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Vol. 16 No. 8
April 2002
SPECIAL REPORT
The Shifting Cost of College
Financial aid experts,
college presidents and education writers as well as COLLEGE BOUND
participated in a seminar last month sponsored by the Education
Writers Association and Michigan Journalism Fellows at the University
of Michigan in Ann Arbor. The purpose of "The Shifting Cost
of CollegeFrom State to Student?" forum was to discuss
the latest trends in college financing. Here is some of what
CB found.
AMELIA is a sophomore at a large public
research university in the Midwest. In spite of the scholarships
and merit aid she has received, her family's contributions and
work, she calculates she will accrue $20,000 in debt as an undergraduate.
And she is worried. Both her parents are still paying off loans
from their own schooling and she has two younger siblings close
on her heels who will need to take out loans to pay for their
educations.
"Will she be able to pay back her loans?" she wonders.
"Will she be able to take on another $12,000 in debt for
graduate school?" "Will her parents be forced to file
bankruptcy to pay for their childrens' educations?"
Amelia is not alone. Increasingly, experts nationwide are
worried about the debt students are acquiring to pay for their
higher education. And it is not just deferred loans that are
of concern. Credit card debt is also escalating. Currently, 44
percent of college students have credit cards, according to Neale
Godfrey, author of The Ultimate Kids' Money Book. And
more are going into credit card debt to cover expenses.
RISING DEBT
Two out of three students need to borrow money to
attend college, according to a new report released in March by
the State Public Interest Research Groups (PIRG) Higher Education
Project. Moreover, four out of 10 students have unmanageable
debts as they graduate and enter the job market.
PIRG found that debt for students doubled between 1992 and
2000. The average graduate owed $17,000 in 2000, up since 1992
when the average debt was $9,188. A third of students who graduate
owe more than $20,000 in loans, according to PIRG, and half of
all student borrowers also have credit card debt averaging $3,176.
In 2000, 64 percent of students graduated with student loan
debt-71 percent of students from families with incomes less than
$20,000 and 44 percent of students from families with incomes
more than $100,000.
Clearly, many students are borrowing much more. Some students
are graduating with $5,000 to $6,000 in credit card debt, according
to Bernice Lindke of Eastern Michigan University in Ypsilanti.
Also, a random sampling of students in various majors at the
public Eastern Michigan revealed that the average loan indebtedness
at graduation in December 2001 ranged from $16,500 in international
business to $37,681 in communications. This means their monthly
payments based on a 10-year repayment period at 5.99 percent
ranged from $183.10 to $418.15.
Nationwide, by 2000-01, annual borrowing grew to $43 billion-a
136 percent increase, up from the $14 billion borrowed for postsecondary
education in 1990-91, according to Jerry S. Davis, vice president
of higher education research at the Lumina Foundation based in
Indianapolis.
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WHAT ELSE IS UP?
In addition to debt, what else is up?
- Tuition and fees. Tuition and fees have increased
by 48 percent in the last 10 years. According to Davis, tuition
and fees at colleges and universities are growing faster than
student and family earnings.
- Merit aid. Support in some states for merit aid is
growing faster than need-based programs. Some states are providing
more merit aid in order to reduce the rising costs of tuition
for middle-income families and to put pressure on state high
schools students to be better prepared. Also, some states figure
better-prepared students are not as likely to need remedial programs
and are likely to finish college. States also are attempting
to stem their brain drain and encourage talented students to
attend in-state colleges.
- Educational costs. Colleges say their costs are up
for a host of reasons-health care benefits, labor contracts,
deferred maintenance. In addition, universities are being hit
with increases in utilities, for costs of computers and upgrades
and the shifts in expenses the technology has required.
- Demand for higher education. More minority, at-risk
and first-generation students are expected to seek postsecondary
education and training. According to Davis, there is a major
demographic shift coming that will change the face of the undergraduate
population, with more minorities, at-risk and first-generation
students trying to enroll. They are going to seek education and
training and they must do this to survive in today's economy.
WHAT'S DOWN?
- Grants. In 1990-91, 49 percent of all aid was in the
form of grants and 48 percent was in loans. By 2000-01, only
41 percent of all aid was in the form of grants and 58 percent
was in loans.
- Federal grants since 1980. The pressure is on the
states because federal funding of higher education grants has
declined. Also, according to Edward P. St. John, Educational
Leadership and Policy Studies at Indiana University, it used
to be that Pell Grants covered tuition costs. But he argues that
the purchasing power of the Pell Grant (which next year should
be a maximum of $4,000) has actually declined since 1975. His
recommendation: Increase the Pell Grants back to the 1975 purchasing
level.
- Parental contribution. Financial aid officers are
noting that today's parents seemingly do not want to pay for
their child's education as much as in the past. Parents tell
financial aid officers they want to put the burden on the student.
- Need-based aid. States with mature programs such as
Pennsylvania, New York, Illinois continue to provide need-based
aid. Other states, though, are not increasing need-based aid
at the same level as merit aid. In 1989-90, non-need-based aid
was 11 percent and need-based aid 89 percent, according to the
National Association of State Student Grant and Aid Programs.
