In the Beginning: Financial Aid 1080 – 1944
Financial aid is a much older concept than many imagine. To go back to the beginning of financial aid as an institution, one must look as far back as 1088 CE at the University of Bologna. Originally created by a committee of historians in Italy, Bologna is a University in North Italy and is the oldest continuously operating university in the world (Gaston, 2012). Students from all over Europe and the world would gather in Bologna and learn from preeminent scholars. The scholars and professors at the university operated more like a freelance instructor – holding lectures and courses they design themselves and charging only what the students were willing to pay. This means, if an instructor’s course was irrelevant or of poor quality, the students would find a different professor. This promoted quality education through competition between the professors at the university (Long, 1994).
Because of Bologna’s unique location in Italy at the crossroads of the early world, the University became packed with numerous foreign students eager to take advantage of the educational opportunities. Consequently, finances were difficult to collect – students could simply drop out and go to their homeland without paying their balance. To fix this, Bologna grouped students by their nationality and called them “nations”. So, all French students would belong to one nation, all Austrian students would belong to another, and so on. If an English student left without paying their bill completely, the responsibility fell to those within his “nation”. Finally, when each nation grew big enough, they would form a “universitas” (this is where the term University comes from) to collectively pay debts to their nation. This method gathered resources to support each other’s student debts and supplies for those who could not afford the full cost of attendance. And the first need-based collective student aid was born (Long, 1994).
As colleges and universities began to spring up across the globe, many other forms of student aid arose too. The most obvious form of aid for the time was assistance for students studying to join the church and become a minister. Other efforts came from gifts between rich families – but neither forms focused on competition, merit, or need and often excluded the poorest of students (Fuller, 2014).
Jumping forward a few centuries and one will find that the same wealthy family gifts (or “scholarships”) and theocratic financing were carried into the New World. The sense of charity and support for student education remained the same when brought across the Atlantic but quickly transformed as colonists saw the benefit in supporting their students’ education – if not for their own benefit – but for the benefit of the colonial community as a whole. Many rich and well-off colonists began to donate much more to universities within the colonies to assist in building the much needed facilities to support the growing student population. And, just like the soon-to-be United States, colonial ethics began to stray away from the wealthy, theocratic, and powerful, and moved more towards a secular and individual ethos. One can see this at work as soon as 1643 when Lady Anne Radcliffe Mowlson donated funds to Harvard with an interesting rule attached to the funds: the interest on the donation must be used to aid poor students’ pursuit of education (Fuller, 2014). The trend spread incredibly fast and soon, every major university in America had scholarships that resembled Lady Mowlson’s contribution.
Likewise, Harvard also established the first student loan in 1838 when they created a private student lending agency with the goal of lending zero-interest loans to students who could not afford to attend. The program was created by a group of wealthy alumni and contributors seeking to supply need-based aid to students. The student’s wishing to use these funds to attend needed to apply for the loan – creating, what one could imagine as, the first financial aid office of sorts. Students must make a petition to the university president by the first class day stating what forms of aid, if any, they are already receiving and (if they were under 21) written approval from their parents. The program considered the support of “young men of ability to earn an education, when their families are not able to help them, seems a peculiarly judicious and useful charity…” (Harvard University, 1874). These first scholarships and loans paved the way for a more need-based financial aid for the young nation and proved superior to the old-world financial aid as the United States quickly entered the Industrial Revolution by the late 1800’s.
The Industrial Revolution also increased the need for educated workers. More complicated and involved technology began to spread quickly and required more education to operate and innovate the new economy. Not only was there huge advancements in technology, but professional organizations were created in fields like law, medicine, engineering, psychology and accounting. As more students entered the school system, colleges across the country struggled to handle their limited financial aid resources.
To better reward and support the brighter students, universities began seeking a standardized test to create competition to determine who would be priority for the now limited scholarships. In the 1930’s, Harvard’s new president, James Bryant Conant reached out to Dean Henry Chauncey, an ex-army test administrator to create a standardized test for scholarships and other awards. They took a modified version of the Army Alpha Test and the Scholastic Aptitude Test (SAT) to create a way for colleges to select the best applicant. This was one of the first ways universities used merit to select the recipitants of their awards. By 1941, the SAT was completed by all Harvard students as a requirement of admission and by 1944, all Ivy League schools started requiring a minimum SAT score for admission and scholarships (Lemann, 2004).
