New Report Visualizes Affordability Problem for Students

March 23, 2017

By Bill DeBaun, Director of Data and Evaluation

NCAN members try to counteract this for the students they serve, but they know many postsecondary institutions remain unaffordable for low-income students, even after considering financial aid. The Institute for Higher Education Policy (IHEP) in a new report attempts to understand the scope of postsecondary affordability for different profiles of student across the income spectrum. In “Limited Means, Limited Options,” the authors consider the portion of postsecondary institutions that would be affordable for different students through the lens of Lumina Foundation’s Affordability Benchmark. They find that “the vast majority of the sample colleges were unaffordable for 8 out of the 10 students” and make policy recommendations on increasing postsecondary affordability.

The report revolves around 10 student profiles based on “aggregate data from national data-sets representing real Americans, and are intended to typify 21st-century students.” The five independent and five dependent students represent families and circumstances from across all income quintiles. The report employs Lumina Foundation’s Affordability Benchmark, which is based on a “simple value-based proposition called the Rule of 10.” The Rule of 10 proposes that students or their families save approximately 10 percent of their discretionary income annually for 10 years preceding postsecondary attendance (notably, students and families within 200 percent of the Federal Poverty Guideline for their household size are not expected to save for college). While attending, according to the Benchmark, students should be able to work 10 hours per week while attending college full-time. An “affordable” four-year degree should be covered by the sum of the 10-year savings and the part-time earnings.

After IHEP calculated “affordability thresholds” for each of the 10 student profiles, they compared them to a sample of net prices from over 2,000 two- and four-year institutions of higher education participating in the Title IV federal aid programs. These net prices came from College Abacus, a free net price comparison tool from NCAN member ECMC. Cost of attendance here included tuition and fees, room and board, books and supplies, and transportation and other costs. Net price is the cost of attendance minus grant aid. Ultimately, IHEP examined the percentage of institutions whose net price fell under each student profile’s affordability threshold.

The findings will be troubling but likely unsurprising for NCAN members. As IHEP notes, “the cost of college—even after accounting for grant aid—is most burdensome for low-income students. On average, they need to finance an amount equivalent to more than 100 percent of their family’s annual income to attend one year at a four-year college, compared with high-income students, who must finance only 15 percent on average.”

As noted above, comparing what would be affordable for students to what postsecondary education would cost, eight of ten student profiles found the “vast majority of the sample colleges” to be unaffordable. Forty-eight percent of the sample was affordable “only for the wealthiest student profile (with a family income over $160,000)” and more than a third of colleges were affordable only for the two highest income profiles. The report notes, “While the student from the highest income bracket could afford to attend 90 percent of colleges in the sample, the low- and moderate-income students with fewer financial resources could only afford 1 to 5 percent of colleges.”

Affordability was not uniform across institutional sectors. Unsurprisingly, public institutions were relatively more affordable than their private counterparts, but they were not absolutely more affordable. Two- and four-year public institutions exceeded affordability thresholds by about $7,000 and $9,000, respectively. For private institutions, non-profit schools were unaffordable by about $16,000 on average while for-profit institutions exceeded those thresholds by approximately $18,000 on average.

Even after taking loans (which are not typically subtracted from COA to obtain net price) into account, over 70 percent of the institutional sample was unaffordable for all but the two highest income student profiles.

The report considers some changes to the financial aid system that could make institutions more affordable. It notes that grants and loans are not enough to make most colleges affordable for a wide swath of students. The report adds, “Neither is working more than 15 hours per week while enrolled, which often compromises students’ ability to persist and attain a degree.” First, the report examines the hypothetical effect of doubling the Pell Grant on affordability. Doubling the Pell Grant would significantly increase the percentage of institutions now affordable for independent students at all income levels and low- and middle-income dependent students (e.g., for “Anthony” an independent student in the lowest income quintile, the percentage of affordable schools in the sample went from two percent to 20 percent).

Next, the report considers the hypothetical scenario of lowering each institution’s net price by $10,000. This represents the “overall average gap between institutional net prices in the sample and what the students could afford.” This gap could close “with a combination of increased student aid from federal sources such as the Pell Grant, increased state support through need-based grants or lower tuition, larger institutional grants to low-income students, and other efforts that allow institutions to decrease costs for students.” The effects on affordability are even more stark here; the percentage of affordable institutions increases to 26 percent at minimum and to somewhere between 45 and 52 percent for independent and lower- and middle-income students.

The report dismisses the idea of last-dollar free college as “likely to further entrench the inequities that already exist when it comes to college affordability.” This is because under this system, in which states pick up the remaining tuition and fees remaining after subtracting all federal aid, students are still left to cover room and board, books and materials, and transportation costs. These costs remain significant for independent students and lower- and middle-income dependent students. In fact, in the report’s model, only dependent students with family incomes over $105,405 saw an increase in the percentage of affordable institutions.

Affordability remains a major concern for many students. This new IHEP report is valuable in its display of the affordability problem across students of different means and circumstances. Understanding and visualizing the problem, along with policy recommendations like increasing investments in direct student aid, may be helpful in convincing policymakers about the extent of the problem.

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