STAFF

WORKING

PAPERS

TRENDS IN COLLEGE TUITION AND

STUDENT AID SINCE 1970

December 1988

CONGRESSIONAL BUDGET OFFICE

SECOND AND D STREETS, S.W.

WASHINGTON, D.C. 20515

This study was prepared by Maureen A. McLaughlin of the Human

Resources and Community Development Division under the supervision

of Nancy M. Gordon and Bruce Vavrichek. Roald Euller produced the

graphics, and Ronald Moore prepared the manuscript. For additional

information call (202) 226-2672.

ii

NOTES

For simplicity, this paper refers to tuition and required fees as

tuition; all data on average tuition include required fees. In

addition, all references to net prices paid by students refer to

prices paid by students and their families.

Years refer to the fall of the school year. For example, 1970

refers to the 1970-1971 school year.

iii

CONTENTS

SUMMARY „ vii

INTRODUCTION 1

TRENDS IN COLLEGE TUITIONS SINCE 1970 2

Changes by Sector and Type of Institution 5

Changes in Tuitions in the Public and

Private Sectors 5

Changes in Tuitions by Type of Institution

Within Each Sector 5

Changes in the Distribution of Enrollments and Their

Effects on Average Tuition 8

Enrollment Patterns Since 1970 8

Effects of Changes in the Distribution of

Enrollments on Average Tuition 11

TRENDS IN STUDENT AID AND THEIR EFFECTS ON NET

COLLEGE PRICES 11

Student Aid Since 1970 16

Issues in Determining the Net Price Paid

by Students 18

How to Value Different Types of Student Aid 18

Limitations of the Data 20

Trends in Net College Prices Since 1970 21

TABLES

TABLE 1 AVERAGE UNDERGRADUATE TUITION BY SECTOR

AND TYPE OF INSTITUTION, FALL 1970 AND 1986 3

TABLE 2 DISTRIBUTION OF FULL-TIME-EQUIVALENT COLLEGE

ENROLLMENTS WITHIN SECTOR, SELECTED YEARS,

1970-1985 10

TABLE 3 FULL-TIME-EQUIVALENT COLLEGE ENROLLMENTS

BY SECTOR AND TYPE OF INSTITUTION,

SELECTED YEARS, 1970-1985 12

TABLE 4 FINANCIAL AID AWARDED TO STUDENTS IN

SELECTED YEARS, 1970-1986 17

FIGURES

FIGURE 1 LEVEL OF AVERAGE REAL TUITION AND FEES,

EXPRESSED AS PERCENTAGE CHANGE FROM THE

1970-1971 LEVEL „ 4

FIGURE 2 LEVEL OF AVERAGE REAL TUITION AND FEES

BY SECTOR, EXPRESSED AS PERCENTAGE CHANGE

FROM THE 1970-1971 LEVEL 6

FIGURE 3 LEVEL OF AVERAGE REAL TUITION AND FEES BY

TYPE OF PUBLIC INSTITUTION, EXPRESSED AS

PERCENTAGE CHANGE FROM THE 1970-1971 LEVEL 7

FIGURE 4 LEVEL OF AVERAGE REAL TUITION AND FEES BY

TYPE OF PRIVATE INSTITUTION, EXPRESSED AS

PERCENTAGE CHANGE FROM THE 1970-1971 LEVEL 9

FIGURE 5 LEVEL OF AVERAGE REAL TUITION AND FEES

WITH ACTUAL ENROLLMENT MIX AND 1970-1971

ENROLLMENT MIX, EXPRESSED AS PERCENTAGE

CHANGE FROM THE 1970-1971 LEVEL 13

FIGURE 6 LEVEL OF AVERAGE REAL PUBLIC TUITION AND

FEES WITH ACTUAL ENROLLMENT MIX AND 1970-1971

ENROLLMENT MIX, EXPRESSED AS PERCENTAGE

CHANGE FROM THE 1970-1971 LEVEL 14

FIGURE 7 LEVEL OF AVERAGE REAL PRIVATE TUITION AND

FEES WITH ACTUAL ENROLLMENT MIX AND 1970-1971

ENROLLMENT MIX, EXPRESSED AS PERCENTAGE

CHANGE FROM THE 1970-1971 LEVEL 15

FIGURE 8

FIGURE 9

LEVEL OF AVERAGE REAL TUITION AND FEES AND

STUDENT AID BY DEFINITION OF STUDENT AID,

EXPRESSED AS PERCENTAGE CHANGE FROM THE

1970-1971 LEVEL 22

LEVEL OF AVERAGE REAL TUITION AND FEES AND

NET PRICE BY DEFINITION OF STUDENT AID,

EXPRESSED AS PERCENTAGE CHANGE FROM THE

1970-1971 LEVEL 23

FIGURE 10

FIGURE 11

LEVEL OF AVERAGE REAL TUITION AND FEES AND

STUDENT AID BY DEFINITION OF STUDENT AID

INCLUDING ONLY GENERALLY AVAILABLE AID,

EXPRESSED AS PERCENTAGE CHANGE FROM THE

1970-1971 LEVEL 25

LEVEL OF AVERAGE REAL TUITION AND FEES AND

NET PRICE BY DEFINITION OF STUDENT AID

INCLUDING ONLY GENERALLY AVAILABLE AID,

EXPRESSED AS PERCENTAGE CHANGE FROM THE

1970-1971 LEVEL 26

VI

SUMMARY

Students, parents, policymakers, and others have focused

considerable attention in recent years on the rising price of

attending college and on how these higher prices affect the ability

of families to pay for college. Most of these discussions have

examined the prices charged by institutions of higher education

rather than the prices actually paid by students and their families.

