The issue of the rapidly increasing price of higher education has been much in the news of late. Increasingly, one hears calls from Washington for limits on price increases in the name of accessibility. One hears responses from university groups that focus on rising costs, and the necessity of reflecting those rising costs into the price. (See my comments and links in Report from the Secretary of Education's Commission on the Future of Higher Education, Aug 10, 2006)
In fact, I believe that the calls from Washington are but a part of a broader, long term political-economic trend that inevitably will lead to controlling price in higher education. If this interpretation is correct, then there are serious issues to be addressed, because I do not believe that costs in higher education can be controlled in a significant way by making trivial administrative changes.
In this post, I review some data on this contentious issue of price. In a subsequent post, I will place the issue of price of higher education in a larger context of changes in the global political-economic scene, and discuss some ways in which I believe that control of price might occur. In a yet-later post, I will consider the question of cost, and brainstorm about possible ways it might be controlled.
A good place to start looking at price is the College Board’s 2006 Trends in College Pricing. The report describes well some of the difficulties in getting a clear handle on the issues of college pricing. The report focuses on full time students, while noting that almost 40% of all undergraduates now attend college part-time. Average gross (published) price and average net price also differ greatly, and the impact of this difference is very unequally distributed by institution and individual in ways that averages cannot capture adequately. Since this study does include institutions with widely varying missions, the underlying cost drivers are also widely varying, which will require some caution as we later move to our consideration of cost.
PUBLISHED PRICE
The College Board report shows that average published tuition and fee charges rose a bit more slowly than inflation during the five (academic) year period 1977-1982. However, after that, there were no five year periods in which the published tuition and fee increases did not significantly outpace inflation.
Overall, during the period 1982-2007, private four-year colleges saw a percentage increase in average tuition and fees in constant 2006 dollars from $9086 to $22,218. Thus, over a 25 year period, the average published tuition and fees at private four year colleges showed an increase in constant dollars of 144%. Alternatively, the private four year colleges increased their published tuition and fees an average of about 3.6% per year above the rate of inflation over the last 25 years. During the past decade, the rate has been somewhat lower, with increases being about 2.8% above inflation.
For the same 25 year period, the average tuition an fees for public four year colleges went from $2008 to $5,836 in constant 2006 dollars, an increase of 191%. Thus public four year colleges were increasing their published tuition an fees at a rate that on average exceeded tuition by about 4.4% per year over the past 25 years. The rate of increase beyond inflation over the past decade has been slightly lower, 4.2%.
NET PRICE
These published tuition and fees are, of course, the numbers that get the greatest public scrutiny and create the greatest discussion. However, it is also important to consider the net price of college after financial aid and tax benefits are included. In order to get to a value of net price, the College Board takes aggregate aid data and averages it, then subtracts those numbers from the average published tuition and fees data. This is a perfectly reasonable approach, but one needs to recognize that the resulting picture may be significantly different from what might get if one were to find the net price for every individual student, and average those nets . Included in the definition of financial aid are grants from all sources, loans and work study assistance from the federal government. Loans from private sources are not included.
Over the past decade, average net tuition and fees in private four year colleges has increased from $10,500 in academic year 1997 to $13,200 in academic year 2007 (all in constant 2006 dollars). This corresponds to a 2.4% average annual increase in net price beyond the rate of inflation. For public four-year colleges, comparable numbers are $2,100 in 1997 and $2,700 in 2007, corresponding to a 2.7% average annual increase in net price beyond the rate of inflation. In both cases, the average increase in net price is somewhat lower than was the corresponding average rise in the published price, reflecting primarily increases in loans in aid packages.
DEBT
In another recent report, Trends in Student Aid 2006, the College Board analyzes the different sources of aid directed at postsecondary education of all types. Perhaps the most important result of this analysis is that roughly 50% of student aid is federally supported loans of one type or another. This loan number includes both loans to students, and loans to parents through PLUS. The report also notes that the fastest growing component of funds used to support education is non federal loans- a source not included in the College Board calculation of net price since these loans are totally unsubsidized and reflect unmet need. It is difficult to quantify the magnitude of these non-federal loans due to the variety of possible sources. However, through annual surveys of the major lenders, College Board estimates that this number has grown over 900% in constant dollars over the last decade, and now is over $17 B per year.
All of this loan component means that means most students graduate from college with a non-trivial debt load. Of bachelors 2004 degree recipients from private colleges, 74% borrowed to support their education. Their median debt on graduation was about $20,000. However, 11% had a debt of more that $40,000, and 12% had a debt of $30,000 to $39,999. Sixty-two percent of the 2004 degree recipients from public colleges had borrowed to support their education, and their median debt on graduation was about $15,500. Six percent had debts of more than $40,000, and 9% debts between $30,000 and $39,999.
In Education Pays 2006, the College Board gives the median income for a college graduate, 25-34 years old, as about $42,000. According to government tables, a person with a $30,000 student loan will be repaying $345 a month after college. This debt payment corresponds to almost 10% of the gross median income of the graduate, well in excess of the suggested loan industry’s suggested maximum. Obviously, many graduates will make significantly more than the median and therefore will be able to handle the debt payment easily. Those below the median are likely to have considerable difficulty in repaying these larger student loans, however.
The situation for graduate students is even more serious than for undergraduates. As shown in Trends in Student Aid 2006, graduate student aid was pretty evenly divided between loans and grants (roughly 55% to 45%) in 91-92. In the following 12 years, however, grants fell off mightily, with a parallel rise in loans. The ratio in 05-06 was roughly loans 70%, grants 30%. Given that many of these graduate students must have started carrying a loan from their undergraduate work, there must be some very high levels of debt for students graduating with a graduate degree.
WHAT DOES IT ALL SAY?
Based on this data, it is hard to imagine that the ever increasing price of higher education is not having social impacts that are highly undesirable. A large undergraduate debt load must discourage many otherwise qualified individuals from going on to graduate or professional school. Similarly, many recent graduates must be unable to move into marriage and family due to debt levels that significantly exceed suggested guidelines. A recent report by the Secretary of Education's Advisory Committee on Student Financial Assistance, Mortgaging our Future: How Financial Barriers to College Undercut America's Global Competitiveness, describes how the price of higher education both discourages children from the lower and middle income groups from aspiring to college, and leads to non-completion of degrees for those who do matriculate. The report estimates that, during the 1990s, the high net price of higher education caused between .9M and 3.7M college-qualified high school graduates from lower income families to not complete a college degree. It further estimates that the continuing increase in net price means that between 1.4M and 5.5M college-qualified high school graduates from lower income families will not get a college degree in the decade ending in 2010.
Are these negative social impacts sufficient to create widespread, strong demand for tuition limitation. The answer is obviously no - today. But the wise institution should heed the famous words of Herb Stein, “ If something cannot go on forever, it will stop.” The constant drumbeat of real increases in net price seems like something that cannot go on forever.
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