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Financing Postsecondary Education: The Federal Role - October 1995

Implications of Demographic Trends in Higher Education on Student Financial Aid Over the Next Ten Years

Mary J. Frase

The extent of the demand for student financial aid is very much a function of the level of college enrollment; the characteristics of the students, their families, and the institutions they attend; and college costs. This paper provides some background information about possible future trends in these factors over the next ten years, as they may relate to issues of financing college costs.

In order to understand what the future context for student financial aid is likely to be, it is first important to examine the present and how it evolved. Therefore, this paper begins with the present, then discusses the trends of the past ten years, and then turns to what seems likely to happen in the next ten years. The major findings in the paper are summarized below.

Major Findings


Characteristics of recipients of student financial aid

Implications for student financial aid

The Present

In the fall of 1995, over 14 million students (undergraduate and graduate) were estimated to be enrolled in two- and four-year institutions of higher education, which is the highest level ever. The majority of these students are women, white, 24-years old or younger, and they attend public, 4-year institutions full time (see Table 1 ). In addition there were approximately 1 million students in noncollegiate (i.e., less than two-year) institutions1 in the fall of 1995, about half of whom were enrolled in private, for-profit (i.e. proprietary) schools. Much less information is available about enrollment levels and the characteristics of students in noncollegiate institutions but, in general, such students are more likely to be women, older, black or Hispanic, attend full time, and come from low-income families than are students attending institutions of higher education.

Financing their children's college education can be a substantial challenge to many families. In 1993, the average charges for tuition, room, and board were about $5,800 for public institutions of higher education (for an in-state student) and $15,800 at a private institution. These charges represented 14 percent and 39 percent, respectively, of median family income (for families with children ages six to 17), and even higher percentages for families with lower income levels.

Student financial aid plays a major role in assisting families in paying for postsecondary education. For the average full-time, dependent undergraduate the proportion of total college costs covered by some form of financial aid -- grants, loans, work-study -- varies substantially by family income and the type of higher education institution attended, from 59 percent for students from low-income families in private, not-for-profit, four-year institutions to 6 percent for students from high-income families attending public two-year institutions in 1992-93. In general, the proportion of total costs covered by aid decreases as income levels increase and compared to students in public, four-year institutions, is higher for students in private, not-for-profit, four-year institutions and lower for students in public, two-year institutions.

About 40 percent of all postsecondary undergraduate students (full-time plus part-time) received some form of student financial aid in 1992-93, and about 30 percent received some form of federal aid -- 23 percent received federal grants and 19 percent federal loans. The likelihood of receiving aid (either any aid or federal aid) varied by student, family, and institutional characteristics (see Table 2). In general, among undergraduates, those more likely to receive some form of aid were women, blacks and Hispanics, younger students, low-income students, full-time students, those attending private institutions (especially proprietary schools), and those attending institutions with higher tuition and fees. Undergraduates attending four-year institutions were more likely to receive aid than those attending two- to three-year institutions but less likely than students at less-than-two-year schools. Graduate and first professional students were about as likely to receive some form of aid as undergraduates, but they were less likely to receive any federal aid. First professional students were more likely to receive any aid, and particularly federal aid, than graduate students.

The Past Decade

Enrollments in institutions of higher education grew approximately 18 percent from 1985 to1995 (with most of the growth occurring from 1985 to 1991).2 This increase in enrollments has taken place in light of the fact that the number of new high school graduates per year declined by about 8 percent over the decade. Similarly the number of 18-24 year-olds, considered the traditional college-age population, declined by about 12 percent between 1985 and 1995. Enrollment continued to increase for two major reasons: college enrollment rates (i.e. the proportion of the age group enrolled in college) for 18- to 24-year-olds increased and the size of the age group 35 to 44 increased. Enrollment rates for those over 24 did not change, but the number of students over 35 increased considerably because the number of 35- to 44-year-olds increased as a result of the aging of the babyboom generation. As a result of these trends, the proportion of college students who were 35 or older increased between 1985 and 1995.

