Higher education faces financial pressures due to rising costs and constrained public funding. While grants and student loans are key financial aid instruments, neither alone is sufficient to support students efficiently. Grants support low-income students but are costly for governments, while loans offer sustainability but raise concerns over debt burdens. Efficient financial aid requires a targeted mix of loans and grants. Future research should explore how to optimize aid distribution, ensuring accessibility while addressing diverse student needs.

Times are tough for higher education institutions around the world. Rising costs fueled by inflation, diverse crises, and competing national priorities have constrained public funding for higher education. This is problematic in a sector that has historically been and, for most countries, remains largely reliant on public funds. Despite talks about differentiation, philanthropy, and entrepreneurship, among other topics, the reality is stark. Beyond public funds, the most reliable and sustainable source of revenue for higher education is the student. The recent history of higher education funding has, therefore, been dominated by debates around increases in cost-sharing, hikes in tuition fees, and the concept of higher education as a private good.

The Growing Importance of Student Support

Behind all this, another reality looms: 18-year-olds cannot pay thousands of dollars for their studies and have no assets of their own. Adding tuition fees to the already high cost of living associated with studying and delaying (full) entry into the labor market creates huge imbalances based on family resources. Governments need to intervene in some way to guarantee equity in access to and success in higher education. Student financial aid is the answer to these concerns.

Student aid comes in many forms, the main two being grants or student loans. Grants are a historic form of aid. They are nonrepayable and are mostly awarded based on merit or need. Grants have been lauded as financial instruments that give a clear signal to students, are easy to understand, and are appealing to everyone. Because of these qualities, need-based grants are probably the best financial instrument for access and equity, helping students from low socioeconomic backgrounds afford higher education. However, the direct cost of grants to governments means that, in many countries, grants have failed to keep up with costs and are no longer sufficient to cover the entirety of students’ study expenses. Merit-based grants can also be criticized because they tend to be awarded to students from high socioeconomic backgrounds who arguably do not need them.

Student loans, on the other hand, are appealing to governments because of the prospect that some of the costs they incur will be recouped. Loans can be made more widely available than grants with little targeting, and income-contingent repayment is seen as a positive solution to lessen the burden on graduates. Yet, the constant talks of student debt crisis and attempts in some countries to offer debt relief and redesign loan systems point to widespread issues with student loans.

Toward a Balanced Financial Aid System

The problem is that a good financial aid system cannot be one-size-fits-all. An efficient financial aid system is a balancing act that targets reach and maximizes value. It should fully support the poorest students financially in ways that would not deter them from the opportunity that is higher education. It should partially support middle-class students, topping off what their families can contribute, while letting students from high socioeconomic backgrounds pay for their studies, bringing in needed revenues for institutions. At the same time, it should not be too complicated a financial instrument as to limit public costs associated with its administration. It should furthermore be easily understandable for future students weighing their options.

Research Directions

Research on student financial aid should help determine this balance. Instead of comparing financial aid instruments and pitting grants and student loans against each other, research needs to consider them as complementary parts of an efficient system. Grants and student loans should be researched together, in recognition of the fact that these financial aid instruments are not aimed at the same groups of students and do not serve the same purpose within the wider higher education system. The system and mix of instruments should try to respond to the spectrum of students that enter higher education today and their specific needs.

An important part of this research will be to determine what is palatable to different types of future students. Are student loans appealing to middle-class students as an affordable way to access higher education? Would students from low socioeconomic backgrounds accept loans for tuition but be more receptive to grants for the cost of living? Of course, it still has to be determined how to decide which students get what, and to what extent approaches to financial aid can be personalized. This will require a deeper understanding of how the family and higher education spheres intersect.

Ariane de Gayardon is assistant professor at the Center for Higher Education Policy Studies (CHEPS), Section of Knowledge, Transformation, and Society (KiTeS), University of Twente, Netherlands. E-mail: [email protected].