A large number of recent reports and articles have heralded the demise of American higher education, either with regard to inadequate financing of the system or the eroding scope of the enterprise. But a closer analysis of the data behind these reports indicates that many of the statements are at best misleading and, more often, half true or simply untrue. Below is further analysis of 10 of the most prominent of these statements.
1) Federal funding for higher education has declined substantially over the past decade. Untrue. Contrary to many assertions about declines in federal funding, all major sources of federal support for higher education have grown substantially over the past decade in real terms when adjusted for inflation. Pell Grant funding, for example, has more than doubled in real terms since 2000, much of it the result of the unprecedented increases in funding that was part of the economic stimulus package of 2009. As federal student loan volume has grown to $100 billion per year and outstanding student loans have reached $1 trillion, federal spending for in-school interest payments, defaults and other student loan related items has also roughly doubled in real terms. Tax expenditures for higher education have also more than doubled in real terms through expansion of tuition tax credits and tax-sheltered Sec. 529 college savings plans. For the other major form of federal support of higher education – funding of university-based research -- even with recent slowdowns, the trend in the 2000s was that spending for research at universities or government-sponsored labs grew by roughly 50 percent in real terms.
2) States have been disinvesting in higher education for decades. Half true. State funding per student has declined in real terms since 2000 and especially between 2007 to 2012, when it fell by 25 percent in real terms. But in terms of the longer run, states consistently increased their funding for higher education over the second half of the 20th century; in real terms, state funding per student peaked in the late 1990s. Moreover, trends in state funding per student are very much inversely tied to trends in enrollments. When enrollment growth is rapid, as in the 2000s, per-student funding tends to decline in real terms, but when enrollment growth is slow, as in the 1990s, state funding per student has tended to rise. Fully half the 25 percent decline in state funding per student in the past five years is attributable to a 15 percent increase in public sector enrollments during that time.
3) Increasing tuition is the only way in which public institution can react to government cutbacks. Half true. Raising tuition and fees is certainly one way that public colleges and universities react to cutbacks in state funding. But it is far from the only way. Another mechanism for public institutions to react to state funding cuts is to adjust enrollments, either up or down. While some institutions have curbed their enrollments to deal with reduced state funding levels, the data suggest most institutions have increased their enrollments to bring in more tuition revenues. It also seems that most public institutions over time have “double dipped,” in that they have both increased their prices in real terms per student and increased their number of students. In fact, over an extended period of time stretching back to the 1970s, enrollments in public higher education have increased considerably faster than prices per student in real terms.
4) Tuition has increased five times faster than inflation over the past several decades. Misleading. A number of reports and media articles have indicated that tuition and fees have grown four or five times faster than inflation. While this kind of statement is technically true -- tuition and fees since 1980 have grown multifold more than inflation -- it ignores the basic economic concept of compounding. By way of example, say you have two investment accounts -- one that grows at 3 percent per year and the other that grows at 6 percent per year. After 25 years, the 6 percent account will be three times larger than the 3 percent account, but it would be misleading to say that the rate of return was three times larger than the 3 percent account. The fact is that the rate of return of one was twice that of the other. Similarly, with tuition, the more accurate statement is that after adjusting for inflation, tuition and fees in both the public and private sectors have grown slightly more than twice as fast as inflation over the past 30 years.
5) Prices and spending in higher education have increased far faster than in health care. Half true. One of the most oft-repeated statements is that tuitions are the fastest-growing prices in the economy, exceeding even the exploding health care sector. This statement is correct when one compares the growth in tuition and fees to the health insurance premiums or other measures of the price of health care. But when it comes to how much is spent in higher education and health care, there is no comparison; health care “wins” in a walk. Since 1965, higher education spending has remained between 2 to 3 percent of the country’s gross domestic product. Health care spending, by contrast, has grown from 6 percent to 18 percent of GDP in that same period of time, and thus now accounts for nearly one-fifth of the total economy. It seems the establishment of Medicare and Medicaid in 1965 and the subsequent growth of these federal programs have allowed health care premiums to rise much more slowly than the underlying spending on health care. By contrast, prices in both public and private higher education, perhaps as a function of greater availability of student aid, have grown more rapidly than underlying spending patterns.
