More low-income students going to college, but federal aid lags costs

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The cost of higher education has been rising for decades, but the federal government’s Pell Grants program has not kept up with the cost of college tuition. 

Federal Pell Grants are the largest source of government-funded grants. The Department of Education anticipates giving 6.8 million students grants for the 2020–21 school year.

The grants are awarded to undergraduate students displaying exceptional financial need and are awarded solely based on financial need (grades and extracurricular activities are not factored in). Those most in need can qualify for the maximum allowable amount of $6,345. 

For Americans living in the lowest income brackets, higher education offers a way up the socioeconomic ladder. While the Pell Grant has eased the burden for many, the federal financial aid program is having less and less of an impact as the cost of a college education skyrockets.

According to NerdWallet data analyst Elizabeth Renter, in order for the Department of Education student aid program to keep up with inflation, the maximum award would need to be about $8,000. Renter noted that the amount of low-income students going to school has increased: “The loan data tells us that, more than ever, low-income students are attending college. But the grants aren’t keeping up,” she said.

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“With the average tuition at four-year public colleges increasing by 37% on average from 2008 to 2018, it’s safe to say that federal scholarships and grants like Pell Grants are not increasing in value at the same rate,” said Alyssa Schaefer, chief marketing officer at Laurel Road, a national lending platform.

With grants accounting for less of a student’s overall tuition bill, they are forced to take out loans to fill the gap. Pell Grants accounted for 34% of a low-income student’s total aid in 2016, while loans accounted for 44%.

“Students can no longer rely on a college job to make up the difference either,” Renter said.

The student loan market in the U.S. is now above $1.6 trillion, with graduates owing on average $29,000. 

Parents taking on debt

Increasingly, students are looking to their parents for assistance. In 2016 11% of students in the lowest income bracket benefited from federal parent PLUS loans, compared to just 3% in 1996. Parent Plus loans allow parents to borrow the difference between the cost of tuition and the aid awarded to the student. 

These federal PLUS loans come with higher interest rates and fewer repayment options than federal student loans. As of the second quarter of 2020, these loans accounted for $99 billion, or 6% of all federal student loans, according to the Department of Education. 

The average U.S. household with student debt owed $47,671, according to NerdWallet’s 2018 household debt study.

Pell Grants do not have to be repaid, but for students or families struggling with repaying debt, there are options.

Anna Helhoski, student loans expert with NerdWallet, suggests students enroll in an income-driven repayment program as soon as possible so they won’t have to start repaying until they have income, she said.

Students should also alert their university and file an appeal with the financial aid office, according to Helhoski. If the family’s finances change, the university may be able to provide help, but students will need to provide evidence of changes in their families’ finances.

“It’s important to keep your FAFSA filings up-to-date,” said Helhoski. Students should also be ready to provide evidence, like proof of unemployment, when appealing for aid.  

Students should also try to maximize free money. Filling out their FAFSA on time is a start, but Renter of NerdWallet said students should also look for scholarships within their town, high school and through their parents’ employers. 

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