It’s no secret a college degree from an American university is a serious investment. Many students rely on need-based financial aid to afford their degree, but it’s the underserved, low-income households that are shouldering most of America’s student debt.

Macroeconomic factors as a result of the COVID-19 pandemic have pushed tuition costs to sky-high levels while the maximum need-based aid amount a student can receive has remained relatively stagnant. As a result, many of America’s most financially vulnerable are forced to forgo their dreams of a higher education or go into high-interest debt down the road.

Inflationary pressure to blame for projected tuition increases

According to the National Center for Education Statistics, the average cost of tuition and related fees at public, four-year institutions grew by 10 percent in the 2020-21 academic year when compared to 2010-11 costs.

While the cost of tuition has slowed in the past few years due to the COVID-19 pandemic, it’s expected to grow at historic rates once again as universities attempt to keep up with inflationary pressures and a potential economic recession.

The average cost of tuition and fees at a public four-year university is estimated at $10,740 for in-state students and $27,560 for out-of-state students. Even though the cost of tuition and fees has ballooned by 173 percent in the past 40 years, state and federal governments are pulling back on their aid budgets – leaving eligible students lacking the need-based aid they’re entitled to.

Schools proactively raise rates to combat inflation

Coupled with inflation, schools are experiencing a reduction in government aid. To keep their doors open, many will be forced to adjust their tuition rates to keep up with the cost increases for necessary resources including electricity, energy, staff wages, food and technology.

There are some schools that have already enacted rate increases for the next academic year – some hiking tuition as much as 5 percent. For example, Penn State’s board of trustees approved a 5 percent increase for in-state students attending its University Park Campus, Syracuse University’s board approved a 4.25 percent increase and Boston University, citing inflation as a reason, increased tuition 4.25 percent – the largest single increase in university history.

As colleges adjust their operating budgets, students must follow suit and increase their own educational budgets. Those hit the hardest – low-income students – are left to apply for need-based financial aid and cross their fingers that they’ll be awarded what they need.

Rising tuition limits education equity for low-income students, people of color

The students who are most vulnerable to increases in academic cost are those who are right at, or below, the poverty line. According to the Southern Regional Education Board, families in some Southern states who earned under $30,000 in 2021 would have had to pour more than their annual income into their child’s education to fund their degree at a four-year university after receiving financial aid.

What’s more, state funding cuts are also a factor in the rapid tuition increase and lack of financial aid necessary. “These cuts have also worsened racial and class inequality, since rising tuition can deter low-income students and students of color from college,” reads a 2019 report from the Center on Budget and Policy Priorities (CBPP).

According to the CBPP study, state-wide funding cuts have been detrimental to college students, especially students of color. Over the last decade, these cuts have influenced the increased cost of tuition at four-year schools and caused reduced student and academic services.

Rising college tuition has threatened college affordability and access, reads the report. “This is especially true for students of color (who have historically faced large barriers to attending college), low-income students, and students from non-traditional backgrounds.”

Sticker shock prevents eligible students from earning aid

There are positive trends that can come from rising tuition rates, asserts Jill Barhsay of The Hechinger Report, in a study on how rising tuition has actually led to a decrease in tuition for low-income individuals. The National Bureau of Economic Research‘s (NBER) 2022 study – that’s still in revision – found that the increased rates paid for by wealthy families has resulted in the subsidization of discounts for lower-and-middle-class students.

However, this isn’t the solution to the root cause of the problem. Regardless of discount subsidies, “low-income students make up less than a quarter of students at public universities,” writes Barshay. “For those who worry about equity, the bigger problem is that published sticker prices scare many people off…Some bright students might never even apply,” her report read.

A dive brief from Higher Ed Dive found that out of 17 schools studied, “generous financial aid policies don’t stop sticker shock from putting off some low-income students – particularly if students are unaware of the offer.”

The working NBER paper backed up the sentiment, asserting that low-income students apply less to flagship universities than their wealthier counterparts if the universities increase tuition, even if they guarantee they’ll meet the students’ full financial need.

Pell Grants, federal need-based aid no longer sufficient for most

Many politicians have long argued that doubling the Pell Grant would be an ideal solution to the college affordability problem. The current maximum Pell Grant that students can qualify for is $6,345, which only covers a portion of the average cost per semester of $10,000.

