College Affordability: The Wolf in Sheep's Clothing

The honorable political pledge to "make college affordable" becomes a wolf in sheep’s clothing during a recession. And the wolf is at the door. This recession already promises dramatic cuts in state subsides for public colleges and will result in widely condemned tuition increases. Mandates to hold down rising tuitions will surely follow, wrapped in the mantle of greater college affordability and access, but ultimately resulting in less of both. The urge to encourage greater access and affordability by curbing tuitions misses the mark because rising tuition rates are the effects — not the causes — of the college funding problem.

In tough times like these, the tragic flaw in policies to “make college affordable” is that they tend to focus disproportionately on reducing tuition rates rather than increasing public investments. At best, the current focus on tuition brings cosmetic changes in college sticker prices and fleeting improvements in access. At worst, it is a self-defeating tactic that provides a temporary refuge from public frustration over access and affordability. But the public frustration eventually returns because suppressing tuition only conceals the deeper gap between public investment in — and public demand for — postsecondary education and training. If our postsecondary goals are individual access, choice, quality improvement and increased graduation rates, then suppressing public tuition rates is ultimately self-defeating. Unless the lost tuition revenues are replaced with new public subsidies, the net effect is disinvestment in all our progressive college goals, especially as they affect the vast majority of working families and the least advantaged students who concentrate in public institutions.

The outcry over rising tuition in public colleges has been overblown. Political leaders, faced with declining budget resources, especially in the states, are tempted to point the public toward tuition increases as the root of the affordability problem because it deflects attention from public disinvestment in higher education, which is the real cause of rising tuition. Progressive reformers join the tuition bandwagon because it gives their cause a populist political base, but if history is any guide, the populist assault on rising tuitions will be the enemy of progressive reformers, not their ally. Populist approaches are generally better at scapegoating than they are at solving complex problems.

A major flaw in the popular narrative on rising tuitions is the failure to distinguish public from private colleges. Tuition increases affect private and public colleges differently. Public enrollments are less affected by tuition increases because of their lower threshold prices. As tuitions rise, college enrollments shift from private colleges to the lower priced publics creating an increasing public funding burden, especially in recessions when families are looking for bargains. Private tuitions distort the data on rising tuitions as illustrated by this statistic: College tuition rates have risen more than 300 percent since 1987, when overall prices have only risen by a little more than 80 percent. Look closer and you will see that the big tuition increases come at the high-priced private institutions, not the public colleges. Tuition increases in public colleges have been relatively constrained and competitive. According to the College Board Trends in College Pricing survey in 2007, tuitions at four-year public colleges have risen by a little more than 50 percent in the last ten years and by about 20 percent in public two-year colleges – a far cry form 300%.

A deeper confusion stems from the fact that the dominant narrative on affordability fails to distinguish between college tuition and college cost. Tuition is the price that students and families pay for college. Cost is what colleges pay to educate students.

The Delta Cost Project on Postsecondary Costs shows that costs in public postsecondary institutions have risen by less than 5 percent since 1998. That’s a relatively mild increase in an industry that is as labor intensive as education. It’s also a relatively mild increase in cost, given the fact that in public colleges, tuition never covers full cost. Public postsecondary education is one of the few businesses where every new customer means bigger losses.

But why, one might still ask, are public college costs rising at low single digit levels when public college tuitions are rising at double digit levels? The answer is that governments, especially state governments, are paying a declining share of increasing costs at public colleges. When governments pay less, students have to pay more through rising tuition and fees. At public colleges rising tuitions are more about cost shifting than cost increases.

The current narrative on tuitions and college affordability also distracts us from an even larger point. America’s college affordability problem derives from fundamental structural changes in the role of higher education in our economy and society. Higher education has become a mass educational institution and the threshold requirement for individual access to the broad middle class. It has become the keystone institution in the transition from youth dependency to an independent adulthood and successful family formation. As the economic and social demand for postsecondary education grows, public higher education becomes increasingly stranded as a mass democratic institution with no dedicated and countercyclical public funding source.

Already, the scale of our public commitment to postsecondary education has outrun the scale of our public financing policies. Once access to postsecondary education became the threshold requirement for middle class earnings and status in the 80s, it was only a matter of time before public officials got backed into a commitment to postsecondary education for all. The Clinton administration, in hot pursuit of a second term, dropped “School to Work” and set the new mark for educational attainment at high school plus two years of postsecondary education. Even in the Bush years, as early as 2006, the Spelling’s Commission on Higher Education dismissed the notion of four year college for all, but embraced its homely country cousin “postsecondary education and training for all”: “We acknowledge” they wrote “that not everyone needs to go to college. But everyone needs a postsecondary education”.

The wholesale increase in our postsecondary ambitions dwarfs the retail politics of rising tuitions. Even a back of the envelope analysis shows that making postsecondary education affordable on a larger scale will cost more money than we can conceivably save by cutting the fat out of rising tuitions, especially in public colleges where we already trimmed the fat and are now cutting into the meat and bone. We now spend $320 billion per annum on postsecondary education, providing postsecondary degrees to a little more than one-third of our recent youth cohorts. With no productivity increases in the use of higher education funds, it would cost roughly another $160 billion to increase the current postsecondary graduation rate to include fully two-thirds of a youth cohort. That wouldn’t buy universal access, but it would be a significant down payment that gets us two thirds of the way to the oft stated goal of postsecondary education and training or all.

