia, and Puerto Rico took advantage of the nation's strong economy during the 2007-8 budget year and spent a total of nearly $10-billion on student aid," the Chronicle reports. The "$700-million one-year increase in financial aid that the jurisdictions provided for college students in 2007-8 will probably represent a peak for the next several years as the recession shrinks state tax revenue and lawmakers look for places to cut budgets [...] In some states, student-aid programs are already on the chopping block."

Each year, NASSGAP completes a survey of state-funded expenditures for postsecondary student financial aid. For a full version of the study and access to the online query tool, please visit the NASSGAP website.