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Executive Summary
 
Introduction
 
The Context: State Budgeting and Higher Education's Vulnerability
 
The Continuing Battle to Sustain Current Support for Higher Education
 
Recent Experience: The Recession of the Early 1990s
 
What's Different?
 
Unprecedented Enrollment Growth
 
The Tuition Conundrum
 
Student Support
 
Concluding Observation
 
References
 
About the National Center for Public Policy and Higher Education
 

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Page 8 of 12

The Tuition Conundrum


Setting tuition, the price that students and their families must pay to attend a public college, is a problem that seems to defy rational solution--or even broad agreement about what would constitute "rationality." There is probably no other public policy issue in higher education on which the great preponderance of expert opinion--policy experts, scholars and many higher education leaders--is so completely at odds with the preferences of the American public. Policy experts overwhelming favor "high tuition--high financial aid" strategies that would concentrate public subsidies on those least able to afford college. While there is little support for free public higher education, the general public consistently favors low to moderate tuition with financial assistance for qualified and motivated students who are unable to afford college.24

Since 1980, tuition at public and private institutions has risen significantly (see Figure 2). As discussed earlier in this essay, the structure of state finances and the exigencies of state politics squeeze higher education budgets when state revenues decline. States and colleges typically fill this revenue gap with tuition. The steepest tuition increases have occurred in times of economic hardship (see Figure 3)--times when personal income declines, unemployment rises, and public economic anxiety is high. This is probably one major reason for the political unpopularity of tuition increases.

When sharp tuition increases are enacted to fill gaps in state revenues, they rarely adhere to the "high tuition-high aid" model. The freed state dollars--rather than being used to increase need-based financial aid for college students--are expended to support programs of higher political salience, such as Medicaid, public schools and corrections. In both good times and hard times, state and federal financial aid have lost ground to tuition (see Figure 4).

During good economic times, the reasonable and salutary principle that increases in tuition should be gradual, moderate, and predictable is not difficult to follow. But a recession is defined by economic changes that are sudden, large, and unpredictable. Recent history has shown that:

  • Formulas for setting tuition are early victims of a recession.

  • The steepest tuition increases in the public sector have occurred during recessions as states seek to shift their costs to users, including students and their families. The following comments, from a 1976 study,25 illustrate this cost-shifting strategy:

    Campus administrators were very outspoken against tuition increases until the legislature indicated that these would be the only source of new money. They changed their minds fast.
        --Panel of university chief budget officers

    Essentially, there will be level funding for 1976-77, offset in part by a portion of amounts that governing boards are able to raise by increased tuition and fees.
        --State budget officer

  • Because a state's most pressing problem during a recession is lack of revenue, states are unlikely to make new or additional investments in student financial aid that will offset increases in tuition. Indeed, student aid may be reduced, exacerbating the problem. An example from the recent past: In California over the initial three years of the 1990s recession, state support for the University of California was reduced by 19%, for the California State University by 12%, and for the community colleges by 1%. The higher education institutions raised tuition, but state-funded student financial aid was reduced by 15%. One result of the financial aid cuts and related policies: California's public institutions ended up serving some 200,000 fewer students.26

Higher tuition in the public sector is often thought to improve the competitiveness of the independent sector. But public sector tuition is seldom raised to a level that would improve competition. And when student aid does not increase commensurately with tuition, financial aid may be reallocated from the independent sector to the public sector as higher tuition brings more students into eligibility. This was the case in California, where the share of state financial aid dollars supporting students at independent campuses dropped from 42% in 1990Š91 to 34% in 1993-94, but increased from 51% to 62% over the same period for students in the public sector. Similarly, in New York, the Tuition Assistance Program (TAP) was established in the mid-1970s as a need-based entitlement with the primary purpose of permitting students to attend private colleges and universities. From 1991 to 1996, New YorkÕs public institutions mirrored the steep tuition increases seen throughout the country. TAP expenditures to CUNY and SUNY students increased by 180% and 97%, respectively, while expenditures to undergraduates at independent institutions increased only 7%. By 1996 more TAP funding was supporting students at New York's public institutions than students at independent institutions. When TAP was established, its maximum award paid for approximately half the average tuition at independent institutions, but in 1996 it covered only 26%.27

Public higher education tuition is on a roller-coaster pattern because, regardless of formulas, it remains stable or is even reduced when state funds are sufficient to cover the cost of education. But when institutional costs rise to the point that higher revenues are needed or when state support decreases or falls below expectations, tuition is increased. One generation of students coasts downhill with stable or even declining real tuition charges; the next labors uphill with the increased price. In difficult economic times, all attempts to rationalize tuition policies founder. But the roller-coaster pattern continues: during a recession students pay higher tuition, and their successors may benefit from a backlash that reduces the price.

