Report: Living Expenses, Not Tuition, Are the Problem

New report finds that financial aid mostly has kept up with rising tuition prices. But living expenses are another story.

May 13, 2020
 
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Sticker prices at most, if not all, colleges and universities in the country have increased since the mid-1990s, and some have increased dramatically.

But financial aid assistance for low- and middle-income students generally has kept pace with these rising costs, according to a new report from the American Enterprise Institute.

The report, "Evidence Against the Free-College Agenda: An Analysis of Prices, Financial Aid and Affordability at Public Universities," argues that free tuition programs at four-year institutions wouldn't be helpful to the neediest students. Instead, policy makers should be looking at living expenses.

"The push for free college, a lot of it seems to be premised on the view that public universities' prices have spiraled out of control," said Jason Delisle, the author of the report and a resident fellow at AEI.

Those arguing for free college tuition tend to focus on the sticker price, according to Delisle, and not the net price for students after aid. Sometimes, he said, they focus on one specific piece of the puzzle, like state appropriations.

In the report, Delisle looked at the national average tuition sticker price for in-state, public four-year institutions from 1995-96 to 2015-16, but then also looked at the national average net price after aid. For students who received federal Pell Grants, the net price only increased from $563 to $1,110 during that time period, even as sticker prices increased from $3,534 to $8,158. For students from families making less than $125,000 in annual income, the net price of tuition increased from $2,000 to $2,447.

The Pell Grant, state aid, institutional aid, federal tax benefits and private aid are all included in the calculation. Federal student loans are not.

"If the argument for free college is that prices have really changed a lot at these institutions, and it turns out they haven't, then one, we don’t need the free college proposals," Delisle said. "But also it’s an unsung success of our financial aid programs."

At the same time, living expenses have increased. While aid has been able to cover some of that increase, according to the report, it still doesn't cover all of it.

"They make an important point, which is that a huge chunk of the cost of going to college is the cost of living," said Clare McCann, deputy director for federal higher education policy at New America. "That has been an underappreciated point in many of the college promise programs that are out there."

But McCann questioned some of the aid Delisle factored into net price calculations in the report, like federal tax benefits, which students and their families usually don't see until they do their tax returns.

Delisle argues that tax benefits are relevant because people claim them, even if they don't think of it when reading their tuition bill. And the government spends money on those subsidies.

"It helps students for sure, and it costs the government for sure, but it is not aid that is immediately available to students," McCann said. "The question is about not just how much money they get in a year, but also about when they get it."

McCann agreed that policy makers need to pay more attention to living expenses and to find ways to contain those costs.

Even the way institutions measure the cost of degree attainment isn't always accurate, she said. Enacting policies and guidelines to standardize what and how institutions measure students' living costs could go a long way in understanding the problem and potentially finding ways to control it, McCann said.

Is College Affordable?

Some experts feel the report reinforces their argument on college affordability.

"The report is trying to make the argument that public colleges are more affordable than some claim," said Andrew Nichols, senior director of higher education research and data analytics at the Education Trust. "But to me, the report reinforces the idea that colleges are unaffordable."

College affordability includes living expenses, Nichols said, and Delisle's report shows that.

While separating living expenses from tuition can be useful for policy solutions, Nichols said, at the end of the day, students are paying for everything. ​

He said the report instead shows that free college programs, as they are often designed now, are not adequate.

It also leaves out students who don't have access to federal or state aid, even if they may need it, such as undocumented or incarcerated students, said Jaime Ramirez-Mendoza, a policy analyst for the Education Trust.

Free college programs also need to address the needs of the whole student, Ramirez-Mendoza said, adding that tuition and fees only make up 40 percent of the total price of attending college at public four-year institutions.

There are several ways to address living expenses for students, Nichols said. Equity-focused free college programs, such as those that use a first-dollar approach and cover tuition before other aid, letting students use Pell Grants for living costs, are one way. Others include doubling Pell Grants and helping states cover higher education expenses.

Nichols also pointed out that, as most wages stay flat or even decrease with inflation, any increase in college pricing matters. State context also matters, as he found significant variation in costs throughout the states in a report from last year.

The alternative to free college programs that could help students is to put more money into the existing aid system, according to Delisle, which his report shows works well. Policy makers also need to find ways to contain costs, whether they are spurred by the "amenities arms race" or just by inflation, he said.

But the solution for containing living expenses could go beyond higher education.

"It costs more money to live in this country now, and at the same time, we’re not seeing wages keep pace with that," McCann said. "A much broader strategy is required than one just focused on higher ed."

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