The prices that students pay for college equal the prices charged

by institutions minus student financial aid--referred to here as

"net prices." This paper analyzes changes in tuition and fees

charged by institutions of higher education as well as changes in

tuition and fees paid by students and their families, after

adjusting for student financial aid.

Between 1970 and 1986, average tuition and required fees for

full-time-equivalent undergraduate students increased substantially

in real terms--that is, when adjusted for inflation. Average

undergraduate tuition fell slightly in real terms during the 1970s

but increased substantially in the 1980s. If the distribution of

student enrollments had not shifted during this period--especially

if the increase in the proportion of students attending two-year

institutions had not occurred--average tuition would have risen more

rapidly between 1970 and 1986 than it actually did.

The growth pattern of average student aid for full-timeequivalent students was quite different from that of tuition.

Between 1970 and 1980 when average tuition declined in real terms,

real student aid--from all federal, state, and institutional

sources--increased. Between 1980 and 1986 when tuition rose more

quickly than inflation, real student aid declined. As a result, in

the 1970s the average real net price paid by students and their

families declined by a greater percentage than real tuition.

Between 1980 and 1986, however, the average net price paid by

students and their families grew more rapidly than tuition.

When federal aid that is available only to specific groups of

students--Social Security student benefits and Veterans' education

benefits--is excluded, the pattern of growth in financial aid is

somewhat different than when all aid is included. Average aid that

is generally available also rose in real terms throughout the 1970s;

between 1980 and 1986, however, this aid increased further, whereas

all aid declined. As a result, when only generally available aid

is considered, the average real net price paid by students and their

families also fell more rapidly than real tuition during the 1970s.

In the 1980s, however, the average net price grew at roughly the

same rate in real terms as average tuition. Under all definitions

of aid, both average net price paid by students and their families

and average tuition charged by institutions were greater in real

terms in 1986 than in 1970.

INTRODUCTION

This paper examines how certain costs of attending college have

changed since 1970. In particular, it analyzes changes in the

average tuition and fees charged by institutions of higher education

and the average tuition and fees paid by students and their

families, after accounting for financial aid. The price that

students actually pay to attend college--stated tuition and fees

minus student financial aid--is referred to here as "net price."

Because shifts in the proportions of students attending institutions

with different charges affect the average college price, the effects

of such changes on the trends in average tuition charged by

institutions also are examined.

The analysis presented here does not examine changes in the

actual costs to the institutions of providing the education.

College tuition is substantially less than the costs of providing

the education because part of these costs are met through other

funding sources, such as federal aid, state appropriations, and

endowments. Furthermore, changes in tuition and related fees do not

necessarily reflect changes in the total costs of education, and

vice versa. The paper also does not examine the opportunity cost

of education--that is, the earnings students could have obtained if

they had not attended college but instead had worked during those

years.

This analysis focuses on average college tuition and fees and

the average net price paid by students. Because averages do not

necessarily indicate the experience of subgroups or individuals,

however, some students face tuitions and net prices that are quite

different from those presented in this paper. For example, the net

price for students who do not receive any financial aid is the same

as the institution's tuition, whereas the net price for students who

receive large amounts of aid is below the tuition at their

institution.

College tuition and student financial aid generally are

measured here in real terms--that is, after adjusting for inflation.

Focusing on real rather than nominal prices indicates the extent to

which the price of college has changed relative to the average price

of goods and services in the economy. If college tuition increases

at the same rate as inflation, then it remains constant in real

terms; when tuition falls or increases less rapidly than inflation,

the real price declines; and when tuition rises more rapidly than

inflation, the real price increases.

A commonly used index for adjusting for inflation is the

Consumer Price Index (CPI), which reflects changes in living costs.

In the late 1970s, problems arose with the way the CPI measured

housing costs, which resulted in overestimates of the changes in

living costs. In 1983, the Bureau of Labor Statistics adopted a

revised method, known as the CPI-X1, to calculate the CPI. Although

most analyses of changes in college tuition use the unadjusted CPI

to adjust prices for inflation during the years before 1983, this

analysis uses the CPI-X1 for the entire 1970-1986 period.I/

TRENDS IN COLLEGE TUITIONS SINCE 1970

Between 1970 and 1986, the average tuition and required fees for

full-time-equivalent (FTE) undergraduate students increased from

$690 to $2,310, more than tripling in nominal terms and increasing

by 28 percent in real terms (see Table 1) .2/ The average"""!

undergraduate tuition fell in real terms during the 1970s but f

increased substantially in the 1980s (see Figure 1). In particular, J

the average real tuition in 1980 was 4 percent below the 1970

average, whereas the average real tuition in 1986 was 33 percent

above the 1980 average.

