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Holding the Line

July 23, 2013

Colleges' effort to increase tuition revenue, now the dominant form of funds for most colleges and universities, is running headlong into a public that is reluctant to pay much more for higher education. That is truest of all for wealthy families.

An annual survey released today by Sallie Mae and Ipsos Public Affairs found that the amount families paid for college -- a number that includes savings, current income and borrowing by both students and their parents, as well as some outside and institutional scholarship and grant dollars -- leveled off for the school year that ended this summer after falling between 2009 and 2012. For the most recent year, families paid an average of $21,178.

The report’s authors say the survey’s findings are a reflection of a “post-recession reality” in which families are becoming more cost-conscious about both where to attend college and how they can save money while attending. They had few expectations that this year's findings represent the start of a turnaround.

“It felt to me that this year we’ve entered into a post-recession reality in how families are paying for college,” said Sarah Ducich, senior vice president for public policy at Sallie Mae and an author of the study. “Even though college costs continue to increase, the amount that families are spending is holding steady, meaning they’re making choices in a mostly cost-conscious construct.”

The percentage of families taking various steps to control their costs, including having their children live at home or add roommates, have continued to increase. And the survey continues to find families ruling out colleges because of price at various points in the college search process, including before getting any information about financial aid, a trend that could harm institutions with high sticker prices that actually offer sizable discounts or scholarships.

The findings, like those of the past few years, could continue to be troubling for colleges that are struggling to bolster net tuition revenue – the amount of money colleges take in once institutional aid is subtracted -- since they indicate a reluctance to pay more than an average of about $24,000 a year for college, even among high-income families.

Sallie Mae's 2012 version of the survey was one of the sources Moody’s Investor Service relied on when the ratings agency downgrading the entire higher education sector’s outlook to negative, saying, “The study highlighted that since the economic downturn in 2008, higher education consumers have been more receptive to lower cost alternatives such as community colleges or colleges closer to home in order to avoid the cost of living on campus.”

Earlier this summer Loyola University New Orleans reported a significant shortfall for its incoming class, and is expected to fall about 25 percent short of its goal of 875 students. The university’s president said that while no formal conclusions have been reached as to why the university came up short, he suspects it might be tied to efforts to decrease the amount of financial aid it was giving out.

Unlike previous years’ studies, where shifts between sectors – often from more expensive private and public four-year institutions to lower priced two-year institutions – accounted for some of the decrease in overall spending, the percentages of respondents from each sector were fairly constant between last year’s survey and this year’s.

“The big question I have is whether these decreases in spending are a function of just not spending as much for non-tuition [costs] or whether students are going to less expensive institutions,” said Art Hauptman, an independent public policy consultant specializing in higher education financing issues. Hauptman said shifting between institutions could be much more problematic for institutions, since that would mean less in tuition revenue.

The survey does not break down what families are spending on tuition versus what they’re spending on other costs, such as housing, food and transportation. Many of the “cost saving” steps the survey asks about, such as living at home and adding a roommate, would deal with these secondary costs, which a College Board study last year found was a major driver of increases in the cost of college.

But the Sallie Mae survey might not be all bad news for institutions. On most metrics of financial worry, parents were more optimistic than they have been in the past. For many statements about their individual financial situations, including “Value of savings will be lower,” “Income will decrease due to job loss” and “Home value will decrease,” the proportion of parents who said they were “very worried” was lower than it has been in any year of the survey, including 2008. Only 28 percent of parents said they were very worried that colleges would increase tuition prices next year, potentially a reflection of the number of tuition freezes enacted nationwide.

The Sallie Mae report, now in its sixth year, surveys only traditional-aged students at public and nonprofit private colleges and universities, so it does not take into account some major shifts in the higher education landscape in recent years, including a growing number of nontraditional students, growth of the for-profit sector, and changes in graduate and professional student enrollment.

Not Willing to Pay

The biggest shift since the amount paid for college peaked around 2010 is the dramatic decrease in spending by high-income families. For the 2009-10 school year, families with incomes of more than $100,000 spent an average of $31,245. In the most recent school year, those families spent an average of $23,913. (The shift is less dramatic if 2009-10 is excluded, since high-income families are still pay more than they did in 2008-9.)

