The History of Federal Financial Aid Policies for Students

By asumedjgm

  • Servicemens' Readjustment Act of 1944 enacted into law, pushed by President Franklin Roosevelt, in reaction to the disasterous Bonus Act of 1924 which failed to deliver on its promise of support to veterans (3).

    Also known as the GI Bill, this began the federal government's direct participation in funding students' higher education--supporting veterans through educational grants--and led to the development of similar programs federal support for civilians pursuing higher education (3; 8). Additionally, the GI Bill changed higher education drastically as institutions began to enroll previously unserved students from a variety of social classes (3). Overall enrollments doubled within ten years (3).

  • Veterans' Readjustment Assistance Act of 1952

    This bill, a reauthorization of the GI Bill, played in important role in establishing a key provision of future federal funding for higher education which still exists today. Congressional leaders became concerned about the quality of education students were receiving and which was being funded by federal monies. After a Senate investigation, this bill stated that federal funds could only go to students enrolled at institutions accredited by agencies approved by the Secretary of Education (3).

  • National Defense Education Act (NDEA) - First Federal Loan program established

    This bill marked another significant investment of federal dollars in higher education and created the National Defense Student Loan System--the first federal loan program. This loan program provided federal funds to institutions to lend to financially needy military and civilian undergraduate and graduate students in programs of study which would support the U.S. military's needs during the Cold War (3; 7). This campus-based loan program would evolve into the Federal Perkins Loan (3; 7).

  • Higher Education Act of 1965 - first non-civilian grant program for higher education

    Composed of nine titles, this act of Congress formed the backbone of federal financial aid for the decades to come. Under Title IV, it created the Educational Opportunity Grant, the first grant program to support non-civilian students with extreme financial need, with funds paid directly to institutions (1; 4). Congress would only allow President Johnson the grant program if a loan program for midde-income students was also established; this became the Guaranteed Student Loan Program (4; 7).

  • Reauthorization of the Higher Education Act - established first direct grant program for students, sets direction for Federal Student Aid for the foreseeable future.

    The Nixon administration wanted to eliminate grant, loan, and work-study programs and replace with the Basic Educational Opportunity Grant (BEOG). Congress added the BEOG, championed by Senator Claiborne Pell, as the foundation of the student aid program, paid to students directly, and portable to any accredited institution. For-profit institutions were also authorized to participate in Title IV, which took higher ed in a new direction (3; 4; 6).

  • Middle Income Student Assistance Act (MISAA) - income limit removed from Guaranteed Student Loan program.

    Up until this point, Federal student loans under the Guaranteed Loan Program had a strict income limit of $15,000 which limited it to students with extreme financial need. This legislation removed the income requirement allowed many more students to be eligible for federally-guaranteed student loans (4; 7). The Carter Administration, along with Congressional Democrats, pushed this legislation to avoid a pursuit of a tuition tax credit (4). Grant funding was also expaned (6).

  • Higher Education Act Reauthorization - BEOG renamed to honor Senator Claiborne Pell

    The BEOG was renamed to honor Senator Claiborne Pell (6). Loan programs were added to provide loans to parents of dependent students--called PLUS loans--and additional loans to independent students, called Supplemental Loans to Students; both increased assistance opportunities, expanding federal aid to a wider array of students (7).

  • Omnibus Budget Reconciliation Act

    As the Reagan Administration took the reins of the federal government, many provisions of the Higher Education Act reauthorizations were eliminated through this budget reconciliation legislation (4). This legislation added financial need back as a consideration in federal student loans. Additionally, a 5% origination fee was added to all federal loans, charged to borrowers, in order to reduce the costs of program administration (4).

  • HEA Reauthorization of 1986

    One Congressional needs analysis formula was established in statue, used to determine eligiblity for all federal financial aid except the Pell Grant (5). This unification of most of the various program methodologies was the first step toward establishing one federal need calculation, which would be used on the Free Application for Federal Student Aid (5). Student loan default rates were also reviewed, and students who were in default on student loans became ineligible for other federal aid (7)

  • Omnibus Budget Reconcilation Act - Cohort Default Rates established

    Concerns about high rates of loan defaults, especially at proprietary schools, led to a Congressional investigation. In 1990, Senator Sam Nunn, a Georgia Democrat, led hearings to investigate. From this investigation, a provision regarding student loans defaults was added to the Budget Reconciliation act that year, which established Cohort Default Rates. This eliminated Title IV participation eligibility at instiutions with high default rates for a fixed period of time, usually 3 years (7).

  • Reauthorization of the Higher Education Act in 1992 brought significant changes to Federal Student Aid - Birth of the FAFSA

    The Direct Loan Program pilot program, which made the government a direct lender rather than as guarantor, was created (7). Loan amounts were increased, and an unsubsidized loan program with no need requirements was created to provide aid to middle-income students impacted by the 1981 cutbacks (4; 7). One Federal methodology was created for needs analysis, including Pell, which allowed for the creation of the Free Application for Federal Student Aid as the only form needed for federal aid (5).

