Tuition Ignition: A week-long series looking at the soaring cost of college at public and private institutions

Need-based federal Pell Grants make up a crucial piece of aid for many low-income students. But look no further than any recent grad's latest loan statement, and you'll see that even with Pell Grants, they're still paying up the nose: In 2008, an astonishing 87% of Pell Grant recipients also had to take out loans. The average value of those loans at graduation? Just shy of $25,000, according to The Project on Student Debt, a nonprofit advocacy group.

Everyone agrees that college is important, so where are the grants? Blame several factors, from lack of political will to the stock market. Congress has seldom made higher education a high priority-tax cuts for the wealthy mean big political contributions, but rarely is cash for strapped students considered political capital. And since the U.S. House and Senate control the Pell Grant coffers, increases come rarely, and only when there is enough urgency -- funding about to run out, for example -- to deal with it. That's ironic when you consider that the grants, introduced in 1973, were the brainchild of the late Sen. Claiborne Pell (D-R.I.).
The amount a student receives varies based on the family's income, up to a maximum amount set by Congress each year. The top Pell Grant award for the coming school year is $5,550, but many recipients will get only a portion of that amount.

That may sound like a healthy piece of money, and in some states, it's enough to cover a year's tuition at public institutions. But consider this: Only the poorest students would get that full amount -- the same students who, at schools in states such as Washington, Arizona, Georgia, North Carolina and Michigan likely would have their tuition covered by state grants for low-income students.

Students from lower-middle class families not only might not be eligible for those programs, but would also get smaller Pell grants: In the 2007-08 school year, the average Pell Grant was just $2,650.

"A lot of the complaining is going to come from middle-income students," says David Longanecker, the president of the Western Interstate Commission for Higher Education, a nonpartisan think tank. "It increases the burden of going to college, but it doesn't create a barrier."

In other words, most middle-class students will rack up larger debts debt rather than forgo college if they can't get grants.

Loans end up filling the gap. Federally backed student loans have interest rates of 6 to 8.5%, though lenders occasionally offer programs that let students combine their loans and get much lower rates. Either way, undergraduates are limited to about $27,000 in federal loans over four years of college, though their parents can take out additional loans through separate programs.

For students at very expensive schools where that's not enough -- or at unaccredited for-profit certificate programs, for which federal aid can't be used – the next option is usually private loans issued by banks. And these can carry interest rates of 10 to 13 percent, similar to what you might pay on a credit card.

At the University of Washington, the average undergraduate leaves with $15,000 in debt. But most graduate students are saddled with an extra $50,000 in loans, and students in professional programs, such as the UW School of Law, face $100,000 in debt, says Jake Faleschini, the graduate student and senate president at UW that we introduced you to earlier this week.

He expects to graduate this year with a total debt load of $70,000. On the one hand, he knows that's a huge sum of money. But then again, he says, some of his friends who went to private law schools are now trying to pay down $250,000 in loans.

"I am well below my peers, and incredibly thankful for it," Faleschini says.

Recent federal legislation will provide some help for students with loans, but not enough, experts agree.

The talking points highlighted a boost to Pell Grants that will make them rise at the rate of inflation in the coming years. But the reality is that Pell Grants have been underfunded for more than a decade, struggling to keep place with inflation and growing far more slowly than tuition.

Even with the new legislation, the maximum Pell Grant won't change for five of the next 10 years, topping out at about $5,900 in 2018 and staying there until at last 2020. But at predicted inflation rates for the coming decade, that $5,900 in 2020 will only go as far as about $5,000 does today. In other words, Pell Grants will effectively be shrinking.

"No matter how you spin it, it is still an anemic increase in the amount of the Pell Grant," says Finaid.org founder and financial aid expert Mark Kantrowitz.

The stock market, which battered university endowments in 2008 and 2009, isn't helping matters, either. These large investment funds are what universities use to pay for some of their professors and for some financial aid. Schools need particularly large endowments--at least $100,000 in value per student, or hundreds of millions of dollars in total, to provide reasonable scholarships. For schools whose endowments took a beating, count that many fewer scholarships, no matter how deserving the students.

At the end of the day, the fact remains that students and their parents are left holding the bag. Michael Bradtke graduates from DePaul University in Chicago next month and knows he'll have to start paying down about $25,000 in loans by the end of this year. He plans to pursue a law degree and get a relatively high-paying job to pay off his loans.

But one of his friends has $80,000 in undergraduate debt--a sizeable amount that could be around for 20 years or more.

"He's obviously keeping it in the back of his mind," Bradtke says, "if he's looking to get an apartment, or buy a condo or a car."

Coming Friday: Who gets the blame for soaring tuition, and who deserves credit for efforts, however small, to help students out? Send us your tuition stories to MoneyCollege@WalletPop.com.

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