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Implement Comprehensive Financial Aid

Develop and implement a comprehensive approach to student financial aid


College affordability and student loan debt have become major national issues. According to a recent Lumina Foundation report—A Benchmark for Making College Affordable—college prices have increased 45 percent on average during the past decade while household income declined by 7 percent during the same period. The total net price (the cost to students and families after aid is taken into account) of a baccalaureate degree at a public four-year institution increased from $54,500 in 1995-96 to $72,000 in 2011-12, in inflation-adjusted dollars. During the same period, the share of graduates with significant debt (more than $20,000) increased from 9 percent to 29 percent, and average student loan debt for completers at all undergraduate degree levels increased from $4,600 to $14,100.

The total price of college attendance is determined by multiple factors: the total cost of educating a student at each institution, the amount of state appropriations the institution receives per student, the resulting tuition at the institution, and any financial aid the student receives. Increases in state appropriations to institutions can act as subsidies and help reduce tuition for all students. Higher levels of student financial aid can be targeted to lower the price for certain students. Research has found that college prices play a much bigger role in outcomes for low-income students than for students from higher-income families (Dynarski and Scott-Clayton 2013).

The ability to set prices for higher education, both through tuition and through financial aid, represents a critical policy lever for states. States seeking to improve postsecondary attainment rates are developing and implementing a comprehensive approach to student financial aid and affordability that maximizes student access and incentivizes timely progress and completion.

Male Student Smiling With Classmates In Background On Campus

States can better manage the total cost to students and promote broader access to higher education by developing a clear and common understanding of what it means for a college education to be affordable. Lumina Foundation’s affordability benchmark, the “Rule of 10,” can provide a starting point for those discussions. The Rule of 10 assumes both student and family contributions and looks across three dimensions—family savings as a percent of income, for a specified time period, and student work while in school. The Rule of 10 asserts that students should pay no more for college than the savings generated through 10 percent of discretionary income for 10 years and the earnings from working 10 hours a week while in school. The rule accounts for varying family income levels, and a student whose family income is less than 200 percent of the poverty level is not expected to contribute any family savings.

A 2014 report by HCM Strategists examined tuition and financial aid policy strategies for increasing affordability and success at comprehensive regional four-year public institutions, which enroll significant numbers of low-income students. The report looks at five tuition policies and six financial aid policies that regional public four-year universities can employ to increase affordability for low-income students. The report notes that the research base on tuition strategies is thin, but that there is stronger evidence about the financial aid policies that best support affordability and success among low-income students. The report examines three of the most promising tuition policies and two additional policies worth considering:

  • block, or flat-rate, tuition, which allows students to register for additional credit hours without incurring extra charges (as opposed to per-credit-hour charges);
  • added charges for excess credit accumulation;
  • flexible tuition payment plans;
  • guaranteed tuition, which ensures that tuition will not increase during four years of continuous enrollment; and
  • partial tuition rebates for on-time completion.

The report notes that the “evidence is accumulating that the structure of aid programs, the incentives incorporated to support student success, and the extent to which funding is combined with other support systems contribute to the effectiveness of financial assistance programs.” The report further examines three of the most promising financial aid policies and three additional policies worth considering:

  • tying aid to academic progress or timely course completion;
  • tying aid awards to participation in academic and other support services;
  • implementing an emergency aid program for unexpected financial concerns;
  • providing child care assistance or subsidies;
  • disbursing aid periodically during the term instead of all at once; and
  • providing assistance in gaining access to public income support programs for which students may be eligible.