We won’t solve this larger affordability problem in the context of our current funding and reform models. The current recession will make our financing problems obvious. If the past is any guide, the recession will force deep cuts in education spending because, unlike other public functions, education spending is discretionary. The brunt of the education cuts will target public higher education because K-12 funding is more community based, has stronger federal mandates and garners the lion’s share of union support. And in some states K-12 isn’t really discretionary anymore since it became the subject of court ordered financing reforms in the seventies and more recent rulings to enforce “adequate” spending.

The college students from low-income families and nontraditional students are hit the hardest in recessions. With revenues down, public colleges reduce need-based institutional aid and academic advising, increase class sizes and limit course offerings. Accountability measures, like on-time graduation rates that tend to accompany austerity measures, only exacerbate the increased postsecondary stratification that comes in hard times. Gradually, as resources decline, public colleges have no choice but to gradually abandon low-income and working class families and go up-market after traditional full-time students from affluent families who pay full boat and graduate on time.

As state budgetary pressures concentrate and converge on higher education, we will likely see a familiar political shell game inside higher education financing. The states will reduce institutional aid to public colleges with one hand and increase student aid to in-state voters with the other. But they always take more away in institutional aid than they give in direct aid to voters. In the worst cases, the state governments catch the public colleges coming and going. They cut institutional budget requests and then enact unfunded tuition mandates when colleges are forced to raise tuitions.

The feds are unlikely to fill the funding gap left by the states. Both political parties at the federal level already seem trapped by the affordability argument. Republicans blame the colleges for high tuitions. When they last controlled the House, they issued a report accusing colleges of “kicking middle America in the teeth.” Democrats have responded to tuition increases by defending the colleges and blaming state politicians. They point out that federal aid for colleges has nearly doubled, but that states are substituting federal dollars for declining state funds that are going to state tax cuts. Accordingly, Democrats want to penalize states for high tuitions and Republicans want to penalize colleges. Either way, public college revenues go down.

One way to ease the funding crunch has been to let markets have more say in determining public college tuitions - and this may have particular appeal for the more elite public flagships. It shouldn’t be surprising that in the knowledge economy, college is worth a lot more than it costs. Most selective public and private colleges still leave a lot of money on the table when they set their tuition rates. And the data from the Delta project shows that we would have to more than double tuitions at public four-year colleges and triple tuitions at public two-year schools to cover full costs. If you think tuitions are high now, you haven’t seen anything yet.

Yet allowing markets full reign would result in a precipitous decline in access and choice among working and working-poor families. Already, more than 500,000 students from working families who graduate in the top half of their high school class don’t get a two-year or four-year degree within eight years after leaving high school. In general, high school students from low-income families attend and graduate from four-year schools at half the rate of students from affluent families, even when they are equally qualified.

Another remedy, popular with economists, has been to let tuitions rise to market rates but charge students based on their state residence and their ability to pay. This “high-tuition/high-aid” solution is straightforward and mathematically elegant, but it has already failed because it is politically untenable. Ultimately, it requires tuition increases focused on suburban middle-income voters who are decisive in modern electoral politics. Both federal and state public subsides for higher education have been shifting toward these middle-income families since the Carter years, even though the vast majority of students from middle-income families would go to college regardless.

There are other ways to minimize the usual pattern of disinvestment and reduced access. We could discipline funding and tuition policies with stronger outcome metrics. Public colleges could be provided additional funding based on their success in maintaining or increasing overall enrollment and completion rates. Additional funding could be available for those who maintain or improve enrollments and completions for students in the bottom three quartiles of family income, first generation college students and Pell Grant recipients.

The notion of tying funding to outcome measures is the key insight behind new efforts by the Lumina Foundation and the Bill and Melinda Gates Foundation. Both have set out to make a down-payment on universal postsecondary access by essentially doubling the share of postsecondary degrees and certificates. The Carnegie Corporation’s recommendations on investing in higher education as a core element of the nation’s infrastructure also deserve more attention, as long as we’re talking about building instructional facilities and dorms, not new spinning studios and climbing walls.

In crafting its stimulus packages to counter the current and future recessions, the federal governments also needs to recognize that higher education is an industry that requires countercyclical funding. The postsecondary revenue base declines in downturns. Consequently resources decline precisely when college becomes the best place for people to ride out a recession and build human capital that will spur future growth and individual earnings.

Eventually, we will have to find more permanent solutions for the college funding problem or we will pay a political and economic price. World Bank data show the United States spends more than any other nation on postsecondary education; yet, our spending per student consistently runs behind our GDP growth. UNESCO data show that our public spending on higher education is declining, while spending by private individuals and institutions is increasing at double the rate public spending of GDP. The public and private revenue gap ensures growing inequality between public and private institutions and students. Data from the Delta Project, for example, show that public two-year institutions now generate revenues well below $10,000 per student, while private research universities are able to mobilize revenues approaching $50,000 per student.

The pressures for greater public investment in higher education will only grow because the demographic and economic realities that drive them are relentless. We just graduated our largest high school class in a generation and the economic demand for college educated workers continues to rise at startling rates. Since the early seventies, jobs for people with at least some college increased from 25 million to almost 100 million and wage advantages for college increased throughout this period – in spite the huge increase in the supply of college educated workers. Our forthcoming projections at the Georgetown Center on Education and the Workforce show more of the same over the next decade. If anything, the current downturn will only accelerate economic restructuring in favor of college-educated workers.

Meanwhile, the college cost crunch will probably continue to sort us into a nation of college-haves and college-have-nots. Our best public and private colleges will probably continue to become pricier, and fewer of us will be able to afford them. Everybody wants college at a cheaper price, but we should be careful what we wish for. If we don’t watch out, we will end up with high priced first-rate private colleges for the affluent and “affordable,” but second-rate public colleges for everybody else.