How Should We Think About College Affordability?

By Sandy Baum

Headlines like “5 Reasons College Has Become Unaffordable For The Masses” or “Why Is College Education Unaffordable for So Many Americans Today? What Should Be Done About This?” start from the premise that many, if not most, people cannot afford a college education. Some reports have even suggested that the expense is out of reach for high-income families.

While such headlines are certainly attention grabbing, it’s actually difficult to find good explanations of what it means for college to be “affordable” or “unaffordable.” Before colleges can constructively evaluate and improve their pricing and financial aid policies, they should have a solid understanding of what should go into determining how realistic it is for students and families in different circumstances to pay for the education offered.

In reality, college affordability is not so simple as identifying what the sticker price of a college education is, how much money people have available to pay for it, and the amount of financial aid students and families qualify for to help defray the cost. How much anyone can afford to pay depends on the value of what they are purchasing. The question, “Is college worth it?” is really more appropriate than, “Is college affordable?” No matter how much money one has available, spending it (along with considerable time and effort) on a course of study that a student is unlikely to complete, or that is not likely to lead to the desired goals even upon completion, is not affordable in any meaningful sense of the word. On the other hand, borrowing judiciously to pay for an education with a high expected payoff is sensible, and the debt incurred is not generally a sign of it being unaffordable.

Estimating value is more complicated than just asking whether the money students or their parents have in their pockets at the time of enrollment is enough to pay the bills. It requires knowledge of available alternatives and their likely outcomes. Prospective undergraduate students might want to compare the options of seeking a certificate, an associate’s degree, or a bachelor’s degree. They should ask: “How do the sticker prices and the available grant aid compare at public, private nonprofit, and for-profit institutions?” “How long is it likely to take to graduate from each institution—if I graduate?” “And what might life after graduation look like?”

Earnings are certainly important, but value cannot only be measured in dollars. In fact, too much focus on post-college earnings—especially earnings in the few years after college—can lead to bad decisions. Encouraging artists to major in engineering is likely to lead to high dropout rates and unhappy lives. Avoiding the humanities and ignoring the sciences diminishes both personal growth and the historical, social, and analytical perspectives fundamental to a healthy society and strong workforce. And a low-cost program designed purely to train people for an occupation that is unlikely to exist in 10 years, while appearing “affordable,” is not affordable at all.

Yet the fact that affordability is best thought of in terms of outcomes, not just prices, does not diminish the importance of financial aid programs based on pre-college finances.

The financial resources available to a student at the time of enrollment are critical. Students have very different starting points for measuring outcomes and value depending on their circumstances.

Those whose families have the resources and the willingness to pay thousands of dollars for their education have the opportunity to think of education as a combination of consumption and investment. They can consider how much they will enjoy both the learning and the lifestyle college offers. Unlike students with more limited resources, they can avoid the risks involved with borrowing large amounts for their education. And in contrast to students from low-income families, they don’t have to worry about helping to support their families while they are in school.

The figure below illustrates the average composition of funds dependent in-state students from different families used to cover college expenses at public four-year universities in 2011-12. For those whose parents’ incomes were in the lowest quartile for dependent students (less than $30,000), expected family contributions (EFCs) did not play a measurable role. Almost half of their funds came from grant aid from a combination of federal, state, institutional, employer, and other sources. Even after borrowing, they depended on earnings during college and other sources to cover almost a third of their expenses.

In contrast, EFCs covered 59 percent of expenses for students from the third income quartile. (On average, EFCs for students from the highest income quartile were larger than total in-state student budgets at four-year public institutions.) Grants covered only 13 percent of the budget. In other words, grant aid for low-income students partially compensates for parents’ inability to pay for college.

Sources of Funding for Full-Time In-State Students at
Public Colleges & Universities, 2011-12

What does all of this mean for how colleges should think about ensuring affordability?

First, need-based aid is a prerequisite for making educational opportunities available to students from a wide range of backgrounds. Even an education that is likely to pay off well, and thus be affordable in retrospect, is out of reach for those with the most limited resources.

Second, conversations about affordability should not just be about sticker prices and the net prices students pay after taking grant aid into consideration. Recent evidence confirms that increasing resources to fund instructional and support services can have a larger impact than prices on degree completion. We should focus on the value that college offers students—not only in terms of prospective earnings, but also in terms of learning and broadening horizons and the experience they have while enrolled.

Third, lower prices are an inadequate measure for ensuring affordability. Lowering or freezing tuition, and thus the price of an education, without regard to program quality is counterproductive. An inexpensive education that leads nowhere is not affordable. And an expensive education that opens many doors, including those to remunerative careers, can be affordable even for people with limited pre-college resources.

As a new website on college affordability from the Urban Institute emphasizes, generous need-based aid, adequate institutional resources, and high value are all vital components of an education that is worth the investment and therefore is affordable for students and families. Students with minimal family resources need more help with paying for college than their peers. That help must come from both government and institutions themselves. But asking students to stretch and to borrow moderately is appropriate if—and only if—there is a high probability that they can and will succeed in completing degrees that will pay off well for them over their work lives.