A Complex Financing System

Paying for college is based on a decades-old model of shared responsibility—students, parents, the federal government, states, and private organizations all have a role to play. This contrasts with the universal availability of free public education at the K-12 level regardless of income.

In postsecondary education, states pay a significant share of the costs of public colleges and universities so that the tuition and fees charged students are well below the actual costs, and far below the fees at private institutions. The federal government helps to provide equal access across income groups through the provision of grants, low-cost loans, work-study jobs, and, more recently, tax credits. Students and their families pay a portion of the costs depending on their family income and the kind of institutions they attend. Private organizations, including colleges and universities, also provide financial assistance to students.

Although shared responsibility remains the general approach of our current system, it has evolved in such a way that it is not clear who has what responsibility or how the pieces match up with each other. The entire system of college financing is based on incremental changes over several decades, without a comprehensive reexamination. Even though we have many part-time students and more adults going back to college over their lifetimes, our systems have not been examined carefully to make adjustments for the changing learners.

If postsecondary education is becoming the norm, who should pay for it and through what mechanisms — grants, loans, tax credits or tax deductions? What prices should students and parents pay? How much should states and the federal government pay? California recently announced a plan to pay the fees of low-income students with good grades, at a cost to the state that could exceed $1 billion a year. California is the first state, but may not be the last, to make such a comprehensive guarantee.

Over the past 40 years, federal policy parameters have been changed without enough thought about how they interact with the policy parameters of the states, which finance large elements of the system, and vice versa. Changes, expansions, and improvements are made piecemeal and tacked onto the existing system, generating an increasingly complex system of public/private financing that is difficult to understand and navigate. The resulting confusion means that students and parents often do not know what their real options are, especially at-risk groups who have had limited exposure to postsecondary education.

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