The Real Price of College: Looking Beyond the Sticker

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.

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