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A Brief History of Financial Aid: Part II

A Brief History of Financial Aid: Part II

(You can read Part I of “A Brief History of Financial Aid” here.)

By the 1960’s, American colleges and universities found themselves in a boom period. Thanks to federal investment in higher education, through loans and grants, enrollment in America was surging. Women and minorities found open doors that had never existed in such profusion before. And going to college on loans and grants was no longer contingent upon need; the middle class benefitted, too.

Another obvious reason for the uptick in enrollment was, of course, the Vietnam War — enrolled students wouldn’t be drafted into military service. By the 60’s, both the veterans and their children benefitted under a system that increased America’s stock of educated scholars, engineers, and scientists.

The 1970’s changed everything. The American economy was beginning its slow, painful decline, and the oil embargoes and double-digit inflation didn’t help. College tuition and fees climbed during this time, and at a pace faster than inflation. Federal grants began to be replaced by private loans that were heavily subsidized by the federal government at the same time public investment in college began to dissipate.

In short, family income fell and college got more expensive. How to pick up the slack? Loans.

In the 1970’s, as the Vietnam War became history, colleges actually saw a decrease in enrollment, which must have come at a shock. For one thing, young men didn’t need to enroll to avoid the draft. Falling birthrates added to the struggle. Granted, minorities, women, and nontraditional students were increasing, but the overall shortfall was evident.

The 1972 reauthorization of Johnson’s Higher Education Act laid out what is our current model of financial aid. What the colleges wanted was a formula-based and enrollment-driven model that gave money to colleges directly. Instead, the act stipulated that students received the financial aid money and gave it to the colleges that fit their needs.

The result? Competition among colleges — in short, a market.

Although President Carter’s administration reauthorized the HEA in 1980, President Reagan slashed funding to federal aid so that it became once again based on need. In light of decreased funding, tuition, naturally, increased. The government responded by increasing borrowing ceilings. Loan defaults among students and proprietary school fraud grew, and the public knew it. Public support and faith in higher education was already falling; increased expense and debt only hastened the disillusionment.

Grant support dropped, as did the purchasing power of federal loans. Inflation, which had been a problem since the 70’s, remained. The perfect storm, which had been brewing for a long time, set the stage for higher education’s contemporary dilemma.

(Check out the third and final installment of “A Brief History of Financial Aid” next week.)

By Sean Hill, Senior Content Writer, Capture Higher Ed