There were other changes worth noting in the composition of college students in the last ten years (see Table 1). Two of the most noticeable were increases in the proportion of college students who were women and in the proportion of minority students. The number of female students increased by 25 percent over the decade compared to 10 percent for men. The higher proportion of women reflects both that women are now more likely than men to enroll in college in the fall immediately following high school graduation and that college enrollment rates among those 25 and older are higher for women than for men. The number and proportion of Asian and Hispanic students have grown considerably in recent years.

Other changes in the college student population in the past decade included a slight increase in the proportion of students attending two-year institutions and the proportion of part-time students. Older students and those attending two-year institutions are more likely to attend part time, and the increases in the proportion of two-year and older students may have contributed to the increase in the proportion of part-time students between 1985 and 1995.

The proportion of high school graduates going on to college in the fall immediately following their graduation has been rising, from about 53 percent for 1983 high school graduates to about 62 percent for 1993 graduates, and this occurred among graduates from all family income levels. Although the gap in college attendance among students from low and high income families generally has not closed (50 and 79 percent, respectively, for 1993 graduates),the proportion of low-income high school graduates going immediately to college after high school is double what it was twenty years ago.

Another important trend, and one that may be contributing to the trends in enrollment, involves the economic returns to attending and completing college. Those who have completed college earn considerably more than those who have attended some college, and both groups of college-educated workers earn more than workers of the same age who did not continue their education after high school. The relative earnings advantage associated with completing college has increased over the past two decades (as has the earnings advantage for women, but not for men, of attending some college). Furthermore, the earnings advantages for attending some college and for college completion are greater for women than for men. (In 1993, among women workers ages 25 to 34, those who had completed college had median annual earnings 99 percent higher than those with only a high school education, whereas, for men, the advantage for college graduates over high school graduates was 57 percent.) The growth in the earnings advantage of those with some college or for college graduates relative to high school graduates may have contributed to the increasing enrollment rates among the traditional college-age population. The higher earnings advantage for women may be a factor in the higher enrollment rates for women than for men.

While the returns to education have been rising, the cost of attending college has also been rising -- faster than inflation and faster than family incomes. Tuition, room, and board rose 42 percent at public institutions of higher education and 68 percent at private institutions between 1980 and 1993, after taking inflation into account. Tuition, room, and board at public institutions as a percentage of median family income (for families with children six to 17) rose from 10 to 14 percent (and from 22 to 39 percent for private institutions over the same period). The increases in college costs relative to income were even greater for low-income families.

Projected Trends for the Next Ten Years

Higher education enrollment will continue to increase over the next ten years, but at a slower rate, about 6 percent from 1995 to 2005.3 Nearly all the growth in enrollment will occur in the number students under the age of 25. As the children of the babyboomers begin to graduate from high school, the number of new graduates will increase (22 percent between 1995 and 2005) as will the size of the 18- to 24-year-old population (11 percent increase over the same period). On the other hand, the population 25 to 29 and 30 to 34 will decrease (7 and 15 percent, respectively) and those 35 to 44 will increase slightly (2 percent). The result will be a nearly stable number of students 25 and older and a decline in the proportion of such students. (A decline in the number of students 25 to 34 will be offset by an increase in the number of students 35 and older.)

Some of the recent trends in the characteristics of students are likely to continue in the next decade, some will be reversed, and in other areas there will be stability. For example, the number of women students will grow less than the number of men over the next decade (see Table 1). While the proportion of students attending public institutions will be stable, the proportion attending full time and who are undergraduates will increase, reflecting the increase in younger students, who are more likely to attend full time. The number of graduate students and of first-professional students is projected to be slightly lower in 2005 than in 1995. Similarly, nearly all the growth in students between 1995 and 2005 is projected to be in full-time students, with relatively little increase in the number of part-time students.

