College Tuition and Student Loans

College tuition refers to the amount of money students must pay to receive instruction at institutions of higher education. Mandatory fees to subsidize nonacademic areas such as student-support services and athletic departments are typically added to the price of tuition. The total cost of attendance is calculated by combining the cost of tuition and fees with the estimated cost of other expenses such as room and board, books and supplies, and transportation.

Students who are unable to cover the full cost of attending college may qualify for financial aid. Financial aid encompasses nonrepayable forms of gift aid, such as grants and scholarships, as well as federally subsidized paid work-study jobs and loans. Education loans, more commonly known as student loans, are funds that students borrow to pay for education-related expenses and which they are obligated to repay, usually with interest. Many college graduates struggle for years to pay off their student loans, which often results in forgoing their pursuits of other life goals such as owning a home, becoming a parent, or building retirement savings.

In August 2022 President Joe Biden announced a student loan forgiveness program designed to alleviate the debt accrued by qualifying students and families. In addition, Biden extended the moratorium on federal student loan payments to December 31, 2022. However, in November 2022, a federal appeals court issued an injunction temporarily barring Biden's student loan debt relief plan.

In the United States, average tuition costs and required fees at degree-granting colleges and universities increased dramatically during the thirty-year period leading up to the 2021–2022 academic year. Statistics published by the College Board indicate that average annual tuition costs and required fees for in-state students at four-year public universities rose by 158 percent from 1992 to 2022, from $4,160 to $10,740. Meanwhile, average tuition and fees at four-year private nonprofit institutions increased by 97 percent, from $19,360 to $38,070 per year. All College Board figures are adjusted for inflation, allowing for direct comparisons across time.

Students may receive financial aid from federal or state government agencies, the educational institutions they attend, or private sources. The National Center for Education Statistics (NCES) reported in 2022 that 41 percent of first-time, full-time undergraduate students (in both two- and four-year programs) received loan aid for the 2019–2020 school year. A greater proportion of first-year, first-time undergraduates at private institutions took out loans than did those at public institutions: 56 percent of those attending four-year private nonprofit schools (78 percent of those in two-year programs) versus 42 percent of those attending four-year public colleges (17 percent of those in two-year programs) received financial aid in the form of education loans in the 2019–2020 school year. Four-year private for-profit schools possessed a 68 percent rate of undergraduates (76 percent for those in two-year programs) taking out loans in the 2019–2020 school year.

The COVID-19 pandemic created financial challenges for many students and increased the operating costs for schools. Some schools offered reduced tuition during the pandemic to attract students back to campus after closures and to incentivize students taking classes remotely to remain enrolled during the crisis. Other colleges canceled their planned tuition increases during the pandemic. From 2020 to 2021, the average tuition and fees for in-state students at public four-year colleges rose by 1.1 percent. At private nonprofit four-year colleges, the average tuition increase during that time was 2.1 percent. These were the lowest one-year tuition increases in higher education in thirty years.

The trend of low one-year tuition increases remained consistent from 2021 to 2022, following a slight rise in the average tuition and fees for in-state students at public four-year colleges by 1.5 percent. The tuition increases at private nonprofit four-year colleges repeated a rate of 2.1 percent, matching the previous year.

Some analysts attribute the trend toward rising tuition rates to an increased demand for college education. Many young people believe they need at least a bachelor's degree to further their career goals and achieve favorable earnings potential, which has resulted in steady enrollment increases during the first decades of the twenty-first century. The NCES reported that US college enrollment among young adults rose from 35 percent in 2000 to 40 percent in 2020. Other experts point to the pressure academic institutions face to differentiate themselves and achieve excellence in instruction, facilities, and research. These efforts increase spending on new staff hires, program expansion, and campus development and renovation.

Many higher education experts assert that a shift away from public investment in higher education since the 1970s has resulted in a corporatized model that is largely to blame for skyrocketing costs. According to these critics, schools have become more like businesses that treat students as prospective customers looking to purchase a college experience or degree rather than applicants motivated to pursue educational development. This shift has, in turn, contributed to sizable growth in administrative and support staff at many institutions and fostered a profit-driven culture among leadership, particularly at large research universities.

Among some economists, there is also a belief that government subsidies for education loan programs are an overlooked contributing factor. For example, the Parent PLUS program allows families to borrow amounts up to the student's total cost of attendance. According to some critics, this program theoretically enables schools to increase tuition because it provides a direct path to financing, regardless of how high costs are. The Parent PLUS program accounted for approximately 606,559 parent borrowers in the 2020–2021 school year, with the average recipient borrowing $16,529 per academic year. Some argue that compelling parents to obtain educational loans from private lenders would lead parents to be more discriminating and would motivate academic institutions to limit increases in tuition rates.

Students seeking financial aid usually begin by submitting a Free Application for Federal Student Aid (FAFSA), which is used to determine student eligibility for need-based programs. Based on financial information provided in the FAFSA, students receive a personalized report with their Expected Family Contribution (EFC), which is the amount the government believes their family can afford to pay toward their college expenses. The EFC is subtracted from the total cost of attendance at a specific institution to determine the amount of financial aid a student is eligible to receive at that school. The EFC will be replaced by the Student Aid Index as of the 2023 school year.

