CBO Report Analyzes Federal Student Aid by Type, Income Level

By Emily Isaacman, NASFAA Communications Intern

The federal government provided $91 billion in direct financial assistance to postsecondary students in 2016, according to a report released by the Congressional Budget Office (CBO) Monday.

The report, compiled at the request of Sen. Lamar Alexander (R-TN), chairman of the Senate Health, Education, Labor, and Pensions (HELP) Committee, comes as lawmakers are considering making changes to many of these programs in reauthorizing the Higher Education Act (HEA). The report made no policy recommendations, in accordance with the agency’s objective purpose.

When fragmented by program type and income grouping, the report shows that more than 50 percent of overall benefits went to households in the bottom two-fifths income brackets, while the top two quintiles received about 30 percent of the overall assistance.

Even still, a recent report from the Pell Institute for the Study of Opportunity in Higher Education found that lower-income students enroll in and graduate from postsecondary institutions at much lower rates than their peers who come from wealthier families.

When measured against the cost of attendance, the CBO’s report found that lower-income students receive the most federal assistance, as they tend to enroll in less expensive schools and can qualify for federal spending programs.

Students from households in the lowest-income quintile, those families generally making less than $51,937 per year depending on family size, obtain about one-third of their cost of attendance from federal assistance, while students from households in the highest-income group receive less than 10 percent of their expenses from federal support.

The distribution differs when broken down by the two main types of assistance: direct federal spending and tax credits and benefits. Spending programs, such as Pell Grant and Direct Loans, are much more common in low-income households, while tax preferences, such as the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit, are spread more evenly.

Spending programs, which included the Pell Grant and Federal Supplemental Educational Opportunity Grant (FSEOG) programs, student loan subsidies, veteran benefits, and Federal Work-Study, accounted for $54 billion, or almost 60 percent, of total federal assistance in 2016.

By program, three emerge at the highest funding levels:

  • Pell Grants (about $28 billion in 2016)

  • Federal Direct Loan Program (about $95 billion issued in new loans in 2016)

  • Education benefits for service members and veterans (about $12 billion in 2016)

Since Pell Grants — the largest federal spending program — award aid based on financial need, federal spending is concentrated among low-income households. Pell Grants and FSEOG covered 16 percent of the cost of attendance for households in the lowest-income group in 2016, but only 1 percent for those in the highest-income group.

Many higher education advocates, NASFAA included, have called upon lawmakers to tie the maximum Pell amount to inflation to help low-income students access, and complete, a degree. An appropriations bill for fiscal year 2019 (FY 19), which is currently moving through the House, proposes keeping the maximum award amount level.

Regarding student loans, the CBO report found federal spending was likewise concentrated in lower- and middle-income groups.

Tax preferences were most pronounced among middle-income households. The structure of the U.S. income tax system burdens higher-income households, which represent the majority of postsecondary students, with higher taxes. Certain tax preferences, such as deductions, rise with income.

Tax expenditures overall cost the government $37 billion in 2016, more than half of which came from the AOTC and the Lifetime Learning Credit. These services spread across income groups but were most concentrated in middle-income households.

While low-income students stood to benefit more from federal assistance overall, an analysis from the Institute for Higher Education Policy found that students from lower income backgrounds could only afford 1 percent to 5 percent of 2,000 colleges examined.

 

Publication Date: 6/27/2018


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