Financial Aid Foundations 1944 – 2000
As one can imagine, the World Wars that plagued the beginning of the 1900’s had a huge impact on how the United States viewed financial aid. In fact, war has always had interest in financial aid by providing financial assistance for soldiers’ higher education. Ever since the Revolutionary war, the US Government promised financial assistance to give an incentive to join the fight. Unfortunately, this plan ran into trouble almost immediately when the White House ran into financial struggles. The same problem arose after the War of 1812 and even after World War I which resulted in very serious protests known as the Bonus Marchers: veterans numbering 43,000 occupied much of Washington D.C. to protest the Government’s promise of military pensions back in 1924. Wanting to avoid similar problems after World War 2, President Roosevelt passed the Servicemen’s Readjustment Act of 1944.
The Servicemen’s Readjustment Act, or better known as the G.I. Bill, was a monumental moment in financial aid history. In just one decade, student enrollment doubled and provided education for those who would have not been able to afford it before the war. Additionally, and perhaps more importantly, the G.I. Bill provided the Government a central role in coordinating financial aid. The Bill had three profound effects that are credited to forming the foundation for the financial aid system we have today: One, it established new federal student aid systems unlike anything the world had seen; two, the G.I. Bill established the aspect of quality in educational standards by using accreditation of universities; and three, institutions needed trained administrative professionals to manage the procedures and funds from this huge influx of financial aid and student attendance (Fuller, 2014).
With the federal investment came concerns that the funds are not being used properly. The Higher Education for American Democracy Report and Senate Special Committee Investigation of National Defense (known together as the Truman Commission Report) were created to investigate the scholarships, fellowships, and loans provided by the government. The Truman Commission Report was the first effort from the federal government to ensure quality, but did little to establish a framework. The findings did inspire the Senate to establish a Special Committee on Labor and Public Welfare with a Select Committee to Investigate Educational, Training, and Loan Guarantee Programs. This committee, however, found that hundreds of universities lacked any sort of quality controls and often overcharged students with financial aid (Congress, 1951). This Special Committee report was the first source claiming that federal aid was increasing college costs and that campus leaders were abusing the aid to increase cost of tuition.
As a solution, the Veteran’s Readjustment Assistance Act of 1952 was passed as a reauthorization of the G.I. Bill (The Servicemen’s Readjustment Act of 1944/ The G.I. Bill must be “reauthorized” ever 4 years or so by Congress). As a result, students must be enrolled at accredited institutions to receive federal aid. The Department of Education still relies of this accreditation to determine quality of universities.
Just a few years later, the National Defense Education Act was passed in 1958 which invested $575 million in accredited institutions. The act created the National Direct Loan System (later called the Perkins Loan Program) which offered loans to qualified students who were majoring in areas supporting national defense (Military sciences, engineering, science, math, and education) regardless of financial need. The loan was to be repaid within a 10-year term with a 3% interest rate. The loan also included a revolutionizing forgiveness clause with which students who went on to teach after college received a 15% reduction in their loan payments for every year they taught in a school.
As I continue, the financial aid methods will sound more and more familiar to modern-day financial aid officers. Especially when, in 1954, the College Board created an application aimed at providing low income and minority students priority to financial aid. This application is considered the ancestor of the Free Application for Federal Student Aid, or the FAFSA.
The financial aid policies that universities have come to know and love was initially birthed in 1965 with The Higher Education Act: an accomplishment by Lyndon Johnson that intertwined higher education and the Federal Government – but more importantly – established the idea that education is an issue of national interest (Fuller, 2014).
This act created what is known as Title IV funds that created many procedures as well as aid programs we are familiar with today. First, the Higher Education Act (HEA) continued to require students to attend accredited institutions that conformed to reporting procedures. Second, the HEA created a guaranteed loan program by fitting the government between the lender and the student (or borrower). This allows ease of access to loan for students, along with the confidence of the federal government to repay the loans if a student defaults.
The 1972 reauthorization created the Educational Opportunity Grants aimed to assist the neediest students obtain interest-free loans. This program is known as the Stafford Loan program and is still in effect today with interest and non-interest bearing loans. The reauthorization also created the State Student Incentive Grant Program with which the Federal Government offered to work with State Governments to offer State-level financial aid.
