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Education Statistics Quarterly
Vol 5, Issue 2, Topic: Featured Topic: Paying for College
Invited Commentary: The Gap Between College Costs and Student Resources
By: Kenneth E. Redd, Director of Research and Policy Analysis, National Association of Student Financial Aid Administrators
This commentary represents the opinions of the author and does not necessarily reflect the views of the National Center for Education Statistics.

One of the biggest concerns for many families is how they are going to pay their children's college expenses. In academic year 2002–03, the average total price for full-time undergraduates to attend 4-year institutions—including tuition, fees, room, board, books, supplies, and other education expenses, as estimated by the institutions—was more than $12,800 at public institutions and almost $28,000 at private institutions (College Board 2003a). Over the past decade, inflation-adjusted tuition prices at public and private 4-year colleges and universities jumped nearly 40 percent, while the median income of families with a head of household 45 to 54 years old (those families most likely to have traditional college-age children) rose only 8 percent (College Board 2003b). Such price increases have made it much more difficult for families from nearly all income levels to pay for college. Researchers have, for many years, wondered how low- and middle-income families manage to put together enough funds from financial aid and their own resources to pay for their children's postsecondary education. A recent report from the National Center for Education Statistics (NCES), How Families of Low- and Middle-Income Undergraduates Pay for College: Full-Time Dependent Students in 1999–2000, provides much-needed information on the resources students and their families use to bear the burden of college costs.

As the report explains, paying for college is considered to be primarily a family responsibility, with students and families from all income backgrounds expected to contribute at least some portion of their resources toward postsecondary expenses. However, with the advent of federal student financial aid, as authorized by the Higher Education Act of 1965, the federal government committed itself to at least partially assisting students with these costs. Since then, federal and state governments, along with the postsecondary institutions themselves, have distributed billions of dollars in grants, loans, and work-study awards to help students pay college expenses. In 1999–2000 alone, these entities awarded nearly $66 billion in direct financial assistance to students (College Board 2003b). Unfortunately, as the NCES report shows, these funds often are not enough to offset the total cost of education for many low- and middle-income undergraduates, and students and their families often must make up the difference through work, private credit, or other means.

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Originally, financial aid was designed to provide educational access to low-income families—those families who can least afford to pay college costs. As such, most aid was distributed to students based on their demonstrated financial need (Heller and Rasmussen 2002). But as college prices have risen, financial aid has taken on the role of preserving college affordability for the middle class. To deliver more aid to middle-income families, policymakers have instituted aid and other programs based on academic merit and other criteria rather than need. Implied in the NCES report, but not directly stated, is the inherent tension between these two goals: As more public dollars are devoted to the preservation of affordability for the middle class, is less funding available to support college access for the poor?

Recent trends suggest that aid to the middle class has become increasingly important. During the 1990s, appropriations for the Pell Grant Program—the largest federal program that provides grant assistance to financially needy students at postsecondary institutions—rose only 23 percent (College Board 2001). At the same time, institutional aid (which is often provided to middle-income students through merit-based and other "non-need" scholarships) grew 84 percent (College Board 2001; Davis 2003; Heller 2001). Similarly, from 1990 to 2000, state spending for merit scholarships tripled, while need-based state aid grew 62 percent (NASSGAP 2001).

Despite these trends, How Families of Low- and Middle-Income Undergraduates Pay for College makes a convincing case that low-income students continue to receive the lion's share of aid and that college access remains the primary goal of financial aid. The authors use data from the NCES 1999–2000 National Postsecondary Student Aid Study (NPSAS:2000) to show the college financing experiences of full-time, full-year, dependent undergraduates who attended public 2-year, public 4-year, and private not-for-profit 4-year institutions during the 1999–2000 academic year. These students constitute just one-quarter of all undergraduates; the aid and other resources used by the vast majority of students (such as part-time and other "nontraditional" undergraduates) are not discussed. However, as the authors suggest, much of the policy debate on college financing focuses on full-time undergraduates; it is therefore important that their financial aid and other resources are better understood by policymakers.

At public 2-year institutions, 78 percent of low-income undergraduates (those from families with less than $30,000 in adjusted gross income) received financial assistance in 1999–2000, and their average aid amount was $3,000. This compares with 40 percent of middle-income undergraduates (those with a family income between $45,000 and $74,999), who received an average of $1,000. Grants accounted for approximately 80 percent of the total aid for low-income students, compared with 50 percent for students from middle-income families.

At private not-for-profit doctoral and liberal arts colleges, 90 percent of low-income undergraduates received aid, compared with 84 percent of middle-income undergraduates. The average award for low-income students was $18,900, of which about two-thirds came from grants. The average aid amount for middle-income students was $14,700, with about 60 percent coming from grants.

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Despite these large awards, the report also indicates that for many low- and middle-income families, financial aid awards are often not large enough to meet students' full demonstrated financial need. Financial need is defined as the difference between students' total cost of education and the amount they and their families are expected to contribute toward this cost—more commonly referred to as the expected family contribution (EFC). Unmet, or remaining, financial need is the difference between the students' demonstrated financial need and the amount they receive in financial aid.

Unmet need appears to be a serious problem, particularly for low-income undergraduates. In 1999–2000, the proportion of low-income students with unmet need ranged from 74 percent at public doctoral institutions to 92 percent at public 2-year institutions, and their average amount of unmet need ranged from $4,000 at public 4-year non-doctoral schools to $9,300 at private not-for-profit doctoral and liberal arts colleges. Among middle-income students, the proportion with unmet need ranged from 38 percent at public 2-year institutions to 65 percent at private not-for-profit doctoral and liberal arts colleges, with average remaining need ranging from $2,100 at public 2-year institutions to $10,700 at private not-for-profit doctoral and liberal arts colleges.