Although using the unadjusted CPI shows a similar trend in

tuition, it would indicate that real average tuition declined more

sharply in the late 1970s than this study indicates and that real

tuition increased by less over the entire period than is reported

here. For example, the average tuition in 1980 was 10 percent below

the average in 1970 using the unadjusted CPI, compared with 4

percent below using the CPI-X1. The average tuition in 1986 was 19

percent higher than in 1970 using the CPI and 28 percent higher

using the CPI-XI. During the 1980s, however, the rate of growth in

real tuition was roughly the same under either assumption because

the method used to calculate the CPI-XI was adopted for the CPI

beginning in 1983.

Changes in average tuition since 1970 result both from changes

in tuition charges as such and from changes in the proportions of

students attending more expensive and less expensive institutions.

The remainder of this section first examines changes in average

tuition for the public and private sectors separately and for

different types of institutions within each sector, including the

effects of changes in both tuition and enrollment. It then analyzes

the extent to which changes in the distribution of college enroll1. For a further discussion of the differences between the two

measures, see Congressional Budget Office, Trends in Family

Income: 1970-1986 (February 1988), pp. 6-9.

2. Using the number of full-time-equivalent students adjusts for

differences across institutions in the proportion of students

attending college on a part-time basis, because part-time

students only pay a portion of the full-time tuition and fees.

Because students attending two-year institutions are more

likely to enroll part-time than are students at four-year

institutions, the ratio of students to FTEs is higher at twoyear institutions than at four-year institutions.

TABLE 1. AVERAGE UNDERGRADUATE TUITION BY SECTOR

AND TYPE OF INSTITUTION, FALL 1970 AND 1986

1970

Type of

Institution

(Nominal

dollars)

(1986

dollars)

1986

(1986

dollars)

Percentage

Increase Between

1970 and 1986

Nominal Real

Value Value

Public Institutions

University

Other four-year

Two-year

Total

480

330

190

350

1,260

870

490

920

1,650

1,250

660

1,110

245

276

253

215

31

43

34

20

Private Institutions

University

Other four-year

Two-year

Total

1,980

1,600

1,110

1,680

5,210

4,220

2,920

4,430

8,120

6,170

3,680

6,320

310

285

232

275

56

46

26

43

All Institutions 690 1,810 2,310 236 28

SOURCE: Congressional Budget Office calculations based on data from

the Department of Education, using the CPI-XI to adjust for

inflation.

FIGURE 1. LEVEL OF AVERAGE REAL TUITION AND FEES, EXPRESSED AS

PERCENTAGE CHANGE FROM THE 1970-1971 LEVEL

60

40

20

All Institutions

-20

1970-71 1075-70 1080-81

Academic Years

1086-86

SOURCE: Congressional Budget Office estimates based on data from

the Department of Education.

NOTE: Estimates represent average tuition and fees for full-timeequivalent undergraduate students and use the CPI-X1 to

adjust for inflation.

ments among different kinds of institutions contributed to changes

in the overall average college tuition.

Changes by Sector and Type of Institution

Examining college tuition by sector (public and private) and by type

of institution within each sector (universities, other four-year

colleges, and two-year institutions) helps to highlight some of the

variation in tuition that is masked by focusing on overall averages,

because average tuition for each category is quite different. It

does not address, however, the variations in tuitions that occur

within these categories of institutions.

Changes in Tuitions in the Public and Private Sectors. Although the

changes in average tuition were somewhat different for the public

and private sectors in the 1970s, since 1980 the general pattern has

been similar for both sectors (see Figure 2).

Between 1970 and 1980, the average public tuition grew more

slowly than inflation--falling by 10 percent in real terms--while

the average real tuition at private institutions grew by 4 percent.

Thus far during the 1980s, both public and private tuitions have

increased in real terms. Between 1980 and 1985, real tuitions at

public and private institutions each increased by almost 28 percent.

Between 1985 and 1986, however, tuition at public institutions grew

more slowly than at private institutions--a 4 percent real increase

for public colleges versus a 7 percent increase for private ones.

Whether this difference represents a change in the trends or simply

a one-year deviation between the two sectors remains to be seen.

Overall, the average tuition in each sector was higher in real

terms in 1986 than in 1970, although the average tuition at public

institutions grew more slowly than at private ones. At public

institutions, the average tuition rose from $350 to $1,110, more

than tripling in nominal terms and increasing by 20 percent in real

terms (see Table 1). Average tuition at private institutions almost

quadrupled in nominal terms, rising from $1,680 to $6,320--a 43

percent real increase.

Changes in Tuitions by Type of Institution Within Each Sector.

Average tuition at public universities has grown somewhat more

slowly since 1970 than at other public institutions (see Figure 3).

In fact, tuition at other four-year institutions and at two-year

colleges actually grew in real terms during the 1970s, while real

tuition at universities did not. During the 1980s, average tuition

grew more rapidly than inflation at each type of public institution.

As a result, tuition at public universities was 31 percent higher

in real terms in 1986 than in 1970; tuition at other four-year

public institutions was 43 percent higher; and tuition at public

two-year institutions was 34 percent higher.

FIGURE 2. LEVEL OF AVERAGE REAL TUITION AND FEES BY SECTOR,

EXPRESSED AS PERCENTAGE CHANGE FROM THE 1970-1971

LEVEL

\

Public Sector

-20

1970-71 1075-70 1960-61

Academic Years

1986-66

SOURCE: Congressional Budget Office estimates based on data from

the Department of Education.

