Here's Where Most of the Money Goes When Private Colleges Hike Tuition

Turns out, most it tends to get spent on financial aid. But the hikes still might be scaring off poor students.

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Why is private college tuition so astronomically expensive these days?

Ask an administrator, and they'll likely tell you that it's because they're taking money from the rich and giving it to the poor. Many schools advertise sky-high tuition rates that only the wealthiest students ever actually pay, while dolling out generous financial aid packages to needier attendees. At Harvard, to pick a famous example, tuition is $37,000, but students from families earning $65,000 or less per year pay zero. In the higher-ed world, this all gets called the "high-tuition, high-aid" model. 

But exactly how much of the last decade's rising tuition has actually been used to cover rising aid?

Quite a bit, it turns out. Over at Education Sector, Andrew Gillen put together this handy chart comparing tuition increases to changes in financial aid at 911 private, non-profit colleges between 1999 and 2010 in nominal dollars. On average, schools spent 60 cents of every new tuition dollar on aid (as shown via the green line). Overall, 58 percent of schools devoted at least half their new tuition money to aid. (Schools above the red line spent spent more than 100% of their tuition hikes boosting aid, while schools below it spent spent less than 100%)


Here's what this chart is telling us: After cutting out all of the money that got funneled toward aid,* the average private college had 40 cents to cover all of their other rising costs, which were increasing in part because of inflation.

However, just because schools have the right intentions doesn't make the high-tuition, high-aid model a great idea. There's a good deal of evidence that high sticker prices scare off students from poorer families, no matter how generous a college's grants might be. And as Gillen argues, the schools that have boosted aid the most compared to tuition aren't necessarily the schools doing the best job of recruiting low-income students. Instead, they may be spending the money on merit scholarships (which have exploded over the last couple of decades), or grants to more middle class kids. High-tuition, high-aid might be a good idea in theory, but it doesn't seem to be working so well practice. At least, not if stealing from the rich and giving to the poor really is the goal. 


*Note: This paragraph initially said "needy students" instead of "aid." But as one commenter correctly pointed out, it's not possible from this particular data to tell what percentage of this aid is being handed out as merit scholarships (which can go to higher-income students) and what percentage is being awarded based on on need. So I've edited it for the sake of precision.