The Continuing Nightmare: Tuition and Fees will Double in Less than 20 Years

by Watson Scott Swail, President & CEO, Educational Policy Institute

There is always a lot of talk about college costs and future issues in higher education. I’ve written extensively about our inability to recast the higher education system due, in part, to the sheer weight of historical antecedents. That is, the system is burdened by the largess and bureaucratic nature of the system itself. Large systems are difficult to change. Making this issue more complex, the postsecondary system in the US and Canada are public/private partnerships, where taxpayers and users both contribute to pay the costs. The public contribution, naturally, occurs largely through state, provincial, and federal governments. This isn’t just about direct subsidies to institutions, but investments by expenditures to students, R&D funding to institutions, transfers from federal governments to state governments through block and other tax-sharing vehicles, and even bureaucratic supports to coordinate systems (e.g., state offices of higher education). All levels and types of higher education receive support, in some type, from taxpayers, including proprietary schools, via need-based and other grants, scholarships, and subsidized loans.

Still, the rising cost of a higher education in the United States, for example, is far outstripping aid and other supports. As I do every few years, I have taken data from the College Board to calculate historical annual increases in tuition and fee charges by institutional sector, and used these data to extrapolate prices into the future. Instead of picking a point of time, such as 25 years, I am more interested in the doubling point: that is, how many years will it take for tuition and fees to double in a particular sector. See the Exhibit below.

Tuition

CLICK ON GRAPHIC TO ENLARGE

The quickest doubling consistently is always at the four-year public university, which in our analysis will double in 17 years. This is followed by two-year institutions (23 years) and then four-year, private, not-for-profit institutions (27 years). Some people are surprised that the private institutions have the slowest growth, but they have consistently had smaller annual rates of increases than other sectors. The challenge is that there foundation of costs is so much higher that the actual cost increase is much higher than the public institutions.

Let’s put this in perspective so we can understand the ramifications of this analysis. And first, to be clear, I understand full well that we are not talking about net cost of college here, nor are we talking about room, board, and other costs, although I will bring them into the fold quickly. As well, these are projections and there are many other contributing factors we cannot possibly know about or understand. These figures could very well be wrong depending on what happens with the economy, what Congress and state governments do with their funding priorities, and even how technology impacts delivery-based costs. But is of enough interest to understand the trends and the potential of future increases in prices on college affordability. My guess is that these values are actually very conservative and the damage will likely be worse. But perhaps that’s me being “half empty” right now. Use your own judgement.

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In 2013-14, the average tuition at a four-year public institution was $8,893. At an average increase of 4.3 percent, this will double in 17 years, when the tuition and fee charge will be $18,089 in constant dollars (i.e., adjusted for inflation). Put in another way, paying for tuition and fees at these institutions in 17 years will be akin to pulling out $18k from your pocket, your savings, your credit card, or your credit lines today. This is significant. Some people lose the veracity of this argument: there is no other analyses for inflation on this. This is the real, today dollar figure for tomorrow’s cost.

At the two-year public institution, 2013-14 tuition and fee charges averaged $3,264, which will rise to $6,536 in 23 years, or 2036-37. Again, this figure is akin to pulling out over $6k today for one year at a community college. At the four-year private, not-for-profit institution, their 2013-14 average charge was $30,094 (that’s a story in itself, for sure), which will likely double by 2041-42, or 27 years, to $59,702 in today’s dollars. Think of that, for a moment. Sixty grand to pay for one year at the “average” private institution. The elite, most selective institutions are likely going to be in the $90k to $100,000 mark in today’s dollars. Stanford University, for instance, charged $45,000 for three quarters in 2013-14. By 2040-41, their rack rate will be about $90,000.

To this point, our analysis has been strictly about tuition and fees. Currently, tuition and fees at public institutions are the smallest part of payment for residential students. Room, Board, and other ancillary fees averaged above $10,000/year in 2013-14, and these appear to run with similar annual increases as tuition and fees, believe it or not. The end results is that if someone plans to send his or her child to an in-state, public four-year institutions, they will need $150,000 in today’s dollars to make that happen. I currently pay for two children to attend in-state institutions in Virginia, which is about average in terms of costs, nationally, and the residential cost is above $20,000/year. We receive no scholarship aid, a very small need-based aid, and no institutional aid. So we pay almost the entire ticket (except, of course, for the general institutional subsidy that the Commonwealth of Virginia provides indirectly to all students, which is significant). By the end, I’ll be about $90,000 for each of children, unless, of course, you start talking about voluntary withdrawls and other costs associated with not-always-the-best-decisions-that-are-made-by-children-without-their-father’s-knowledge. Those add up, believe me. By the way, how much is $90,000? About $130,000 in pre-tax earnings. Don’t forget that little caveat.

I am relatively certain that the federal government will not be able to keep up with need-based support via grants and loans in the future. They haven’t been able to keep up with it in the past, and we are in much deeper territory now than back a decade or so. Even when the Pell Grant was created in the early 70s, it wasn’t long before Congress limited the ceiling on Pell Grants because, even then, the increase in costs was substantial enough that the government couldn’t afford (or couldn’t commit) to pay for the program. Now, even the maximum Pell Grant of $5,730 pays slightly more than a quarter of the cost of attendance for many students attending public institutions. But most people do not receive the maximum Pell Grant, so the news is less invigorating.