NOTE: Estimates represent average tuition and fees for full-time -

equivalent undergraduate students and use the CPI-X1 to

adjust for inflation.

FIGURE 3. LEVEL OF AVERAGE REAL TUITION AND FEES BY TYPE OF PUBLIC

INSTITUTION, EXPRESSED AS PERCENTAGE CHANGE FROM THE

1970-1971 LEVEL

60

40

Other Public Four—Year Colleges

Public Two-Year

Public Universities

-20

1970-71 1976-70 1980-81

Academic Years

1986-88

SOURCE: Congressional Budget Office estimates based on data from

the Department of Education .

NOTE: Estimates represent average tuition and fees for fulltime -equivalent undergraduate students and use the CPI-XI

to adjust for inflation.

In contrast to the public sector, average tuition in the

private sector has grown more rapidly since 1970 at universities

than at other private institutions (see Figure 4). Average real

tuition at private universities grew by 56 percent between 1970 and

1986, and by 46 percent and 26 percent at other private four-year

institutions and two-year colleges, respectively. Universities and

other four-year schools represent nearly all of private-sector

collegiate enrollments, however, so that the smaller real increase

in tuition at private two-year institutions had little impact on the

overail average. .3/

Changes in the Distribution of Enrollments and

Their Effects on Average Tuition

Shifts in enrollments between the public and private sectors, among

different types of institutions within a given sector, and among

specific colleges within a particular sector and type of institution

all affect the pattern of growth in average tuition. If a larger

proportion of students enroll in less expensive institutions, for

example, average tuition would increase more slowly than if the

distribution of students across institutions remained constant or

shifted to more expensive ones.

The possible effects of the first two types of shifts are

considered in this section by examining changes in the distribution

of enrollments between public and private institutions and changes

in the distribution of students by type of institution within each

of these two sectors. Unfortunately, no data exist on shifts among

specific institutions within a particular type of college or

university.

Enrollment Patterns Since 1970. The 1970s, especially the first

half of that decade, was a period of rapid growth for two-year

colleges. This growth caused a shift in the distribution of FTEs

toward two-year institutions and the public sector and away from

four-year colleges and the private sector. Thus far in the 1980s,

the distribution of enrollments has remained fairly stable.

The rapid expansion in community colleges during the 1970s

caused collegiate enrollments at two-year institutions to increase

more rapidly those at four-year colleges. Within the public sector,

the proportion of FTEs in two-year institutions increased from 29

percent in 1970 to 38 percent in 1975 and remained relatively

constant thereafter (see Table 2). The proportion of FTEs at twoyear private institutions also increased--from 6 percent of all pri3. This paper does not examine tuition and enrollments at

proprietary (private, for-profit) institutions because such

data have not been collected for most proprietary schools since

1970. Enrollments at proprietary institutions are substantial,

however, and have been growing rapidly in recent years.

8

FIGURE 4. LEVEL OF AVERAGE REAL TUITION AND FEES BY TYPE OF PRIVATE

INSTITUTION, EXPRESSED AS PERCENTAGE CHANGE FROM THE 1970-

1971 LEVEL

60

40

20

Private Universities

Other Private Four—Year Colleges

Private Two—Year Colleges

—20

1970-71 1975-76 1960-61

Academic Years

1986-86

SOURCE: Congressional Budget Office estimates based on data from

the Department of Education.

NOTE: Estimates represent average tuition and fees for fulltime -equivalent undergraduate students and use the CPI-XI

to adjust for inflation.

TABLE 2. DISTRIBUTION OF FULL-TIME-EQUIVALENT COLLEGE

ENROLLMENTS WITHIN SECTOR, SELECTED YEARS,

1970-1985 (In percents)

Type of

Institution 1970 1975 1980 1985

Public

Four-Year

Two-Year

Total

Private

Four-Year

Two-Year

Total

SOURCE: Compiled by the Congressional Budget Office using data from

the Department of Education.

10

vate enrollments in 1970 and 1975 to 8 percent in 1980, and to 10

percent in 1985.4/

The expansion in community colleges also caused collegiate

enrollments to grow somewhat more rapidly in the public sector than

in the private sector in the early 1970s (see Table 3). The

proportion of FTEs in public institutions increased from 74 percent

in 1970 to a peak of 77 percent in 1975. After 1975, the publicsector share of enrollments declined slightly and has continued at

roughly 75 percent throughout the 1980s.

Effects of Changes in the Distribution of Enrollments on Average

Tuition. If the distribution of enrollments had not changed,

average tuition would have risen more rapidly than it did (see

Figure 5). During the 1970s, overall average tuition would have

increased by 5 percent in real terms if the distribution of

enrollments by sector and type of institution had not changed;

instead, the average real tuition declined by 4 percent. The rate

of growth in the 1980s would have been roughly the same without the

enrollment changes because most of the shifts in enrollments took

place in the 1970s. In total, average real tuition in 1986 would

have been 44 percent above the 1970 level if the distribution of

enrollments had not changed; with actual enrollment shifts, however,

it was 28 percent higher than in 1970.