Teenage Students Looking At Friend While Walking On Campus

The HCM report acknowledges that low-income students often face financial challenges to college enrollment and completion that go beyond the ability to afford tuition and some of the recommended strategies help address those needs. In June 2015, Lumina Foundation released Beyond Financial Aid—a guide that examines the ways in which colleges and universities can strengthen the financial stability—and completion prospects—of low-income students by expanding the notion of “financial supports” beyond grants, scholarships and loans. The guide offers six college-tested strategies for helping low-income students overcome financial barriers to postsecondary success:

  • Know the low-income students at your institution by reviewing quantitative and qualitative institutional data to better understand the experiences of low-income students.
  • Provide supports to help low-income students overcome practical barriers by bundling diverse on-campus and off-campus resources and centralizing their access.
  • Leverage external partnerships for service delivery by connecting with groups that have shared missions and values and can help bring services to students.
  • Empower low-income students to use available resources by normalizing the use of financial supports. Also consider opt-out versus opt-in models.
  • Review your internal processes from the student’s perspective. This can uncover unintended impacts and suggest ways to revise and streamline processes and policies.
  • Implement effective practices to strengthen the academic progression of all students, knowing that these practices can make a greater difference for low-income students.

A 2013 Future of Children journal article by Susan Dynarski and Judith Scott-Clayton—“Financial Aid Policy: Lessons from Research”—summarized much of the most rigorous research on student aid. The authors identified several key lessons. First, the availability of grant aid increases college enrollment rates. Second, not all aid programs are equally effective. Those with the greatest impact tend to have simple eligibility rules and application procedures and provide application assistance. Third, aid conditioned on college performance and completion appears to be more effective at improving persistence and completion than is aid with no strings attached.

In 2013, MDRC published interim results for its performance-based scholarship demonstration program, which it launched in 2008 at eight colleges in six states—Arizona, California, Florida, New Mexico, New York, and Ohio. Performance-based scholarships provide supplemental financial support to low-income students and incentives for recipients to complete courses and make timely academic progress toward a degree or credential. MDRC’s brief on the interim findings suggests that performance-based scholarships improve student performance, increase the number of credits they earn, and may reduce student debt. Further, in Ohio, the one state that has been participating long enough to have completion data available, the program also increased the rate at which students earned a degree or certificate. The evaluation continues, and MDRC will publish reports on the long-term impact of the program at each site. In addition, MDRC produced a 2014 technical assistance guide for developing and implementing performance-based scholarships.

A 2012 study by Harvard researchers Benjamin L. Castleman and Bridget Terry Long examined the impact of the Florida Student Access Grants, a need-based grant program. The study found that grant eligibility had a positive impact on college attendance, particularly at four-year institutions; increased early persistence; increased the number of credits earned in the first four years; and increased the recipients’ chances of earning a bachelor’s degree within six years.

A summary of research by Bridget Terry Long in 2012 noted that financial aid can influence students’ postsecondary decisions but that the current financial aid system leaves low-income students with unmet financial needs and challenges. The article summarizes three key lessons from research:

  • Aid programs are most successful when they are well publicized and relatively easy to understand and apply for.
  • Need-based aid is more effective for increasing access for low-income students than other forms of aid.
  • All aid is not equal. Grants have been shown to be effective at influencing student decisions when designed properly. Loans are less effective for increasing enrollment and pose long-term challenges related to the burdens of accumulating student debt.
State Examples

Each of the following state examples is a policy solution crafted in response to the unique circumstances of the state in which it was formed. As a private foundation, Lumina does not support or oppose any legislation. Lumina provides educational information, nonpartisan research and analysis to advance Goal 2025.


In June 2015, California lawmakers enacted Assembly Bill 93, the state’s budget for 2015-2016 (see the Higher Education Budget Summary), which includes several components designed to expand and strengthen student aid programs, including aid for community college and low-income students. The budget includes $8 million to increase the annual number of Cal Grant Competitive Awards for high achieving low- to middle-income students from 22,500 to 25,750. The 2015-2016 budget also includes $39 million to help cover living expenses for community college students taking 12 or more credit hours. Finally, the bill includes new income and asset limits on the Middle Class Scholarship program and limits recipients’ participation to four years.


