College costs again on Congressional radar

College costs again on Congressional radar

Hartle, Terry

A look at what’s happening with

Once again, the price of higher education is a federal controversy.

The pending reauthorization of the Higher Education Act got off to a troubling start when California Congressman Howard “Buck” McKeon gave a speech to the Education Finance Council, a student loan industry group, in which he outlined a plan to minimize increases in college and university tuition. “For the decade that I have been in Congress,” he said, “I have heard people on all sides of the issue talk about making college affordable for American families with little result. Unfortunately, talk has been cheap and legislation has been toothless.”

Congressman McKeon’s plan is not fully developed but, if approved, it won’t be “toothless.” According to his speech, the federal government would develop a “college affordability index to determine if institutions are keeping their college cost increases within a reasonable rate.” Schools that increased tuition, fees, room, and board by twice the rate of inflation in any year would be required to provide the U.S. Department of Education with a strategic plan for improving college affordability. If the rate of increase remained the same by the following year, it would trigger a variety of sanctions, including making the institution ineligible for federal student financial assistance.

A little background: Congressman McKeon chairs the 21st Century Subcommittee, the panel that will have primary responsibility for reauthorization in the House of Representatives. He is a thoughtful and articulate member of Congress who is deeply concerned with access to higher education for all Americans. His own story is a testimony to the fluidity of higher education: He dropped out of Brigham Young University just before graduation to raise his family. He became a successful businessman-he ran a chain of men’s western wear stores-but he returned to Brigham Young and received his degree in 1980, the same day that his oldest daughter earned hers. Higher education advocates like and respect him. He is patient and willing to listen-traits that set him apart from more than a few members of Congress. Indeed, he is regarded as one of the nicest elected officials in Washington.

His proposal for reducing tuition increases-while still unformed-could easily become a breathtaking expansion of the federal government’s regulation of colleges and universities. Using government “sanctions” to affect the prices charged by manufacturers is, quite simply, federal price controls. As such, the idea is an anathema to most policy makers, especially conservatives and economists.

Increases in college tuition have been problematic for years. In 1973, U.S. News and World Report expressed concern that recent tuition increases would “force many young people to reconsider their plans for a college education.” At the time, the average cost for a year’s tuition and fees at a public university was $630 and the average private university charged $2,500. Today’s comparable numbers are $4,081 for public schools and $18,273 for private.

This is not Mr. McKeon’s first interest in this issue. He championed the establishment of a National Commission on the Cost of Higher Education in 1997 to investigate the increases in college prices. Chaired by Bill Troutt, now the president of Rhodes College and chair of the ACE Board of Directors, the Commission issued a well-received report that did much to sort out the complex world of higher education finance.

But that was six years ago, a lifetime in American politics. And the underlying issue has not gone away: As a result of the economic downturn, many states now are imposing double-digit tuition increases on public colleges-just as Congress turns to reauthorization of the Higher Education Act. Unfortunate timing, to say the least.

Clearing Up the Misconceptions

The idea that the federal government can or should regulate tuition at colleges and universities is based on two dangerously flawed assumptions. The first is simply that colleges get most of their revenue from tuition. They do not. Public institutions depend on state governments for much of their operating support and, in the last 20 years, states have systematically reduced spending on higher education and increased tuition to make up the difference. In 1980, states provided 46 percent of the operating support for public colleges and universities. By 2000, that amount had fallen to 34 percent. Not surprisingly, during the same period, tuition as a source of revenue increased from 13 percent to 18 percent.

Sadly, the economic downturn has accelerated this trend. Timothy Egan recently wrote in the New York Times, “The states are desperate, struggling with their worst financial crises since World War II. They have tapped rainy day funds, raided tobacco money that was supposed to have provided health care for children, and taxed every possible vice… Now, as states scramble to find ways to cut nearly $100 billion this year and next from budgets that must by law be balanced, the cuts are much larger, and their effects are profound” (April 21, 2003). In other words, tuition in the public sector is likely to continue to climb. It’s deplorable, but, given the state of the national economy, it’s also inevitable.