The expansion of two-year colleges had the largest impact on

average tuition. Because two-year institutions are, on average,

less expensive than four-year ones, the relative increase in twoyear enrollments held down the rate of growth in overall tuitions.

Moreover, this shift had a greater effect in the public sector where

two-year institutions represent a larger share of all enrollments

than in the private sector. Without these enrollment changes, the

average real public tuition in 1986 would have been 36 percent

greater than the average in 1970, compared with 20 percent higher

under actual enrollments (see Figure 6). Growth in the average

private tuition would have differed little--a 48 percent real

increase between 1970 and 1986 if enrollments had not changed,

compared with a 43 percent real increase with actual enrollment

proportions (see Figure 7).

TRENDS IN STUDENT AID AND THEIR EFFECTS ON NET COLLEGE PRICES

Student financial aid--in the form of grants, loans, and work-study

aid--provides students with funds for college expenses and thereby

enables students and their families to pay less than the amounts the

institutions charge. The amount that students actually pay is

referred to as the "net price."

4. The addition of some proprietary institutions caused some of

the increased enrollment in two-year private institutions.

11

TABLE 3. FULL-TIME-EQUIVALENT COLLEGE ENROLLMENTS

BY SECTOR AND TYPE OF INSTITUTION,

SELECTED YEARS, 1970-1985 (In thousands)

1970 1975 1980 1985

Number Percent Number Percent Number Percent Number Percent

Public

Four-Year

Two-Year

Total

3,541

1.413

4,953

53

21

74

4

2

6

,057

.466

,522

48

29

77

4

2

6

,158

.484

,642

47

28

75

4

2

6

,240

.428

,668

47

27

75

Private

Four-Year

Two-Year

Total

Total

1,679

105

1,785

6,738

25

2

26

100

1

1

8

,844

113

,957

,480

22

1

23

100

2

2

8

,003

174

,177

,819

23

2

25

100

2

2

8

,055

221

,276

,943

23

2

25

100

SOURCE: Compiled by the Congressional Budget Office using data from the Department of Education.

NOTE: Details may not add to totals because of rounding.

12

FIGURE 5. LEVEL OF AVERAGE REAL TUITION AND FEES WITH ACTUAL

ENROLLMENT MIX AND 1970-1971 ENROLLMENT MIX, EXPRESSED

AS PERCENTAGE CHANGE FROM THE 1970-1971 LEVEL

60

40

20

1970-71 Enrollment Mix

Actual Enrollment Mix

-20

1970-71 1976-76 1980-81

Academic Years

1986-86

SOURCE: Congressional Budget Office estimates based on data from

the Department of Education.

NOTE: The 1970-1971 enrollment mix holds constant the

distribution of enrollments by sector and type of

institution. Estimates represent average tuition and fees

for full-time-equivalent undergraduate students and use the

CPI-X1 to adjust for inflation.

13

FIGURE 6. LEVEL OF AVERAGE REAL PUBLIC TUITION AND FEES WITH

ACTUAL ENROLLMENT MIX AND 1970-1971 ENROLLMENT MIX,

EXPRESSED AS PERCENTAGE CHANGE FROM THE 1970-1971

LEVEL

60

40 -

1970-71 Enrollment Mix

Actual Enrollment

-20

1970-71 1975-70 1980-81

Academic Years

1986-88

SOURCE: Congressional Budget Office estimates based on data from

the Department of Education.

NOTE: The 1970-1971 enrollment mix holds constant the

distribution of enrollments by type of institution within

each sector. Estimates represent average tuition and fees

for full-time-equivalent undergraduate students and use the

CPI-X1 to adjust for inflation.

14

FIGURE 7. LEVEL OF AVERAGE REAL PRIVATE TUITION AND FEES WITH

ACTUAL ENROLLMENT MIX AND 1970-1971 ENROLLMENT MIX,

EXPRESSED AS PERCENTAGE CHANGE FROM THE 1970-1971

LEVEL

Actual Enrollment Mix

-20

1970-71 1976-76 1980-61

Academic Years

1966-86

SOURCE: Congressional Budget Office estimates based on data from

the Department of Education.

NOTE: The 1970-1971 enrollment mix holds constant the

distribution of enrollments by type of institution within

each sector. Estimates represent average tuition and fees

for full-time-equivalent undergraduate students and use the

CPI-X1 to adjust for inflation.

15

This section builds on the previous analysis of changes in

tuition by analyzing trends in student aid and in the net price of

college paid by students. Unfortunately, because data on the

distribution of assistance by sector and type of institution are not

available for all student aid programs, this analysis cannot examine

net prices separately for different kinds of institutions.

Moreover, this lack of data also precludes examining how changes in

the distribution of enrollments have affected net prices.

Student Aid Since 1970

Total aid awarded to students--including the face value of all

grants, both guaranteed and direct loans, and work-study aid from

federal, state, and institutional sources--equaled an estimated $21

billion in 1986 (see Table 4). Grants and loans each accounted for

almost one-half of total aid in that year, and work-study assistance

equaled 3 percent. Despite declines in the real value of aid in the

1980s, total aid awarded in 1986 was substantially higher than the

real value of aid in the early 1970s, and was slightly higher than

the real value in 1975.

