As already described, the expected family contribution represents what families are expected to pay according to the Federal Methodology for need analysis, and the net price after grants and loans is the current outlay that students and their families have to make to cover their educational expenses. Therefore, a comparison of the expected family contribution and net price gives an indication of the extent to which the financial aid system is meeting students’ financial needs, at least as defined by the Federal Methodology. Although expected family contribution is an imperfect indicator of ability to pay, it is the only yardstick available.
Figure 11 displays the relationship between expected family contribution and net price by income level at each type of institution. For full-time dependent students in the highest income quarter at all types of institutions and in the upper middle-income quarter at public 2- and 4-year institutions, the average net price was lower than the average expected family contribution in both 1990 and 2000. In other words, after grants were awarded and loans were taken out, on average these families should have had sufficient financial resources to pay for college.
For students in the lowest income quarter at each type of institution and in the lower middle-income quarter at private not-for-profit 4-year and private for-profit less-than-4-year institutions, the average net price was well above the average expected family contribution in both 1990 and 2000. That is, after receiving grants and loans, families had to provide much more than expected by the Federal Methodology used for need analysis. At these income levels, they were unlikely to have savings or other assets to use. They may have made up the deficit through some combination of strategies such as additional work, credit card borrowing, greater than expected contributions from parents, contributions from other relatives or friends, or cutting expenses by adopting a reduced standard of living (Choy and Berker 2003).
The gap between expected family contribution and net price is often referred to as “unmet” or “remaining” need. However, the significance of this gap should be interpreted cautiously. First, as indicated above, net price could be reduced for some families if they borrowed more. If students and their families decline to borrow the maximum allowed, their need is not technically “unmet,” although in practice there may be good reasons why additional borrowing is unwise for some families. Second, the fact that students with unmet need are enrolled means that somehow they found the money to attend even though it was beyond the amount expected using the Federal Methodology to determine need. They may have worked more, obtained funds from sources not included in the expected family contribution calculation (such as grandparents or a noncustodial parent), reduced their standard of living, or used some combination of these and other strategies. For these students, need is not truly unmet because they are enrolled, but their enrollment may cause serious financial hardship.
Figures and Tables
Figure 11: Average expected family contribution (EFC) and net price (both in 1999 constant dollars) after grants and loans, by type of institution and family income: 1989–90 and 1999–2000
Table SA17: Standard errors for figure 11: Average expected family contribution (EFC) and net price (both in 1999 constant dollars) after grants and loans, by type of institution and family income: 1989–90 and 1999–2000