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Every year the College Board, the organization that oversees Advanced Placement and SAT exams, publishes an alarming graph. It depicts college tuition soaring like a rocket into the sky, although the trajectory has leveled off in recent years. The implicit message is clear: college has become increasingly unaffordable, forcing too many young adults to take on stratospheric debts.
But a pair of academic economists are flipping this message on its head. They argue that higher tuition prices have actually made college cheaper for many lower-income Americans and enabled more of them to attend some of the nation’s most prestigious institutions.
“Not everyone is suffering from massive tuition increases,” said Emily Cook, an economist at Tulane University and a co-author of this tuition study along with Sarah Turner, an economist at the University of Virginia. Cook and Turner were able to conduct this analysis because the Department of Education began requiring colleges to report tuition paid by students from different family income levels beginning in 2008. Their study, Progressivity of Pricing at U.S. Public Universities, is still a draft paper, meaning it has not yet undergone peer review and may still be revised. It was circulated by the National Bureau of Economic Research in March 2022.
Here’s why: major public research universities, including prestigious flagship universities, charge different prices to different students through financial aid awards. Higher tuition paid by wealthier students has subsidized the discounts given to lower- and middle-income families, the researchers found. For students from families making less than $110,000 a year, the actual tuition they paid at major public research universities fell between 2008 and 2018, even as the published tuition price for in-state students rose 34 percent to nearly $12,000 at those same institutions. For example, the net tuition (tuition and fees minus grants) paid by a student from a family making between $48,000 and $75,000 fell 89 percent from $1,900 in 2008 to about $200 in 2018. This does not include room and board, which can be tens of thousands of dollars a year more.
Financial aid awards include all kinds of grants, from federal Pell grants for low-income students to other need-based grants and merit scholarships issued by states. Public universities also bestow their own scholarships or tuition discounts directly to students. (For this analysis, aid means grants only and does not include subsidized loans even though colleges often include these loans in their aid package letters to students.)
As the net tuition for low-income students has fallen, their numbers have been rising at major public research universities, defined by the researchers as falling into the Carnegie Classification for “very high research activity,” the so-called R1 institutions. Slightly less than half of the nation’s 146 R1 institutions are public, such as the University of Michigan and the University of Maryland.
The share of undergraduate students from families making less than $48,000 rose from 20 percent in 2008 to 23 percent in 2018 at these elite public universities. For these students, their net tuition bill was zero, and extra grants to help defray their room and board bills grew even larger, exceeding $3,900.
“I think this is positive, encouraging news,” said Cook.
Still, low-income students make up less than a quarter of students at major public universities.
Students who didn’t apply for financial aid at all, paying the full published sticker price without taking out any federal loans, remain the largest group on these campuses, but their share fell from 49 percent in 2008 to less than 46 percent in 2018. The share of wealthier students hasn’t actually fallen that much at these prestigious schools. That’s because of a growing number of students on campus whose families make more than $110,000 and receive state aid for merit scholarships, such as from Georgia’s HOPE scholarship. This high-income group that applied for aid grew from 11 percent to nearly 15 percent of the student body.
There are other concerning trends, too. The share of students from families making between $75,000 and $110,000 fell two percentage points from 10 percent to 8 percent, a sign that some middle class students are getting squeezed out as elite public universities rely on a large sea of wealthier students to subsidize a slightly bigger pool of poor ones.
The tuition trends at prestigious public research schools mirror what has been happening at private research universities and colleges for a long time. Tuition sticker prices have soared with a big share of the student body paying full freight to help subsidize tuition discounts for a smaller group of low-income students. “What is interesting is that the public universities are behaving more like private universities over time,” said Cook.
Tuition patterns at less selective schools that cater to lower-income students aren’t as clear. That’s because this federal tuition data describes only full-time students who didn’t enroll at another college previously. The majority of students at two-year community colleges, for example, don’t fall into this first-time, full-time category.
The public policy question is whether it’s a good idea for elite public institutions to charge people different prices for the same product. We’ve all experienced the annoyance of paying a different price than another customer for the same hotel room or the same airplane seat. Companies do it because discriminatory pricing, as economists call it, maximizes their profits. I suspect that colleges are maximizing their revenues through discriminatory pricing, too, and many people who consider themselves to be solidly middle class – say a family of four with an annual household income of $150,000 – are paying the price. On the other hand, if upper middle class families value a more diverse student body, everybody benefits.
For those who worry about equity, the bigger problem is that published sticker prices scare many people off. Experts know that a qualified low-income applicant will get a lot of aid, but that information often doesn’t trickle down. Some very bright students might never even apply.
This story about rising tuition costs was written by Jill Barshay and produced by The Hechinger Report, a nonprofit, independent news organization focused on inequality and innovation in education. Sign up for the Hechinger newsletter.