Nor are the myths and mischaracterizations about the decline in American higher education limited to statements about financing. There are also many inaccurate and misleading statements about the scope of the enterprise in terms of participation, completion and attainment, including the following:
6) Higher prices have led to a decline in enrollment levels and participation rates. Untrue. While it is certainly true that many potential students decided not to enroll in college because of exploding prices, the data clearly indicate that many more have decided to go to college despite the higher charges. Enrollment levels are at an all-time high as more than 20 million students now enroll in postsecondary education programs every fall. And the U.S. participation rate is also at an all-time high, as more than 70 percent of high school graduates now enroll in a postsecondary program in the following year. Part of what is going on is that the college wage premium – the difference between what college and high school graduates earn in the labor force -- remains high by historical standards, which helps persuade many to attend even in the face of higher prices. But it is also the case that higher tuition levels have had a supply-side effect of generating more revenues, which allow institutions to offer more seats.
7) Completion rates in the U.S. are low relative to many other countries and declining over time. Half true. It is correct to say that completion rates -- the percentage of students who complete the program they began -- are modest in the U.S. relative to many other countries. But it also needs to be said that a principal reason for the low completion rates have to do with the open access philosophy at many institutions in the U.S. where there is little in the way of admission standards. While this philosophy has been critical to the high participation rates in the U.S. and the creation of a universal system of higher education, it is antithetical to having completion rates as high as those in countries with elite systems of higher education in which a small proportion of their population enrolls in higher education.
8) The U.S. is falling way below other countries in the share of young people with a postsecondary degree. Misleading. By far, the loudest drumbeat in the higher education debate over the past decade is that the U.S. is falling behind many other countries in our attainment rate – the share of the population with a degree – especially among younger adults. This is a true statement – the U.S. is now in the middle of the pack on attainment, especially when all postsecondary degrees and the youngest group of adults are being measured.
But what this accurate statement ignores is that many of the countries that are overtaking us on these statistics have terrible demographics – countries such as South Korea, Japan, the Netherlands, Norway and others with rising attainment rates have declining numbers of young adults, a function of low birth rates and low levels of immigration. So these countries are educating a growing proportion of a declining number of young adults -- and as a result they will have much more trouble meeting their labor force needs than we will with growing numbers of young adults.
9) This is the first generation of young adults to have an attainment rate lower than the oldest group of adult workers. Untrue. Another coda of the drumbeat about the decline in the U.S. attainment rate relative to other countries is the assertion that this is the first time that the current generation of young adults has a lower attainment rate than the oldest group of adult workers. This assertion springs from the fact that in the U.S., the oldest group of working adults now have an attainment rate roughly equal to the share of the youngest group of adults with degrees. But this equality in rates springs primarily from the fact that the cohort of adult workers now aged 55 to 64 has had a remarkable experience in which a large number of them gained a degree after they were 25 years of age.
That older group now has a bachelor’s attainment rate of 30 percent, but the attainment rate of those in the group was only 22 percent 30 years ago, when the group’s members were 25-34 years old. It is simply not a good idea to compare the experience of two different age groups as a snapshot because it fails to recognize the path each group took to get to where it is. Suffice it to say that today’s young adults have a much higher attainment rate than when the older group of working adults were their age, and if history is any guide, the attainment rate of today’s young adults will increase even more as they mature.
10) Attainment rates in the U.S. have been flat for decades. Untrue. A corollary to the argument that the U.S. is falling behind other countries is that our attainment rate has been flat or even declining while theirs have been increasing. But the notion that our attainment rates have been flat is simply untrue. The source of the statement is the accurate fact, as discussed above, that older adults now have as high an attainment rate as the youngest group of adults. But that’s because lifelong learning is working in America. The underlying Census data make it clear that the attainment rates of every age group has increased over time, and that attainment rates and the number of degrees awarded are at an all-time high. Attainment rates for at least a bachelor’s degree for all working age adults have tripled over the past 40 years; for the youngest group of adults, attainment rates have roughly doubled. Contrary to many reports, more Americans of every age group have college degrees than ever before.
American higher education, to be sure, faces a number of serious challenges if it is to produce a work force for the future that is globally competitive. But the debate about what those challenges are should be based on an accurate recounting of the facts and not on the recitation of a persistent set of myths and mischaracterizations that bear little relation to reality and only serve to muddy the waters.
Arthur M. Hauptman is an independent public policy consultant specializing in higher education financing issues.