Introduction
Chapter 1: Five National Trends
Chapter 2: State Policies for Affordable Higher Education
Chapter 3: Questions and Answers about Losing Ground
Chapter 4: 2002 Update for the States: "A Dire Situation"
Chapter 5: Public Concerns about the Price of College
Chapter 6: Taking Care of the Middle Class
CHAPTER 1: FIVE NATIONAL TRENDS
I. Increases in tuition have made colleges and universities less affordable for most American familiesMost American families have lost ground in college affordability. Over the last two decades, the cost of attending two- and four-year public and private colleges (including tuition and other education-related expenses) has grown more rapidly than inflation, and faster than family income as well. As a result, the share of family income that is needed to pay for tuition and other college expenses has increased.
The principal driver of the increased cost of attending college is higher tuition, and only the wealthiest families have seen their incomes keep pace with increases in tuition (see figures 1 and 2). The lowest-income families have lost the most ground, and this is a major factor in their lower rates of college attendance. For example, for the lowest-income families in 1980, tuition at public two-year colleges represented 6% of their family income. For the lowest-income families in 2000, tuition at these colleges represented 12% of their income. Likewise, tuition at public four-year colleges and universities represented 13% of income for the lowest-income families in 1980. In 2000, tuition at these colleges and universities equaled 25% of their income.
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Yet family income is seldom considered explicitly when colleges and universities advocate or approve tuition hikes, and when governors and legislatures approve or acquiesce in them. Instead, other comparisons usually dominate the policy discussion, such as tuition levels in similar institutions in other states (including states where family income is higher), and the needs of colleges and universities for revenues. These are important and relevant criteria, but the effect of tuition increases on families and the impact on college opportunity merit greater consideration than they usually receive.
From 1992 through 2001, tuition at four-year public colleges and universities rose faster than family income in 41 states. In 36 of these states, state appropriations to higher education also increased faster than enrollment and faster than inflation. Tuition at two-year public colleges increased faster than family income in 34 states. 1
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Several states have adopted similar approaches-that is, funding grants for students who meet high academic standards yet do not demonstrate financial need. Some states use financial aid to encourage their highest-performing high school graduates to forego out-of-state college opportunities, and to attend college in-state. The federal government, through its income tax strategy, now allows federal income tax credits for tuition and other expenses, yet does not allow the most financially needy students to receive these benefits.
While need-based student financial aid has lost ground to tuition increases, programs for students without demonstrated financial need have proliferated. In 1981, 91% of state financial aid was allocated on the basis of need or a combination of need and academic qualifications. In 1999, 78% of state aid took need into account. 3
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Since 1980, federal financial aid has been transformed-with little explicit policy debate-from a system characterized mainly by need-based grants to one dominated by loans. In 1981, loans accounted for 45% and grants for 52% of federal student financial aid. In 2000, loans represented 58% of federal student financial aid, and grants represented 41% (see figure 4).
The rich as well as the poor borrow money to attend college, but a higher percentage of low-income students borrow (see figure 5), and borrowing is a much greater burden on low-income students and parents. From 1989 to 1999, average cumulative debt by seniors at public colleges and universities increased substantially for all income groups (see figure 6). For those in the lowest income quartile, such debt grew from $7,629 to $12,888 (in constant dollars).
Borrowing is a legitimate and important aspect of paying for college for many students, but it also raises several policy issues. Equitable opportunity is one: Prospective students from low-income families, and those who would be the first in
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During good economic times, state appropriations to colleges and universities tend to rise "disproportionately to appropriations for other (state) functions," in the words of Harold Hovey, a prominent expert of public finance. During economic downturns, on the other hand, appropriations to higher education are often the "balance wheel in state finance," absorbing disproportionately larger cuts than other state-funded services.5
Steven Gold, in his study of state responses to the recession of the early 1990s, found that as the economy worsened and state revenues declined, state budgetary flexibility was reduced. A greater proportion of state revenues shifted to non-discretionary spending items, such as public assistance caseloads, Medicaid costs, federal mandates in health care, and formula-driven increases in public school and corrections budgets. According to Gold, "Higher education took the worst beating of any major spending category... Appropriations in 1992-1993 were less than one percent higher than in 1989-1990."6 Early indications point to similar trends in the current recession.
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It is unlikely that higher education or any other major area of state expenditure will be exempted from the impact of state budget cuts during recessions. However, excessive reductions in state support for higher education make dramatic tuition hikes and their consequent hardships for families practically inevitable. Over the past two decades, college students and their families have seen relatively stable tuition in good times, have enjoyed tuition freezes and even reductions in the most prosperous times, and have suffered steep price increases during recessions. This pattern-a cycle of eroding affordability-raises prices when students and families can least afford it, and is a windfall to those fortunate enough to attend college when the economy is strong.
