Some of the media stories on this year’s Trends in Student Aid and Trends in College Pricing reports focused only on the rise in sticker prices. But others highlighted the unprecedented increase in federal student aid for 2009-10, emphasizing the reality that the majority of students don’t actually pay the full sticker prices. It is encouraging to see that at least some members of the press are beginning to understand the complexity of college financing and are attempting to convey to readers the real meaning of changes in both prices and student aid. Unfortunately, it is too easy either to berate colleges for increasing prices , raising the specter of millions of students being priced out of higher education – or to allow a focus on the billions of dollars of discounts available to students and the sizeable gap between sticker prices and net prices to minimize the challenges faced by students and families.
Over the decade from 2000-01 to 2010-11, average published tuition and fees at public four-year colleges rose 72% after adjusting for inflation. The 35% increase at private four-year colleges and the 31% increase at public two-year colleges seem moderate by comparison. But after subtracting estimated average grant aid and federal tax credits and deductions received by full-time students, the net price actually declined in each of these three postsecondary sectors. In other words, on average the net tuition and fees students are paying are lower in 2010 dollars than they were a decade ago.
So it’s not surprising that there are two very different stories out there about the price of college and college affordability. Why is it so hard for people to believe the numbers about declining net prices?
First, the decline is in average net prices. Some students do pay the sticker prices. About two-thirds of full-time students receive some sort of grant aid. Some of those who do not receive grant aid benefit from federal tax credits and deductions. This form of aid certainly diminishes net prices, but it is not easy for people to see the tax reductions they receive many months after they pay the bills as comparable to grant aid. And knowing that others are paying less surely increases the pain of paying the full rapidly rising sticker prices. Moreover, the people who pay the full price are disproportionately more affluent than average, and in our society the complaints of those who have more money are heard disproportionately both in the media and in politics.
Second, the decline is in net tuition and fees, not in net total cost of attendance. Despite the fact that people must have food and housing whether or not they are in school, room and board bills create significant burdens for many parents and for students who are not working full-time. And net tuition, fees, room and board are rising over time – albeit much more slowly than published tuition and fees.
Third, there is growing fear of student loans. There is greater discomfort about debt of all sorts, but student loans are an easy target. Debt levels of bachelor’s degree recipients from public institutions have stayed almost constant in inflation-adjusted dollars over the past decade. Debt levels have grown more in the private sector, but not nearly as much as most people believe. Still, the current economic uncertainty, not the least of which relates to the job prospects for college graduates, surely exacerbates these concerns.
Finally, and crucially, family incomes at all levels of the income distribution are either equal to or lower in constant dollars than their levels a decade ago. In the 1980s and 1990s, middle- and lower-income families saw little growth, but the rich did get richer. Now the pain has spread. So paying for any big ticket item has become more painful. College is at the top of that list.
We have to find ways to communicate more successfully about the gap between sticker prices and net prices. Grant aid and tax benefits play a very big role in making college affordable for many students. The widespread complaints about college affordability that fail to take these subsidies into account exaggerate the problem and likely discourage too many people from taking advantage of the opportunities available to them. But the problems do not all result from a lack of understanding of our complex system of higher education finance. In addition to broad economic recovery, we must face up to the very real challenge of assuring that our college financing system works better for all students in the future.
8 Responses to The Real Price of College: Looking Beyond the Sticker
bdr8y - November 2, 2010 at 7:49 am
I was under the impression that the lowest income families did not qualify for the tax credits that contribute to the suggested flattening of net price discussed above? Also, shouldn’t we be discussing the increasing wage disparity in our nation as also contributing to the net price disparities between poor and rich? In addition, most of the sticker price offsetting subsidies require some knowledge on the part of the consumer to go after as it were, and research tells us that low-income families have the least of this knowledge.
rhershman - November 2, 2010 at 11:26 am
To the commenter above, the American Opportunity Tax Credit is 40% refundable, meaning even families with no or little tax liability could still qualify for a tax credit up to $1,000 of their out of pocket qualified expenses (tuition, fees, and required course materials) not covered by grant aid.
mfal4186 - November 2, 2010 at 1:27 pm
Net Price Calculators will help inform students and their families how much their net price (and in the case of the most sophisticated NPCs out-of-pocket costs) will differ from a college’s sticker price. Some NPCs are also in Spanish to help reach the growing number of Latino students wanting to attend college. NPCs and the comparison service offered consumers, The College Cost & Planning Report, could help students avoid over-indebtedness by providing them the personalized information needed to make a wise choice of which college to apply to. (A personalized CCPR is free for low-income students.)
