Savanna Hoffman
Sandy Baum, a senior fellow at the Urban Institute and professor emerita of economics at Skidmore College, is an expert on higher education finance. She has written extensively on the topic of college tuition, financial aid, and student debt. In her article 'How Students Pay for College' published in 2018, she discusses the rising cost of college tuition and the impact of student debt. She also explores the role of financial aid and grant aid in addressing the challenges of meeting financial demands. Baum's work provides insights into the complexities of college affordability and how students from diverse backgrounds can access higher education.
| Characteristics | Values |
|---|---|
| Article Title | How Students Pay for College |
| Author | Sandy Baum |
| Publication | Change: The Magazine of Higher Learning |
| Year | 2018 |
| Topics Covered | Tuition prices, living expenses, household income, financial aid, student debt, college affordability, published prices, net prices, sources of financial aid, grant aid, family income |
| Main Arguments | - Tuition prices and living expenses have risen rapidly while household incomes have stagnated or declined for most. |
- Students have become increasingly dependent on financial aid from federal and state governments, institutions, and private sources.
- The rise in college prices and student debt has shifted the focus to discussions of college affordability.
- Colleges that raise tuition often increase their aid budgets, but this results in less revenue for the college.
- Federal student loan programs aim to solve cash flow problems and provide liquidity, allowing all students to borrow regardless of financial circumstances.
- Federal loans can be repaid through affordable monthly payment programs based on borrowers' incomes.
- College is still affordable considering the return on investment, and there is no single indicator to determine affordability.
- Federal and state grant aid is the main way taxpayers help students pay for college. |
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What You'll Learn
Rising college prices and family incomes
Tuition prices and living expenses for students have increased rapidly, while household incomes have grown slowly or declined, except for those at the top of the income distribution. As incomes have stagnated and savings rates have declined, students have become increasingly reliant on financial aid from federal and state governments, as well as from the institutions they enrol in and other private sources. This has resulted in students borrowing more, leading to concerns about the impact of student debt on their lives after college.
The rising cost of college tuition and the increasing dependence on financial aid have highlighted the imbalance between college prices and family incomes. The published prices of colleges may not reflect the net prices paid by students due to institutional grants and financial aid. While some argue that increased financial aid from the government leads to higher tuition prices, known as the "Bennett Hypothesis", the empirical evidence for this impact is weak outside of the for-profit sector.
Family income plays a significant role in the ability to pay for college. Students from families in the top half of the income distribution are more likely to graduate without debt compared to those from the bottom half. Additionally, students who enrol in for-profit institutions tend to borrow more than those attending public and private nonprofit colleges and universities.
The availability of federal student loans allows all students to borrow regardless of their financial circumstances. These loans aim to solve cash flow problems and provide liquidity, with repayment programs that limit monthly payments to affordable percentages of borrowers' incomes. However, discussions about college affordability often focus solely on rising tuition prices without considering the resources available to students or the potential return on investment from a college education.
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Published prices vs. net prices
The rising cost of college tuition and the imbalance between these rising prices and family incomes have become a central focus of discussions on college affordability. Sandy Baum, an expert on college tuition, financial aid, and student debt, has written extensively on the subject, including an article in Change: The Magazine of Higher Learning, titled "How Students Pay for College".
In her article, Baum discusses the difference between published prices and net prices. Published prices refer to the sticker price or the tuition fee that colleges and universities advertise. However, the net price is the actual amount that students pay after subtracting scholarships, grants, and discounts.
The published price of a college education often does not reflect the true cost to the student. Colleges and universities frequently offer financial aid packages, including scholarships, grants, and discounts, which can significantly reduce the amount a student pays out of pocket. These financial aid packages are often based on a student's financial need or academic merit.
For example, a college with a published tuition price of $50,000 may offer a student a $10,000 scholarship based on their academic achievements, reducing the net price to $40,000. Additionally, the college may offer need-based grants or discounts, further reducing the net price for students who demonstrate financial need.
The net price that students pay can vary widely depending on their individual circumstances and the financial aid they receive. As a result, two students attending the same college with the same published price may end up paying different amounts.
Furthermore, the source of financial aid, whether it be from federal and state governments or the institutions themselves, also plays a role in the published price versus net price discussion. According to Baum, when colleges raise their tuition, they often increase their aid budgets to help students cope with the higher prices. This results in a complex relationship between sticker prices and institutional grant aid.
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Sources of financial aid
As an expert on college tuition, financial aid, college affordability, and student debt, Sandy Baum has written extensively on the topic of how students pay for college.