Private colleges and universities face different circumstances. While few receive significant amounts of state aid for their operating budgets, the economic downturn has hammered their nontuition revenue sources. The value of endowments (and hence the income they generate) has fallen in each of the last two years. In addition, philanthropy has fallen off: The Council for Advancement and Support of Education recently reported that gifts to colleges and universities dropped 14 percent in the last year. Corporate philanthropy has also declined. When these revenue sources drop, private colleges must either slash their budgets and diminish academic quality and student services or increase tuition to compensate for the decline in other revenues.

The second assumption behind Mr. McKeon’s plan is that tuition growth can be restrained without compromising academic quality. All colleges devote a majority of their operating budgets to salaries and other personnel costs for faculty and staff. So the only way to cut spending significantly is to reduce human resource costs. Doing this would mean larger classes, fewer seminars, more part-time faculty, and less qualified, less experienced instructors. Non-academic personnel-such as counselors and health care and security personnel-could be reduced, but such steps would diminish the services available to students and the quality of life on campus.

Other budget cutting steps will not be a panacea. For example, a college could neglect improvements in laboratories, decline to renovate buildings, purchase fewer books for the library, or fail to upgrade technology. But the cumulative impact of these and similar steps would undermine educational quality.

Discussions about college costs and prices are difficult because, as the National Commission pointed out in 1998, the issue is extraordinarily complicated. Tuition, the Commission noted, never covers the full cost of education and every student receives some subsidy, even if he or she pays the full posted price. It is as if General Motors sold each car it makes at a price below what it cost to produce the vehicle. Moreover, most students pay something less than the full posted price because financial aid reduces the charge. Even the words “cost” and “price,” while used interchangeably, have very different meanings.

Ironically, the evidence about what families actually pay may be somewhat less ominous than newspaper stories suggest. A recent report by the Department of Education compared “sticker prices” (the published price that an institution charges) with net prices (the actual out-of-pocket cost to the student after receiving assistance) between the 1992-93 and 1999-2000 academic years. The federal study concluded that, for almost all types of postsecondary institutions, the net price paid by students increased far less rapidly in the 1990s than the sticker price. Even more important, in most cases, the sticker price for low-income students grew much less rapidly than it did for higher income students. In other words, student aid helped cushion tuition increases even more significantly for low-income students than for their more well-heeled counterparts.

Danger: Obstacles Ahead

This information, while reassuring, does not in any way alleviate the difficulties that the higher education community faces in dealing with this volatile issue on Capitol Hill. First, the issue is so complex that an informed discussion with policy makers and the media is exceptionally difficult. Explaining the factors that drive college costs higher never gets any easier. Nor does convincing a skeptical public why the con-sumer price index is not a good benchmark to measure changes in college prices.

Second, low-income students-even highly qualified low-income students-remain far less likely to participate in higher education than students from high-income families. In short, for many low-income families, price matters a great deal, regardless of how much student aid may be available. Rapid increases in tuition will exacerbate their concern.

Third, political and media attention on this issue will get worse before it gets better. The devastating budget cuts being inflicted on public colleges and universities this year suggest that the average price increases facing students this fall will be about 10 percent or higher. Double-digit tuition increases that come when consumer prices are rising by less than 4 percent and when Federal Reserve Chairman Alan Greenspan is openly worrying about the dangers of deflation are bound to attract media attention.

Finally, the biggest challenge facing higher education in dealing with this issue may simply be that it is still a subject of concern, more than six years after the Commission on the Cost of Higher Education warned that “continued inattention to issues of cost and price threatens to create a gulf of ill will between institutions of higher education and the public they serve…a development that is dangerous for higher education and the larger society.”

Public policy problems do not always have neat and easy federal solutions. But that does not mean that policy makers will abandon the search for some way to address the issue. Indeed, as Congressman McKeon’s proposal indicates, even federal officials who care deeply about the issue at hand may sometimes advance solutions that are far worse than the problem they hope to solve.

TERRY HARTLE is senior vice president at the American Council on Education.

Copyright American Council on Education Spring 2003

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