It's no secret that understanding college pricing continues to be a difficult task for prospective students and families. Here's one reason why: an institution's advertised cost actually functions more like a suggested retail price. This means it can (and will) vary from student to student based on a variety of factors.
Colleges try to make this practice more transparent through federally mandated Net Price Calculators. However, these tools often fail to tell the whole story of financial aid's complexities. The net price that students pay — the cost after all institutional/state/federal/private grants and scholarships which do not need to be repaid — is often drastically different from the advertised price.
This concept is certainly not new in higher education. But as the marketplaces gets more and more competitive, that competition shapes how financial aid, particularly grants awarded by an institution, are used in student recruitment — further changing the definition of net price for an undergraduate. This report and its associated interactive dashboard aim to demystify the cost of attendance (net price) and how it can change based on an institution’s characteristics.
Methodology
For purposes of this analysis, we reviewed 1,655 Title IV-eligible institutions across the United States for trends in advertised cost, net price, and the percentage of students that receive aid. For consistency, only institutions that awarded Bachelor’s degrees and charged room and board were included.
Our study reviewed and analyzed the following data points:
Total cost: the advertised tuition/fees, room and board
Net price: cost after grants and scholarship
Number of students awarded any financial aid
Number if students awarded any institutional aid (grants/scholarships awarded directly by the institution)
It is important to note that the figures on net price are for first-time, full-time students only, as defined by the Integrated Postsecondary Education Data System (IPEDS). This is the population in which the average net price is calculated and posted (and, from time to time, ranked). Dollars were additionally adjusted for inflation to provide a relatable measure of cost over time based on those relative to 2022.
Findings
Between 2012–13 and 2020–21, the average advertised total cost (tuition, fees, room and board) increased 25.3% across all institutions, from $28,102 to $35,199, without accounting for inflation. This represents a 2.7% increase in the advertised cost of attendance year over year. Over the same period, however, the average net price only increased by 8.3% to an average of $19,829. This represents roughly a 1% increase in what students paid from one year to the next.
Why does this matter? A student's financial aid is generally determined in their first year, and their package does not change as the cost of attending fluctuates, with some exceptions as determined by need. This means that the 2.7% increase in total year-over-year cost is paid by returning students in their net price; meanwhile, first-year students are paying a fraction of that cost increase (only 1%) due to increased financial aid packages that reflect the increased total cost.
The COVID-19 pandemic had an interesting impact on net price in 2020–21: the average net price across all institutions declined, even without adjusting for inflation. The pandemic's effects on enrollment have been well documented¹, including fewer students electing to go to college in that time and the introduction of various new formats (online, flex, hybrid, etc.) in a single semester. Students argued that the price of the new formats did not have the same value as the traditional face-to-face methods. This can be seen in the reflection on net price – total cost did not decrease during this time. The average net price of students with family income between $30,001 and $75,000 was actually lower than the net price in 2012-13, without adjusting for inflation. This suggests that institutions made additional financial aid available (beyond traditional levels) to be competitive with a decline in enrollment, extended deposit deadlines, and uncertainty around teaching format and status of a campus’s ability to be physically open.
Adjusting for inflation is an indication of relative cost when viewing prices over time and, in doing so, net price and total cost tell a different story. Total cost has continued to steadily increase since 2012–13, by a total of 12.1% in 2020–21. However, the inflation-adjusted net price has steadily declined since 2016–17, from a peak of $24,337 in 2016–17 down to $22,803 in 2020–21 (these figures in 2022 dollars). Additionally, the inflation-adjusted average net price declined between 2012–13 and 2020–21 across all income levels, as defined by IPEDS. This further illustrates that the advertised price of a college education is increasing, but the net cost to students has not. The declining net price puts a strain on budgets of enrollment-driven institutions whose overall expenses are impacted by inflation year over year.
Analysis of the average net price throughout this report is a reflection of any student that received any financial aid —these numbers are not inflated by students that pay the full advertised price. This also means that the average net price shown here is not the actual average price across all students. For institutions, more full-pay students represent more net revenue per student. Overall, the percentage of first-time, full-time students receiving any aid increased from 84.8% in 2012–13 to 87.6% in 2020–21. Further, the percentage of first-time, full-time students receiving institutional aid across all institutions increased from 57.3% to 67.9% in that same time period. This increase represents a change in policy across all institutions as to who is eligible for institutional aid, further illustrating that the average net prices shown are relevant to a larger percentage of students than 10 years prior.