While doubling the annual maximum Pell Grant amount would certainly be beneficial, Philip Levine, Nonresident Fellow at Brookings, argues that an increase would need to be coupled with an increase in financial aid education to make higher education more equitable.

In his 2021 report, The economic case for doubling the Pell Grant, Levine writes, “[Doubling the value of the Pell Grant] corrects a market imperfection, encouraging college attendance among students who may otherwise choose not to go because they cannot afford it,” he explains. “It does so by specifically targeting students from lower-income families.”

Underserved students least likely to fill out FAFSA, new report finds

The Free Application for Federal Student Aid (FAFSA) is how students apply for federal student aid, including loans and need-based aid like the federal Pell Grant and work-study.

An analysis by the National College Attainment Network (NCAN) found that of 1.7 million students who didn’t fill out the 2020-21 FAFSA, about 813,000 students would have qualified for need-based federal aid.

It also found that the number of students who fill out the FAFSA has been shrinking since the COVID-19 pandemic; an estimated $3.7 billion in Pell Grant aid was unclaimed by the high school class of 2021 because qualifying students didn’t fill out the form. “This stunning increase in financial aid dollars ‘left on the table’ comes as we are battling historic declines in college enrollment,” says NCAN CEO Kim Cook in the analysis. “As a country, we need to work to address this disconnect systematically,” Cook added.

Schools that serve a large population of low-income students and students of color often see lower FAFSA completion rates. According to a survey conducted last year by EAB, those who fit these demographic groups are more likely to report difficulty in gathering the appropriate financial documentation and filling out the form in general.

“Students, particularly first-generation and low-income students, don’t understand how financial aid could work for them. They often think they won’t qualify for aid and therefore don’t file,” the EAB report reads. “The students and families who need financial support to attend college are the least likely to have the kind of support and encouragement to file the FAFSA in the current environment.”

State aid reductions threaten the future of higher education

As many states scale education budgets back, students of public four year universities, particularly low-income students, have felt the financial responsibility of increased tuition.

“Instead of properly funding public colleges, many states have cut back their support,” said President Biden in an August press conference. “Many states have cut back support for their – their state universities, leaving students to pick up more of the tab.”

He went on to explain how a third of borrowers have student debt without finishing their education; a burden that “is especially heavy on Black and Hispanic borrowers, who on average have less family wealth to pay for it.”

State governments support in-state, public colleges and universities by funding the institution’s basic expenditures, including operational needs, staff salaries and benefits, maintenance costs and providing state-wide need-based grants.

According to the Urban Institute, tuition as a form of higher education expenditures grew from 10 percent in 1977 to 31 percent in 2019. While state spending on higher education has greatly increased over the years, the Institute’s findings argue that this is only due to the rapid tuition growth, as state’s direct funding per student was shown to have decreased during this time.

As state budgets continue to get slashed, students have less state and institutional funding available, which will disproportionately impact low-income students’ ability to earn a degree. Following historic enrollment trends, the higher tuition and budget reductions will result in fewer educational opportunities and more obstacles for low-income students.

What can be done to improve retention

College enrollment is trending downwards as young adults in America face record-high inflation, soaring tuition costs, career uncertainty and lack of necessary aid. The National Student Clearinghouse Research Center asserts that as of spring 2022, enrollment dropped by nearly 1.3 million students when compared to 2020 enrollment numbers.

What’s more, undergraduates were the most likely to opt out of a degree and the undergraduate student population is roughly 1.4 million students – 9.4 percent – smaller than before the pandemic in 2020.

With many low-income students forgoing a college education due to lack of financial aid awareness and support, it’s likely that enrollment will only continue to drop as tuition continues to grow. To reverse this trend, legislation can be enacted at a high-level, like increasing Pell Grant amounts. However, much more needs to be done at a state level to make education equitable.

Students need more support from a financial aid perspective when it comes to filling out the FAFSA and applying for aid. There needs to be clear, concise and widely-accessible information on who qualifies for need-based aid and how they can apply. Aid qualification visibility and increased FAFSA support can help students who need financial aid the most get the full amount they are entitled to.