Douglas Olsen
Universities receive funding from various sources, including government appropriations, student tuition, and other revenue streams. This funding is used to cover the costs of operating the university, including educating students and conducting research. In some cases, universities may offer financial support to graduate students, particularly those pursuing PhDs in the sciences. This support can take the form of employment, where graduate students provide teaching or research assistance to faculty members, or through indirect subsidies, where the university passes savings from government appropriations on to students through lower tuition. Graduate students may also have access to financial aid in the form of loans, although subsidized loans are typically only available to undergraduate students.
| Characteristics | Values |
|---|---|
| Subsidized loans for graduate students | No longer available since 2011 |
| Federal Direct Unsubsidized Loans | Available to graduate students |
| Indirect subsidy | Opaque and less understood than grants and loans |
| Who does the indirect subsidy favor? | High-income students |
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What You'll Learn
Indirect subsidies at public universities
The tuition and fees that public universities charge undergraduates do not cover the full cost of education. Appropriations from state and local governments and other revenue sources offset a portion of these costs, and schools pass the savings on to students through lower tuition. This is known as an "indirect subsidy".
Policy experts and journalists often look to state funding for public universities to gather insights about indirect subsidies. This approach suggests that indirect subsidies favour high-income students. State lawmakers provide larger per-student appropriations to elite universities, and students from high-income families are more likely to attend these schools. These universities also spend more per student. Conversely, lower-income students are more likely to attend less selective schools, which receive smaller per-student appropriations and spend less per student.
However, this conventional wisdom has been challenged by studies that analyse indirect subsidies at public universities. These studies suggest that the conventional wisdom is more inference than analysis and that a more rigorous approach is needed to understand the relationship between university spending on education and student tuition fees. By combining data from multiple sources, such as the National Postsecondary Student Aid Study (NPSAS) and the Integrated Postsecondary Education Data System (IPEDS), researchers can develop more refined measures of indirect subsidies and generate student-level estimates.
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Subsidized loans for graduate students
Graduate students are not eligible for subsidized loans, which are loans that do not accrue interest while in school. However, they can borrow up to $20,500 a year in federal unsubsidized loans, which are still often the best option compared to other loans that can have higher fees or interest rates. Graduate students can also take out graduate PLUS loans, which have no annual or lifetime dollar limit, and private graduate student loans, though the amount borrowed will depend on the lender.
The unavailability of subsidized loans for graduate students stands in contrast to the availability of such loans for undergraduate students. This change came into effect in July 2012.
It is worth noting that public universities themselves can be considered a form of student aid. The tuition and fees that they charge undergraduates do not cover the full cost of education, and appropriations from state and local governments offset a portion of these costs, resulting in lower tuition for students. This is known as an indirect subsidy. However, indirect subsidies are less transparent than grants and loans, and their value is more difficult to determine.
While graduate students cannot take out subsidized loans, they can still access other forms of federal aid and explore various loan options to fund their graduate or professional school journey.
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Federal Direct Unsubsidized Loans
To be eligible for a Federal Direct Unsubsidized Loan, you must meet the general eligibility requirements for federal aid and not have exceeded your annual or lifetime borrowing limits or the cost of attendance. The interest rate for Federal Direct Unsubsidized Loans is variable and changes annually on July 1. The interest on an Unsubsidized Loan is the responsibility of the borrower from the time the loan funds are sent to the university until it is paid in full. You can opt to allow the interest to accumulate, but it will be added to the principal amount of the loan and increase the amount to be repaid. An origination fee, or processing fee, will also be deducted before the loan proceeds are sent to the school. Repayment of the loan begins six months after you are no longer enrolled at least half-time (six credits).
To apply for a Federal Direct Unsubsidized Loan, you must complete the Free Application for Federal Student Aid (FAFSA) or Renewal FAFSA (for returning students) at StudentAid.gov. After receiving your financial aid award letter, you can work on completing loan requirements. This includes accepting the loan online via your student account, completing a Master Promissory Note (MPN), and completing Entrance Loan Counseling.