The federal government is the major provider of direct

financial assistance to college students, contributing about threequarters of all such aid in 1986. States and institutions provided

the remaining one-quarter of student aid. Federal aid grew in real

terms throughout the 1970s but has declined since 1980. State

assistance, on the other hand, has grown throughout the period,

while institutional aid increased slightly in real terms in the

1970s and has grown more rapidly in the 1980s.I/

Different types of federal aid have had quite different growth

patterns since 1970. Generally available aid, which is available

to most students if they meet specific eligibility criteria and

includes all assistance provided through the Education Department,

was relatively small in 1970 and increased dramatically in later

years. Aid available only to specific groups of students--

predominantly Social Security student benefits and Veterans'

education benefits--was quite substantial in the 1970s but now

represents only a small proportion of all student aid.

The Department of Education provides funding for Pell Grants,

Stafford Loans (formerly known as Guaranteed Student Loans or GSLs),

and three campus-based programs--Supplemental Educational Opportunity Grants, College Work-Study, and Perkins Loans. In 1986,

these programs provided more than $14 billion to students enrolled

Charitable contributions also provide financial assistance to

students. Some of this aid is channeled through institutions

and appears as institutional aid; other assistance is not

included in these data. Data on the extent of charitable

contributions are not available.

16

TABLE 4. FINANCIAL AID AWARDED TO STUDENTS

IN SELECTED YEARS, 1970-1986

(In millions of 1986 dollars)

1970 1975 1980 1986

Type of Aid

Grants 7,800 16,300 12,400 10,200

Loans 3,400 3,400 9,200 10,200

Work-Study 600 600 900 600

Total 11,800 20,300 22,500 21,100

Source of Aid

Federal

State

Institutional

Total

8,700

600

2,500

11,800

16,500

900

2,800

20,300

18,700

1,100

2,700

22,500

15,600

1,400

4,100

21,100

SOURCE: Congressional Budget Office calculations using estimates of

total available aid from the College Board.

NOTE: Total loan volume—for direct loans as well as guaranteed

loans—is included in estimated financial aid. Data for 1970,

1975, and 1980 are inflated to 1986 price levels, using the

CPI-X1.

17

in postsecondary education. One quarter of this aid was provided

through Pell Grants--the largest aid program focused on needy

students. GSLs accounted for almost two-thirds of this financial

assistance, with campus-based grants, loans, and work-study aid

accounting for the remainder.

Social Security student benefits and Veterans' education

benefits provided only $800 million of aid in 1986, although these

two programs represented a substantial portion of federal aid in the

1970s. Since the early 1970s, the number of veterans eligible for

education benefits has declined substantially, and Social Security

student benefits were phased out beginning in 1982.

Major expansions in federal aid caused total grants to more

than double in real terms between 1970 and 1975. Pell Grants began

in 1972, and both Veterans' education benefits and Social Security

benefits for students expanded rapidly in the early 1970s. In

contrast, loans and work-study aid remained constant in real terms

during that period.

Between 1975 and 1980, loan volume almost tripled in real terms

when eligibility requirements in the GSL program were loosened and

returns to lenders increased. The total volume of grants fell,

however, by about 25 percent in real terms during this period. This

decline was largely the net result of a decline in Veterans'

benefits of almost three-quarters, offset by real increases in Pell

Grants and Social Security benefits for students. Work-study aid

grew by 50 percent between 1975 and 1980 as a result of increased

federal funding.

The 1980s brought major changes in student aid programs in an

effort to reverse the trends of increasing federal costs. Total

loan volume increased slightly in real terms, while the real value

of grants declined by 20 percent and work-study aid by one-third.

The reduction in overall grants was the net effect of real increases

in Pell Grants, elimination of Social Security student benefits, and

a 65 percent real reduction in the remaining Veterans' benefits.

As a result, total aid from all sources declined by almost 10

percent between 1980 and 1986.

Issues in Determining the Net Price Paid by Students

Although the concept of net price is quite straightforward,

technical issues arise concerning how to value the three types of

student aid, and the data needed to perform some of these

calculations are not available.

How to Value Different Types of Student Aid. Because differences

exist in the obligations students face when receiving grants, loans,

and work-study aid, the value to students of each type of aid is

different. Grants do not require any repayment or work obligation

and thus reduce dollar for dollar the amount that students must pay.

18

Loans and work-study assistance, on the other hand, require repayment or work obligation on the part of recipients. Thus, each

dollar of these types of aid is worth less to students than is a

dollar of grants.

Student loans require later repayment and can be valued in

several different ways. One approach is to use the total loan

principal, which measures the amount that students have available

to pay college expenses at the time they attend college. Because

this method does not account for future repayment, however, it

calculates a grant and a loan of the same amount as being of equal

value and, in most circumstances, overstates the value of a loan to

the student.

Another approach is to define the subsidy value of a student

loan as the difference between the cost to the borrower of a

private-market loan and the cost to the borrower of a subsidized

loan. Because this subsidy is realized over a period of years, its

value must be expressed in present value terms--that is, by

calculating the value today of benefits realized now and in the

future--if it is to be directly comparable with the subsidy provided

by a grant. Consequently, subsidy values differ for different types

of loans and vary with market interest rates.