By 1999-2000, non-need-based aid was 21 percent and need-based
aid was hovering at 78 percent.
"Geography matters," adds Davis. "Where you
live often limits your ability to go to college....the combination
of federal, state and institutional grant aid is often insufficient
to close the sizable affordability gap, particularly for low-income
students."
THE OUTLOOK
Indeed, studies from "Access Denied: Restoring
the Nation's Commitment to Equal Educational Opportunity,"
a report of the Advisory Committee on Student Financial Assistance,
found that low-income students cannot attend college without
financial aid, and they need more aid than they are getting.
At the same time, 1.1 million college-qualified low-income students
may not enroll in postsecondary education in the next decade
due to unmet financial need.
Unless financial aid policies are modified, the negative effects
of more student borrowing and expansion of merit-aid programs
will worsen, the report predicts. Also, in the coming year, states
may need to raise public tuition as the private colleges did
during the last 10 years.
While, according to Davis, there are students for whom borrowing
makes sense, the worry is that borrowing makes some people worse
off. And at the rate that students are borrowing today they are
essentially paying for a fifth year of college. Also, students
are reducing their likelihood of getting a graduate degree. Finally,
minority students are more likely to have loans and not be able
to complete their degree.
Davis argues that the financial aid situation today begs for
attention now because demographic projections show that an increasing
proportion of college students will be from low-income groups
in the future.
Meanwhile, a new 37-member National Blue Ribbon Panel on Student
Financial Aid met early last month to study the financial barriers
that keep needy students from pursuing a degree. It will issue
findings. CB will keep you posted in future issues.
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Why Does Tuition
Keep Going Up?
According to Jane Wellman, senior associate at the Institute
for Higher Education Policy in Washington, the biggest reasons
tuitions have been going up everywhere, among the public colleges
in particular, is because of the reductions in state appropriations
for higher education.
"It is happening in all the institutions," Wellman
told seminar participants in Ann Arbor. And, "the community
colleges and four-year institutions which serve the majority
of students in the public sector don't have the same ability
as the research universities to go into the revenue markets to
offset some of those costs. They are probably eating more real
losses in revenue than is the case for the other institutions.
"These community colleges and four-year colleges also
have seen increases in tuition, of course, and on a percentage
basis some of the biggest ones. But they still are serving primarily
the low-income, middle-income and commuter markets and their
tuitions are still very low. Although they've tried to rev up
their private fund-raising capacities, diversify revenue and
do more community service, there is not a lot else in terms of
markets for them to go into.
"These institutions are being hit particularly hard.
And these are the institutions serving the majority of students
in most of the states, the majority of students of color in most
of the states and the majority of low-income students,"
Wellman explained.
PRIVATE INSTITUTIONS
"The reasons why tuitions are going up among
the private institutions is a little more complicated,"
said Wellman. "Everyone is competing for prestige within
their niche. The private institutions are much more student-market
and tuition-driven than is the case with the publics. Yet, many
of the private institutions are geographically in states that
are in either low or modest growth or even declining growth areas.
So they are looking at a shrinking market for the traditional-age
college student.
"As a result, many of them have changed a lot of what
they are doing. They are going after older students and into
postgraduate markets. They are trying to diversify their base
because their core has been shrinking and it has been shrinking
for a long time.
"And private institutions are having to spend more money
in order to get and keep students with institutional aid, sometimes
called 'tuition discounting,'" Wellman noted.
TUITION DISCOUNTING
"This is the single biggest reason for higher
costs and higher spending inside higher education," Wellman
pointed out, adding that "in the second tier of private
institutions, some studies have shown that 80 to 90 percent of
freshmen are getting some kind of discount. That market is very
competitive. Those students are not going to come to those institutions
if they don't get some kind of discount. For all privates, it
is a lower number.
"Some of the 'medallion' schools working in national
pools don't do much of it at all," she added. "But
for the less selective four-year colleges you see the steepest
discounting especially of freshmen. Now, those institutions do
a great job of educating students. They have good graduation
rates, they provide a high-quality education and they still maintain
low student-to-faculty ratios. Discounting is not an aspersion
about what these institutions are doing, but it is what they
have to do to survive in this market. It is a very competitive
market," she said.
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A NARROW DEFINITION OF
PRESTIGE
Also, "a lot of what is driving these costs in
institutions is competition for a fairly narrow definition of
'prestige' and 'quality" in higher education," Wellman
said. "The great thing about American higher education is
that we have the most diverse institutions in the world. And
we have built a system that is premised on the idea that there
is no one single model of excellence. A good community college
and a good technical institution and a good four-year liberal
arts institution and a good research university all can achieve
excellence in distinctive ways.
"But, the competition for a particular notion of excellence
is becoming much more acute. And competition in higher education
drives up prices, it doesn't cause them to go down. It causes
them to go up because all these institutions are striving for
a certain kind of quality.
"Parents and students are interested in that market for
quality. But one of the facts about higher education is that
much of the market is an internal market. We are the consumers
of our own products in higher education. The institutional trustees
and the faculty are terribly interested in those quality ratings
and look at them as intensely as do incoming students.