A study by the Education Consultancy, an enrollment and marketing consulting firm, found a large gap between what affluent families could be expected to pay based on federal calculations and what they are willing to pay. Families that make more than $250,000 a year said they should only be expected to contribute between $21,000 and $25,000 a year, even when some officials argue they have the ability to pay as much as four times that.

According to the Education Consultancy’s research, high-income families said they would be willing to “downgrade” their choice of institution -- move to an institution they view less favorably -- if the “downgrade” institution offers a better scholarship package or if it has more affordable tuition rates.

“Even for people who theoretically had advantages, who would be the traditional market for private higher education, they’re saying, ‘Look, unless my son or daughter is talented enough to be attracted and admitted to a truly elite place, is it worth it paying that higher price?’ ” said Dan Lundquist, vice president for marketing and enrollment at the Sage Colleges who also runs the Education Consultancy, in an interview earlier this month.  

Some of the decrease in spending among high-income families noted in the Sallie Mae survey could simply be the result of how the groups are determined. The survey lumps all families who make more than $100,000 a year into the same category, and for many of those families $21,000 is becoming a larger burden, especially as other household costs increase.

At the same time, however, the average amount that middle-income families (those making between $35,000 and $100,000) paid for college increased this year. "Some of these families really stepped it up in income and savings," Ducich said. "Plus we're seeing more middle income families plan [for paying for college] than in previous years."

Fewer high-income students paying high prices could also mean that there’s less institutional aid money available for low-income students. A study by the New America Foundation released earlier this year found that increases in non-need-based aid spending – often awarded to middle class, non-needy students – often came at the expense of need-based dollars and enrollment of low-income student.

Not Able to Pay

The other major shift in overall payments is that parents’ share of spending on college has decreased in both real dollars and as a percentage of overall spending. In 2009, parents’ income and savings ($6,997) and borrowing ($1,749) accounted for about 45 percent of what families spent on higher education, according to the survey. In 2013, parents’ income and savings ($5,727) dropped and their borrowing increased slightly ($1,844) while the overall cost increased, meaning parents contributed only about 36 percent to the overall bill.

The decrease in spending by parents is partly the function of a stagnant economy nationwide, Ducich said. “I definitely think we’re seeing stress on parent income,” she said, “and that drives the cost consciousness.”

Over the past few years, increases in student borrowing and grants and scholarships made up the difference, and grants and scholarships have now supplanted parent spending as the major source of college funds.

At two-year public institutions, scholarships and grants have grown from making up 15 percent of how families pay for college to 33 percent, according to the survey. While overall costs have increased almost $3,000, according to surveys over that time, the growth in scholarship dollars has held the increase in the non-scholarship costs to only about $600.

Between 2009 and 2012, the proportion of families ruling out colleges based on price increased from about 53 percent to 69 percent. Those numbers seemed to have leveled out a bit, with 67 percent of families excluding a college at some point in the process because of price in 2013.

The survey also finds that more students are living at home. The percentage of students living at home has grown from 44 percent in 2011 to 57 percent this year. While it was most common among community college students – 83 percent of whom lived at home – more than 40 percent of students at four-year institutions also reported living at home.

Not All Bad News

The report’s authors are fond of pointing out that, despite the reluctance to pay higher prices, families still express a belief in the importance of higher education and are willing to take steps to pay for it. Overwhelming majorities of students and parents still say that higher education is needed for a desired profession and to earn more money, and almost all view it as an investment in their futures.

This year’s survey was also the first time since the study began that more parents said they strongly agree with the statement that they would send their child to college “for the intellectual and social experience regardless of whether my child earned more money with a college degree” than in the previous year.

The other bit of good news for institutions is that this year’s survey reported the highest percentage of families using 529 savings plans to pay for college, with 17 percent of families using such plans. The number of low-income families who say they have a plan to pay for their child’s entire college education has been on the rise in recent years.

If more families are saving now for their children’s educations, that could result in more of them able and willing to pay higher prices further in the future.

 

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