However, it is not clear what effect these high unmet need levels have on students, particularly given that the report covers only students who actually enrolled in higher education. No information is available on the number of prospective students who could not enroll due to remaining need. The report also does not discuss unmet need's influence on students' college choices. Other research (Advisory Committee on Student Financial Assistance 2001) has suggested that unmet need limits low-income students' ability to choose public and private 4-year colleges.

Another weakness in the NCES report is that, while it provides some clues, it leaves largely unanswered a number of questions regarding unmet need: If unmet need is so large, how can low-income students afford to attend college? Does unmet need occur because aid amounts are too low, or because budgeted amounts for living and other "indirect" education costs are too high? Can unmet need be attributed to the financial aid system's failure to estimate accurately students' and families' ability to pay college costs? This last question is especially important given a number of changes that have been made in the methodology used to determine the EFC. Under the Higher Education Amendments of 1992, the aid formula was altered so that parents were allowed to exclude home equity from the EFC calculations. The law also lowered the proportion of income and assets that parents were required to contribute toward their children's college expenses (Redd 1999). These changes essentially lowered the EFC amounts for some families at a time when college costs were rising, thus increasing financial need. Therefore, rather than truly indicating families' inability to pay college costs, higher unmet need amounts might result from the changes in the aid formula. This issue is given relatively little attention in the NCES report. Nonetheless, the report expands our knowledge of this important subject and brings up an issue that warrants further research.

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Given the high levels of unmet need, what other resources do students and families rely on to pay college costs? There are a number of possible strategies students can use to fill their remaining need. How Families of Low- and Middle-Income Undergraduates Pay for College provides valuable new information on three of these methods: working while enrolled, using credit cards, and relying on parents for additional support.

Much prior research exists on students working. King (2002), for example, has found that nearly all undergraduates work at least part time while enrolled, and many work 20 hours per week or more. The NCES report takes this research one step further by showing that working is not influenced by income—that is, middle-income students were just as likely as their lower-income classmates to work similar hours and to have similar employment earnings, even after adjusting for institution type. King (2002) has also shown that working more than 20 hours per week negatively affects students' aca demic performance, and the NCES report confirms this finding as well.

Most students at all income levels also had credit cards, and while it is not clear whether the credit cards were used to pay education expenses, the results indicate that credit card debt has caused some financial stress for low- and middle-income students. As might be expected, low-income students were less likely than their middle-income peers to receive help from parents with tuition and other expenses. However, for students from both income groups, it appears that employment and credit cards play a much larger role in providing added support than additional parental contributions.

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How Families of Low- and Middle-Income Undergraduates Pay for College concludes by comparing students' net price of college (the amount families have to pay after financial aid is deducted from total price of attendance) and the EFC. For many students, there is a sizable gap between net price and EFC. At private not-for-profit doctoral and liberal arts colleges, for instance, the average net price for low-income undergraduates was $9,100, compared with $14,600 for middle-income undergraduates. The EFC—$1,400 for low-income undergraduates and $8,600 for their middle-income peers—fell far short of covering the net price. In fact, even after including employment earnings as well as the EFC, low-income students at these institutions still had an average net price gap of $4,900, and middle-income students had a gap of $3,300. How did these students manage to cover these expenses? Unfortunately, while the report mentions some possibilities (e.g., changes in living arrangements, receiving funds from family members other than parents), NPSAS:2000 does not provide enough information to answer this question completely. Certainly, this is an area that cries out for additional research.

The report implies, but does not ask directly, the following questions: Is the financial aid system broken? If so, what is the solution for fixing it? Clearly, it is a system that leaves many students from low- and middle-income backgrounds without enough funding to cover the full price of attending college. The burden of covering the net price gap appears to rest largely on the shoulders of students, who are compelled to work or use credit cards. As a result, paying for

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Advisory Committee on Student Financial Assistance. (2001). Access Denied: Restoring the Nation's Commitment to Equal Educational Opportunity. Washington, DC: Author.

College Board. (2003a). Trends in College Pricing, 2002. Washington, DC: Author.

College Board. (2003b). Trends in Student Aid, 2002. Washington, DC: Author.

College Board. (2001). Trends in Student Aid, 2001. Washington, DC: Author.

Davis, J.S. (2003). Unintended Consequences of Tuition Discounting. Indianapolis, IN: Lumina Foundation for Education.

Heller, D.E. (2001). Race, Gender, and Institutional Financial Aid Awards. Journal of Student Financial Aid, 31(1): 7–24.

Heller, D.E., and Rasmussen, C.J. (2002). Merit Scholarships and College Access: Evidence From Florida and Michigan. In Who Should We Help? The Negative Social Consequences of Merit Aid Scholarships. Cambridge, MA: The Civil Rights Project, Harvard University.

King, J.E. (2002). Crucial Choices: How Students' Financial Decisions Affect Their Academic Success. Washington, DC: American Council on Education.

National Association of State Student Grant and Aid Programs (NASSGAP). (2001). The National Association of State Student Grant and Aid Programs 32nd Annual Survey Report, 2000–2001 Academic Year. Albany, NY: New York State Higher Education Services Corporation.

Redd, K.E. (1999). The Changing Characteristics of Undergraduate Borrowers. In J.E. King (Ed.), Financing a College Education: How It Works, How It's Changing. Phoenix, AZ: American Council on Education/Oryx Press.

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