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Loans and Federal Aid

The costs associated with obtaining higher education make financial aid a necessity for many students. While now best known for its student loan programs, the federal government has offered various forms of aid to higher education throughout its history. This entry traces the history of federal financial assistance to higher education from the early use of land grants to promote the establishment of postsecondary institutions to the extensive loan programs implemented in the late 20th and early 21st centuries.

Early Institutional Aid

Early on, the federal government expressed only minute interest in higher education. Prior to the adoption of the U.S. Constitution, the Northwest Ordinance of 1787 supplied land grants to fund the establishment of a university in the territory that became the State of Ohio in 1803. Even so, the federal government did not return to the issue until near the middle of the 19th century. During the Civil War, Congress passed the Morrill Act of 1862, which helped promote two government initiatives. On the one hand, the sale of land grants of unoccupied territory in the West helped encourage settlement as homesteaders purchased and took up residence on the unused land. At the same time, the revenues from the sale of the lands went to support postsecondary schooling by funding institutions and promoting curricular offerings in agricultural and mechanical arts.

In 1890, Congress enacted the Second Morrill Act, which provided direct federal financial appropriations to support agriculture and mechanical curricula. Also known as the Agricultural College Act of 1890, the Second Morrill Act allowed racial segregation to continue in higher education by requiring states either to admit freed slaves to existing land grant institutions or to establish new postsecondary schools to provide these citizens with agricultural and other training.

Established between the passage of the First and Second Morrill Acts, the Hatch Act of 1887 also helped the federal government to promote the cause of agriculture. The Hatch Act provided the first source of direct federal funding to higher education for agricultural experimentation, research in agricultural science, and the establishment of agriculture stations to export agricultural research and curricula to the farmers throughout participating states. Under the Smith-Lever Act of 1914, the agricultural stations created in the Hatch Act became the cooperative extension system within the land grant institutions.

Student Aid and the Cold War

Despite agricultural support, direct student aid did not receive attention from Congress until well into the 20th century. Commonly known as the G. I. Bill, the Servicemen's Readjustment Act of 1944 is the earliest example of federal direct student aid. Under this act, World War II veterans received both stipends and tuition assistance because of their service to the country. Designed to prevent a postwar economic decline, the funds provided an incentive for veterans to delay entering the labor market while also making it easier for them to attend college.

Continuing to focus on national security, the National Defense of Education Act (NDEA, 1958) provided both institutional and student aid to higher education. To institutions, the NDEA offered financial support for academic priorities in science, mathematics, and foreign languages useful in the cold war effort. Further, the NDEA made funds available to provide students with graduate fellowships to pursue degrees in the areas identified as high need. Additionally, the NDEA created the National Defense Student Loan (NDSL), a low-interest loan program for qualified students in areas highlighted by the act. Congress renamed the NDSL as the Federal Perkins Loan under the 1986 reauthorization of the Higher Education Act.

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