By Catherine Brown, Senior Director, Policy and Advocacy
Reading time: Five minutes
Education Counsel is out with a new report that explores policies that aim to cap or predict the
cost of postsecondary education. This report does not recommend a single policy model, but instead examines various design options, the pros and cons of each, and necessary trade-offs to provide students with greater predictability and transparency
in the cost of college, termed “Affordability Guarantees.”
While this policy approach is often used by states, localities, and colleges and universities, the US House Education and the Workforce Committee included it in its recent budget reconciliation bill.
The bill required institutions receiving PROMISE grants to provide, “a guaranteed maximum total price for a given program of study based on income and financial need categories established by the Secretary... for a minimum period of enrollment (up
to six years or the institution’s median time to completion, whichever is less).”
Affordability guarantees address one of the core challenges in college pricing: lack of clarity at the time of purchase. Unlike large consumer investments such as a home or car, the total cost of college is often unknown when students sign on the dotted
line. And unlike other public programs like Medicare or Medicaid, which establish reimbursement rates for specific, covered medical products and services, student aid programs do not guarantee a fixed or predictable out-of-pocket cost. Many college
websites even say something like: University X specifically reserves the right to increase tuition and other fees without prior notice should conditions be such that an increase is warranted*. Even when tuition doesn’t rise, calculating the
fees and full living expenses that a student will owe can be challenging. For a student from a low-income background, this lack of predictability in pricing can deter them from pursuing a degree at all.
Rising sticker prices—even if net prices are stable— also fuel the public perception that college is completely unaffordable. Affordability guarantees aim to flip this burden by centering affordability around the student, not institutional cost structures.
So, what are different ways to structure affordability guarantees, and what is known about their effectiveness? This report describes a few approaches:
Tuition caps and freezes: These policies provide stability in current pricing, but “may make it more likely that an institution will increase tuition by higher rates in future years to account for cost increases in the intervening
period.” This approach “presents a tradeoff between predictability and moderation of price increases over time if there is no other mechanism in place to make up for a rise in underlying operational costs,” the report says.
Purdue University,
which is cited as an example, held its sticker price constant for 13 years but increased its proportion of out of state students who pay more. The University of Minnesota system also held tuition in place but received additional state funding
to supplement the forgone tuition revenue.
In states with tuition freezes, colleges and universities are “incentivized to pursue a pricing strategy that increases subsequent tuition hikes as a hedge against future cost increases. This
can lead to higher average prices across student cohorts than at similar institutions without such tuition freeze policies,” the report says.
Net price guarantees: These programs, sometimes called “Promise Programs,” limit out-of-pocket costs for a specified group of students. To keep the price tag manageable:
Eligibility will often be limited based on geography, family income, academic qualifications, or other criteria
Costs covered will often be limited to tuition and fees and
Pell and other federal and state student aid will be counted first, with the “Promise Program” providing the “last dollar.”
Since these programs often depend on public funding, the number of students served and the costs covered may vary from year to year as appropriations fluctuate. The more generous the eligibility guarantee, the more expensive the program. Promise programs
can reduce trust by purporting to offer “free” college when the actual grant covers only tuition and fees.
Sliding-scale tuition models: This approach involves charging different tuitions rates based on the family income. For example, students from families with earnings below the poverty line would receive free tuition and fees, students
from families earning less than the median income in the state would be charged a small portion of the sticker price, and more.
All of these approaches come with trade-offs. In addition to the risks described above, such as changing the composition of the student body to bring in more out of state students, which can limit access for in-state students, setting tuition too low
without compensating institutions can harm quality. There is no agreed upon definition of high-quality postsecondary education, so gauging how much funding is truly needed is an art not a science.
The report concludes by saying that affordability guarantees—when well-designed—can make higher education more equitable, predictable, and transparent. But they require:
Student-centered approaches that build trust and reduce financial uncertainty.
National College Attainment Network (NCAN) members engaged in state policy analysis and advocacy should consider their state’s policy and budgetary context, weigh the different options presented in this report, and, “start thinking now about which approaches
will best be able to effectively ensure actual affordability that guarantees lower net prices, so that when the next policy window of opportunity opens, they are ready with a clear plan.”
We invite you to join NCAN's webinar on August 6 to learn more about this issue and how it might work best in different contexts.
*this language is pulled directly from the website of a major US university
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