Emergency Grant Aid Can Improve Student Outcomes

FSEOG is a form of federal need-based grant aid that flows directly to institutions, which then distribute these funds to students on campus. Grants range from $100 to $4,000, and institutions disburse these funds at the beginning of each term, prioritizing low-income students. Institutions must match at least a third of their federal allocation. In the 2018-19 academic year, the federal grants amounted to nearly $835 million for about 1.6 million students.

While research shows that grant aid increases college enrollment and persistence, the FSEOG program’s effectiveness has been limited by its inability to respond to specific events. If a student faces an unexpected cost during the term, they have not traditionally been able to apply for further FSEOG funding, despite evidence that suggests as little as $300 in additional financial aid can promote college completion. This has left students vulnerable to expenses that can threaten their college progress.

Another problem is that the program’s outdated distribution formula sends federal funds disproportionately to private colleges and universities, which tend to enroll a smaller share of low-income students than public institutions. While only 17% of Pell Grant dollars are awarded to students at private nonprofit colleges, a third of FSEOG funds flow to that sector.

COVID-19 has led to widespread financial insecurity, meaning that an increasing number of students likely need additional support to respond to incidental expenses. Surveys suggest that 58% of students experienced food or housing insecurity this spring, with especially high rates of basic-needs insecurity among Black and Hispanic or Latino students. The same survey showed that one-in-three employed students lost their job because of the pandemic. Financial insecurity is especially rampant among low-income students who face unexpected costs and lost income at higher rates than their more affluent peers.

The temporary reforms enacted through the CARES Act allow institutions to disburse FSEOG funds as micro-grants to students with financial need and transfer leftover Federal Work Study funds to FSEOG coffers. This flexibility, however, is only available through a period of “qualifying emergency” related to COVID-19.

Prior to the pandemic, the Bipartisan Policy Center’s Task Force on Higher Education Financing and Student Outcomes recognized the need to provide cash assistance to students who face unexpected financial difficulties that threaten their academic progress. The task force recommended permanent reforms to FSEOG allowing institutions to use a portion of their funds for micro-grant programs and suggested FSEOG funds could support partnerships between institutions and child care centers to provide emergency child care services for students with dependents.

BPC’s task force also recommended changes to the FSEOG allocation formula to increase support for low-income students. Rather than distributing FSEOG funds to institutions based on previous award amounts and cost of attendance, as under the current formula, BPC’s proposal prioritizes institutions that effectively serve large numbers of low-income students. This would help to ensure that support flows to students who stand to benefit the most.

While the CARES Act provided crucial flexibilities for FSEOG funding, these will expire when the virus abates—but the financial vulnerabilities facing America’s college students pre-dated and will outlast the pandemic. Policymakers have the option of promoting college completion by acting in a bipartisan manner to make these emergency reforms permanent and consider changes to the benefit formula so that this supplemental support better targets low-income students.