The exact value of the subsidy provided to students by a loan

is difficult to determine for several reasons. First, comparable

loans that allow long-term repayments and do not require collateral

are not readily available in the private market. Second, the

interest rate that would be charged on such loans--if they were

available--would vary according to the risk of default. Thus, for

example, interest rates would probably be higher on loans to poor

students than on loans to students from families with higher

incomes. Finally, several student loan programs with different

guidelines now exist, and these guidelines--as well as market

interest rates--have varied considerably over time.

Work-study jobs provide financial aid to students through

federally subsidized part-time employment and, as with loans,

determining the value of these subsidies to students is quite

difficult. Both students and the institutions sponsoring the jobs

receive subsidies--students through earnings they might not have

otherwise received, and institutions through a reduction in the cost

of student labor. These subsidies depend on numerous factors--

including whether the jobs would have existed in the absence of

federal funding, and the market value of the students' work--and

many of these factors cannot be quantified. However, because workstudy assistance has always been a small proportion of all student

aid, different valuations have a minimal effect on the value of

total student aid.

This paper presents three ways of measuring the subsidy for

loans and work-study aid because of the difficulties in determining

19

the value to students of these types of assistance. These different

assumptions, explained below, indicate the sensitivity of the trends

in net college prices to the method of calculating subsidy values:

o Include all grants, as well as the face value of all loans

and all wages from work-study aid. This estimate reflects

the amount of aid that is available to students while they

are attending college. This measure overestimates the

value of the loans and work-study aid because students

have repayment and work obligations associated with them.

o Include all grants and 50 percent of the face value of

loans and work-study aid (as a rough approximation of the

subsidy value of these types of aid).

o Include only grants because grants do not present any

valuation problems. This measure underestimates the aid

available to students, however, because it does not

include any value for student loans or work-study aid.

Limitations of the Data. This analysis focuses on tuition and

required fees because they are a major component of total charges--

roughly 35 percent, on average--and because reliable data are not

available for other components of college prices, such as room and

board, books, and travel expenses. Financial aid is provided to

students based on total college expenses, however, and including all

such aid in this analysis of net college prices would be misleading.

Thus, only a portion of financial aid is included in the

calculations of net price--the share that tuition and fees represent

of estimated total expenses, which also include room, board,

tuition, and fees.6/

A second limitation is that data are not now available on the

overall distribution of total aid by type of student--especially

between undergraduate students and graduate students--or by sector

and type of institution.?/ This lack of data means that the

analysis of net college prices cannot be disaggregated by type of

student or by sector or type of institution. Furthermore, the data

6. This assumption, as well as the 35 percent estimate presented

above, uses data on room and board costs only for persons

living on campus because they are the only students for whom

such information is available.

7. The National Postsecondary Student Aid Survey (NPSAS), which

recently became available, includes detailed information on

the distribution of student aid by type of student and by

sector and type of institution for the 1986-87 school year.

These data have more information on who actually received

student aid at one point in time but do not provide information

on how recipiency has changed over time.

20

on tuition, which pertain only to undergraduate college students and

exclude most noncollegiate proprietary institutions, and the data

on student aid, which pertain to all postsecondary students, are not

completely comparable.

Trends in Net College Prices Since 1970

Average tuition and student aid have had quite different growth

patterns since 1970 (see Figure 8). During the 1970-1980 period

when average tuition declined in real terms, real student aid

increased; when tuition rose between 1980 and 1986, real student aid

declined. Including all loans and work-study aid, average student

aid was 40 percent higher in real terms in 1986 than in 1970;

including one-half of loans and work-study aid, average student aid

was 25 percent higher in 1986; and including none of the value of

loans and work-study assistance, average real aid in 1986 was

roughly the same as in 1970. Thus, the intermediate measure of

student aid increased by almost the same percentage as did average

tuition (28 percent) between 1970 and 1986.

Under all three concepts of net price, the estimated average

net price paid by students and their families fell substantially in

the first half of the 1970s (see Figure 9). Between 1975 and 1980,

net real prices remained roughly the same, if all loan volume and

work-study aid are included; if either half or none of loans and

work-study assistance are included, net real prices increased.

According to all three calculations, however, net prices fell by a

greater percentage from 1970 to 1980 than tuition.

During the 1980s, however, rapidly increasing tuition and

declining amounts of available student aid caused net prices to rise

sharply. The average real net price paid by students in 1986 was

19 percent higher than in 1970, if all loan volume and all workstudy assistance are included; 29 percent higher if one-half of this

aid and all grants are included; and 36 percent higher if all loans

and work-study aid are excluded. Thus, using the intermediate

measure of student aid, the average net price increased by roughly

the same percentage between 1970 and 1986 as did average tuition.

As discussed previously, some aid is available to all students

who meet the eligibility criteria, while other programs provide

assistance only to specific groups of students. Because this latter

type of aid is available only to a limited subset of college

students, including such aid in the calculation of net price

overestimates the amount of aid available to most students.

Calculating the net price using only generally available aid,

however, provides a rough estimate of the changes in aid available

to a broad range of students and, therefore, of the effects on the

net prices that they pay.

