The cost of college might be less than you think

The net cost of tuition and fees paid by low-income students at public four-year schools is actually $0. Here’s why - and why it matters.

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“A better understanding of how much college really costs can help both parents and students make the right decisions about college choices and affordability.”
For parents and students worried about affording higher education, prevailing perceptions about runaway inflation in the cost of college and the rise in student debt are no doubt sources of anxiety.

But here’s what these stories often miss: What’s usually being measured is the change in the “list price” of college – which only the wealthiest one-third of students pay.

In the same way that a car’s “sticker price” doesn’t reflect what you end up paying, college “list” prices don’t convey the actual cost of college. A better understanding of how much college really costs can help both parents and students make the right decisions about college choices and affordability. And it may also prove a pleasant surprise.

If you take into account the increasing amount of financial aid provided to students in the form of grants and scholarships from states, the federal government, and the colleges themselves –plus subsidized loans, work study stipends, tuition waivers and federal and state education tax credits – it means that most students pay significantly less than the sticker price.

How much less?

In 2012 at private four-year colleges, the average list price for tuition and fees was $43,500, while average out-of-pocket expenditures by students was $18,100. The comparable figures for state four-year colleges were $23,200 and $11,800.

But according to the College Board’s annual Trends in College Pricing study, which publishes net college costs, the average net price for tuition and fees paid by full-time students at four-year public institutions was $3,120 in 2013-14. For full-time students enrolled in private colleges and universities, the average net price in 2013-14 was $12,460.

Moreover, the amount of grants and loans awarded to students are mostly determined by family income, which means that net costs for lower-income students are even lower than these figures.

According to the National Postsecondary Student Aid Study of 95,000 college students, students in families with incomes below $30,000 (the bottom 25 percent) attending four-year public colleges received $9,835 in grants and aid while published tuition and fees at these institutions averaged $8,890. The College Board’s report finds that “[n]et tuition and fees at public four-year institutions ranged from $0 for the lowest-income group to $8,346 for the highest-income group.”

“In 2012, 31 percent of students graduated with no debt.”
Student debt is another area where misperceptions abound. While newspapers often tout front-page stories of students with $100,000 in debt, only one in two hundred graduates (0.5 percent) graduated with this level of debt in 2012.

Moreover, the figure that’s most often-cited as the average debt upon graduation – $29,000 among those who graduated in 2012 – includes only students who graduate with debt.

In 2012, 31 percent of students graduated with no debt. If they are included in the calculation, the average debt of all graduating seniors was just over $20,000. “Average” debt figures are also skewed by the 9.7 percent of students who have debts greater than $50,000. If you look instead at the median level of debt (the mid-point in the distribution), that figure in 2012 was just under $17,000.

Finally, are high college costs preventing students from attending school? Perhaps surprisingly, the answer is no.

As is common in recessions, the number of young people attending college grew during the height of the Great Recession through 2010. There has been a slight retrenchment in enrollment as the economy has picked up and young people opt for working over school.

“Misperceptions [about college costs] can either discourage some qualified lower-income students from applying to four-year colleges and choosing two-year schools or cause some students to pass up post-secondary education completely.”
But overall, the number of underrepresented minorities and lower-income postsecondary students is at a record level: in 2000, 56 percent of African-Americans and 49 percent of Hispanic high school graduates attended a two- or four-year school in the year after graduation; in 2011, these shares rose to 65 percent and 64 percent.

This is not to say that college is cheap. Low-income students still face significant financial pressures, especially if they are also working and have commuting costs. And while grants for tuition and fees might be generous, this aid does not cover costs for room and board, books and other expenses, which in 2012 averaged $11,850 for students attending state schools.

But if these students persevere, they are also very likely to increase their long-term earnings substantially.

Nevertheless, misperceptions about the real costs of college matter.

For one thing, these figures drive public debates about higher education and lead to potentially bad policy.

For example, radical plans to make colleges “free” would actually be regressive because many students from the top half of the income distribution would be subsidized by taxpayers (as economists always say:“There is no free lunch.”).

But potentially more destructive is that these perceptions can either discourage some qualified lower-income students from applying to four-year colleges and choosing two-year schools or cause some students to pass up post-secondary education completely.

Stephen Rose is a labor economist who consults and writes on economic issues in Washington, D.C. Previously, he has worked for Georgetown University, the Department of Labor, and Third Way. 

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