New Report Sheds Light on Role of Living Allowances in College Affordability

August 8, 2022

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Title: A Closer Look at College Affordability: The Link between Living Allowances and Student Debt

Authors: CJ Libassi and Zachary Mabel

Source: Urban Institute

Policymakers and practitioners in higher education have focused on tuition in their efforts to improve college affordability. Living expenses, however, are often overlooked, although they are one of the major components shaping the total cost of attendance for college students. A new report from the Urban Institute examines how living allowances vary across colleges and how they are related to student loan borrowing.

Among the findings:

Colleges have broad discretion over setting their living allowances. According to the analysis, there were considerable differences in the average living allowances across colleges, even after controlling for local living costs and student living arrangements. The control explained 55 percent of the variation, leaving the remaining 45 percent unexplained. Based on this finding, the authors argued that institutional discretion plays an important role in setting living allowances for their students, although colleges are expected to set their living allowances to reflect actual living costs.

Colleges setting a lower rate of living allowances were more likely to have a smaller enrollment and be less selective, compared to colleges setting the living allowances higher. Those colleges with lower living allowances also tended to serve more low-income students than their counterparts.

Students attending colleges with higher living allowances were more likely to borrow more. The authors examined the relationship between living allowances and student loan borrowing. To better capture the relationship, they also included other factors that may be associated with the two variables in their statistical models. Findings showed that average borrowing amounts differed by the size of living allowances, after controlling for other institutional characteristics and local living costs.

The authors concluded that institutional discretion over setting living allowances can cause students unnecessary confusion and additional financial burdens. They made several policy recommendations, including regulatory policies on how colleges adjust local living costs and the construction of college-specific price indexes to better inform students.

To read the full report, please click here.

—Ji Hye “Jane” Kim

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