The need to improve college affordability is clear, and it may have reached its moment. A college education is an investment that provides a payoff to students typically valued in the hundreds of thousands of dollars. Yet sticker prices (including tuition, room and board, and other expenses) that reach $75,000 per year at some four-year private institutions and $30,000 at public institutions are staggering, even if the cost is worth it in the long-run. Most students do not pay those prices because of the availability of financial aid. But the complexity of that system, combined with prices that may still be too high, hinders access to college, particularly for students from lower-income households.
The 2020 Democratic primary highlighted an important debate regarding the best way to increase college access. Alternative proposals were made to increase the generosity of the Pell Grant (the main current program of cash-based federal aid) and to offer “Free College,” where students would pay no tuition to attend public colleges and universities. The results of the recent election and the policy discussions taking place in its aftermath make this the right time to formally assess the strengths and weaknesses of these alternative approaches.
The purpose of this report is to evaluate the policies of doubling the maximum value of a Pell Grant or introducing a Free College program. Initially, I discuss the economics of these alternatives in a broader, conceptual framework. I follow that with a detailed analysis of data on college pricing designed to estimate the impact of these proposals on students with different levels of financial resources. How much can students afford to pay to attend college, how much do they currently pay, and how do each of these policies alter that relationship?