The Politics of Tuition

Tuition increases are likely to remain an important tool in the repertoire of state and institutional response to recession. But the experience of the 1990s is instructive, for it reveals the political limits of this tool, and the force of the backlash when the public believes that increases have been excessive. In New York State, between 1990 and 1995 tuition increased from 4.2% to 7.7% of median household income; in California, the increase was from 1.7% to 3.1%.28

Public opinion research during this period of economic volatility showed that the middle class in particular feared that higher education, just when it seemed more essential than ever, was becoming less accessible. As middle-class families weighed in on this issue, elected officials, first at the state and then at the federal level, began searching for ways to relieve public apprehensions. By the mid-1990s, of the five states that had raised tuition by the largest percentages from 1990 to 1995 (California, Massachusetts, New York, Oregon, and Virginia), four had frozen tuition or slowed the rate of growth significantly. Tuition rollbacks followed in several states; most of them occurred after the economic crisis had passed, financial aid had been restored, and lost enrollment had been recovered, but public resentment remained. Governor Pete Wilson of California and Governor George Pataki of New York had supported steep tuition increases in the early and mid-1990s. Faced with adverse public opinion, and with reelection campaigns before them (Wilson in 1994; Pataki in 1998), both governors backed away from their earlier positions. In Wilson's case, this meant reneging on an agreement with public college and university leaders that called for annual tuition increases of up to 10%.29 Prior to Wilson's reversal (and perhaps accounting for it in part), Gray Davis, the gubernatorial candidate who succeeded Wilson in 1998, proposed an amendment to the state constitution that would have frozen tuition and restricted future increases.

While tuition freezes and rollbacks were under way in some states, others initiated new programs of student support, programs that were not means-tested, and that provided new subsidies to middle-income students. At about that time, based on focus group information, President Clinton featured middle-class tax credits in his 1996 reelection campaign. I will comment on these programs in the next section. It is sufficient here to note that these programs came in the wake of steep tuition increases and public opinion polls reflecting middle-class anxiety over the price of a college education.

A final word on public opinion. In an afterword to a national public opinion survey published in May 2000, Deborah Wadsworth, president of the Public Agenda organization commented: "For most Americans, higher education is a public policy success story." She then identified some future scenarios "that might cloud the public's current rosy outlook." The first of these, "problems with affordability," merits quotation in full:

    If large numbers of American families begin to feel that they can no longer afford to send their youngsters to college, higher education might easily become a "hot button" for the public. Tougher economic times that force colleges and universities to raise prices or reduce admissions could affect the public's view that anyone who really wants a college education can get one. What's more, tougher economic times might well increase families' anxiety about their ability to cover their share of college expenses, as well as the availability of jobs for themselves and their children just coming out of college. Graduates' willingness and ability to shoulder substantial loans could drop dramatically in a less hospitable job market. An economic downsizing could upset the apple cart; cash-strapped Americans would likely greet any sign of diminishing access or rising costs with dismay. As we have seen, Americans see higher education as the gateway to a good job and middle class lifestyle. If that gateway is threatened, we might expect to see considerable public distress.30




24 See John Immerwahr and Steve Farkas, The Closing Gateway: Californians Consider Their Higher Education System (San Jose: The California Higher Education Policy Center, Sept. 1993); John Immerwahr, Enduring Values, Changing Concerns: What Californians Expect from Their Higher Education System (San Jose: The California Higher Education Policy Center, Feb. 1997); John Immerwahr, The Price of Admission: The Growing Importance of Higher Education (San Jose: National Center for Public Policy and Higher Education, 1998).
25 Frank M. Bowen and Lyman A. Glenny, State Budgeting for Higher Education: State Fiscal Stringency and Public Higher Education (Berkeley: Center for Research and Development in Higher Education, 1976), p. 60.
26 Patrick M. Callan, "Five Years in Retrospect: The California Higher Education Policy Center, 1992 to 1997," in The California Higher Education Policy Center: An Assessment (San Francisco: The James Irvine Foundation, March 1998), pp. 28-29.
27 Callan and Finney, Public and Private Financing, pp. 97, 218, and 219.
28 Kent Halstead, State Profiles: Financing Public Higher Education 1978 to 1976 (Washington, D.C.: Research Associates of Washington, 1998), pp. 11 and 67.
29 Mario C. Martinez and Thad Nodine, "California: Financing Higher Education Amid Policy Drift," in Public and Private Financing of Higher Education, edited by Patrick M. Callan and Joni E. Finney (Washington, D.C.: American Council on Education/Oryx Press, 1997), p. 94.
30 John Immerwahr and Tony Foleno, Great Expectations: How the Public and Parents-- White, African American and Hispanic--View Higher Education. (San Jose: National Center for Public Policy and Higher Education, May 2000), pp. 33-34.

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