Financial aid describes the money that the federal government, state or municipal programs, colleges, private foundations and individual companies give to students in the form of grants, scholarships, below-market loans or tax breaks. Without aid, higher education — and indeed the American dream — would be out of reach for many low- and middle-income families.
In 2019-20, undergraduate and graduate students collectively received $242 billion in grants from all sources, federal work study, federal loans, and federal tax credits and deductions, according to CollegeBoard. Students borrowed another $14 billion from non-federal sources in the form of private loans, which do not fall into the financial aid category.
Generally, there are two main reasons a student receives financial aid: the student’s “need,” (typically, a family income that is not sufficient to pay a college’s costs) or so-called “merit,” which may be based on the student’s grades, test scores or other talents, such as in music or athletics. Increasingly, many colleges award “merit” (more precisely “non-need based”) aid to most or even all students as a marketing ploy, since it flatters students and gives them a discount on the often-shocking sticker price of a four-year college.
In 2019, private colleges provided enough grants and scholarships that they discounted their published tuition (or “sticker price”) by a record 53 percent, on average, for first-time, full-time freshmen. While many colleges have raised their sticker prices by enough that they can easily survive on the half they actually collect, some private schools — especially those with little name recognition or in unattractive locations — are having to discount so much that they face financial peril.
Despite the increase in private colleges’ discount rates, overall, families are shouldering more of the cost of college than they used to, thanks to rising tuition, state budget cuts and a decline in the purchasing power of the federal Pell grant.
While the fights over financial aid have changed over time, they tend to center on the evergreen themes of fairness and adequacy. In essence: Are we, as a nation, providing enough aid to make college affordable for everyone, and are we distributing that aid in an equitable manner?
Whatever the topic, stories about student aid tend to resonate with readers. According to Google Trends, in 2021, the term “financial aid,” was searched more than the names of many celebrities, including Kendrick Lamar and Carrie Underwood.
Updated June 2021.