Federal Student Aid

The federal government funds higher education primarily through student-based financial aid (i.e. vouchers), in contrast to K-12 education funding, which is mostly institution-based (i.e. much like aid to local school districts).

Title IV of the Higher Education Act of 1965 (HEA) established the first federal grant and loan programs. When the HEA was first passed, its emphasis was on expanding college access by providing grant aid to low-income students who otherwise would not pursue post-secondary education. As college costs have increased over time, the federal government’s investment in higher education has shifted to also support heightened college affordability by providing relatively low-interest student loans. Today, approximately 62 percent of federal student aid funding is in the form of government guaranteed and subsidized student loans and about 15 percent is in the form of grants. Tax benefits make up about 23 percent of total federal aid.

Federal student aid consists of loans, grants, and tax benefits. Loans include Direct and Perkins Loan programs. Grants include Pell Grants, Supplemental Educational Opportunity Grants (SEOG), Iraq and Afghanistan Service Grants, and TEACH Grants. Tax benefits include the exclusion of scholarship income; Lifetime Learning and American Opportunity tax credits; deductions for student loan interest and higher education expenses, 529 plans, parental personal exemption for students aged 19 and over, and exclusion of employer-provided educational assistance.

Federal Student Loans

The federal government provides various types of student loans to help promote access to higher education. The common goal among the different loans is that they allow students to obtain financing for higher education at better terms than those available in the private market.

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Federal Pell Grants

he U.S. Department of Education awards Pell Grants to eligible students based on a needs-analysis formula in federal law. Grants are awarded to individual students on a sliding scale based on a student’s expected family contribution (EFC), and the student’s enrollment status (part-time or full-time).

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Campus-Based Aid

Campus-based aid programs include loans, grants, and work-study dollars which are first allocated to institutions, who then distribute the money to students at their discretion.

Education Benefits to Veterans and Servicemembers

As part of its readjustment benefits program, the Department of Veterans Affairs (VA) provides funding for education for veterans of the armed forces as they return home. The Department of Defense (DOD) also provides education funding to current service members, through its Tuition Assistance program.

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