FOR THE PAST TWO DECADES, parents, policymakers and the general public
have expressed concerns, even alarm, that “skyrocketing” tuitions threaten to make
college unaffordable for all but the wealthy. However, in spite of these concerns,
enrollments continue to rise, and growing percentages of almost every potential student
group attend postsecondary education.
These apparently contradictory facts led me to look more closely at historical data on
college prices, financial aid and family financial resources for undergraduate study at four-year
colleges. That examination resulted in College Affordability: Overlooked Long-Term
Trends and Recent 50-State Patterns, a report published by the Lumina Foundation. This
article describes key findings leading to the conclusion that, to help increase access and cut
the financial risks of attendance at four-year colleges, the federal government should
provide more grant aid to lower-income and other first- and second-year undergraduates.
Undergraduate tuitions at four-year colleges started to soar in the 1980s and continued
to grow in the 1990s, but at a slower annual rate than during the previous decade. College
prices absorbed growing shares of family earnings at all income levels. However, in many
cases, colleges offset much of the cost of attendance by increasing institutionally funded aid
to their students.
But during the 1990s, it became much more difficult for students from lowest-income
families to afford college. By 1997, it took them from five to ten more days of earnings than
it had in 1990 to cover “net prices” (calculated to account for college financial aid). Families
with median and higher incomes took two to four more days of earnings to cover net prices
in 1997 than in 1990.
Because it took median-income families only two more days in 1997 than in 1990, and in
1970, to cover net prices at four-year public colleges, I concluded that the “affordability
crisis” for students from families with median and higher incomes has likely been
exaggerated by the media and many policymakers. The “affordability crisis” for many such
families may be a crisis of willingness to pay rather than of ability to pay for college
I wanted to know how college price increases compared to student earnings after
graduation. Did the significant price increases mean that the financial returns from
attending were diminishing? I compared the 1970 to 1997 trends in cumulative expenses for
four years of college to the differences between average annual earnings for young college
graduates (between 25 and 34 years old) and high school graduates. This allowed me to
estimate how long it would have taken graduates to recover their expenses with their
additional earnings from employment with a bachelor’s degree.
Since the 1980s, earnings of college graduates have grown much faster than those of high
school graduates. Consequently, during the 1990s, public college graduates would have
taken less time to recover their net college expenses than at any time since the early 1970s.
The same statement generally is true for private college graduates. The value of a
baccalaureate degree, in its relative ability to increase graduates’ incomes, has kept pace
with and sometimes exceeded the growth in the costs.
The trends were not nearly as positive for undergraduates who enrolled at four-year
colleges but left without degrees. During the 1990s, it would have taken them growing
numbers of months to recover their college expenses with relatively modest additional
earnings. Their increased earnings did n o t keep pace with the growth in charges. Put another
way, the financial penalty for attending a four-year college without earning a degree
rose significantly during the 1990s.
Although college enrollments rose, the graduation rates for students at four-year
colleges probably increased only slightly, if at all, during the past decade. (One cannot
precisely estimate changes in rates at which freshmen eventually graduate because retention
and graduation data typically are collected for specific colleges. Many students transfer,
earning degrees at second or even third colleges.) We do know for certain that more
students are leaving college without degrees—and more are leaving with more student loan
debt for their efforts. Even if the students who left college without degrees had not borrowed,
it still would have taken them substantially longer than graduates to recover their
These findings have important implications for federal financial aid policy and
discussions of college affordability. The trends in affordability for the nation as a whole
generally are more positive than they have been portrayed by the media and public policy-makers.
For the lowest-income students, however, rising college prices represent a growing
barrier to access to four-year colleges, especially private ones. Fortunately, federal grant aid
to such students grew and helped offset a portion of the higher charges. More grant aid is
Grants are effective in helping students overcome the financial barrier to college attendance
because they immediately and permanently reduce the charges students must pay.
Unlike loan aid, grant aid does not defer payment of college expenses from future income.
Students who receive grants instead of loans are not forced to make calculations about their
likelihood of graduating and consequent ability to repay loans.
Grant aid reduces student uncertainty and personal financial risk in paying for college.
Grant recipients who do not have to borrow know that if they enroll but do not succeed,
they will not be worse off financially than if they had not enrolled.
However, more lowest-income students have had to accept loans because college
charges grow faster than grant aid. Borrowing increases their risks and the penalty for
failure to complete their programs of study. As risks rise, it becomes harder for students to
overcome the financial barrier to attendance.
If all students graduated, it might be okay to give them loans, because most graduates
currently earn enough to repay loans without much difficulty. If all first-year students were
well-prepared and confident in their ability to succeed, using loans to help overcome the
financial barrier could be efficient and cost-effective, because loans cost the federal
government less than grant programs. But not all students are well-prepared, confident in
their ability to succeed, or graduate. Studies conducted by the National Center for
Education Statistics during the 1990s suggest that four out of ten first-year students who
enroll full-time at four-year colleges will not receive their baccalaureate degrees.
I believe loan programs could be more effective if loans were offered to four-year
undergraduates only after they have successfully completed their first two years of study. To
substitute for the lost loan aid in the first two years, low-income students could receive more
Pell Grant aid. Grant aid from a new program geared toward lower-middle-income
students could alleviate those students’ need for loan assistance.
To help cut the federal government’s costs for substituting grant aid for loan aid,
undergraduates could be deemed ineligible for federal grant aid during their last two years.
Federal aid for those years would be offered in
the form of loans (or employment awards fro m
the Federal Work-Study Program).
Using only grants for the first two years of
college (called “front-loading” in policy discussions)
would reduce the financial barrier to
attendance because students wouldn’t have to
risk accepting loans when they are uncertain of
success. Using only loans (or employment) for
the latter undergraduate years is justified because
students who reach their junior years are
very likely to graduate and, therefore, should be
able to afford to repay their loans from higher
Some analysts oppose front-loading because
they believe students would simply withdraw
when faced with the necessity of borrowing
larger amounts for their last two years of college.
I do not share this view. Borrowing for educational
expenses does not represent a barrier to enrollment when students are confident of
success and payoffs. This is demonstrated in students’ willingness to incur substantial debt to
attend prestigious but expensive undergraduate colleges, law schools, medical colleges and
Another charge against front-loading is that students who successfully reach their latter
years of college will not be “rewarded” for this achievement by receiving more federal grant
aid. If they believe this is a problem, state governments and colleges could give upper-classmen
borrowers additional grants to offset the lost federal grant aid.
A third objection to front-loading is that it could affect the distribution of total federal
grant aid dollars among students at the different types of two-year and four-year
postsecondary institutions. If federal grant aid went only to first- and second-year students,
a greater share of the total federal grant dollars would be awarded to students at two-year
colleges and proprietary business, trade and technical schools than to students at four-year
colleges. This problem could be addressed by applying front-loading exclusively to students
at four-year colleges and continuing to award combinations of federal grants and loans to
first- and second-year students at other types of institutions.
The primary reason for front-loading federal grants to four-year college students—and
not to other students—is that the four-year students will incur greater expenses and larger
loan debts to complete their education and, therefore, take longer to recover those expenses
from increased earnings. Because they take longer to complete their programs, they are
more uncertain about their ability to succeed, recover educational expenses, and repay
Front-loading grants to students at four-year colleges addresses the increasing penalty
for failure to complete a degree at a four-year college and the difficult affordability issues
faced by lowest-income students, because more of their expenses would be covered by
grant aid in their initial years when they are uncertain of their ability to succeed. If new
federal grant aid programs were provided to lower-middle-income students, “front-loading”
could give them relief as well from trying to keep up with rising college tuitions.