How Much Does College Really Cost?

The Issue:

Media coverage of the skyrocketing cost of college is pervasive. Sticker prices approaching $100,000 are jarring for anyone, but particularly for those with limited financial resources. And the sticker shock is not limited to the most selective private universities. Since the mid 90s, sticker prices have risen roughly 70% at both public and private institutions after adjusting for inflation, reaching about $35,000 and $72,000 respectively by the 2019-2020 school year. Yet only a shrinking minority of students actually pay the prices that receive so much attention. Financial aid reduces the cost, potentially significantly, for most students. Even students who do not meet requirements for need-based financial aid are likely to pay less than the cited price. How much does college cost for students at different levels of income? How affordable is it really and how is that changing over time? It turns out that college often costs much less than the headlines suggest, but it is still too expensive for many, and becoming more so over time.

College often costs much less than the headlines suggest, but it is still too expensive for many, and becoming more so over time.

The Facts:

• The federal government requires all colleges to post their cost of attendance, making it the easiest college price value to track. What we colloquially refer to as the sticker price of college is formally labeled the “cost of attendance.” It captures all costs, including tuition and fees, living expenses, and other costs (such as travel and books). The amount students actually pay is the “net price,” which reflects the total cost after factoring in all forms of financial aid that do not have to be repaid – i.e. not including loans and work-study funding. Tracking the net price, particularly for families at different income levels, is very difficult.
• The sticker price is an increasingly unreliable indicator of the true cost of a college education. Most students pay less than that amount at four-year colleges and universities and the fraction doing so has been dropping for at least the past 25 years (see chart). Around one-quarter of students attending public institutions and 16 percent of students attending private institutions paid the sticker price in the 2019-2020 academic year. Those values are down from 53 percent and 29 percent, respectively, in 1995-1996.
• The actual cost of a college education tends to vary with family income and assets. Students with financial need typically pay less than the sticker price. The purpose of the FAFSA (Federal Application for Federal Student Aid) is to determine the maximum amount of financial aid a student qualifies for. The information students and families submit is used to calculate how much they can afford to pay. The gap between that amount and the cost of attendance defines a student’s financial need. Those with need are eligible for need-based financial aid, which may come from the government (federal, state, or local) or institutions themselves. The net price paid by students receiving this form of financial aid is less than the sticker price. 
• Increasingly, students with no financial need are also likely to pay less than the sticker price. Merit aid is the mechanism that reduces the price these students pay. Historically, most students with substantial financial resources paid the sticker price. That is no longer true. The majority of higher-income students who face no financial need now receive “merit” aid. Technically, merit aid can be awarded to students regardless of financial need, but those awards often substitute for need-based aid for students eligible for both, at least to some extent.
• So how can we track the actual price of college for students in different economic circumstances? I develop a system to characterize the prices that college students face using data from the National Postsecondary Student Aid Study (NPSAS), a study conducted by the U.S. Department of Education every 3 to 4 years since 1987. The exact amount that any particular student pays will depend on their specific characteristics and the school they attend. Even among students with similar financial circumstances how much they pay can vary considerably within institutions. But, I can estimate the typical net prices a student would face at 4-year private, non-profit institutions or 4-year public institutions (in state) according to their family income. My analysis is limited to dependent full-time students living away from home.
• Net prices are not that low for students from lower- and middle-income families. Students whose parents make less than $50,000 per year with limited assets can afford to pay little for a college education. Even after factoring in the financial aid that they receive, these students still were asked to pay around $18,000 per year in 2019-2020 at public institutions and $25,000 per year at private institutions (all values are reported in 2023$). These figures represent significant obstacles to attendance. At the $100,000 family income level (and typical assets), the cost rises to roughly $26,000 and $33,000, respectively. This burden may not be quite as binding as the one facing lower-income students, but it is still substantial. 
• Average net prices for higher-income students are considerably less than the sticker price. Among students who are ineligible for need-based financial aid, the presence of merit aid lowers their cost. The average net price paid by these students at public institutions was around $29,000 compared to the $33,000 average sticker price. At private institutions, the gap is much larger –$53,000 rather than $71,000. In the 1990s, these two values were much more closely linked.

• Net prices have risen at rates over and above inflation for students throughout the income distribution over the past 25 years. Although skyrocketing sticker prices provide a misleading impression of changes in college costs, those costs are still rising for all students. The typical cost of attending a public college in-state for low-income students in 2019-2020 was not much less than what they would have spent at a private institution in the mid-1990s. Lower-income students who would have been expected to pay $12,500 at public institutions in 1995-96 faced a typical net price of $18,000 in 2019-2020 in constant dollars. While the net cost of attending a private, non-profit institution has not risen above inflation for students from families with incomes below $150,000 since 2007-2008, it remains clearly more expensive than attending public institutions. Higher-income students who are ineligible for financial aid, though, faced the largest absolute increase in their cost. Their maximum expected cost at private institutions jumped from $37,000 in 1995-1996 to $53,000 in 2019-2020. At public institutions, the costs for higher-income students rose from $19,000 to $29,000 over the same time span (see chart).