It is important to note that Federal Direct Unsubsidized Loans are not the only option for students seeking financial aid. Grants, scholarships, and subsidized loans are also available and may provide more favourable terms. Additionally, public universities themselves can be considered a form of indirect subsidy, as the tuition and fees that they charge undergraduates do not cover the full cost of education, and schools pass the savings on to students through lower tuition.
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Subsidy differences based on family income
While graduate students can access financial aid, including student loans, grants, scholarships, and assistantships, the availability and amount of subsidies vary based on family income.
Pell Grants
The Pell Grant is a federal grant designed to assist low-income students in attending college and earning degrees. The grant is typically awarded to students with family incomes below $30,000. However, the grant amount, currently capped at $7,395 per academic year, often does not cover full tuition fees. As a result, low-income families may struggle to understand and plan for the remaining costs. Despite this challenge, universities like Montclair State University, the University of California (UC) Riverside, UC Merced, and Rutgers University-Newark have higher-than-average graduation rates for low-income students, with many of them receiving Pell Grants.
University-specific Initiatives
Some universities have implemented initiatives to support low-income students. For example, Montclair State University in New Jersey has the Educational Opportunity Fund (EOF), which helps cover costs like books, fees, and room and board. The EOF also provides academic support through mandatory tutoring and regular meetings with an advisor. UC Merced has a high percentage of low-income students participating in undergraduate research with faculty, which is known to support student learning and success.
Income-based Loans
Graduate students can access various loans, including the Direct Unsubsidized Loan, the Grad PLUS Loan, private student loans, and the Perkins Loan (a subsidized loan dependent on the college's policies). Additionally, former service members and their family members may be eligible for assistance through the GI Bill. These financial aid options provide opportunities for graduate students from diverse economic backgrounds to pursue their academic goals.
Inequities in Financial Aid
Despite these efforts, there is growing concern about the inequitable distribution of college financial aid. Research suggests that a significant proportion of financial aid is directed towards higher-income students, perpetuating a rich-poor divide. This disparity may be influenced by universities' priorities and the structure of government policies, which can disproportionately benefit wealthy students. As a result, low-income students like Maya Portillo may face greater challenges in enrolling in and completing college, underscoring the need for more inclusive financial aid policies and practices.
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State funding for public universities
The impact of state funding on tuition fees is significant. Research by Douglas Webber found that for every $1,000 decrease in state funding per student, there is an average increase of $257 in college costs for students. This increase is due to a combination of factors, including tuition increases, higher enrolment among out-of-state or international students, and reductions in institutional financial aid. Additionally, the rate at which institutions pass on funding cuts to students has increased over time, further exacerbating the financial burden on students.
The distribution of state funding across different universities and the impact on students from varying socioeconomic backgrounds is a topic of debate. Some argue that elite universities, which tend to enrol more students from high-income families, receive larger per-student appropriations from state lawmakers. As a result, high-income students may benefit from higher public subsidies. However, others argue that public universities themselves provide an indirect form of student aid by charging lower tuition fees than private universities. Additionally, research universities have been found to protect low-income students from tuition increases to a greater extent than non-research institutions.
Despite the complexities and variations in state funding for public universities, there is optimism for the future. Early data from the Grapevine report indicates a 4.3% increase in state funding for higher education in FY2025 compared to five years prior. However, it is important to consider the impact of inflation, which has been higher than usual in recent years. Overall, state funding for public universities plays a crucial role in shaping the accessibility and affordability of higher education for students across the country.
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Frequently asked questions
No, graduate students are not eligible for subsidized loans. These loans are only available to undergraduate students. However, graduate students can apply for Federal Direct Unsubsidized Loans, for which they do not have to demonstrate financial need.
Subsidized loans are loans offered by the federal government that do not accrue interest while the student is enrolled at least part-time or during deferment periods. Unsubsidized loans, on the other hand, accrue interest during all periods, and students are responsible for making interest payments.
Indirect subsidies are a form of student aid provided by public universities. The tuition and fees that they charge undergraduates do not cover the full cost of education, and the difference is offset by appropriations from state and local governments. This results in lower tuition fees for students, effectively providing them with a subsidy.