States have consistently backed off their responsibility for higher education. In the five years from 2008 to 2013, state and local support for higher education declined from $93 billion to $78 billion, a decline of 15.6 percent (SHEEO, 2014). Sure, this was during the economic recession, but over the past decade the decrease was 8.9 percent and a 25-year change of +5.3 percent. That last number is significant and should be misconstrued: it registers as a five percent inflation-adjusted increase in TOTAL state and local funding, regardless of the additional millions of students who go on to higher education today compared with 1988, so the funding on a per student basis is far lower than in the 1980s.

There are many new programs that tackle the financial barriers to college. Redeeming America’s Promise was just announced a new scholarship program that would provide up to $8,500/year in support for families that earned under $160,000/year. Just this week, Starbucks announced a tuition forgiveness program for its 125,000 employees in partnership with Arizona State University. Walmart has a similar program with the American Public University System.

Ini 2013, Texas governor Rick Perry pushed the idea of a $10,000 bachelors degree model. Not long after, the University of Texas Permian Basin developed five degree programs costing $10,000 for completion, and more recently Florida Governor Rick Scott is pushing for similar programs in his state.

Other states, such as Oregon, are pushing for an income-contingent model, where students pay no tuition and fees but pay a percentage of their salaries over a period of time, typically about 20 years. This model has been used in other countries, including Australia, with differing levels of success.

Several institutions and systems are playing with competency-based programs and tuition ceilings. Western Governors University’s model is a flat-rate $2,890 per six-month period where students can take as many classes as possible for that rate. The University of New Hampshire just unveiled a similar, six-month, $1,250 maximum fee for an online BA program in health care management that is designed to be stacked on top of associates degrees.

The Bill & Melinda Gates Foundation has kick-started competency-based models at 11 community colleges with a $1 million, three-year investment. This is in addition to funds from the US Department of Labor to also develop competency-based models at the two-year level. As well, Lumina Foundation is funding the Council for Adult and Experiential Learning (CAEL) to work with 14 institutions to develop competency-based degree programs.

MOOCs, of course, are big topics of discussion, as are stackable credits. But we will need to see how serious these options are in the near future.

All in all, the winds are changing in higher education and actually provide some respite for those of us who harp on the negatives associated with college costs. There may be some answers to help redefine what higher education is. Yes, there will continue to be discussions on a philosophical level about what higher education is and what equity we desire, as there should be, but what we see evolving now is something that was not visible on the higher education landscape even a decade ago.

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About Educational Policy Institute

The Educational Policy Institute is a Washington, DC-based research think tank on education and the social sciences. EPI conducts evaluation and policy studies on various educational issues from Pre-K to workforce outcomes in the United States, Canada, and beyond. Visit us at educationalpolicy.org.
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5 Responses to The Continuing Nightmare: Tuition and Fees will Double in Less than 20 Years

  1. Andrew Coulson says:

    I’m no economist, but a parent with a “top 10” graduating high school senior next Wednesday (insane California school year end date). To me it is obvious that (with respect to a traditional bachelor’s degree at a non-state-supported college) the market is simply increasing prices up to what the market will “bear”. Which means, up to a level ultimately where it becomes a coin-flip as to whether it’s better economically to attend college, at that price, or to go straight into the workforce. So, no more “good deals” on a college education. There used to be for sure, which is part of the frustration for my generation: I got two Physics degrees from UCLA for <$1,000 per year tuition+fees.

    How could there be good deals in the future? Only if there is competition on price, which for major college brands there definitely is none of. And even then only if customers decide the lower-priced brands are worth paying less for. In the auto market, Hyundai cleverly built an offer and a brand to take market share at the low end of price. It took 30 years.

    I must say "more power" to the following degree programs, but as parent in the market for an employee-boost for my child, and as a hiring manager, the brand of WGU or Straighter-Line or even ASU-online currently says: as a student I didn't have what it takes to make it into a brand name, rigorous selection, high quality program.

    Like driving a Hyundai to a first date might say to a potential future spouse: I don't have much in the way of financial wherewithal.

    School brands say a lot about us. The only doors out of this trap I see currently are for the "smartest money" to be perceived as following Peter Thiel's lead and discounting the value of a traditional degree; focusing instead on acquiring and taking work-valued competencies to the market as fast as possible. Such that the future entrepreneurs, the smartest kids from high school, consciously choose and follow that de Facto Gates/Zuckerberg/Jobs path. And the next smartest money grits its teeth and discounts brand, working the system: get 1 year of credit while in high school. Get the sophomore year in at a community college. And then transfer into the closest cheapest nearby state-school for the last 2 years as a commuter student to get the sheepskin "badge" that's required for any job.

    I would bet then that based on demand, state school tuition goes up even faster than your predictions.

    And the $400k on-site private residential bachelors degree keeps its price point but is a luxury for the upper class, the 1%, and also for those who are deemed worthy of full-ride financial aid.

    At least athletics are valued in America with plenty of scholarships, right?

  2. Pingback: A Cynical Comment on the Future of College Prices | arcsparks

  3. This comment from Lee Hanson:

    You present a sobering analysis. Two questions: 1. what forces will be at work pushing up tuition levels in the next dozen or so years? (2) What accounts for the rise in tuition levels in the past previous period of doubling? Of course, state funding has declined. 3. which leads to a third question, what is the likelihood the forces leading to rising tuition in the past will make a similar contribution to tuition increases in the coming year?
    But there is one more question that may be even more important and even difficult to answer: what accounts for the rising per student cost of providing higher education? I am sure there is some deep analysis that answers these questions. Perhaps you could ship me a couple of references. I am especially curious about the last question. Thanks Lee

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