Why is College Increasingly Expensive?
Colleges take in more tuition revenue than necessary — and federal student aid may play a big role…
In his new study, Not Just Treading Water, Cato’s director of the Center for Educational Freedom, Neal McCluskey, shows that contrary to oft-heard assertions, colleges and universities have often raised tuition revenue well beyond what has been needed to make up for lost state appropriations. He also looks at several alternative explanations for rising prices, and determines that while all likely play parts, federal student aid—coupled with colleges’ limitless desires for resources—may be the primary culprit, not only enabling colleges to increase their tuition and fees, but also encouraging states to limit their appropriations.
Total state and local appropriations to higher education were not cut over the 25-year period examined, rather rising roughly $10 billion using a higher-education specific index of inflation.
On a per-pupil basis, looking at a 25-year smoothed trend, 6 states saw both appropriation and tuition and fee revenue rise, 31 saw appropriations drop but increases in tuition and fees more than make up for the loss, 11 states saw per-pupil appropriation cuts that were not fully covered by increases in tuition revenue, and 2 states—Louisiana and Wyoming—saw the ideal situation from a student perspective: appropriations rose while tuition and fee revenue declined.
Delaware, North Dakota, Alabama, Nebraska, and Alaska experienced the highest gains in net per pupil revenue trends while Idaho, Wisconsin, Georgia, California, and Iowa were the biggest net losers.
Because many of the per-pupil “cuts” were a result not of cuts to overall funding, but big enrollment increases, no state failed to see significant increasing trends in total revenue from appropriations and tuition and fees.
After examining state appropriations and tuition revenue, McCluskey looks at some alternative explanations for skyrocketing prices, all of which, he concludes, likely play parts in price inflation.
One is the hypothesis that increasing costs are due to higher education’s necessary reliance on human power. McCluskey notes that this “disease” would largely be accounted for in the higher education inflation adjustment he uses, while it tends to ignore colleges’ ability to increase efficiency.
More fundamental to college pricing, McCluskey argues, is that colleges naturally have a desire for evermore resources, and federal student aid enables them to raise prices well in excess of what they could charge in its absence. Federal student aid may also encourage state legislators to restrain their appropriations to schools.
“By all indications, the state of higher education financing over the last quarter-century is not how it has been portrayed: institutions treading water just to stay financially afloat as state and local governments have withdrawn their support,” argues McCluskey. “What may well be enabling much of this is federal student aid, and colleges taking not just whatever they need, but whatever they want.”