In light of the underlying trends in the population, it is likely that the proportion of minority students will also increase in the next decade. The proportion of the 18- to 44-year-old population that is white, non-Hispanic will decline from 72 percent in 1995 to 67 percent in 2005, as the white population in that age range will decline about 8 percent and the minority population will increase 28 percent. Among 18- to 24-year-olds (where most of the population growth among 18- to 44-year-olds will occur in the next decade and the age group with the highest college enrollment rates), the white population will grow by 6 percent compared to 21 percent for minorities. Among minorities, the rate of population growth will be much greater for Asians and Hispanics than for blacks (e.g., increases in the number of 18- to 24-year-olds of 27 and 41 percent for Hispanics and Asians, respectively, compared to a 12 percent increase for blacks between 1995 and 2005). Given that college enrollment rates for minorities have historically been lower than for whites, it is unlikely that the change in the racial/ethnic composition of college students will be as great as in the population as a whole. Nevertheless, it still seems very likely that the trend of the past decade of increasing proportions of minority students will continue, particularly in terms of Hispanic and Asian students.

Implications for Student Financial Aid for the Next Decade

The segments of the college student population that will be growing (or growing faster) in the next decade are ones which, in the past, have been more likely to receive student financial aid, particularly federal aid. As noted above, younger students, undergraduates, full-time students and minority students are more likely to receive assistance than others. All these segments of the college student population will be growing, both in absolute numbers, and as a proportion of all students. Furthermore, while the growth in college enrollments in the next decade will be slower than in the last one, it will continue, and is likely to be greater than in the last few years with an upturn in the number of high school graduates beginning in 1996. Thus, the need for student financial aid will continue to expand.

However, changes in the number of students and their characteristics are only part of the context in terms of need for student financial assistance. Trends in college costs and family incomes will also be important. The extent of increases in tuition/fees will depend on a variety of factors, including trends in public funding for higher education (which has been declining as a percentage of all revenues for institutions of higher education) and whether institutions can realize productivity increases. Trends in family income, relative both to inflation and college costs, will also be important. If family incomes grow at a slower pace than college costs, the need for aid will be much higher than if family incomes increase at a faster rate or at the same rate as college costs. Changes in the distribution of family incomes (i.e., what happens to the poverty rate and to the size of the gap between rich and poor families) would also affect the pressures on families trying to finance college educations for their children. Thus, while the projected college enrollment trends suggest a greater demand for student financial aid in the next decade, the size of that increased demand will depend on a variety of additional factors (which in turn could affect enrollment trends as well).

Mary Frase is the Senior Technical Adviser in the Data Development and Longitudinal Studies Group, National Center for Education Statistics, in the U.S. Department of Education. Prior to joining NCES in 1985, she was a faculty member at Teachers College, Columbia University and worked as an independent consultant advising state and local governments and conducting research in the areas of education policy, education finance, and state-local finance.

1 Throughout this paper, "higher education" or "institutions of higher education" generally refers to 2- and 4-year institutions. "Postsecondary education" is a more inclusive term and includes all less-than-2-year institutions (noncollegiate institutions whose highest award is less than an associate degree) as well as 2- and 4-year institutions. (A few less-than-2-year-institutions are included among the institutions of higher education.) Most of the discussion in the paper is restricted to students in institutions of higher education, because relatively little reliable data are available, especially over time, for the less-than-2-year institutions. The major exception is the discussion of student financial aid and Table 2, which include all postsecondary students.

2 Noncollegiate postsecondary enrollments in instiutions of higher education over the same period.

3 The estimates of changes in higher education enrollments between 1995 and 2005 reflect the middle alternative of enrollment projections prepared by the National Center for Education Statistics (NCES). These projections are based on the middle-level population estimates, prepared by the Bureau of the Census, and assume some increase in college enrollment rates for 18- to 24-year-olds and generally stable enrollment rates for those 25 and older. If those enrollment rate assumptions do not prove to be accurate, then enrollment levels could be substantially different from the projected levels.

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