The 1980’s reauthorization created many brave new forms of financial aid including the popular Basic Educational Opportunity Grants Program. If you have not heard of it, that is because it was later named after Senator Claiborne Pell and is now called the Pell Grant. This is the first federal grant that does not require any repayment what so ever.
The 80’s also witnessed the first muttering of major financial aid problems universities are dealing with today. The Stafford Loan became the most used student loan program by far and seemed to correlate with the dramatic rise in tuition costs – especially when one realizes that about 60% of all students utilizing the Stafford Loan is taking out the maximum amount of funds (Fuller, 2014).
President Reagan, running on the promise to reduce college costs and reduce financial aid policies, created a special committee to investigate the nagging claims that financial aid caused colleges and universities to increase cost of tuition. The Secretary of Education, William J. Bennett, was the leader of this crusade to look into what information universities had access to claiming that they could cooperate and together raise tuition.
In what is now called the “Bennett Hypothesis”, William Bennett claimed that the huge and sudden influx of financial availability cause universities to increase the costs of attendance in order to make more money – essentially profiting off the financial aid. It makes sense at first glance: students can receive more and more money and have access to guaranteed loans – universities have a great opportunity to cash in on this and the rhetoric stuck. The hypothesis, however, has not been proven. Studies have found that financial aid is not the cause of increased tuition (Strauss, 2012).The legacy of this claim has only created distrust of universities and financial aid as a whole in the publics’ eyes and is just the beginning of politics edging its way into financial aid policy.
The 1980’s started out ominously as President Reagan vowed to cut spending and abolish the Department of Education (sound familiar?) – But ended on a good note. The Department of Education was not cut, and very little of the financial aid budget was cut. In fact, it steadily increased into the 1990’s where President Bush and Congress passed the 1992 reauthorization of the HEA to ease the process of getting student loans to students. Along with the Student Loan Reform Act of 1993, the first Bush administration planned to make all federal loans a direct loan, make the repayment process easier, and reduce paperwork. The up side to these changes is that it is now much easier to receive federal loans, the down side is that students began defaulting on student loans as more loan money was made available to students.
The Clinton administration passed similar laws to make financial aid easier to obtain. But the landmark changes branched out passed just loans. Families were depending more and more on loans to pay for college so Congress worked with the Internal Revenue Service to develop the use of college savings plans (Section 529 of the IRS Tax Code). From this, state and private programs worked with federal plans to offer tax breaks for programs that saved for colleges. Today, almost every state has their own college savings plan. The outcome of this development was that families no longer had to rely on just loans to pay for college; saving for college was a new strategy that seemed to be a fix for the growing loan problem (Fuller, 2014).
Financial Aid Today: 2000 – 2017
The beginning of the new millennium started with efforts to handle the increasing cost of attending college which has been increasing by triple digits annually since the 80’s. The Higher Education Act was reauthorized in 2008 – rebranded as The Higher Education Opportunity Act of 2008 (or HEOA) – and focused on limiting cost of college and increasing transparency. This is where financial aid offices get their requirement to provide students tools like the net-price calculator and other facts about the university (U.S. Dept. of Education, 2008). Despite its efforts, the pattern of increase loan lending and taking out the maximum amount of loans continued to increase and accelerated due to the recession that followed.
More transparency procedures were created when Secretary of Education Margaret Spellings had a hard time finding information about the cost of tuition and attendance at her daughter’s university (which was a private liberal arts university). Spellings created the Commission on the Future of Higher Education to improve the value of higher education, affordability, access, accountability, and financial aid. But, unfortunately like everything Congress seeks to do, the Spelling Commission ended up being, “a grand adventure that ended with little more than a whimper” (Zemsky, 2011).
The other accomplishments that this period boasts were just as short lived as the Spelling Commission. Just like in the 1950’s, the Federal Government sought to increase the nation’s enrollment in concentrations that focused on national security during the Bush Administration. Grants like the Academic Competitiveness Grants and the National Science and Mathematics Access to Retain Talent (or SMART grants) were created to incentivize more students to enter into science and math majors. The Academic Competitiveness Grant was an extension of the Pell Grant for students who have completed challenging courses in college (think of today’s Texas Grant). And although they were both good ideas by offering more financial aid while also incentivizing certain majors, they were short lived and the Department of Education cancelled them in 2011 – most likely a way to save money in the face of financial strains (U.S. Department of Education, 2014). It can be argued that the SMART Grants were replaced by local and state STEM scholarships.
