Shifting Burdens: How Students & Families Paid for College from 1996 to 2012

Anyone who has received a college financial aid award letter knows how complicated and opaque America’s system of higher education finance is. Policymakers also have limited information about how the myriad sources of college financing all fit together -- and how they have changed over time.

There are, of course, well-known analysis and reports that help shed light on that topic. But they rely largely on high-level statistics drawn from budget data reported by states, the federal government, and colleges. That means important details are lost and it is difficult to assess how college financing varies among different groups of students. Some reports also focus on only one source of funding, like state appropriations, and therefore do not show the whole picture.

In a new paper (Shifting Burdens: How Changes in Financial Aid Affected What Students and Families Paid for College from 1996 to 2012), we use a less common approach to assessing the various sources of college financing that is both comprehensive and detailed enough to examine how different categories of students pay for school. We used data from the National Postsecondary Student Aid Study (NPSAS) to gather information about college financing at the student level. It is a bottom-up approach to assessing college financing, using data on individual students, rather than the more common top-down approach that uses data about colleges or government spending.

We also add a time series element using five NPSAS datasets beginning with the 1995–96 academic year and ending with the most recent 2011–12 survey to capture historic changes in higher education in the U.S. The report focuses on the relative share of costs borne by each actor which can better reveal which sources are growing faster than others or whether costs are growing at the same pace as financial aid.

Shifting Burdens is packed with charts, and readers will be able to draw many of their own conclusions from this new source of information. Some of the key points we identified in the analysis that are timely and relevant to today’s debates include:

• Broad trends in college financing since 1996 have not affected students from all families the same. In particular, students at community colleges and independent students at public four-year colleges have not seen an increase in costs over the time period analyzed. And while dependent students at public four-year colleges paid an increasing share of college costs, those increases were correlated with family income: lower-income students saw smaller increases and higher-income students saw the largest increases.

• General subsidies provided by state and local governments to public colleges declined on a per-student basis over the period we studied, which is a well-known trend, but our methodology reveals that at public four-year colleges, higher-income families saw the biggest drop in the share of college costs that general subsidies covered while lower-income students saw the smallest reduction. Because general subsidies are provided directly to colleges usually without regard to student demographics, and because students receive the subsidies indirectly through lower tuition, the colleges that students chose to attend determines the amount of general subsidy that they receive, not their individual circumstances.

• For low-income families and independent students, increases in federal aid nearly or completely offset declines in state and local general subsidies. Federal aid significantly increased over the time period we studied and the share of college costs it covered rose markedly, driven by larger grants and tuition tax benefits. (We include federal student loans in our analysis, but treat them mostly as an obligation of the student and family, not federal aid.) Those increases partially offset declines in state and local general subsidies, and for some categories of students, such as those at community colleges and independent students at public four-year colleges, increases in federal aid were large enough to fully offset declines in other aid.

• States and public four-year colleges shifted how they provided aid, relying less on general subsidies provided to schools and more on aid provided directly to students. The share of costs that direct aid, such as grants and tax benefits, covered for students at public four-year colleges increased significantly between 1996 and 2012. However, those increases were not enough to fully offset declines in other aid, mainly state and local general subsidies, leaving students and families to pay a slightly larger share of costs over the time period studied. Students from families in the $30,001–$65,000 income group at public four-year colleges saw the largest increases in direct aid.

• Students and families relied heavily on debt to finance increases in the share of college costs that they paid over the period we studied. At public four-year colleges they even reduced the amount they paid out-of-pocket in absolute inflation-adjusted dollars. Even in cases where students have not seen higher costs, such as community colleges, they still increased their use of debt relative to out-of-pocket spending.

• Families increased their use of the federal Parent PLUS loan program significantly between 2008 and 2012 at both public and private four-year colleges. Across almost all income groups of dependent students, parent borrowing increased more than student borrowing between those years.

• Our analysis counts only the subsidy on federal loan as a source of aid, with most of the debt treated as an obligation of the student and family. Due to the interest rate policy in place at the time, the subsidy on federal loans declined sharply for two categories of loans, Unsubsidized Stafford and Parent PLUS between 2008 and 2012. Moreover, for PLUS loans, the federal government is expected to earn a positive return on loans issued in 2012. This had a surprising effect for families with students at private four-year colleges. By taking out more significantly more PLUS loans, they offset increases in other federal aid that they received during that time, mainly tuition tax benefits. Students in the $65,001–$106,000 income group (see chart below) even they saw their total federal aid decline between 2008 and 2012. While they saw an increase in federal tax benefits between 2008 and 2012 through the American Opportunity Tax Credit, those increases were more than offset by the money they transferred back to the federal government by taking out larger Parent PLUS loans.