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American colleges and universities are among the very best in the world. They are also notoriously expensive, with many graduates working for decades to pay back their college loans. But for many new students and parents hoping to help their children pay for college, tuition just became even more expensive, thanks to a new federal student loan policy that went into effect on Jan. 1, 2024.
Straight Arrow News contributor Timothy Carney reviews how the new policy impacts American families and considers what it might mean for their financial planning.
College tuitions are insanely high. They’re so high, in fact, that almost nobody pays sticker price. Only 1/4 of students at private universities pay full tuition. And even at public universities, most students get financial aid. That’s why it’s disturbing that the federal government’s brand new financial aid formula explicitly and intentionally shortchanges families with more than one child in college. It’s a direct attack on families, and it’s Congress’s fault. The central figure in the world of financial aid is Uncle Sam.
The U.S. Department of Education publishes the FAFSA form, the Free Application for Federal Student Aid, and sets a formula that calculates a family’s ability to pay and, thus, their financial need. This formula determines federal aid, such as Pell grants and subsidized student loans. Many private colleges also rely on this formula in doling out their own aid. For dependent students, college kids whose parents can help them pay for college, FAFSA asks for the parents’ assets, basically their savings and checking accounts, and their income. Looking at a family’s income and cash, the education department calculates a family’s ability to pay tuition.
According to the federal formula, a family earning $100,000 and sitting on $25,000 in savings can afford about $32,000 a year in tuition. What if their family has multiple kids in college? For years, the federal government did the sensible thing. They divided the $32,000 by the number of kids in college. But Congress just changed that. As of 2024, a family deemed capable of affording $32,000 in college tuition is now expected to pay $32,000 per student in college. That is, the Education Department expects them to pay double what the Education Department says they can afford to pay. How did this happen?
