What Would It Take to Make College Debt-free?

Middle class anxiety about the cost of college has brought higher education financing to the fore of the current presidential election. Promises of debt-free college have become near-mandatory components of the Democratic presidential campaigns, and more recently Republicans have even started to fire back. There is a reason families and candidates are so worried about the cost of college: According the US Department of Education’s best estimate of what students can afford, student need dramatically exceeds available aid. These gaps point to a systemic problem in higher education affordability. While addressing undergraduate debt is a worthy investment, these initiatives should take care to protect access and quality for all students. 

There are huge gaps in affordability for families and students

Right now, most need-based financial aid awards start by calculating the federally defined Expected Family Contribution (EFC). The EFC works as an attempt to aggregate different indicators of a family's financial health into a single expectation of what they can reasonably afford to pay for college. While this measure has been criticized due to its complexity and the burden it places on students and families, EFC is still the best available estimate of what a family can afford to pay annually for higher education. But in a world where student need increasingly outstrips available aid, financial aid officers often use EFC as a rationing mechanism, rather than an estimate of what families should actually pay. Doing so ensures that aid can be directed to the students with the most need.

Data from the Department of Education indicates that students are asked to contribute to the costs of their education well beyond what would be considered affordable based on their financial circumstances. The following table shows the annual amount a family must pay above and beyond what they can afford. It consists of the estimated costs of attendance at a student’s selected institution in excess of his or her EFC, after all grant and scholarship aid has been applied.  These numbers represent a single year of tuition and fees - over four years, the unmet need would amount to a substantial loan balance for most students.

As the table above demonstrates, the median gap between EFC and a student’s costs after grant aid is highest at for profit schools and private nonprofits, nearing $14,000. This gap is lower at public schools, but is still nearly $9,000 at four-year publics. Unmet need is also highest for those with lower income levels. Across all institutions, families making under $30,000 per year are asked to cover an average of $8,500 above their EFC after grant aid from all sources had been applied. In many cases, these gaps exceed federal loan limits, which range from $5,500 to $12,500, depending on a student’s year in school and dependency status. This means that many of those students are required to find alternative sources of funding, or have their parents borrow PLUS loans in order to pay for school, a prospect with demonstrable financial risks.

For some students these gaps may indeed be manageable, but for others it is easy to see how the lack of financial aid could limit a student's educational options, lead them to take on to substantial debt, or both. Still, since these figures show unmet need at schools where students actually enroll, the data may indicate that students believe it is worth the high costs due to the overall economic and personal gains associated with attending school. After all, we’ve seen time and time again that attending college is worth the investment. But these data say nothing about those who don’t enroll, those who leave before they complete, or the role of unmet need plays in the behavior of those groups. At the same time, since students don’t have access to timely information regarding their aid eligibility across schools (not to mention information on institutional quality) it’s likely that some students are making suboptimal decisions in their enrollment choices.

These gaps in affordability are getting worse

Along with rising college costs, these affordability gaps have become more common--and larger--over time. As per student expenditures and total enrollment have increased, funding education has become more and more difficult for both students and colleges. The maximum Pell Grant available to students has increased, but its purchasing power has fallen sharply. At the same time, states have struggled to sustain per student funding to public institutions in the face of a recession and competing budget priorities. And many institutions - particularly those with small endowments - have insufficient resources to cover the resulting unmet need. These factors have each worked against the goal of providing affordable higher education, even as the population of students enrolling in college has consistently expanded and now includes more low-income and other nontraditional students than ever before.

The chart below shows trends in gap pricing over time. Across sectors, greater proportions of students are being left with unmet need, while the average inflation-adjusted size of these gaps have increased since 2000.

What Does Unmet Need Mean for Debt-free College?

Unmet need can also be thought of as the per student revenue increases and spending cuts colleges would have to offset in order to offer a “debt-free” college education. With postsecondary enrollment at nearly 17.5 million in the fall of 2013, closing the gaps between available funding and aggregate need would be a struggle for most schools. Unfortunately, making tuition affordable for the neediest students is the most expensive of all, since the average unmet need is higher among lower-income groups. In fact, students receiving the maximum Pell grant have the highest unmet need of all, at over $10,000 annually at public 4-year schools. Providing debt-free options should emphasize continued access for these students, while at the same time incentivizing quality outcomes for students across the board. "