By Jeremy M. Edwards Senior Communications Advisor
New research by The Century Foundation highlights a hundred-billion-dollar problem with how state financial aid is distributed: in many states, state financial aid is not effectively directed toward the students who need it most. In fact, state aid lags behind Pell Grants when it comes to effectiveness in reducing college costs for low-income students. TCF’s analysis shows that, in some states, a high share of state grant dollars go to students without financial need rather than to low-income students.
State grant aid is crucial for making college affordable. Without adequate grant aid, many students will need to go deep into student debt or they will be shut out of a college education—not because they won’t thrive academically, but because they simply can’t afford it. And so, in not effectively distributing aid to the students that need it, states are harming low-income students—many of whom are from historically disadvantaged groups—as well as the institutions that serve them, such as Historically Black Colleges and Universities (HBCUs).
Of course, some states do better than others in achieving a fraction of effective aid distribution. But even among the best-performing states, none fully align students’ costs with their ability to pay. Below, we present aid distribution data from multiple states, giving examples of those that fail as well as those that do better. We then discuss how ineffectively distributing aid harms historically disadvantaged students, as well as the institutions that serve them, particularly HBCUs.
Among the Worst: Mississippi
Mississippi is among the worst states when it comes to distributing aid effectively to the students who need it most. Century Foundation data shows that 87 percent of Mississippi students from families in the top income quartile receive aid, versus 44 percent of students in the lower-middle quartile and 30 percent of students in the bottom quartile.
The story is the same when looking at how Mississippi distributes aid to students’ by their Pell grant eligibility. To qualify for the Pell Grant award, a student must demonstrate exceptional financial need based on their family’s income and the cost of attendance at a specific university, and so you would expect that Mississippi would recognize this need and award more aid to Pell-eligible students than non-Pell-eligible ones. That is not the case, however: only 36 percent of Pell-eligible students receive state grant aid, compared to 82 percent of non-Pell-eligible students.
Looking at aid distribution in Mississippi by race reveals that the mismatch between need and aid results in inequitable aid distribution. Although Black students are more likely to fall into the lower-income quintiles in Mississippi, a much higher percentage of white students receive state grant aid compared to Black students: nearly 78 percent of white students receive state grant aid compared to only 28 percent of Black students—a 50-percentage-point gap.
The explanation for these inequitable results can be found in the state’s methodology for distributing grant aid through the state’s three aid programs, the Mississippi Tuition Assistance Grant (MTAG), the Mississippi Eminent Scholars Grant (MESG), and the Mississippi Higher Education Legislative Plan for Needy Students (HELP). For MTAG, applicants are deemed ineligible if they are recipients of the maximum federal Pell Grant award. For MESG, students must score at least a 29 on the ACT and have at least a 3.5 GPA. For HELP, students must have a minimum of 20 on ACT and 2.0 GPA.1 In all three grant programs, the requirements prevent some students with the greatest need from receiving state grant aid, while diverting aid to students with less financial need. While these aid programs are in fact designed to provide aid to students who do not receive federal need-based aid, they ultimately provide more funding to students that have less financial need, and by extension, to a lower proportion of Black students than white students.
Doing Marginally Better: Georgia
While Georgia provides state aid to students somewhat more effectively than Mississippi, there is still significant room for improvement.
In Georgia there is a large gap—18 percentage points—between the percentage of students that receive aid in the top income quartile and in the bottom quartile (see Figure 4). This gap is smaller than the one in Mississippi, but it still shows that Georgia distributes aid inversely to need.
While Georgia surpasses Mississippi in providing more grant aid to Pell Grant recipients than to non-recipients (see Figure 5), there is still a high percentage of non-Pell-eligible students receiving grant aid.
Looking at how Georgia’s aid programs distribute aid by race reveals a concerning 25-percentage-point gap between the percentage of white and Black students who receive aid.
However, a new needs-based scholarship from the University of Georgia aims to at least partially address this concern by directing aid to more students with demonstrated financial need.
