The way Americans pay for higher education is changing

You may not have noticed that the cost of college is quietly going down.

That’s because sticker prices at public colleges haven’t kept up with inflation, and schools are offering more grant aid, bringing the average real cost down. Student loan borrowing has also decreased, showing how new students are less reliant on loans.

“It’s really something that’s never happened before, so that’s pretty remarkable,” Jennifer Ma, a researcher at The College Board, which reported these findings, told B-17

Still, steep college costs remain a barrier for many seeking a higher education. Students are increasingly sensitive to taking out loans, and with many questioning the value of higher education, it’s forcing colleges to consider whether they can still afford to raise tuition, even with a looming enrollment cliff and volatile state funding. It could shift the way tuition prices are set in years to come.

“For colleges, I think they’re really up against those tough public perceptions right now of cost is up, and value is down,” Michelle Dimino, the director of the centrist think-tank Third Way Education, told B-17. “And so they’re going to still be in a bind for a while figuring out, ‘How do we mitigate that?'”

Student loan aversion and enrollment declines

Over 40 million Americans have student debt, and while President Joe Biden has taken steps to improve some programs to make the loans easier to pay off, high interest rates can leave many struggling to pay off their balances for decades. This is a big reason many younger Americans are leaning toward financing options that do not include student loans, like grants, or forgoing college altogether.

A 22-year-old previously told B-17 that avoiding debt was a key factor in her decision to skip college.

“I have no student loans, like so many of my friends are in $100,000 in debt and student loans just to get a job that pays $60,000 a year,” she said.

The reluctance to accumulate debt could factor into the College Board’s finding that student-loan borrowing has decreased.

“Students are feeling more nervous and more skeptical about taking out loans to go to college,” Dimino said, adding that as a result, colleges should be prepared to respond to students’ price sensitives, especially with looming enrollment challenges.

The enrollment cliff is something colleges cannot control. The number of high school graduates is expected to decline in the coming years because of birth rate declines, meaning fewer students could seek to enroll in a postsecondary institution. Data from the Western Interstate Commission for Higher Education found that the number of high school graduates should peak in 2025 at 3.9 million, with a projected decline to 3.5 million by 2037.

Kimberly Dancy, associate director of research and policy at the Institute for Higher Education Policy, told B-17 that the declines in student borrowing could already be a sign of lower enrollment. She added that the students who are enrolling today might have less financial need than “students who were enrolling 10 to 15 years ago might’ve seen” due to the availability of aid like grants and scholarships.

Specifically, per the College Board, the maximum Pell Grant award for low-income students increased to $7,395 in 2023-24 from $6,895 in 2022-23 before adjusting for inflation due to a spending bill Biden signed into law. On top of that, institutional grants — or grants provided by colleges — to undergraduates increased by 30% between 2013-14 and 2023-24. Additionally, institutional grant aid for all students rose by $19.6 billion over the same timeframe, accounting for 52% of all grant aid in the 2023-24 school year.

With federal aid being volatile, institutions focusing more on grant aid could be a sign that colleges are responding to affordability concerns and contributing to net college price declines.

“Institutions will really have to grapple with if they do see a decline in state appropriations, maybe they can’t raise tuition in the way they did in the past,” Dimino said.

What’s at stake for colleges

Over the course of the pandemic, colleges got government funds to help keep them afloat. Those funds have now run out, meaning colleges are subject to the volatility of the state budget funding cycle — and higher education is usually on the funding chopping block.

Jennifer Delaney, a professor in the School of Education at Berkeley, told B-17 that a main factor as to why higher education often doesn’t get the funding it needs is because “institutions have figured out that students and families are more reliable at paying their bills than the state is.” However, that type of thinking can make it difficult for colleges to best serve their students when they do not have reliable funding.

“The mission for colleges is advancing the human condition and advancing knowledge, and these are very long timeframe missions and goals, yet they’re working within either annual or biannual budgeting cycles,” Delaney said.

The conversation on the value of higher education could also be weighing on state’s decisions to boost funding for colleges, leading some officials to think that “maybe it’s not as worthwhile to invest in the sector,” Delaney added.

Since state funding shifts, there are steps colleges can take to make higher education more affordable for its students. Dancy said the availability of institutional aid is a good first step, “using grants in ways that help them both attract students, to encourage them to enroll in their institutions and also as a tool for retention and to support degree completion for those students over the course of their education,” she said.

To be sure, Dancy said that even with the increases in grant aid, there is still the issue of unmet need, which she defined as “a really substantial gap between what many students can afford and what they are asked to pay to enroll in higher education.”

That’s where the federal government can play a role. The left-leaning think tank Center for American Progress released recommendations for the government to boost college affordability, including strengthening the Pell Grant, implementing proposals to make college free for two years, and fully funding community colleges.

However, it’s unclear where federal investment for higher education will sit under President-elect Donald Trump, placing the focus on colleges to consider ways to make a four-year degree affordable.

“Earning a college credential is still a worthwhile investment for many students,” Dancy said. “And so addressing affordability concerns on the front end is a really critical way to ensure that that opportunity is available to more students.”