In 2013, Indiana lawmakers enacted HEA1348, which created academic benchmarks and expectations for students enrolled in the state’s two major aid programs: the Frank O’Bannon Grant, the state’s primary need-based grant program, and the 21st Century Scholars program, an early promise need- and performance-based scholarship. To help improve completion rates among aid recipients and boost overall state attainment, the bill established the following:

  • Students wishing to renew their aid at the same level for the following year must complete specified numbers of credits—30 credits by the end of their first year, 60 by the end of the second year, and 90 by the end of the third year.
  • Students can also earn additional aid by meeting grade-point-average benchmarks, accelerating their accumulation of credits, and earning an associate degree and then moving on to a baccalaureate degree program.
  • Students receiving financial aid may use up to 10 percent of their awards for summer term courses.
  • The bill also offers support for student progression by calling for institutions to develop degree maps—personalized term-by-term academic plans that include the sequence of courses required for on-time graduation.

Indiana officials are collecting and analyzing data on the impact of the program, and in January 2015, released the first year report—Reforming Student Financial Aid to Increase College Completion: Early Progress Resulting from Indiana House Enrolled Act 1348 (2013). Among the findings:

  • More students enrolled in 30 or more credit hours in the first year of implementation. Among 21st Century Scholars, the rate rose from 38.6% to 60.2%, and among Frank O’Bannon Award recipients, the rate rose from 32.6% to 38.6%.
  • More students completed 30 or more credit hours—increasing from 22.3% to 34.8% among 21st Century Scholars and from 19.1% to 23.3% among Frank O’Bannon Award Recipients.
  • Students are using summer classes to meet the benchmarks and maintain aid eligibility.


Unlike other states that have abandoned need-based aid to support merit programs, Kentucky retains both, while also setting the criteria for its merit program at a level that ensures that some of the aid goes to students who probably wouldn’t be going to college otherwise. The merit-based program, Kentucky Educational Excellence Scholarships, provides some aid to most high school students, since the qualification threshold is low (2.5 GPA for the smallest amount). Students earn larger awards by earning higher grades and bonus amounts for scores on the SAT or ACT and on Advanced Placement, International Baccalaureate or Cambridge Advanced International tests. The Kentucky Higher Education Assistance Authority sends students a letter each year letting them know how much they have “banked,” which provides students with useful information and opens a channel of communication for college planning. The state’s need-based aid program, the College Access Program Grant, provides grants of up to $1,900 to low-income students attending public or private colleges, universities, proprietary schools or technical colleges. Both the scholarship and grant programs are funded by the Kentucky Lottery.


Minnesota is one of a few states (including Illinois and Washington) that pay for a true full-time schedule for low-income students. Pell Grants provide low-income students with funding for 12 credit hours. The Minnesota State Grants provides additional funding for low-income students to take up to 15 hours, the number it takes, on average, to complete a four-year degree on time. According to a Minnesota Office of Higher Education aid report, in Fall 2013, 62 percent of full-time, low-income Minnesota aid recipients enrolled in 15 hours or more for the term, while 12 hours is more common in other states. Minnesota also projects its annual disbursements carefully, so that it is able to fund awards year-round without running out of funding, rather than rationing it by awarding it on a “first-come, first-served” basis.

In 2013, Minnesota lawmakers enacted a higher education bill that increased funding for postsecondary education by 10 percent and froze tuition at the University of Minnesota and at Minnesota State Colleges and Universities institutions. The new funding included an additional $46 million in FY2014-2015 for Minnesota State Grants, and new legislative language changed the way grant awards are calculated, raised the cap on living expenses, and adjusted the share of tuition that students and families are expected to pay. The increased funding will allow 9,000 additional students to receive grants and approximately 100,000 grant recipients will receive increased grant awards.

New York

In 2011, state leaders enacted legislation that provides for a “rational tuition policy” for both the City University of New York (CUNY) and the State University of New York (SUNY). The policy allows tuition at CUNY and SUNY institutions to increase by $300 each year for five years and follows years of unpredictable and varying tuition increases. State and university leaders intend to provide students and their families with greater predictability and transparency when it comes to tuition and financing a college education.

In addition, the New York State Tuition Assistance Program (TAP) provides eligible low-income state residents with a grant award of as much as $5,165 to attend an approved state institution. The 2011 legislation also provided for tuition credits to be applied to student tuition based on the TAP award amount, providing additional assistance to those students with the fewest financial resources.

The following chart provides a summary of the types of policies that can be more effective for incentivizing timely progression and completion.

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