“how College Financing Has Evolved: A Historical Look At Student Loans”

“how College Financing Has Evolved: A Historical Look At Student Loans” – Debates about the rising cost of college routinely miss the point. The total cost of attendance at four-year public and private institutions nearly tripled between 1979-80 and 2020-21, adjusted for inflation. But only students from high-income families pay that full fee, or “sticker price” as the headlines call it. Most students pay less because they receive financial aid in the form of grants (sometimes called scholarships). This means they pay a “net price” that is less than the sticker price – often much lower. It is difficult to determine the exact cost for individual students, and it is even more difficult to track changes over time. But if we want to understand changes in college affordability, we need to look not only at seemingly high sticker prices, but also at financial aid and net prices.

While the exact cost is important to understanding college affordability, unfortunately, it is not easy to find reliable information about exact prices and how they have changed over time. To fill this gap, I have collected better net price data for selected colleges.

“how College Financing Has Evolved: A Historical Look At Student Loans”

, on average, in recent years, is not rising. But the data shows that the net price many low-income students must pay is still too high at many institutions. Our focus is not just on the dramatic increase in sticker prices paid by high-income students, but the lack of college affordability for low-income students.

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There are several steps that should be taken to resolve these issues. First, we need better information about college costs specific to individuals’ financial circumstances. The focus on sticker prices is understandable, as establishments are required by law to report annually. Net prices are individual and this information is difficult to generate. Finding better ways to report and track accurate pricing is imperative. Redefining sticker price as the “maximum cost of attendance” is an easy first step to help clear up misconceptions about college prices. Increasing the maximum size of Pell Grants (the largest form of non-repayable federal financial aid) to lower the net cost to low-income students would go a long way toward solving this problem.

A college education is one of the biggest expenses people will face in their lifetime. College is not necessarily right for everyone, but the decision to attend college should be based on accurate cost information. What a student needs to know is not just how much college costs in general, but how much it costs them. For most students, the sticker price is wrong. Averages are not very informative because net worth depends on individual circumstances.

Likewise, if policymakers, advocates, and commentators want to understand trends in college affordability over time for different types of students, they should track actual prices, not sticker prices. Almost a decade ago, I wrote about how difficult it is to determine how much colleges charge students in various financial circumstances. In terms of publicly available information, not much has changed since then. It is still very difficult to determine how much a student can pay to attend various colleges.

The federal government requires higher education institutions to post their “cost of attendance (COA),” an amount sometimes called a “sticker price” that includes tuition, fees, room, and board (quick (sometimes called housing and food), travel, books, and other expenses. But most students pay less than that because they receive financial aid. “Net price” is the sticker price minus the total grant funding the student receives (grant aid does not have to be repaid). Many students have federal student loans and work-study programs that they can use to offset the net price they are expected to pay.

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Any remaining amount not covered by grants, federal student loans, and work-study income must be paid separately by students and their families. These remaining costs are often referred to as “out-of-pocket” costs because they must be paid by students and their families directly to the institution (ie, one day from electronic payment systems by “writing a check” before). Funds to cover these fees can come from many sources, including savings or other debt sources (including Parent PLUS loans), but out-of-pocket costs are more likely for students and families. is considered an additional burden. financial aid system.

Recognizing the need for more accurate information about how much students are likely to pay for college, the Higher Education Opportunity Act of 2008 required institutions to provide a tool that students can use to estimate their net cost based on their individual financial circumstances; these tools are called “net price calculators”. The law also requires institutions to report statistics on the net price paid by their students by aggregate and separate income ranges.1 These data are provided in the College Scorecard.

Unfortunately, none of these data sources have fully resolved the issue. Pure price calculators can’t do the job. They are often difficult to use and sometimes hard to find (this is consistent with my experience of using hundreds of net price calculators several times). Net price calculators are a well-intentioned step in the right direction, but they still have a long way to go. There is also little specific cost information available on the college scorecard. They can give information about what a student can afford to pay, but they do not fully cover individual circumstances and some of the information appears to be inaccurate or misleading.2

Data from the Department of Education shows that average net prices rise more slowly than sticker prices and have recently fallen

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Despite the limitations of publicly available data, they provide useful information about college price trends. For example, Figure 1 shows trends in average COA and average net price (adjusted for inflation) for 2006-07, separately for public and for-profit private four-year institutions.

Between 2006-07 and 2019-20, COA increased by about 27% in both types of institutions, but declined by 7-8% in the following few years. The latest drop comes as colleges have posted the same nominal COA increase as in the past, but inflation was higher. Overall, COA has increased by almost 20% in both types of institutions over these 16 years.

But average net prices grew at a more modest pace. Between 2006-07 and 2019-20, the average net price at public and private four-year institutions increased by 13% and 7%, respectively. These increases have reversed in the years since COVID. Overall, average net prices, adjusted for inflation, were largely unchanged from 2006-07.

But the average net price for all students mentioned here includes both those who receive financial aid and those who pay full price. As those who pay full price face higher prices over time, net prices

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Must have fallen. Without more information, we can’t say much about how the net price has changed for different types of students, but the drop in net price for students receiving financial aid is significant and not consistent with public opinion.

Over the past decade, I’ve focused on finding ways to create data that better shows the level and trend of college costs for students from different financial backgrounds. These data cover more limited institutions and time periods than the Department of Education data described above, but they provide a more consistent and accurate picture of net price changes over time.

I used two approaches. First, I rely on detailed information from institutions and the MyinTuition model I developed to track net prices for institutions that agree to participate. The second approach uses the net price calculators described above to track net prices at randomly selected institutions. In both cases, I observe net prices for hypothetical dependent students in college without siblings for three different family income levels (in 2022): $40,000, $75,000, and $125,000. These revenues correspond to approximately 25

Share of income distribution for families with college-aged children.3 To estimate net prices, I also assume inflation-adjusted typical levels of assets at each income level.

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Consistent with the median net price data described above, these new data sources show net price declines for low-income students in recent years. They also highlight ongoing challenges

Clear prices for many students. Across the board, low- and moderate-income families pay net prices that are well below the posted sticker price; but in many cases, the net prices for these families are still too high. Notably, highly selective private colleges with large endowments have the highest sticker prices, but the lowest net prices for low-income students.

Almost a decade ago, I wrote about the work I did at Wellesley College to create a simplified tool for estimating college costs based on families’ key financial characteristics.4 This led to the creation of MyinTuition, which assesses student financial capabilities. aid award may appear based on information about current students whose families have similar financial characteristics. MyinTuition provides a best estimate and a 90% confidence interval

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