Need-Based Financial Aid

It is no secret that affording college is, for many families, more difficult to do today than it used to be. While some of the increase in college cost is attributable to rising fees and inflation, it is also important to understand that much of the increase in price families experience is due to a long-term shift away from state support for higher education. In the face of shrinking appropriations, institutions of higher education are placing more of the burden of financing a college education on students and families. Investing in higher education brings great economic rewards, and NACAC strongly urges states to increase the funding they provide to public colleges and universities, which will help reduce the out-of-pocket expenses.

Another way states and the federal government help families manage the costs of higher education is through direct financial aid—money awarded to an individual student, not the college. Financial aid generally comes in three forms: (1) scholarships/grants, awarded based on need or merit, which do not need to be repaid; (2) student loans, made available based on need, which must be repaid; and (3) work-study, which is offered based on need, and must be earned through approved employment.

The most well-known federal scholarship/grant is the Pell Grant, which provides need-based assistance to America’s lowest-income students. Historically, the Pell Grant provided students with strong purchasing power, allowing students to finance a substantial proportion of their college education. Because the Pell Grant is not adjusted for inflation, today’s award fails to provide the same relative level of assistance; NACAC recommends automatically indexing it for inflation. NACAC also advocated for the re-adoption of a year-round Pell Grant, which enables students to complete more coursework during the summer months. Year-round Pell was reinstated as part of the Fiscal Year 2017 omnibus bill passed by Congress, enabling institutions to begin issuing these awards as early as July 1, 2017.

At the state level, many states have reduced or eliminated the amount of need-based financial aid awarded to students, preferring to distribute these funds through merit-based programs that recognize academic achievement. As is discussed on our Rigorous Curriculum page, disparities in educational opportunities mean that merit-based aid disadvantages low-income students—precisely those who most need the assistance. For these reasons, NACAC encourages states to direct financial assistance to need-based programs, rather than merit-based.

NACAC supports the following policies to strengthen and expand need-based financial aid:
• Increasing state and federal appropriations for need-based assistance
• FAFSA simplification
• Expansion of income-based student loan repayment options