On the Right Track: Virginia, North Carolina, and Texas
Virginia, North Carolina, and Texas all provide more state grant aid to students from the bottom half of the income ladder than to those from the top half (see Figure 7). North Carolina in particular firmly skews its grant aid toward students in need, with an 82-percentage-point gap in favor of students in the bottom income quartile compared to those in the top.
Likewise, in all three states, a significantly higher proportion of Pell-eligible students receive grant aid compared to non-Pell-eligible students.
With Virginia, North Carolina, and Texas all directing more aid toward students in need, as a result, the distribution of aid is more equitable in these states. Looking at distribution by race, a comparatively higher percentage of students from communities of color in each state are receiving grant aid relative to white students in the same state (see Figure 9). This makes sense, as students from these historically disadvantaged communities are more likely to have greater financial need.
The Virginia Guaranteed Assistance Program, the Next North Carolina Scholarship, and TEXAS Grant are all need-based grant programs available to students attending public institutions in their state. Need- based aid is designed to direct funding to students who demonstrate financial need for aid, unlike merit-based, which prioritizes metrics of academic performance such as test scores or grades and does not consider student’s financial need when determining eligibility for the grant.
The state-by-state comparisons above show that different funding criteria can result in very different levels of success in ensuring that state dollars are directed to the students who need it the most. And because state grant aid is used by students at the institutions they attend, denying aid to students in need results in shortchanging their colleges and universities as well. Nowhere is the impact of ineffective state aid felt more severely than at HBCUs.
How State Aid Formulas Shortchange HBCUs
The failure of some states to effectively direct state aid to students most in need disproportionately affects HBCUs. Despite their historic underfunding, HBCUs take on the crucial role of providing a top-quality education to students from all racial, ethnic, and economic backgrounds. HBCUs have offered some of the lowest tuition rates for decades, making them more affordable for students.
As shown in Figure 10, HBCUs enroll a higher percentage of students from the bottom quartile of income earners in the United States. Specifically, 50 percent of students attending HBCUs are from the bottom quartile, compared to only 28 percent of the students attending non-HBCU universities, showcasing the fact that HBCUs provide access to an education to students from low-income households.
As illustrated in Figure 11, nationally, HBCUs enroll a significantly higher proportion of students who are recipients of the Pell Grant compared to other institutions. Specifically, from 2019 to 2020, approximately 78 percent of students attending HBCUs were Pell Grant recipients, compared to only 57 percent of students attending non-HBCUs.
Not only are HBCUs serving students who come from disadvantaged backgrounds financially, but they also serve students from a multitude of cultural backgrounds. HBCUs enroll a larger proportion of students from various historically disadvantaged ethnicities compared to other sectors. In 2019, among HBCUs, 72 percent of their students were Black or African American, and 14 percent of their students identified as having more than one cultural ethnicity. Among non-HBCUs, on the other hand, only 13 percent of students were Black and only 6 percent of students identified as having more than one ethnicity.
HBCUs have undeniably been outperforming their peer institutions in delivering a return on their students’ investment, all while enduring significant underinvestment from states. State failure to effectively direct aid to high-need students disproportionately affects schools like HBCUs that disproportionately serve these students and serves as a continuation of the long history of state underfunding of HBCUs.
Despite serving more students from the bottom half of the income quartile and having a higher number of Pell Grant recipients compared to non-HBCUs, the share of students at HBCUs and non-HBCUs who receive grant aid is similar, 44.7 percent and 43.1 percent, respectively.
Looking Forward
States that distribute financial aid using need as the only criteria generate more equitable funding outcomes for students. When states do not use exclusively need-based aid formulas, students in need, and the institutions that disproportionately serve them—such as HBCUs—are harmed.
HBCUs are essential for providing affordable, high-quality education to underserved students, thereby advancing college access and narrowing racial and economic equity gaps. Despite their critical mission, HBCUs face ongoing funding disparities. To ensure these institutions have the necessary resources to thrive, policymakers must implement reforms that address historical underinvestment, including reforming state aid to ensure that it serves the students with the most need.
