How can we fix the college affordability problem?
It is no secret that we have a higher education affordability problem in the United States. The staggering costs can amount to $80,000 per year at private colleges and universities and $30,000 per year at public institutions. Who can afford that? Yet the true cost of college is typically much less than that because of financial aid. The real problem is that students from lower-income families still face charges far greater than they can afford even after accounting for financial aid.
President Biden recently proposed one step forward, including a $2,175 increase in the Pell Grant in his fiscal 2023 budget. It is a start, but it is not enough. We need to double the Pell Grant.
According to my calculations, only 22 percent of students attending four-year residential colleges pay the full sticker price. Everyone else pays less. But how much less?
In my forthcoming book on the crisis in college pricing, my research team used net price calculators at 200 randomly chosen four-year residential institutions to estimate how much colleges actually charge students at different income levels.
The startling result is the astounding amount higher educational institutions expect lower-income families to pay. Ironically, public institutions charge them considerably more than elite, private institutions with much higher price tags. After accounting for financial aid, public institutions charge around $14,000 per year to students from families with incomes under $37,000 (the 25th percentile of the income distribution). Assuming annual inflows of work-study funding ($2,500) and student loans ($5,500), these students would still need to come up with $6,000 in cash every year. Where is that money supposed to come from?
Middle-income students at these institutions fare somewhat better. Those from families with incomes around $100,000 are typically asked to pay around $18,000, or $10,000 per year after accounting for federal student loans and work-study funding. These costs are still a stretch for them, but that gap is not nearly as significant as the chasm lower-income students face.
Doubling the Pell Grant is the right solution to this problem. In 2022-2023, the maximum Pell Grant will be about $6,500. Students from families with incomes below roughly $35,000 are eligible for the full award, and those from families with incomes up to perhaps $60,000 are eligible for smaller amounts.
Doubling the maximum award to $13,000 would completely fill in the affordability gap for lower-income students at public institutions. It would also increase the income thresholds for the maximum awards and for any award to perhaps $60,000 and $85,000. This would provide some support for middle-income families as well.
A common concern regarding Pell Grant increases is that institutions will just jack up their sticker price or reduce their own financial aid funding, benefiting the institutions but not the students. But evidence suggests that these behaviors are limited.
Still, legislation could prevent such behavior almost completely. In financial aid language, institutions “meet full need” when students are charged no more than their “expected family contribution,” which provides a crude gauge of how much they can afford to pay. Few institutions meet full need now. Doubling the value of the Pell Grant would provide public institutions with enough funding to do so. If they were required to meet full need, they would not be able to divert those funds. They would be needed to provide enough aid.
The main policy alternative to improve college affordability are so-called “free college” plans. These plans would provide free tuition, but not living expenses, at public institutions. Some (but not all) of these proposals include income limits on the benefit — available for students from families up to $125,000 in income, for instance. Some (but not all) would also maintain Pell Grant eligibility to help cover living expenses. Doubling the Pell Grant is a better option because it is particularly well-targeted at the lower-income students who face the greatest affordability problems.
The one clear benefit of free college proposals is transparency. Free is easy to understand even if it offers no real price reduction. It doesn’t matter if doubling the Pell Grant is better targeted if it is poorly understood. Any such effort must be incorporated into more clear communication of college pricing.
A college education has tremendous capacity to satisfy the fundamental American values of social mobility and economic opportunity. Those benefits cannot be realized if college is not affordable. Doubling the Pell Grant is the solution that provides the right amount of assistance to those who need it most. It is the approach we should adopt.
Phillip Levine is the Katharine Coman and A. Barton Professor of Economics at Wellesley College and the author of the book, “A Problem of Fit: How the Complexity of College Pricing Hurts Students – and Universities” (University of Chicago Press). He is also the founder and CEO of MyinTuition Corp., a non-profit organization that provides colleges and universities with a simplified financial aid calculator.
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