The rising cost of college tuition and living expenses has resulted in students relying more heavily on financial aid. This aid comes from federal and state governments, institutions, and other private sources. Federal student loan programs allow all students to borrow, regardless of their financial circumstances. These loans are designed to solve cash flow problems and provide liquidity, with the understanding that students will repay their loans with increased earnings from their education. Federal loans can be repaid through programs that limit monthly payments to affordable percentages of borrowers' incomes.
Grant aid is another source of financial support for students, particularly those from disadvantaged backgrounds. Need-based state grant programs, such as the federal Pell Grant program, aim to increase access to higher education for low- and moderate-income students. Colleges also provide institutional grant aid, often increasing their aid budgets when they raise tuition fees. However, this can result in reduced revenue for the college relative to the published price, creating a complex relationship between sticker prices and institutional grant aid.
The amount of financial aid available to students depends on their circumstances. For example, students who stay in school longer are likely to borrow more. Additionally, students who enrol in for-profit institutions tend to borrow more than those attending public and private nonprofit colleges and universities. Family income also plays a role, with a higher proportion of students from lower-income families graduating with debt.
To address the challenges of college affordability and student debt, solutions such as better financial aid, academic support, and improved pathways to college and the job market have been proposed.
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Student debt
In her work, Baum acknowledges that tuition prices and living expenses have risen rapidly, while household incomes have stagnated or declined for many. This has resulted in an increased reliance on financial aid and borrowing, leading to higher levels of student debt. She notes that students from lower-income families are more likely to borrow larger amounts and graduate with debt, compared to their higher-income peers.
Baum's book, "Student Debt: Rhetoric and Realities of Higher Education Financing", exposes the misleading narrative surrounding student debt in America. She argues that discussions about college affordability often focus solely on rising tuition prices without considering the resources available to students, such as federal student loans and grant programs. These programs aim to increase demand for college and provide liquidity to students who may have cash flow problems.
Federal student loans, according to Baum, are designed to solve cash flow issues rather than subsidize the cost of education. While these loans can help students bridge the gap between their resources and college expenses, they can also lead to debt accumulation. She emphasizes that grant aid is a better way to subsidize disadvantaged students, as it does not need to be repaid. However, some students may still struggle to repay their loans, especially if their education does not lead to higher earnings as anticipated.
To address these challenges, Baum offers policy solutions in her book "Making College Work: Pathways to Success for Disadvantaged Students". She suggests improvements in financial aid, such as simplifying the application process and providing better support to individual students. Additionally, she proposes institutional reforms, including stronger linkages between coursework and the labour market, to ensure that students are better prepared for employment after graduation.
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College affordability
One of the key factors affecting college affordability is the rapid increase in tuition prices and living expenses, which has outpaced the slow growth or decline in household incomes. This imbalance has led to a growing dependence on financial aid and loans, with students borrowing more to fund their education. Federal student loan programs have been implemented to address cash flow problems and provide liquidity, allowing all students to borrow regardless of their financial circumstances. However, this has also raised concerns about the impact of student debt on life after college.
Baum highlights the role of federal and state financial aid in college affordability. When colleges raise tuition, they often increase their aid budgets to assist students. The relationship between sticker prices and institutional grant aid is significant. While some argue that increased government funding leads to higher prices, known as the "Bennett Hypothesis," the empirical evidence for this impact is weak outside the for-profit sector. Federal student loan and grant programs aim to increase demand for college education.
Family income also plays a crucial role in college affordability. Baum's research shows that students from higher-income families are more likely to graduate without debt compared to those from lower-income backgrounds. Additionally, students who attend for-profit institutions tend to borrow more than those enrolled in public and private nonprofit colleges and universities.
Baum has co-authored several publications, including "Making College Work: Pathways to Success for Disadvantaged Students," which addresses the challenges faced by disadvantaged students in paying for college and completing their education. The book offers policy solutions targeting individual students and institutional reforms to improve college affordability and success for disadvantaged students.
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Frequently asked questions
Students pay for college through federal student loans, state grants, family income, and private loans.
Debt levels vary across types of institutions and family income. 29% of 2011-12 bachelor’s degree recipients borrowed $30,000 or more, and more than three-quarters of graduate degree recipients borrowed the same amount.
The main purpose of federal student loans is to solve cash flow problems and provide liquidity. Federal loans can be repaid through programs that limit monthly payments to affordable percentages of borrowers’ incomes.