For colleges, NPCs are an opportunity to present not only price but other information important to consumers such as retention and completion rates and success of alumni. The latest and most extensive research on NPCs explains why and how not all NPCs are equal in performance and can be accessed here: http://www.studentaidservices.com.
glenthomas - November 2, 2010 at 8:07 pm
When I graduated from a private liberal arts college in 1967 and decided to take a very low paying job there in the admissions office, I bought a new Volvo basic sedan. It was the same price as my senior year college tuition, around $2,900 and was also about the same as my total college loan debt.
Having worked in enrollment management and financial aid for 40 years, I have watched overall tuition rise, and student debt burdens as well. If the debt to 1 year tuition is constant, is today’s student worse off than I was? And Volvo prices have certainly more than kept pace. I haven’t been able to buy a new one in years.
There is some perspective out there.
tray08 - November 2, 2010 at 11:04 pm
Well as we know money is the main reason that students don’t attend college. The cost for many is unbearable. I know some students have change their majors and join the JROTC so that they can get money for school. Some parents have went further in debt for their child to attend school. Parents really don’t get any breaks in their child’s education. Parents and students fear taking out loans due to putting more into debt. I wish there was a way to help those who are less fortunate to attend college without putting them further into debt.
22221103 - November 8, 2010 at 10:15 am
I think this research should go back to say 1980 to see if the cost of tuition has gone up or not, not just back ten years. When I went to college in the early 80′s, my tuition was about $300 per semester. That was the equivalent of working about a week 4 days at my $10/hour data entry job. Now tuition in my state is about $2,500 per semester. That’s the equivalent of working 31 days (300% increase!) and I think a $10/hour today is competitive. And I don’t think you can chalk that type of increase up to inflation.
Let’s get real here. Tuition has gone up and it is less affordable to our children today.
22074041 - November 8, 2010 at 10:49 am
One other cost I didn’t see mentioned is the cost in lost wages of 4 – 6 years in college. A person working at a local branch of a national business might rise to manager during that period. If you add what he/she would have made in 4 – 6 years’ work (rather than college attendance), those dollars (even at low wages) could easily have been $100,00 “lost.”
(One can argue that over a lifetime, he/she will have made more with a B.A.,but that doesn’t help in the short term.)
drj50 - November 8, 2010 at 1:12 pm
“Average published tuition and fees at public four-year colleges rose 72% after adjusting for inflation.” This statement is misleading because it represents the wrong standard of comparison. We should instead be comparing increases in college costs to the increases in the costs incurred by colleges or to family income.
By “inflation” the authors presumably mean increases in the Consumer Price Index, as calculated by the federal Bureau of Labor Statistics. The CPI website has a very helpful set of frequently asked questions, which highlight why the comparison above makes little sense (www.bls.gov/cpi/cpifaq.htm).
“The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.” But consumers and colleges buy different things. Consumers spend money on things like food, clothing, medical care, transportation, recreation, etc., while schools pay salaries, contract for services, buy equipment for labs and libraries, and pay for utilities. (For the latter, see the Higher Education Price Index or HEPI at http://www.commonfund.org/CommonfundInstitute/HEPI/Pages/default.aspx). One does not have to be an economist to grasp that the costs of these different items might rise at different rates. One might argue that the better comparison would be between tuition charges and the actual increase in costs experienced by universities.
But there is no single level of “inflation.” There are separate indices for different regions, urban areas, with and without food and energy prices, etc. The CPI website notes that “In addition to the All Items CPI, [which is commonly cited in media reports] BLS publishes thousands of other consumer price indexes.” And the website notes that “inflation” is different for some population groups — seniors, for example, are much more affected by changes in the cost of prescriptions and medical care than younger persons.
Finally, the CPU website itself concedes that there is no one “best” measure of inflation: “Various indexes have been devised to measure different aspects of inflation. . . . The ‘best’ measure of inflation for a given application depends on the intended use of the data.”
What I think people are really concerned about is affordability. If so, then we need to compare the increase in college costs, not to changes in the cost of bananas or blue jeans, but with changes in family income or net worth. Those statistics are available, but the annual changes differ significantly from the changes in “inflation” as determined by the CPI.