Tuition increases outpace family income
As this issue of National CrossTalk goes to press, we are about to release Losing Ground, a national status report on the affordability of higher education. Because of the financial problems most states are experiencing this year, Losing Ground deals primarily with public two- and four-year colleges and universities. In it, we identify five trends for special attention by policy makers in 2002:
- We measure "affordability" by the share of annual family income required to pay for a year of college tuition. By this measure, college has become less affordable over recent years-only among the wealthiest 20 percent of Americans has family income kept pace with tuition increases. Over the past decade, tuition rose faster than median family income at four-year public colleges and universities in 41 states, and at two-year colleges in 36 states.
- State and federal student financial aid grants have increased, but these increases have not kept pace with rising tuition.
- Each year, more students of all income levels borrow more to pay for college. Fewer low-income students attend college, and when they do enroll, borrow more in relation to their income.
- For two decades, the largest tuition increases have been imposed in times of economic recessions, and state and institutional financial problems are disproportionately passed along to students in the form of precipitous tuition increases. This pattern is emerging once again in the current recession.
- Despite several difficult budget years, particularly during the recessions of the early 1980s and the early 1990s, state appropriations for higher education have increased by 13 percent over the past 20 years, even after taking inflation and enrollment growth into account.
Of course, not every state reflects these national trends. In most states, however, tuition has increased faster than inflation, faster than family income and faster than enrollments. For all but the most affluent families, tuition represents an ever-increasing proportion of income. One consequence, particularly in the 1990s, has been a clamor for relief from middle and upper income Americans who are going to college, but do not qualify for conventional means-tested student financial assistance.
Relief was afforded by government and by colleges-not by constraining tuition increases, but through an array of new programs designed to benefit the middle class: income tax credits, tax advantaged savings programs, grants, tuition freezes, cutbacks and discounts. The country cushioned the impact of escalating tuition on middle-income groups in the 1990s, but failed to narrow the gap in college participation between low- and high-income Americans.
Underlying the contentious issues raised by student financial assistance is the reality of institutional costs-that is, the institutional cost per student of providing a year of college. This cost has grown from $10,265 in 1980 to $14,582 in 1998 (the latest year for which national information is available). This is a 41 percent increase in constant dollars. During this period, state appropriations grew by 13 percent while tuition and fees-the price students and families are asked to pay-rose by 107 percent. (See charts.)
The experience of the past two decades suggests, then, that the heart of the affordability issue is not, as many would have it, reduced state support of higher education. In the aggregate, states increased their financial support. The real problem is that the institutional costs of providing higher education have gone up faster than states were willing or able to finance. Students and families have paid much of this increase in institutional costs, and tuition became the fastest growing source of revenue for public colleges and universities. Hence the erosion of affordability for most American families.
Another conclusion we draw from recent history is that need-based student financial assistance will remain in jeopardy if tuition continues to command ever-larger shares of family income. We believe it unlikely that student financial assistance will catch up with need if the prices of higher education persist in their upward spiral at the rates of the past 20 years. Public subsidies are not concentrated on the most needy, as advocates of "high-tuition/high-aid" policies assume; rather, higher tuition stimulates new demands for financial relief from new claimants, many of whom are far more politically potent than the poor.
Since the first G.I. Bill after World War II opened the modern era of higher education, Americans have understood that affordability is a key to college opportunity. In a world now shaped by the global economy and information technologies, education and training beyond high school are no longer discretionary for those who aspire to attain or to remain in the middle class.
But even as college has become more essential to the economic and civic success of individuals, communities, states and the nation, the burden for paying for it has shifted increasingly to students and families. If there were ever any general consensus about how responsibility for paying for college should be shared, no trace of it can be found in 2002. As D. Bruce Johnstone observes, "Whatever the causes, the fabric of the American 'system' of financial assistance and tuition policy seems to be unraveling."
In the past, government-and colleges as well-have followed a course of least resistance in dealing with affordability. The erosion of affordability is rarely the outcome of considered policy. Rather it is the consequence of incremental, ad hoc policies that increased tuition and the share of family income required for college, underfunded need-based financial assistance, increased reliance on loans, and stimulated new claims for governmental relief from middle-income families.
We have backed into ineffectual affordability policies in the past. To do so in the future will virtually assure the continued erosion of college affordability. We urge positive approaches: explicit recognition of the relationship of family income levels to college opportunity; high priority for need-based aid; and closer examination of the sustainability of institutional expenditure trends. These are not easy approaches, but they can enhance college opportunity if followed in both good and bad economic times.
-Patrick M. Callan