There was, however, a push that established the idea of loan forgiveness. The idea was not new, but a rejuvenated method of dealing with the growing loan problem by extending assistance to students who join the public service after college. The program discontinued any remaining debt after ten years of full-time employment in public service such as education, law enforcement, military service, and other government careers.
But even with those programs, the 1990’s and 2000’s saw little work done to handle the looming loan problem. Morgan Adamson worded it accurately when she reflected that, “of all the transformations that have taken plane in the American university during the post 1968 era, perhaps the most radical is the shift toward financing higher education through borrowing money”. The system that was once concentrated on helping the individual and investing in the country’s education is now steering more and more towards loans that, “…ensures that intellectual futures are bound to the production of surplus value…a student is no longer a student confined, but a student confined by debt…” Adamson continues to explain how student loans resembles a debtor’s prison like those of Victorian era Europe. The problem of loans becomes an even more frightening phenomenon when one keeps in mind that the banks bear no risk with the federal government provides several safety nets for the banks but little assistance for students. Adamson explains, “the state has played a key role in attracting banks to an otherwise risky population, students…to allow them to take out massive loans with surprising ease” (Adamson, 2009).
The reliance on loans for financial aid, “…is a form of investment in human capital [that] precisely analogous to investment in machinery, buildings, or other forms of non-human capital. Its function is to raise the economic productivity of the human being” according to Milton Friedman – but a fear is now spreading that human productivity cannot keep up with the market as jobs become increasingly difficult to find (Friedman, 1955). And with financial aid policies susceptible to political influence, the future of financial aid seems unclear at the moment. Although rumors have been spreading about a government “bail out” of sorts like the kind we saw with the banks in the early 2000’s would be implemented for student debt, it is becoming less and less likely as government cuts and financial struggles become a reality (Long H. , 2017).
The Future of Financial Aid
In recent years, students eagerly follow politics hoping the United States would take the leap and follow other Western countries’ idea of tuition free college. Free college, in what once used to be a radical dream, has become a serious debate point as politicians like Senator Bernie Sanders among many others have brought it to the forefront of American politics in the 2016 election. Sanders points out that, “This is not a radical idea. Many nations around the world invest in an educated workforce that isn’t burdened with enormous student debt” and that countries like Germany, Denmark, Sweden, and much of Europe have already implemented a tuition free program. The difficult part for Americans to believe is that these countries are not encumbered with loan debt allowing their economies to avoid being tied down by loans creating a unique growth (Carter, 2017).
The discussion has only just begun – some colleges have already started a tuition free program of some sort – but to the disappointment of most students, the debate is not won yet. Although in the minority, many Americans still remain skeptical of tuition free college (Mosendz, 2016). The hope of free college looks even more bleak when one takes the desire for budget cuts into consideration.
Although not yet approved, the Trump Administration released a 2018 budget proposal that aims at cutting many financial aid programs. The budget hopes to cut an estimated $143 billion over the course of 10 years by allowing programs like the Perkins Loan Program to expire and phasing out or limiting the subsidized loan program and the Public Service Loan Forgiveness Program. It also promises to cut another $76 billion by streamlining income-based repayment programs. These cuts worry many. Just like the reauthorizations in the past, The Higher Education Opportunity Act is up for reauthorization. It was postponed in 2015 to be renewed later and with a goal like balancing the budget, it is likely to see some sort of cut as soon as 2018 (Kreighbaum, 2017)
At the risk of making a foolishly optimistic or pessimistic prediction, I feel comfortable saying that the loan crisis will continue on at least through the end of this decade and, if the budget cuts become a reality, maybe longer. The only hope in the short run would either be a utilization of college savings programs, loan forgiveness or a loan reformation, some sort of state-level financial aid to take the place of the federal financial aid, or even tuition free college. One thing is clear when reviewing the history of financial aid: society as a whole values their students and will continue to express its support for a more educated nation.
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