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Tuition Costs: Affected by Increases in Federal Aid?

by Nicole Leonard | Boston University

F Posted in: College P Posted on: February 29, 2012
Screen shot 2012-02-28 at 10.51.04 PM Image courtesy of Flickr, Images_of_Money

College tuition costs and financial aid have recently come into the spotlight as President Obama ramps up his campaign in advance of the November 2012 presidential election. With tuition costs now being adjusted for the 2012/2013 academic year, families of returning and incoming students will more closely examine federal, state and institutional aid.

An online piece at SmartMoney argues that the increases in federal aid might in fact propel universities to continue raising ‘real’ tuition costs. According to the article, evidence points out that schools may implement a “crowding out effect,” which is when schools give out less institutional aid as the government increases federal aid.

What the article found even more troubling for students was the potential for the ‘Bennet Effect’: when financial aid funds increase for students, allowing universities to increase tuition costs.

A study by Columbia University PhD candidate Lesley Turner focused specifically on the effects of the federal Pell Grant Program. A Pell Grant is generally given to students who demonstrate high need based on information reported on the FAFSA.

Turner, who studied data on aid from 1996 to 2008, found that public institutions decreased tuition by an estimated $30 for every $100 increase per student in Pell Grants. However, she also found that public institutions also decrease institutional grants by about $60 for every $100 in Pell Grant funding.

Federal aid can be given to students based on eligibility in several forms. Besides the Pell Grant, needy students can receive the Federal Supplemental Educational Opportunity Grant (SEOG). Some universities even match the amount of the SEOG with institutional aid for students with the lowest expected family contributions.

Students are also able to apply for Federal Direct Stafford Loans by submitting the FAFSA to their colleges. Institutional grants, however, sometimes require additional forms such as the CSS Profile.

According to the College Board Trends in Student Aid 2011 statistics, undergraduate student aid for the 2010/2011 academic year reached $177.6 billion dollars. Institutional grants, which accounted for $29.7 billion, made up 32 percent of the total undergraduate grant aid students were receiving that year (not including loans). On the other end of the spectrum, the federal government provided 51 percent of that total undergraduate grant aid.

Based on the above statistics, it appears that federal grant funds for students are significantly higher than grants provided by the institutions themselves. Of course, the data compiled by the College Board includes undergraduate financial aid from various types of universities.

According to the National Center for Education Statistics, in terms of federal support and federal tax expenditures for education, federal aid for postsecondary schools was $19,213.3 (in millions of dollars) in 2000. In 2010, federal aid for postsecondary schools was $47,888.8 (in millions of dollars).

In terms of average undergraduate tuition, fees, and room and board rates charged for full-time students in degree-granting, 4-year public institutions equaled $8,653 on average in 2000. In 2010, these schools cost $15,014. In 2000, 4-year private institutions cost $21,856. In 2010, these schools cost $35,061.

For institutions that were established as universities, undergraduate education costs were even higher. The general trend, though, indicates that both aid and tuition costs have increased dramatically over the past decade.

President Obama is focused on addressing the problem of student debt, which recently eclipsed credit-card debt in magnitude. He has visited several cities across the country to introduce his plans to reduce student debt and make college more affordable to families in the United States.

Much of the President’s plan, though, relies on increasing federal aid, including federal work-study. And if the trends mentioned above hold, it’s possible that an increase in federal aid could actually hurt those attending college. The critical questions are these: might institutional aid decrease because of federal increases? And even more importantly, might tuition costs on the whole continue to rise?

Nicole Leonard Nicole Leonard Nicole is a sophomore at Boston University, where she is studying journalism and psychology.

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