Does need-based financial aid reduce the cost of college?

In November, a new study presented at the Association for the Study of Higher Education (ASHE) conference purported that public and private nonprofit colleges respond to increases in state need-based grants by raising tuition and fees and reducing their own institutional grants, ultimately leading to an increase in their net price. That assertion later appeared as a headline in The Chronicle of Higher Education. However, a closer look at the study, conducted by Bradley Curs (University of Missouri, Columbia) and Luciana Dar (University of California, Riverside), casts serious doubt on that conclusion.

Although the study shows a relationship between average state need-based grants¹ and colleges’ net price,² there is little evidence or discussion of causality. In fact, some other variables in the study had stronger relationships with college costs. For example, at private nonprofit colleges, changes in endowment funding predicted net college price more than changes in state need- or merit-based grant aid.

More importantly, the authors’ claim that colleges “may undermine state policies to promote access to higher education for low-income students” simply isn’t supported by the research.³ At the ASHE conference, the paper was criticized for failing to support that claim with evidence of how college decisions are actually made. Additionally, data limitations in the study make it impossible to tell whether increased funding for state need-based grants raised or reduced net college costs for low-income students in particular. This means that even if the average net price for all students increased, lower income students may be paying less than they were before.

Given the difficulty of drawing meaningful conclusions from this study, we should not overlook other evidence that shows how need-based financial aid – most notably the federal Pell Grant – is an effective tool in increasing college access and affordability. Regarding federal grants, Curs and Dar cite the College Board’s most recent set of reports on student aid and college pricing, noting that “the most important indicator of college affordability, average net price paid by students, turned out to be lower in 2009-2010 than five years previous due in part to significant expansions in federal grant aid and tax benefits.”⁴

¹The study defines average state need-based grants as state expenditures on need-based financial aid divided by the entire 18- to 24-year-old population in that state, regardless of whether they are enrolled in college.

²The study defines net price as published tuition and fees minus average institutional grant aid received by full-time freshmen.

³Curs, Bradley and Luciana Dar. 2010. Do Institutions Respond Asymmetrically to Changes in State Need- and Merit-Based Aid? 2010 Association for the Study of Higher Education Annual Meeting. Page 14.

⁴Curs, Bradley and Luciana Dar. 2010. Do Institutions Respond Asymmetrically to Changes in State Need- and Merit-Based Aid? 2010 Association for the Study of Higher Education Annual Meeting. Page 4.