  • Student Loan Reform Act passed.

    Loan limits were again increased, giving students access to more federal funding (4; 7). An Income-Contingent repayment plan was created for low-income students having trouble with their repayment; this capped payments at 20% of discretionary income or 12-year fixed payments, whichver was a better option for the student (7).

  • FAFSA on the Web debuts

    This web-based verision of the FAFSA incorporated skip-logic to simplify the application process by skipping questions which do not apply to the applicant based on their previous responses. This web-based FAFSA, after several modifications and improvements, is still use today (5).

  • Higher Education Amendments of 1998 - eligibility expanded again

    This reauthorization added provisions which extended the Pell Grant to students who graduated, but were pursuing an teaching credential. Additionally, the federal methodology for need calculation was updated with an increase to the income protection allowance, which expended student eligibility for both grant and loan programs (2).

  • Deficit Reduction Act of 2005

    This established Academic Competitiveness Grant (ACG) and National Science and Mathematics Access to Retain Talent (SMART) Grant to encourage STEM fields and teaching (6). Both of these grants were similar to early National Defense programs supporting students in science and math programs which benefitted the military.

  • College Cost Reduction and Access Act

    This bill continued to provide student loan repayment relief by creating the Income-Based Repayment (IBR) plan, which capped payments at 15% of discretionary income, versus the 20% of the income-contingent repayment plan (7). The needs analysis formula was also modified to exclude certain types of untaxed income from calculation, such as Social Security benefits, as well as increasing the income protection allowance again; this expanded eligibility to more students (5).

  • Ensuring Continued Access to Student Loans Act of 2008

    This legislation established aggregate loan limits of 31,000 for dependent students and 57,500 for independent students. Additionally, it ensured students were still able to borrow student loans during the economic downturn by authorizing the Department of Education to buy private lenders' loans (7).

  • Higher Education Opportunity Act

    This bill established lifetime maximum eligiblity for Pell Grant of 18 semesters, where students previously could receive unlimited Pell funding, as long as they were in school (6). This helped to eliminate students using Pell Grant as a source of income indefinitely by remaining in school. Additionally, this authorized the first Summer Pell Grant program, called Year-Round Pell; previously, Pell had only been available for full time student in Fall and Spring semesters (6).

  • Health Care and Education Reconciliation Act

    The created the Pay As You Earn student loan repayment plan, which capped repayments at 10% of discretionary income (7). ACG and SMART grant programs expired at the end of this year, as funding was not reauthorized (6).

  • Budget Control Act

    This eliminated subsidized federal loans for graduate students, in an effort to reduce the number of subsidized loans (7).

  • Department of Defense and Full-Year Continuing Appropriations Act

    Summer Pell (year-round Pell) was ended due to shortfalls in funding (6).

  • Consolidated Appropriations Act

    Pell lifetime eligibility reduced from 18 semesters down to 12 semester. Additionally, a change in eligibility for Pell required students to be eligible for 10 percent of the maximum in order to receive any grant funding. This, unfortunately, eliminated the eligibility of some students who were close to the top of the eligibility range (6).

  • The future of Federal Aid policy

    The future of Federal student aid policy is uncertain. While it will most likely not ever be fully eliminated, the repeated calls for more simplification of both the programs and the application processes could lead to the reduction in eligibility for some students (1). Many legislators would like to see the programs reduced to one grant program and one loan program, which could cause significant problems for middle-income students (1).

  • References

    (1) Aschenbrener, M. (2016). Federal financial aid policy: Then, now, and in the future. NASPA: Student Affairs Administrators in Higher Education. Retrieved from: https://www.naspa.org/constituent-groups/posts/federal-financial-aid-policy-then-now-and-in-the-future (2) Federal Student Aid. (n.d.). Overview of Industry. Student Aid Front2Back. Retrieved from: http://federalstudentaid.ed.gov/site/front2back/overview/overview/fb_02_01_0010.htm

  • References

    (5) Institute for Higher Education Policy. (n.d.). Form & formula: How the federal government distributes aid to students. Looking Back to Move Forward: A History of Federal Student Aid. (6) Institute for Higher Education Policy. (n.d.). Pell grant: Building block of student-based aid. Looking Back to Move Forward: A History of Federal Student Aid

  • References

    (7) Institute for Higher Education Policy. (n.d.). Student loans: How did we get here. Looking Back to Move Forward: A History of Federal Student Aid. (8) U.S. Department of Veterans Affairs. (n.d.). Education and Training: History and Timeline. Retrieved from: https://www.benefits.va.gov/gibill/history.asp

  • Referenes

    (3) Fuller, M.B. (2014). A history of financial aid to students. Journal of Student Financial Aid, 44(1), 42-68. (4) Gladieux, L.E. (1995). Federal student aid policy: A history and an assessment. Financing Postsecondary Education: The Federal Role. Retrieved from: https://www2.ed.gov/offices/OPE/PPI/FinPostSecEd/gladieux.html