Net Price After Grants and Loans

One measure of the net price of attending college, already presented, is the total price of attending minus grants. This represents the actual price students must pay (because they do not have to repay grant aid). Another measure of net price is the total price of attending minus all grants and loans. This measure represents the outlay that students and their families must make in a given year to cover their expenses (or, more accurately, the outlay calculated by the need analysis, which, as already indicated, may not be the same as actual outlays).

• Average net price after grants and loans increased at public 2-year institutions, but not at other types of institutions; the effect on income groups varied.

The changes in net price after grants and loans between 1990 and 2000 represent the net effect of multiple factors, including price increases, smaller expected family contributions (and thus increased eligibility for need-based aid), more state and institutional grant aid, expanded eligibility for federal loans, and higher federal loan limits. At public 2-year institutions, the average net price paid by full-time dependent undergraduates (adjusted for inflation) was about $500 higher in 2000 than in 1990 ($7,000 vs. $6,500) (table 7). For students in the lowest and lower middle-income quarters, the apparent increases are not statistically significant, but they are for the upper middle- and highest income quarters.

At public 4-year institutions, the overall net price after grants and loans for full-time dependent students (adjusted for inflation) was $8,000 in both 1990 and 2000. There was, however, a decline in the average net price for students in the lowest income quarter and an increase for those in the highest quarter. At private not-for-profit 4-year institutions, the average net price actually decreased for those in the lowest income quarter (from $8,400 to $7,400), but the apparent decreases overall and for those in the upper middle- and highest income quarters are not statistically significant.

At private for-profit less-than-4-year institutions, the average net price for full-time dependent students declined from $10,000 to $8,800 overall. The decline is statistically significant for students in the lowest income quarter, but the apparent decreases for those in the other income quarters are not statistically significant.

• Except at public 2-year institutions, increases in financial aid compensated for increases in price when both grants and loans are considered.

Figure 10 shows the relative contributions of current outlays by students and their families (i.e., net price) and grants and loans to the total price of attending college at each type of institution in 1990 and 2000. Note that the average grant and loan amounts shown here differ from the amounts shown in other tables and figures because the averages in figure 10 were computed including students with no financial aid, rather than just aided students.

As just described, the average net price for full-time dependent students (adjusted for inflation) increased only at public 2-year institutions (by about $500). It remained stable at 4-year institutions and declined at private for-profit less-than-4-year institutions. This means that, except at public 2-year institutions, increases in financial aid compensated for the increases in the prices of attending. At public 2-year institutions and at public and private not-for-profit 4-year institutions, there were increases in both the average amounts that students received in grants and took out in loans. At private for-profit less-than-4-year institutions, the average amount received in grants did not increase significantly, but the average amount taken out in loans did.

As noted earlier, the average net price, considering only grants, increased between 1990 and 2000 at each type of institution and, within each type of institution, for almost all income groups. The fact that the average net price after grants and loans did not increase as widely is due to increased borrowing. Therefore, although students and their families did not have to shoulder most of the burden of price increases through current outlays for educational expenses, they will have to pay back the part covered by loans in the future.

• The grant/loan balance shifted only at public 4-year institutions.

In 1990, the average amount received in grants at public 4-year institutions (computed including both aided and nonaided students) was greater than the average amount taken out in loans ($1,200 vs. $900) (figure 10); in 2000, the pattern was reversed ($1,900 in grants and $2,500 in loans). At public 2-year and private not-for-profit 4-year institutions, however, the average amount received in grants was larger than the average amount taken out in loans in both years. At private for-profit less-than-4-year institutions, the average amount received in grants was less than the average amount taken out in loans in both years.

When considering net price, it is important to understand that families’ choices about borrowing affect their net price. Students who have not taken out the maximum allowable Stafford loan or whose parents have not taken out a PLUS loan could reduce their net price with additional borrowing. Thus, to some extent, the average net price in 2000 reflects the level of debt families were willing to assume for educational expenses. However, there are many reasons why it may be unwise for students to borrow the maximum allowed. Students’ ability to repay their loans after they leave school depends on their being able to obtain a well-paying job, which depends in part on economic conditions when they finish their education. The uncertainties surrounding the ability to meet repayment obligations are a particular problem for students whose academic success is uncertain or whose families lack the resources to help them financially if they have difficulty repaying their loans.