Shocking Growth in Gapping of Financial Aid Packages

Mark KantrowitzBy Mark KantrowitzBy Savingforcollege.com

Gapping occurs when a college’s financial aid package falls short of the student’s financial need. This unmet need makes college less affordable and forces students to borrow more student loans to pay for college. Average unmet need now exceeds $10,000 for the first time, having doubled in the last decade and a half.

Parents can address the likelihood of unmet need by saving more for their children’s college education or by sending their children to less expensive colleges.


What Is Unmet Need?

Colleges often consider financial aid as meeting financial need if the financial aid is awarded based on financial need or the expected family contribution (EFC). This includes not just gift aid, but also self-help aid. Self-help aid includes student employment, such as Federal Work-Study, and need-based student loans, such as subsidized student loans. Gift aid includes grants, scholarships and tuition waivers.

Financial need is defined as the difference between the college’s cost of attendance and the federal EFC.

Unmet need is usually defined as the difference between financial need and financial aid. The term “gapping” is used as a synonym for unmet need.

But, student loans, even subsidized student loans, are not really financial aid. Loans do not cut college costs. Instead, they spread out the college bills over time. Student loans increase college costs because they must be repaid, usually with interest. Likewise, student employment must be earned through work. Student loans and student employment are not free money.

Accordingly, there is a second definition of unmet need which counts only gift aid, not self-help aid, as meeting financial need. This yields a higher and more realistic figure for unmet need.

Very few colleges meet full need under either definition. Some colleges substitute their own financial aid formulas for calculating the EFC, often resulting in a higher institutional EFC than the federal EFC. This yields a lower figure for financial need and lets the colleges claim to have met full need by effectively redefining financial need.

Widespread Prevalence of Unmet Need

More than four-fifths (82%) of students enrolled in Bachelor’s degree programs demonstrate financial need, based on an analysis of data from the 2015-2016 National Postsecondary Student Aid Study (NPSAS).

Of the students with financial need, 89% have unmet need if one counts self-help as meeting need, and 94% otherwise.

Thus, more than two-thirds (73%) of all students in Bachelor’s degree programs have unmet need, counting self-help as meeting need, and more than three-quarters (77%) have unmet need if one does not count self-help as meeting need.

Part of the problem is that institutional grants fall short of the need, even when combined with federal and state grants. Of students with financial need, 44.4% of those pursuing a Bachelor’s degree received institutional grants in 2015-2016, compared with 30.4% of students without financial need. Many colleges rely on federal and state aid for the majority of their students. Government grants have been decreasing on an inflation-adjusted per-student basis for decades.

Steady Growth in Unmet Need

As shown in this chart, the average unmet need has doubled from $5,628 in 1999-2000 to $12,880 in 2015-2016, if one counts self-help as meeting need. The average unmet need, if one does not count self-help as meeting need, has also doubled, increasing from $7,057 to $14,831. The difference in unmet need suggests that colleges now use $1,951 in self-help aid, on average, to meet financial need. Unmet need is growing by more than $500 a year, on average. Unmet need is now about half of the cost of attendance.


This table shows the percent of students with unmet need by degree level based on data from the 2015-2016 NPSAS, using the SNEED1, SNEED4 and SNEED5 variables.


Differences in Unmet Need by Student Demographics

There are some differences in the prevalence and amount of unmet need based on demographic differences, such as dependency status, gender and race.

Dependency Status

The average amount of unmet need does not vary significantly for dependent and independent students (less than 4% variance), although independent students enroll in colleges that cost about one-third less ($21,326 vs. $32,503).

Accordingly, unmet need represents a greater share of the cost of attendance for independent students (62% vs. 39% with self-help and 70% vs. 45% without self-help).

Independent students are more likely to be left with unmet need, regardless of whether one counts self-help as meeting need (94% vs. 86%) or not (98% vs. 91%).

Gender

The average amount of unmet need and the percentage of students with unmet need does not vary significantly by gender.

Race

The average amount of unmet need, not counting loans, is similar among White, Black or African-American and Hispanic or Latino students.

Asian students have about $3,000 more in unmet need, in part because they tend to enroll at higher-cost colleges.

International Students

International students have about double the unmet need of domestic students.

Colleges generally do not use loans to meet the financial need of international students, since international students are not eligible for U.S. federal and private student loans.

Unmet need represents more than two-thirds (68%) of the cost of attendance for international students, in part because international students tend to enroll at more expensive U.S. colleges and universities. These colleges have an average cost of attendance that is about 50% higher than the average for domestic students.

High School GPA

High School GPA correlates with the amount of unmet need for students with a high school grade point average (GPA) of 2.0 or higher, in part due to a correlation of academic performance with college cost. Students with a higher high school GPA tend to have a greater amount of unmet need.

SAT Test Scores

The average unmet need tends to increase with increasing test scores for students with above-average (1000 or more) SAT test scores. This may be due to the students attending more expensive colleges. Students with below-average SAT test scores tend to have unmet need that is lower than the unmet need for students with above-average SAT test scores.

Differences in Unmet Need based on Financial Factors

Among students with financial need, the percentage with unmet need decreases as family income increases. Wealthier students are more likely to enroll at higher-cost colleges, so their financial need may be driven more by college choice than ability to pay.


This chart shows a strong correlation between average college costs and family income, starting to rise after family income reaches 250% of the poverty line.


The average amount of unmet need and the percent of students with unmet need decreases with increases in the expected family contribution (EFC), in part because wealthier students tend to enroll at higher-cost colleges. This chart shows out the average cost of attendance increases with increases in the average EFC.

Students with low amounts of financial need, who tend to be wealthier, are more likely to have their financial need met. As the average amount of financial need increases, the percentage of students with unmet need increases. The percentage starts off at 62% of students with financial need less than $5,000 and increases to 94% of students with financial need in excess of $15,000.

As financial need increases, unmet need represents a greater percentage of the cost of attendance. Unmet need starts off at 15% of the cost of attendance for students with financial need less than $5,000 and increases to 49% for students with financial need in excess of $25,000.

However, as financial need increases, the average unmet need decreases as a percentage of financial need. The percentage starts off at 80% for financial need less than $5,000 and bottoms out at about 55% for financial need in excess of $15,000. This is an indication that unmet need grows slower than financial need.

Federal Pell Grant recipients have a lower average amount of unmet need than non-recipients, in part because they tend to enroll at less expensive colleges. But, Pell Grant recipients are more likely to have unmet need than non-recipients, as shown in this table.


Students who borrow private student loans or whose parents borrow Federal Parent PLUS loans are more likely to attend colleges with a higher cost and higher amount of unmet financial need. The average unmet need is roughly a constant percentage of the cost of attendance.



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