Figure 1: Actual total cost and net price, 2012-13 through 2020-21
Figure 2: Inflation Adjusted total cost and net price, 2022 dollars, 2012-13 through 2020-21
Institution Control
There are significant differences between the control of the institution (public, private not-for-profit, or private for-profit) and the advertised price, net price, and the percentage of students receiving aid.
Public institutions are known for their competitive pricing. In 2020–21, four–year, Bachelor’s awarding, public institutions with room and board showed:
Average total cost of $19,938
Average net price of $13,560
86% of students received any financial aid
60% received any institutional aid, a significant increase from the 46% of students that received institutional aid in 2012–13.
The average net price for public institutions represents a 32% discount rate for students that receive aid. This compares with an average total cost for private, nonprofit institutions of $43,245 and an average net price of $23,028, for an average discount rate of 45.79%, the largest of any institutional control.
Figure 3: Percent Received Institutional Aid and Discount Rate by Institutional Control, 2020-21
For private, nonprofit institutions:
Net price is $9,468 greater than publics
Total cost is $23,307 greater than publics, a direct indication of the wider use of financial aid, particularly institutional aid as state and federal funds have spending limits.
A majority of students (90.8% in 2020–21) receive any aid
The largest percentage of students receive institutional aid (84.8% in 2020–21) in this particular control.
Increases in total cost are similar between public and nonprofit institutions, on a percentage basis, with public institutions raising the average total cost by 25.1% since 2012–13 and private-nonprofit institutions raising the average total cost by 24.9% in that time.
Private for-profit institutions tell a different story. There are only 28 private for-profit institutions that award Bachelor’s degrees and have a room and board charge in the most recent year in which data is available. So, for comparison purposes in this section only, in order to have a significant sample of institutions, for-profit institutions needed to exclude the room and board criteria. This yielded 297 institutions that could be used for comparison.
Across these for-profit institutions:
Average total cost in 2020–21 was $28,826
Average net price was $23,639, indicating how little financial aid is awarded at for-profit institutions.
Although 85.4% of students received any financial aid in 2020–21, only 35.3% of students received any institutional aid.
When examining the net price of difference income levels at this institutional control, there is a minimal difference between the lowest income level ($0–$30,000) and the highest income level ($110,000+). The average net price was $22,956 at the lowest income level and an average net price of $29,463 at the highest income level in 2020–21, without adjusting for inflation.
Institution Size
The Carnegie Classifications of Institutions of Higher Education defines institutions into five size categories²:
very small (FTE<500)
small (FTE: 500–1,999)
medium (FTE: 2,000–4,999)
large (FTE: 5,000–9,999)
very large (FTE>=10,000)
Large institutions and small institutions have very different value statements. Often, large institutions promote a wide range of degrees and experiences and usually attract significant athletic teams. Small institutions promote attention and small class sizes. Each classification has its benefits and reaches a particular market of students. Comparing large institutions to very small institutions yields surprisingly similar results related to total cost and net price from 2012–13 to 2020–21, with greater movement for large institutions:
The total cost for large institutions ranged from $24,745 in 2012–13 to $31,321 in 2020-21, a 26.6% increase in that time.
For very small institutions, the total cost ranged from $25,403 in 2012–13 to $30,415 in 2020–21, a 19.7% increase in that time.
The net price for large institutions increased from about $16,100 in 2012–13 to $17,900 in 2020–21, while the net price increased from about $17,100 in 2012–13 to $18,400 in 2020–21.
A difference between large and very small institutions is often the ability to attract full-pay students and, as a result, better fund students at the lowest income levels. In 2020–21, 83.4% of students at large institutions received any financial aid, while 61.9% received institutional aid. With nearly 17% of students at these institutions paying the full cost of attendance, more financial aid was given to students at the lowest income levels, creating a significant gap between students with a family income between $0–$30,000 ($10,737 net price) and those with a family income of $110,000 or above ($25,251 net price).
It is important to note that the group of institutions defined as large in this instance was largely driven by public institutions (193 out of 246 large institutions are considered public). For comparison, 96.1% of students at very small institutions received any financial aid and 82.8% received institutional aid. With fewer full-pay students, the gap between students with a family income of $0–$30,000 have a closer net price ($15,670) to their $110,000 or greater family income counterparts ($25,085). The majority of very small institutions are private, nonprofit institutions (377 out of 424).