Students may also qualify for gift aid in the form of grants or scholarships. The federal government awards grants to students with the greatest financial need through the Pell Grant and Federal Supplemental Educational Opportunity Grant (FSEOG) programs. Academic institutions sometimes offer grants as well. Scholarships are available from many sources, including federal and state agencies, academic institutions, charitable foundations, corporations, professional groups, chambers of commerce, and social and religious organizations. Most scholarships are awarded competitively based on students' academic or athletic performance, leadership endeavors, or community service activities. US colleges and universities and the US Department of Education (ED) offer students a total of approximately $46 billion in scholarships and grants each year, while private sources account for another $3.3 billion in annual gift aid.

Experts recommend that students exhaust all potential sources of gift aid before taking out student loans, which must be repaid (usually with interest). The federal government offers two main types of education loans: subsidized and unsubsidized. Subsidized loans are awarded based on financial need and do not accrue interest while the student is enrolled in school at least half-time. For the 2022–2023 school year, the Direct Stafford Loan provided up to $5,500 per year for first-year undergraduate students. The Stafford Loan features a six-month, interest-free grace period following graduation. Students may take out unsubsidized Stafford Loans if they are not eligible for the full subsidized loan. For these loans, interest accrues even while the student is enrolled full-time.

Education loans are also available from private institutions such as banks and credit card companies. Federal loans offer advantages such as low, fixed interest rates; deferment options for students who return to school; flexible repayment plans based on borrower income; and loan forgiveness for graduates who perform certain types of public service, such as the Peace Corps, or are employed in certain occupations. Unlike other forms of debt, student loans cannot be discharged through bankruptcy, except in rare cases of undue hardship.

Rapidly rising tuition costs have contributed to a large nationwide debt load. Each year more than a million student loans go into default, meaning that the borrowers have not made payments in at least 270 days. In 2020 the ED found that 20 percent of borrowers were in default on their student loans.

Many young people report feeling overwhelmed by student debt, noting that it immediately puts college graduates and new members of the workforce in a financial bind that takes years to resolve. Given the relatively high default rates and the sheer amount of money owed collectively by students and graduates, some economists believe the country's massive student debt load could trigger a financial crisis like the Great Recession (December 2007–June 2009), which began with the collapse of the US subprime mortgage market.

In his 2020 presidential campaign, Joe Biden promised that his administration would tackle the student debt crisis. When he took office in 2021, Biden extended the federal student loan payment hiatus granted to borrowers in 2020 due to the COVID-19 crisis.

President Biden released a statement on August 24, 2022, outlining a student loan forgiveness plan for qualifying students and families while also extending the federal student loan payment hiatus to December 31, 2022. The plan allows for the ED to provide up to $20,000 in debt cancellation to Pell Grant recipients and up to $10,000 in debt cancellation to non-Pell Grant recipients. Eligibility for this relief is contingent on borrowers making less than $125,000 of individual income ($250,000 for married couples).

Biden's plan asserts that if all borrowers claim the relief they are entitled to, up to forty-three million borrows would experience some relief. This includes an estimated twenty-three million borrowers that would see the full balance of their loans canceled. In August 2022, prior to Biden's announcement, according to the Federal Reserve Bank of St. Louis, the total student debt neared $1.75 trillion.

In November 2022, a federal appeals court blocked Biden's debt relief program nationwide. The decision put the program on hold pending an appeal of a lower court ruling that had allowed the debt relief program to go forward.

Many policy makers and organizations have discussed proposals designed to make college more affordable. Proponents of these plans argue that higher education is a public good that should be accessible to any qualified person, regardless of their financial circumstances. Supporters of tuition-free and debt-free plans note that they would provide relief to the ballooning student debt load while improving young graduates' economic prospects.

President Biden's actions regarding student loan debt relief demonstrated the sincerity of his campaign promise to address the student debt crisis. However, economists have questioned how these measures will affect the economy and public accessibility to education in the future overall. Though many students and families have celebrated Biden's plan as it appears that many low-income borrowers may ultimately be freed from their loan debt or provided considerable reductions in their total balance owed, the plan has also attracted substantial criticism.

Some critics have raised concerns that student debt relief could contribute to inflation and motivate schools to further raise the price of tuition. Critics also warn that, without comprehensive reform to higher education that addresses affordability, loan forgiveness will serve to subsidize student debt rather than support education and improve accessibility. Others have characterized student debt relief as an unfair tax which mandates assistance to those who do not deserve it. Because individuals from wealthier economic backgrounds are more likely to attend college, opponents argue, Biden's plan only benefits high-income communities. Some critics contend that taxpayers, especially those that chose not to attend college, should not bear any responsibility for others' loans.

Congressional lawmakers have introduced legislation aimed at making college more affordable, including the College for All Act and the Debt-Free College Act, both introduced in 2021. The continued competitiveness of the United States in the global economy will depend on the sustainability and quality of education.