Fstop123 | E+ | Getty Images
While most people agree that a college education is worthwhile, fewer say it’s worth the high cost.
However, as college costs continue to rise, many top schools are responding by offering more generous financial aid packages to ensure affordability for qualified students, with some even covering the entire cost for low-income families.
College tuition has surged by 5.6% a year, on average, since 1983, significantly outpacing other household expenses, a recent study by J.P. Morgan Asset Management found.
For the 2024-25 school year, tuition and fees plus room and board for a four-year private college averaged $58,600, up from $56,390 a year earlier. At four-year, in-state public colleges, it was $24,920, up from $24,080, according to the College Board.
Despite the rising costs, financial aid has not kept pace: Families now shoulder 48% of college expenses with their income and investments, up from 38% a decade ago, J.P. Morgan Asset Management also found.
The new, simplified Free Application for Federal Student Aid form, which first launched in 2023, was meant to improve access by expanding Pell Grant eligibility to provide more financial support to low- and middle-income families.
But even Pell Grants have not kept up with the rising cost of a four-year degree. Currently, the maximum Pell Grant award is $7,395, after notching a $500 increase in the 2023-34 academic year.
“Aid continues to not be enough and that’s the reality,” said Tricia Scarlata, head of education savings at J.P. Morgan Asset Management.
Taking on too much debt was also the No. 1 worry among college-bound students, according to a recent survey by The Princeton Review.
More from Personal Finance:
How to maximize your college financial aid offer
College hopefuls have a new ultimate dream school
$2.7 billion Pell Grant shortfall poses a threat for college aid
Top colleges expand financial aid awards
This also comes amid President Donald Trump’s plans to dismantle the U.S. Department of Education and transfer the country’s $1.6 trillion student loan portfolio to the Small Business Administration.
“While the federal student loan program is in a state of flux, a lot of students are getting money directly from colleges,” said Eric Greenberg, president of Greenberg Educational Group, a New York-based consulting firm.
To bridge the affordability gap, some of the nation’s top institutions are boosting their financial aid awards to attract top students wary of sky-high college tab.
“There’s a trend of colleges with money using it as opposed to sitting on it,” Greenberg said.
Harvard University was the latest school to announce that it will be tuition free for undergraduates with family incomes of up to $200,000 beginning in the 2025-26 academic year.
Nearly two dozen more schools have also introduced “no-loan” policies, which means student loans are eliminated altogether from their financial aid packages.
Acceptance rates hit all-time lows
Schools with the financial wherewithal to expand their no-loan aid programs are giving students a tremendous benefit, Scarlata said. “I think it’s wonderful — you still have to get into Harvard though.”
Coming out of the pandemic, highly selective colleges and universities experienced a record-breaking increase in applications, according to a report by the Common Application.
Now the acceptance rates at Ivy League schools are near rock bottom. Harvard’s acceptance rate is just under 4%, down from more than 10% two decades ago; at Princeton and Yale, it’s about 5%, down from 12% and 10%, respectively.
“The arms race for financial aid is setting up an extreme crescendo for college admissions,” said Jamie Beaton, co-founder and CEO of Crimson Education, a college consulting firm.
More generous aid packages and tuition-free policies remove the most significant financial barrier to higher education and attract even more applicants, he said — at schools that were already among the most difficult to get into.
“There’s a massive incentive to try to gain admission to top schools,” Beaton said. “The acceptance rate has halved. And it likely will again.”