Those in the middle haven’t been imagining their pain. While all households are facing rising costs of higher education relative to incomes, those truly in the middle of the income distribution are facing larger increases relative to their incomes than those households above them in the income distribution.
Between 1975 and 2014, the average income of U.S. households in the top 5 percent of the income distribution increased by 82 percent, while the average income of those households in the middle 20 percent increased by only 15 percent.
Moreover, in constant 2014 dollars, the gap between the average incomes for these two groups increased from $135,700 to $278,300.
It was sobering to learn that families in the true middle of the U.S. income distribution are much further away from those at the top than was the case 40 years ago.
When we hear of challenges facing middle-income families, it is seldom clear whether the reference is to those in the middle or upper-middle income quintile, or the low end of the upper quintiles. Yet the fact is that all of their positions relative to the top 5 percent have deteriorated.
This increasing income inequality has had important effects on the affordability of higher education.
During this same 40-year period, the average price (tuition, room and board) at a four-year, private, nonprofit college or university has gone from $16,213 to $43,921, an increase of 171 percent.
At public, four-year institutions, the increase has been from $7,833 to $19,548, or an increase of 150 percent
These increases mean that a year of higher education at a four-year school represents a considerably increased share of household income for those families in the middle of the income distribution, as well as those in the fourth and fifth quintiles.
This explains the motivation for Hillary Clinton’s proposal for free tuition at public colleges and universities for children from families making less than $125,000. This would cover all families from the bottom 80 percent of the income distribution, plus some from the bottom of the top quintile as well.
We don’t have great data on net prices at colleges and universities by family income over time, but we do know that many of these families will receive need-based financial aid that will reduce their actual costs of a year of education, both at private non-profit and public colleges and universities. For example, Vassar students coming from true middle-income families and below, who earn less than $60,000, would receive need-based financial aid packages without any loans and would be asked to pay closer to $5,000 than the full sticker price of over $62,000.
Unfortunately some of the schools that are most generous with need-based financial aid don’t admit many truly middle- and low-income students, so their ability to provide generous net prices doesn’t reach many families.
Where some of the selective private, non-profit colleges with larger financial aid budgets have recently improved is in recruiting Pell Grant recipients, students from approximately the bottom half of the income distribution. For example, in the last decade at Vassar we have more than doubled our enrollment of these students to nearly 25 percent of our student body.
Rising costs relative to incomes are a challenge for true middle-income families. By comparison, those in the top 5 percent of the income distribution can handle the increasing costs of higher education, given the significant increases in their incomes.
Families between these at the top and those in the true middle are having to spend more on higher education in real terms and as a share of their incomes, and have to forego other expenditures or savings for retirement or take on debt to do so.
While controlling college costs would help, we haven’t figured out how to do this without cutting back on the services and programs that families want for their children. They want lower cost but not lower quality.
There is promise that technology will change these cost–quality trade-offs for the better, but we are not there yet. Private nonprofit and public colleges and universities, neither of which is subject to market pressures to increase efficiencies and maximize profits, are slow to innovate in ways that control costs. And, for-profits have demonstrated that maximizing profits doesn’t always align with supplying a quality education with high graduation rates.
What does all this mean, at a time when investments in higher education are now more important than ever for families and for the country?
If we consider a bachelor’s degree in terms of lifetime earnings and access to rewarding jobs, getting a bachelor’s, relative to just graduating from high school, increases lifetime earnings by about 65 percent. The gap between the earnings of those with a bachelor’s compared with those with just a high school degree almost doubled from 1979 to 2012.
Ultimately, the attention of policymakers and demands on the part of households will influence the direction of higher education affordability in America. Colleges and universities will have to respond to families’ willingness and ability to pay. Policymakers, in response to public unhappiness, can work to channel public support in directions that benefit households across the income distribution: low-income families, those truly in the middle, and those who just feel that they are.
An equitable outcome would improve affordability across the income distribution, with a focus on households that find it most challenging to afford to send their children to college.