Why Your State May Pay for Your College Education

NEW YORK (MainStreet) — As the cost of federal student loans increase, with Stafford loan rates having jumped last month in a spiking interest rate and tuition environment, some state governments may help shoulder the burden—even as the trend has been away from state funding of post-secondary education.

In the past three decades, college costs have risen faster than inflation and are now at roughly 25% of the average household's income—and school fee sticker shock is not limited to private schools. According to "The Great Cost Shift," a 2012 report by public policy think tank Demos, tuition and fees at public, four-year universities more than doubled between 1990 and 2010, rising by 112%, while prices at two-year colleges rose 71%.

Demos found that states' disinvestment in public institutions during the past two decades has changed the face of higher education -- shifting it from being "a collectively-funded public good to that of an individually purchased private good."

But in some states such as Pennsylvania, state agencies have picked up some of the slack.

The Pennsylvania Higher Education Assistance Agency (PHEAA) board of directors approved $363 million in additional aid to the state's post-secondary schools last Thursday, along with nearly $345 million in student aid grants made earlier this year that don't have to be repaid. A quasi-public agency, PHEAA dispenses grants to low-income students while running a profitable loan servicing business for student loans made by the federal government.

In addition to this year's state funding for the student grant program, the PHEAA board directed $75 million of the agency's earnings from its loan servicing business be used to supplement state education funding.