Figure 4: Actual net price by family income level and institutional size, 2020-21
Institution Selectivity
The Carnegie Classifications of Institutions of Higher Education defines institutions into three selectivity categories³:
inclusive: institutions did not report test scores or they extend educational opportunity to a wide range of students
selective: 40th to 80th percentile of selectivity
more selective: 80th to 100th percentile of selectivity
Naturally, the most selective institutions welcome the highest percentage of high-income students willing to pay the full listed price. These institutions also tend to come with the highest price tag, as students are more willing to pay any price just to get in. In particular, institutions that are considered more selective had:
Average total price of $53,167 in 2020–21, an increase of 27.4% over the 2012–13 total price of $41,726.
76.8% of students received any institutional aid in 2020–21 and 60.1% received institutional aid, leaving nearly 1 in 4 students to pay the full listed price.
Those that received institutional aid saw a significant discount, with an average net price of $26,626 in 2020–21, a 49.9% discount on total cost of attendance.
Students with a family income between $0 and $30,000 paid, on average, $14,096 compared to $36,511 for those with a family income of $110,000 or above, a significant difference in cost.
Comparatively, the institutions that are considered inclusive include a different mix of students and costs:
In 2020–21, the average total price for an inclusive institution was $29,461, a 24.3% increase over the 2012–13 cost of $23,709.
The average net price in 2020–21 was $17,475, a 40.68% discount on total cost.
92.7% of students received any aid and 68.1% received institutional aid.
With an additional 16% of students receiving aid at inclusive institutions, financial aid budgets are stretched across more people, lessening the impact on any individual student.
In 2020–21, a student with a family income of $0 to $30,000 paid an average net price of $14,610 compared with $22,568 for a student with a family income of $110,000 or more.
For families with the lowest income, this is $514 more per year than if they were able to get into the most selective institutions, despite more than $20,000 difference in total cost. Conversely, for those with a family income above $110,000, the cost of attendance is nearly $14,000 cheaper at an inclusive institution.
Figure 5: Average actual net price by family income, inclusive institutions, 2012-13 through 2020-21
Figure 6: Average actual net price by family income, selective institutions, 2012-13 through 2020-21
Figure 7: Average actual net price by family income, more selective institutions, 2012-13 through 2020-21
Conclusion
Many families must balance the cost of attendance with the academic and social experience of an institution. Economically, more selective institutions and private institutions hold more value based on design. These institutions typically have more resources available for financial aid, especially larger institutions and those with the largest endowments. Substantial differences between financial aid packages of those with little need and those with the most significant need appear to exist only within those institutions that have the most resources.
Even still, although it is true that the "cost" of higher education is rising, the reality is that for a large majority of students, the actual retail price isn't anywhere near what is advertised. The question for institutions of higher education becomes: what will we gain by further increasing discount rates to advertise a price that prospective students already believe is too high4 when actual value, as reflected in net price, is significantly different? Fewer students have decided to enroll in higher education in recent years¹, and even fewer traditional-aged students will be around to enter college in the future5. It is time to favor discussions around net cost to students over total cost and significant financial aid packages.
For a further examination of data, feel free to examine our free Trends in Cost and Net Price Dashboard and Institutional Pricing Comparison Dashboard. For questions about this data and the provided analysis or for questions as to how Evolve Market Research can help your organization, please email info@evolvemarketresearch.com.
Primary data sources: National Center for Education Statistics (NCES), IPEDS Data Center
References
1 National Student Clearinghouse Research Center. (2022). Current term enrollment estimates. Retrieved from https://nscresearchcenter.org/current-term-enrollment-estimates/
2 The Carnegie Classification of Institutions of Higher Education. Size and setting classification description. Retrieved from https://carnegieclassifications.acenet.edu/classification_descriptions/size_setting.php
3 The Carnegie Classification of Institutions of Higher Education. Undergraduate profile classification. Retrieved from https://carnegieclassifications.acenet.edu/classification_descriptions/undergraduate_profile.php
4 Dickler, Jessica. (2021). Fewer kids are going to college because they say it costs too much. CNBC. Retrieved from https://www.cnbc.com/2021/03/14/fewer-kids-going-to-college-because-of-cost.html
5 WICHE. (2020). Knocking at the college door, 10th edition. Retrieved from https://knocking.wiche.edu/executive-summary/
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