The Affordability Conundrum

The popular narrative about college affordability is that higher education is unaffordable and growing more so by the year. But this simple story is incomplete, as a new study by Manhattan Institute senior fellow Beth Akers, New America’s Kim Dancy, and American Enterprise Institute’s Jason Delisle shows. 

Using data from the National Postsecondary Student Aid Study, the authors analyze how much families are paying for college and how they are financing those expenses, broken out by income level, race, and type of institution. They then compare actual student experiences to Lumina Foundation’s proposed “Rule of 10,” a price-based benchmark for affordability to highlight when and where attending college is meeting that definition of affordability. Finally, they discuss the merits and shortcomings of this rule and present an alternative framework for assessing college affordability that incorporates a value-based perspective. 

The key findings of the report include: 

1. The average student takes on $16,248 in debt over the course of their degree, which covers about 30% of overall college costs. 
2. Family income is highly predictive of the cost of a student’s degree. 
3. The highest levels of borrowing are among students whose parents are in the second-to- highest income quintile. This suggests that in many cases high levels of borrowing are being driven by choice rather than necessity. 
4. The tax code delivers the largest benefits to middle- and upper-income students because they spend the most out of pocket on tuition. 
5. Students who attend highly selective institutions pay a premium. 
6. About three-quarters (77%) of undergraduates are paying more than what the Rule of 10 suggests is affordable. On average, students paid twice the amount indicated by the Rule of 10, often with the help of loans and earnings from work. 
7. Price-based benchmarks, like the Rule of 10, can provide insight into the liquidity-based notion of affordability. The problem, however, is that they can’t tell us anything about whether a degree is worth its price.​