The Tuition is Too Damn High, Part III — The three reasons tuition is rising

August 28, 2013

There are two things that can cause the net price of college for a family to increase. One is that the college spends more. That could mean paying faculty more, or building more sports arenas, or conducting more research -- whatever the reason, spending rises and they ask students and their families to pick up the tab in the form of higher tuition and/or lower financial aid.

The second is that the college needs to ask students to pay more to fund current spending. If, for instance, state governments were to cut subsidies for public colleges and universities, those institutions could choose to raise tuition (rather than, say, cut spending or solicit alumni donations) to make up the difference. This is a cost shift.

The answer for higher ed? Well, there are many answers.

This is perhaps the single most important thing to know about the higher-education sector: It’s not one thing. Community colleges are not suffering from the same problems as private, four-year universities. Public research institutions are not in the same boat as private master’s institutions.

There are basically three different stories happening, to three different groups of schools. All the data here is from the Delta Cost Project, which is the best source of information on college spending and revenue. Its numbers are based on the Department of Education’s Integrated Postsecondary Education Data System (IPEDS), which is basically the only source for most data on higher ed but which is nearly impossible for laymen to navigate. Delta’s been doing yeoman’s work summarizing what IPEDS tells us.

Story One: Soaking the students

What’s happening: Lower spending, and cost shifts from the government to students.

Where is it happening: Public schools that aren’t big research universities.

Number of students enrolled: 6.7 million (51.1 percent of the 13.2 million students for whose school Delta Cost Project has data.).

Explanation: At public colleges and universities, the story is mostly that states have cut higher education funding, and schools are making up for it with increased tuition.

Public community colleges, the largest category of higher education institution, have seen real, per full-time student spending fall from 2000 to 2010. So they’re actually spending less.

And yet, over that same period, community colleges saw tuition revenue per full-time student increase by about 40.7 percent in real terms. Perversely, the powers that be at community colleges have been cutting what they spend on students, and then making those students pay even more for a cheaper-to-produce product.

At public master’s and bachelor’s schools — that is, public institutions that offer traditional four-year curricula but aren’t research schools — spending has been basically stagnant over the past decade. What’s more, most years in the 2000s actually saw spending decline relative to 2000, not increase, even though tuition rose.

The problem at these schools is not out of control spending. The issue is that the schools’ are getting money they used to get from the government from students, which makes the product more expensive to families even though overall costs are unchanged -- or, in the case of community colleges, lower.

Story Two: Just throwing money around and getting it from wherever

What’s happening: Spending is increasing, and so is tuition, but the tuition increases can’t keep pace with the new spending.

Where is it happening: Research universities, both public and private.

Number of students enrolled: 4.7 million (35.5 percent).

Explanation: Between 2000 and 2010, the average net tuition — that is, the tuition actually paid after financial aid is taken into consideration — at public research universities (the second biggest category of school by enrollment) increased from $5,469 to $8,611, a difference of $3,142. Their spending per full-time student increased from $33,208 to $37,125, or $3,917.

This can't be explained merely by government policy. The universities weren't keeping spending the same and just financing it through different means. State and local subsidies fell by $1,732 per full-time student from 2000 to 2010, but federal subsidies increased by $2,927 per student, and profits from associated endeavors like hospitals increased by $1,952 per student.

In fact, overall revenue increased by $5,793 per student, almost double the increase in per-student spending. Public research universities could have kept tuition stagnant and still had $2,651 more per student to work with, which could finance a good share of the actual spending increase. But they wanted more money than that, so they increased tuition too. Cost shifting, à la what’s happening at other public schools, doesn't really have anything to do with the increases in public research university tuition.

Meanwhile, private research universities -- think Georgetown, or Harvard -- spent $12,435 more per student in 2010 than they did in 2000, and charged $3,209 more in tuition. Just as with their public research university counterparts, there's no cost shifting going on here, really. What's happening is a huge increase in spending with tuition acting as just one tool to fund it.

Story Three: Spending hard but soaking students even harder

What’s happening: Spending is increasing, and so is tuition, but the tuition increases are bigger than the spending increases. The leftover money is going to make up for lost donation money.

Where it is happening: Private non-research colleges and universities, such as liberal arts colleges.

Number of students enrolled: 1.8 million (13.5 percent; percentages don’t sum to 100 because of rounding).

Explanation: At private master’s and bachelor’s schools — that is, private schools that aren’t research institutions and typically offer at most a master’s or at most a bachelor’s, respectively — what’s going on has something in common with both of the above stories.

Between 2000 and 2010, average spending per student at private master’s universities grew by 5.9 percent in real terms, a pretty mild increase compared to other categories.

Revenue -- which includes tuition, but also donations, endowment, etc. -- has also been stagnant. Revenue per student was $22,625 in 2000 (in 2010 dollars), and bounced around that mark through the rest of the decade. But tuition grew 23.4 percent between 2000 and 2010, which served mainly to make up for declining donations and endowment revenue (which actually went negative at the nadir of the recession). A very similar story can be seen in the data on private liberal arts, or bachelor’s, schools, albeit with a steeper increase in spending.

As with their public counterparts, these schools are primarily seeing cost shifts rather than spending increases, but their shifts are from donors to students, rather than from taxpayers to students.

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There's no simple takeaway here. But three broad types of problems emerge. Research universities are just spending too much. They’re spending so much that even their record increases in tuition can’t fully pay for it. Figuring out what’s going wrong with them entails figuring out why they’re spending so much, and why that spending has been growing.

But other public universities are, for the most part, just using tuition increases to replace money lost as states cut higher education spending. In the case of public community colleges, even their huge tuition increases aren’t enough to let spending remain constant. Even with higher prices, they still have to cut spending.

Other private schools are seeing a mix of the two phenomena. At non-research private schools, spending is increasing, but tuition is increasing more. That both covers the new spending and makes up for declining revenue from donations.

If tuition increases are going to stop, most public schools need to figure out a way to get the money they were once getting from state government without jacking up prices. We’ll tackle the question of how best to do that in the next installment.

Public research universities and private schools, by contrast, need to figure out how to get their spending under control, and — in the case of non-research private schools — boost non-tuition revenue. Parts five through eight will examine theories for why their spending is so out of control, and how best to rein it in.

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Evan Soltas · August 28, 2013