Education
6:45 pm
Wed May 7, 2014

Increasingly Students Don't Pay College's 'Sticker Price'

Rising tuition attracts a lot of headlines, but the amount that schools give out in financial aid is also on the rise.  Financial aid can make higher education more accessible to low-income students, but it can also serve as a tool to attract the types of students school want to attract, and to fill seats that might otherwise go empty. Lucy Lapovsky is an education consultant who has studied the question of how much students are actually paying for college and spoke to All Things Considered Host Brady Carlson. 

Lapovsky says the tuition "discount rate" --  or financial aid expenses divided by tuition revenue -- has been on the rise. "The discount rate has been steadily increasing from, in the early nineties when it was about 25 percent of the sticker price, to today for new incoming freshmen at private four-year institutions it's approaching fifty percent."

Different types of institutions do different degrees of discounting, with private four-year schools doing the most.
Credit College Board / https://trends.collegeboard.org/sites/default/files/trends-2010-tuition-discounting-institutional-aid-report.pdf

That rise has been especially sharp in recent years, prompting headlines full of superlatives. 

In general four-year private schools give away more money, "in large part because of the price differences," says Lapovsky, whereas "community colleges are just getting into the discounting game."

Public four-year schools give out the most "merit-based" aid, which goes to good students.
Credit College Board / https://trends.collegeboard.org/sites/default/files/trends-2010-tuition-discounting-institutional-aid-report.pdf

How much of the aid goes to needy students vs. smart students depends on the type of school. Private four-year colleges give out the most aid to meet financial needs, and public four-years give you the least. Though, Lapovsky notes that many needy students are also smart. She says when you go back through and look at merit aid recipients after the fact, "when you look at the student's income you'll find that it aided students who had financial need."

The "net tuition is still on the rise
Credit College Board / http://business.time.com/2013/05/07/yes-really-private-colleges-offering-more-financial-aid-than-ever/

The take-away is not that the cost of college is going down, however. Lapovsky notes that most aid comes from Pell Grants, the funding for which have been held "relatively" constant, "so over time inflation has eroded the value of those for low-income students." 

And even considering the trend of increased financial aid the "net price" of tuition is still rising, though the "sticker price" has been increasing about twice as fast. In all, Lapovsky doesn't think "we're seeing a major wealth distribution," instead low-income and middle-income students are "flocking to public institutions" in search of lower sticker prices. 

The uncertainty of what the net tuition a student will pay is made worse because a lot of aid is used to entice students to go to schools that are struggling to fill seats. A College Board report notes that giving more aid based on need would help ease some of that uncertainty.