By Eric Kelderman

The 50 states, the District of Columbia, and Puerto Rico took advantage of the nation's strong economy during the 2007-8 budget year and spent a total of nearly $10-billion on student aid. That was an increase of 6.6 percent from the year before when adjusted for inflation, according to an annual report released this week by the National Association of State Student Grant and Aid Programs.

But that $700-million one-year increase in financial aid that the jurisdictions provided for college students in 2007-8 will probably represent a peak for the next several years as the recession shrinks state tax revenue and lawmakers look for places to cut budgets. Collectively, states had to close shortfalls of $111-billion in their 2008-9 budgets and gaps of more than $121-billion for 2009-10. Many states may have to make midyear cuts in the spending plans they passed within the past few weeks.

In some states, student-aid programs are already on the chopping block. The Michigan State Senate has voted to eliminate the $140-million used to finance Michigan Promise scholarships, which provide $4,000 for students who pass a statewide test to graduate high school and complete two years of college in the state. Gov. Jennifer M. Granholm, a Democrat, wants to keep the program, but difficult budget negotiations with the Legislature continue.

In Illinois, the agency that handed out $430-million in both need- and merit-based grants for students in 2008-9 could get less than 40 percent of that when the Legislature finalizes the budget for the fiscal year that began on July 1. While Gov. Pat Quinn, a Democrat, opposes the major cut in student aid, he may be forced to compromise with legislators.

Arnold Schwarzenegger, California's Republican governor, has proposed eliminating Cal Grants, his state's need-based student-aid program —among the country's most generous —as part of a plan to close a budget deficit of more than $24-billion. The proposal, though, is likely to fail, as Democrats who hold the majority in the Legislature have made it clear they will not support it.

States Give More Nongrant Aid

States must support financial aid as budget shortfalls and cuts in higher-education appropriations lead to tuition increases, said Paul E. Lingenfelter, president of the State Higher Education Executive Officers. Unfortunately, he added, some states will look at recent federal proposals to increase financial aid as an excuse to cut spending on their own programs.

The growth in state-provided student aid in 2007-8 was larger than the nearly 6-percent increase the year before, from 2005-6 to 2006-7. Year-to-year growth in state support for financial aid rose 3.4 percent from 2004-5 to 2005-6, down from a growth rate of 5.4 percent the previous year, according to previous surveys.

Need-based grants to undergraduates continued to make up more than half of the total student aid in 2007-8, at more than $5.7-billion, an increase of 8 percent from the previous year, according to the data. Nine states accounted for more than two-thirds of those awards, including California, Illinois, Indiana, New Jersey, New York, North Carolina, Pennsylvania, Texas, and Washington.

As in recent years, however, nongrant aid, such as funds for work-study programs, loans, and tuition waivers, increased at a much faster rate than grants and scholarships. States provided more than $1.9-billion in nongrant aid in the 2007-8 academic year, an increase of nearly 16 percent from the year before.

South Carolina, the District of Columbia, Georgia, and Tennessee provided the greatest amount of all grant aid on a per-capita basis, the annual survey reported.