This academic year marks the first time students have received federal financial aid under the changes implemented by the Free Application for Federal Student Aid (FAFSA) Simplification Act. These changes include amendments to the calculation of student aid eligibility and expand eligibility for the need-based Pell grant.
To analyze how these changes have affected undergraduates, I examine newly released financial aid data for the first quarter of the 2024–25 school year. Although these data are preliminary, my analysis suggests:
- the average Pell grant grew by $96 even as the maximum grant amount stayed the same,
- the number of students receiving a Pell grant increased by about 12.6 percent, higher than the 4.5 percent estimated increase in undergraduate enrollment, and
- total student loan recipients stayed flat or declined slightly even as Pell grant recipients grew.
Changes to the Pell grant and financial aid calculations
Students applying for aid in the 2024–25 academic year experienced several changes in the financial aid process. The revised FAFSA application sought to streamline and simplify the process of filing for aid but was also beset by delays and technical challenges. Now implemented, students’ aid eligibility is determined by the student aid index (SAI), which replaced the expected family contribution (EFC). Among other changes, the SAI formula changes how eligible assets, family size, and family members in college affect eligibility for aid.
Undergraduate students with an SAI at or below a given threshold (e.g., $6,655 for a full-time student) are eligible for a Pell grant. In addition, students whose family income falls below certain federal poverty level thresholds are also deemed eligible for a Pell grant, regardless of SAI (PDF). Before implementation, projections showed that students were more likely to see an increase in student need eligibility under the SAI calculation relative to EFC.
These formula changes—which tend toward awarding more Pell grants and in larger amounts—overlap with changes in the undergraduate student population. When enrollment increases, the number of Pell grant recipients also tends to increase, and if relatively more students enroll full time, the average Pell award increases because more students receive larger grants.
The effects of Pell changes across higher education institutions
For this analysis, I look at federal Title IV grant and loan volume data as reported by institutions for students enrolled between July 1 and September 30, 2024. I compare those data with the amount reported for the same time frame in previous years. These data are preliminary, and institutions may adjust their data for roughly two years after the initial submission. This year’s FAFSA changes may make adjustments more likely, but at present, overarching trends remain constant even when I exclude outlier data points.
The US Department of Education reports that about 730,000 (14 percent) more Pell grants were awarded (PDF) by the end of December 2024. The data I use, which look at information up to September 30, projects a similar increase, of around 540,000 (12.6 percent) relative to the same time last year. This increase is higher than the National Student Clearinghouse’s (NSC’s) estimates of fall undergraduate enrollment growth, which increased by 4.7 percent.
For the first quarter of the academic year, all sectors appeared to have gains in the number of Pell grant recipients. In these preliminary data, Pell recipients increased by 17 percent for public two-year colleges, 15 percent for public four-year, and 14 percent for private nonprofit four-year institutions.
The average award also appears to increase by roughly $96 (3.6 percent) in 2024 dollars, with an even larger increase at four-year institutions. This result is especially notable because the maximum Pell grant award of $7,350 did not increase from fall 2023 to fall 2024. In other words, either the typical student’s financial need as calculated by the financial aid formula increased or more students enrolled full time, or both.
Trend changes in federal student loans and Parent PLUS loans
With the growth of Pell grant recipients, we might expect a reduction in student lending, relative to the rebound in undergraduate enrollment. Indeed, I find that recipients of Direct Subsidized undergraduate loans declined by 2 percent relative to the previous year’s first quarter. This decline was especially concentrated among students enrolled in four-year public institutions. The number of loan recipients did increase for students enrolled in for-profit institutions, but this increase remained below the 7.5 percent increase in fall enrollment in this sector projected by the NSC.
Direct Subsidized Loans are offered to students with demonstrated financial need and are often accompanied by Direct Unsubsidized Loans or (less frequently) Parent Plus loans. For unsubsidized loans, the number of undergraduate recipients essentially remained the same relative to last year, and Parent Plus loan recipients declined by 4 percent overall.
These data indicate a continued decline of the number of federal undergraduate student loan recipients, which began during the 2020 COVID-19 pandemic. Among students at four-year public and nonprofit private institutions, this decline appears to persist even as enrollment levels have recovered to prepandemic levels.
Tracking trends in undergraduate federal aid
These preliminary data indicate that the changes to the aid eligibility and Pell grant formula likely did increase the number of undergraduates eligible for grant aid. Further, even with substantial changes in aid eligibility and increases in enrollment, federal loans for undergraduates have generally held flat or slightly decreased.
These early results indicate the need for federal and state policymakers to continue to monitor the effects of FAFSA and Pell changes and for researchers to delve further into the effects of the new Pell formula. Specifically, research evidence suggests that providing grant aid can lead to increases in student persistence and attainment and may reduce students’ borrowing. By tracking the number of Pell grant and undergraduate loan recipients, we can better understand how the bipartisan FAFSA Simplification Act is changing college financing.
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