Tempering Tuition Hikes

June 30, 2010

Private, nonprofit colleges will hike tuition and fees by an average of 4.5 percent in the coming academic year, outpacing inflation while still holding close to last year’s nearly 40-year low increase rate, according to a survey released Tuesday by the National Association of Independent Colleges and Universities.

The 4.5 percent increase for 2010-11 follows a 4.3 percent increase for 2009-10, which was the smallest increase since 1972-73.

“I think it’s a pretty fundamental adjustment that we’re seeing here,” said David L. Warren, NAICU president. “What we’ve got is a recession, which has indefinite future to it, and recognition all around that colleges want to hold their expenses as low as they can, and that includes of course the tuition they’re charging.”

The colleges are also increasing institutional student aid by 6.9 percent, the survey found. Historically, much of that aid has been granted without consideration of financial need.

The 4.5 percent tuition increase for private colleges falls below the 10-year pre-recession average of 6 percent, and Warren said he expects the increases to stay in the current range for years to come. But this year’s average increase is still more twice the rate of the Consumer Price Index – a key inflationary measure. For the 12-month period ending in May, the index increased by 2.0 percent, the U.S. Bureau of Labor Statistics reported.

Notably, private colleges are outpacing inflation rates with tuition hikes during a period when inflation itself is rising at its lowest rates in decades. Core inflation, which excludes volatile food and energy prices, has grown just 0.9 percent in the past year -- the smallest increase since 1966.

Jane Wellman, executive director of the Delta Project on Postsecondary Education Costs, Productivity and Accountability, said it’s telling that private colleges continue to hover a couple of percentage points above the Consumer Price Index.

“While the fact that they are increasing need-based aid is good, it would seem to suggest they are still looking primarily to revenue solutions rather than restructuring costs,” said Wellman, NAICU's former vice president for government relations.

Some college leaders argue that the Higher Education Price Index (HEPI), which is based on expenditures like faculty salaries that are common to colleges and universities, is a better measure of cost increases across higher education. That said, annual HEPI increases are typically about 1 percentage point higher than the Consumer Price Index. In what appears to be an indication of colleges curbing spending this year, in large part through salary and hiring freezes, the 2010 HEPI increase is expected to be 0.9 percent -- more than a percentage point lower than the CPI.

Richard Vedder, an Ohio University economist who has long argued that colleges charge too much, said it’s notable that private colleges increased tuition above both a nationally-accepted rate of inflation (the Consumer Price Index) and HEPI. HEPI is often subject to critics – Vedder among them – who say that it shouldn’t be used as a benchmark for tuition, because it’s an index that increases based on what colleges spend – not necessarily the true costs they carry. If administrative salaries increase, for instance, HEPI goes up in tandem, regardless of whether those raises were reasonable or necessary, Vedder said.

“If all schools increase their spending a lot from one year to the next, the HEPI tends to rise more than it otherwise would,” said Vedder, who served on former Education Secretary Margaret Spellings’ Commission on the Future of Higher Education. “So the schools are creating their own alleged inflation and then they use that as an excuse to say ‘Oh our costs are going up so much.’ The cost of college is going up hardly at all, according to that index, but the tuition rates are [up] 4.5 percent. Why?”

Warren would provide two big reasons: information technology and health care.

“We’re looking at double digit increases along both those areas in the independent sector,” he said.

But Warren does not expect the projected level of tuition increases and a lagging economy to drive students from private colleges, noting that enrollments did not decline last year for the sector overall – although there were certainly individual exceptions – in the way some had predicted they might.

“We’ll see in September whether the increase in enrollment happens, as I believe it will,” Warren said. “Last year the drama was this was to be ‘Apocalypse Now’; it didn’t happen then, and I don’t believe it will happen September of 2010.”

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