Re-evaluations, Tax Credits, and New Perspectives on Student Loans:
After 1972, new initiatives such as the Middle-Income Assistance Act of 1978, which widened Pell Grant eligibility, further catered to the middle class. Already a gap was becoming apparent between the availability of federal aid and access to institutions as tuition began to rise steadily. President Reagan cut spending significantly during the 1980s though demand for loans continued to rise, though less rapidly than before. The leveling off of student aid spending was partially responsible for the shift toward loan spending and away from grant spending that has continued to the present day. Colleges formed new boards such as the 568 Presidents’ Working Group to further discuss financial aid policy as well as assess the financial need of their student body in order to adopt a set of standardized rules. This group built upon the work of the College Scholarship Service as well as the now-defunct Overlap Group of 1958, which had met to smooth the field of financial aid so separate institutions would make the same offer to individual students. But antitrust action eroded the Overlap Group to encourage competition, much to the dismay of college administrators.

The next widening of the gap between loan and grant spending occurred in 1993 with programs that increased borrowing limits and brought about unsubsidized loans for middle-income students. Essentially, more students were made eligible for aid and, as more students entered into postsecondary education of all kinds, tuition naturally increased, Unfortunately, this happened at a rate higher than the rate of inflation, outpacing the average family income throughout the 1990s (Glaudieux and Hauptman). But in 1997, tax credits for college expenses became law, and this was the first instance of non-need-based federal financial aid. President Clinton had aggressively pursued a complete overhaul of the federal financial aid system early in his first term, but the process was overwhelming and new phases of the program intended to pursue long-range reform were lost to downsizing when the Republican party took control of Congress during the midterm election of 1994. The 1998 reauthorization of the Higher Education Act organized federal programs for student aid through the U.S. Department of Education.

In its present state, the system of federal financial aid is “an amalgam of state programs, federal programs and tax credits, practices of private institutions, and programs of some private foundations and charities” (Archibald 2002). The consequence of this ramshackle architecture is “a bewildering maze of programs and options” that is chronically under-performing and in a constant state of deterioration (ibid 2002). For most observers, this situation screams for reform, but where precisely to begin is a difficult question to address. Among the many models and formulas, the frontrunner in the reform debate is a more integrated approach to financial aid. This approach begins with making higher education more affordable by closing the gap between loan and grant spending. Presently, students overwhelmingly rely upon loans, and the combined loan cap increase and demand for college admission has helped drive tuition up far beyond the Pell Grant maximum.

A more integrated approach to federal and state grants exists in the form of the Leveraging Educational Assistance Program from the Higher Education Act. The federal government matches 50 cents to every dollar spent at the state level, which early in the twenty-first century has amounted to a combined $150 million a year, but is only a fraction of the total spent for aid. Meanwhile, programs such as the Guaranteed Student Loans and Tax Credits remain immensely popular with the middle class, which makes them politically valuable (Price 2004).

Today the focus on affordability continues to center on the middle class, subordinating the discussion on access (Archibald 2002). One result of the affordability crisis is that students from low-income families and, in particular, minority students commonly attend less-expensive and lower-tier colleges. And while debts accrued by students in this situation are not necessarily higher, the subsequent ability to pay the debt off is usually much more difficult for students graduating from trade schools or lower-tier colleges since the average starting income is typically much smaller than students graduating from upper-tier colleges (Price 2004). In other words, even as the federal government spends some $86 billion a year in financial aid, solutions remain elusive for successfully overhauling such a complex financial system.