AFFORDING THE DREAM: Student Debt and State Need-Based Grant Aid for Public University Students

Public research universities are a key vehicle for educational mobility. Yet rising student debt for undergraduate students has created new risks, particularly for lower income students at lower ranked universities. We find that student loan default rates reached 35 percent for low-income students at public universities with low research rankings during the Great Recession. Given these troubling loan default rates, we find encouraging evidence that a few U.S. states have adopted robust need-based grant aid programs to make college more affordable for low-income students. Such grant programs can cover tuition, room, and board costs. California, Wyoming, and New Jersey now spend more than $4,000 per low-income student, more than the federal expenditure on Pell Grants for their state. More than 30 states, however, spend less than 25 percent of the federal Pell Grant expenditure. We find that generous state aid programs are associated with lower actual costs of attendance for low-income students