When only generally available student aid is considered, the

growth in student aid and net prices is somewhat different than when

21

FIGURE 8. LEVEL OF AVERAGE REAL TUITION AND FEES AND STUDENT AID

BY DEFINITION OF STUDENT AID, EXPRESSED AS PERCENTAGE

CHANGE FROM THE 1970-1971 LEVEL

120

100

80

60

40

20

Oi

-20

-40

-60

1870-71

Aid Including 50 Percent of Loans

'Aid Excluding

All Loans

Aid Including All Loans

- Tuition and Fees

1075-76 1980-81

Academic Years

1985-86

SOURCE: Congressional Budget Office estimates based on data from

the Department of Education and the College Board.

NOTE: The different definitions of student aid consider workstudy in the same manner as loans. Estimates represent

average tuition and fees and student aid for full-time -

equivalent undergraduate students and use the CPI-XI to

adjust for inflation.

22

FIGURE 9. LEVEL OF AVERAGE REAL TUITION AND FEES AND NET PRICE

BY DEFINITION OF STUDENT AID, EXPRESSED AS PERCENTAGE

CHANGE FROM THE 1970-1971 LEVEL

120

100

80

60

40

20

Net Price Excluding

All Loans

Tuition and Fees

-60

1870-71

Net Price Including

All Loans

Net Price Including

50 Percent of Loans

1975-76 1980-81

Academic Years

1985-86

SOURCE: Congressional Budget Office estimates based on data from

the Department of Education and the College Board.

NOTE: The different definitions of student aid consider workstudy in the same manner as loans. Estimates represent

average tuition and fees and net price for full-timeequivalent undergraduate students and use the CPI-X1 to

adjust for inflation.

23

all aid is included. Average generally available aid increased in

real terms throughout the 1970s when tuition declined in real terms;

but between 1980 and 1986, generally available aid increased further

whereas all aid declined (see Figure 10). As a result, in 1986,

average generally available aid under all three measures was more

than double the 1970 level in real terms.

Considering only generally available student aid, the average

net price declined by a smaller percentage in the early 1970s than

when all aid was considered, because most aid in the early 1970s was

available only for specific groups of students (see Figure 11). In

the second half of the 1970s, however, more aid became available to

broader groups of students and thereby further reduced the average

price paid by students. Although net prices, according to all three

calculations, increased between 1980 and 1986, the average net price

paid by students in 1986 was not as large relative to its 1970 level

as was tuition. The net real price in 1986 was between the 1970

level and 17 percent above this level, compared with a 28 percent

rise for tuitions.

Several caveats to this analysis deserve mention. First, as

discussed above, focusing on average prices masks the variation that

occurs in prices faced by individual students. Some students may

receive substantially less than the average amount of aid and thus

face a higher net price, while other students may receive much more

assistance and face a lower net price. Trends in aid for these

different types of students--for example, higher-income students

compared with very poor students--have varied over time. For

instance, loan expansions in the late 1970s increased the proportion

of aid going to students with higher family incomes.

Second, students attending proprietary institutions--typically,

vocational programs--receive more federal assistance now than they

did in the 1970s. Although exact information on the amount of aid

received by proprietary students is not available, this shift

implies that less aid was available in the collegiate sector in the

1980s than is estimated here.

Finally, shifts in the amount of aid going to students at

public and private institutions have also occurred over time. For

example, because loans provide a greater proportion of aid to

students at private institutions than do most of the grant programs,

shifts to a greater reliance on loans have increased the percentage

of aid going to students at private institutions and reduced the

proportion for students at public institutions.

24

FIGURE 10. LEVEL OF AVERAGE REAL TUITION AND FEES AND STUDENT AID

BY DEFINITION OF STUDENT AID INCLUDING ONLY GENERALLY

AVAILABLE AID, EXPRESSED AS PERCENTAGE CHANGE FROM THE

1970-1971 LEVEL

120

Aid Including 50 Percent of Loans

Aid Excluding

All Loans

- Tuition and Fees

1970-71 1075-76 1080-81

Academic Years

1086-86

SOURCE: Congressional Budget Office estimates based on data from

the Department of Education and the College Board.

NOTE: Generally available aid excludes Social Security student

benefits and Veterans' education benefits. The different

definitions of student aid consider work-study in the same

manner as loans. Estimates represent average tuition and

fees and student aid for full-time-equivalent undergraduate

students and use the CPI-X1 to adjust for inflation.

25

FIGURE 11. LEVEL OF AVERAGE REAL TUITION AND FEES AND NET PRICE

BY DEFINITION OF STUDENT AID INCLUDING ONLY GENERALLY

AVAILABLE AID, EXPRESSED AS PERCENTAGE CHANGE FROM THE

1970-1971 LEVEL

120

100 -

80 -

60

40

20

-20

-40

Net Price Including

50 Percent of Loans

Net Price Excluding

All Loans

Tuition and Fees

Net Price Including

All Loans

1970-71 1976-76 1980-81

Academic Years

1986-86

SOURCE: Congressional Budget Office estimates based on data from

the Department of Education and the College Board.

NOTE: Generally available aid excludes Social Security student

benefits and Veterans' education benefits. The different

definitions of student aid consider work-study in the same

manner as loans. Estimates represent average tuition and

fees and net price for full-time-equivalent undergraduate

students and use the CPI-X1 to adjust for inflation.

26