"Some studies have shown, though, that the percentage
of students who look at those rating services and who are sophisticated
consumers of colleges is less than 10 percent. The large majority
of students are not going to college based on that kind of analysis.
But the U.S. News and World Report ratings and the other
ratings of quality are all heavily weighted toward resources.
They are measuring money, and different slices of money and that
kind of quality costs a lot of money. But it is not the only
form of quality that is necessary for excellence," Wellman
observed.
WHAT IS LIKELY IN THE FUTURE?
"Tuitions will keep going up for the simple reason
that state budgets are going to continue to decline and because
the markets are going to allow it to occur," she noted.
"Around the coast and in the Sunbelt states demographically-driven
demand for higher education is going to be going up 10, 15, 20
percent. They are going to have a huge infusion of new students
and are not going to have the revenue base to pay for it.
"Research universities are going to be able to increase
tuition and also they will be able to ration enrollments. In
many states, the 'medallion' universities are incrementing up
their admissions standards. They are rationing enrollments in
order to maintain quality and to maintain their fiscal base in
light of declining resources. So you are going to see a whole
lot of pressure in those states in the community and four-year
institutions," she predicted.
WHERE DOES THIS TAKE US?
Wellman concluded, "These comprehensive overhauls
of financing systems that people periodically call for-we should
stop doing it this way and do it some other way-are theoretically
interesting to talk about but the political reality is it's not
going to happen. We have a state-based system of finance. All
state budgets are incrementally driven.
"The federal role is highly circumscribed with respect
to higher education and it has been changing too. We have to
be asking hard questions about the nature of markets in higher
education and also who the students are that need to be served
in the future, where they are really going to be going, and focus
on the low-end institutions as much as the high-end institutions."
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State Scoops
Did you know? Info CB gathered while attending a seminar
on college financing.
Wayne State U.: According to Charles R. Bantz, Wayne
State University is "known as the school where people who
are the first in their family go to college." It was founded
in 1868 with a medical college and today has 15 colleges in its
fold. It became a public university in the 1950s, and today has
31,000 students, 12,000 graduate students making it one of the
five largest graduate schools in the country. Tuition: $4,400
a year.
Truman State U. in Kirksville, Missouri, is one of
19 public liberal arts universities in the country and has gone
through a period of growth in recent years. It reorganized to
focus on 43 undergraduate programs. Foreign language enrollments
have increased from 417 in FY85 to 2,304 in FY01. International
student enrollments have grown from 12 to 428, and student faculty
cooperative projects 96 to 1,035. Enrollment of students of color
has increased from 209 to 414. Students come from 25 states with
average ACT score 27, GPA 3.74 to 4.0.
MEAP. In Michigan, tuition at its public institutions
is capped next year at a 8.5 percent increase, or $425. To offset
tuition costs, Michigan has begun a MEAP Michigan Educational
Assessment Program, using money from a tobacco settlement for
scholarships for Michigan high school students who pass a test
in four areas. Each grantee receives $2,500 for college.
State Tuition Increases. The U. of Massachusetts system
will increase tuition by 7.8 percent for in-state students, to
a total of $5,047. It will increase it for out-of-state students
by 3.1 percent....At the U. of Illinois, tuition is expected
to jump 10 percent or an additional $500 for freshmen to $5,302
for tuition, and a total of $6,736 for tuition and mandatory
fees in-state. Other Big Ten universities are expecting increases-U.
of Iowa 18.5 percent and 13.6 percent at the U. of Minnesota.
P.S. What resources are financial aid experts talking
about? The Burden of Borrowing: A Report on the Rising Rates
of Student Loan Debt from the State PIRGs Higher Education
Project, 2002, available at www.pirg.org/highered/burdenofborrowing.html
UnEqual Opportunity: Disparities in College Access Among
the 50 States, Lumina Foundation, 2002; available on the
Lumina Foundation web site (www.luminafoundation.org).
Trends in Student Aid and Trends in College Pricing
2001 from The College Board Publications, Box 886, New York,
NY 10101-0886; $15 each plus $0.44 for postage and handling.
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THE COUNSELOR'S CORNER
Who is Paying for What?
What should families
know about financial aid this spring? Here, Sandy Baum, economics
professor at Skidmore College in Saratoga Springs, New York,
talks about what the public needs to understand about the cost
of college and who is paying for what.
THE STATE SUBSIDIES to higher education
are declining as a percentage of the funding for public higher
education. State appropriations are still a very significant
part of funding for public higher education, but they have declined
significantly. They were 44 percent of the revenues of public
institutions in 1980 and now they are 33 percent. That means
students and families are paying a higher percentage of the total
cost.
Tuition is an increasing proportion of the cost. Students
now pay 20 percent of costs (up from 13 percent in 1980). But
that is still a fraction of total educational costs. This is
important for students and potential students to understand.
Even though it feels like they're spending a lot, all of them
pay only a fraction of their actual educational cost. That is
true at private colleges as well as at public colleges. Even
if students are paying $35,000 a year, that is still far from
the total cost of their education.
EFFICIENCY AND EQUITY
A reasonable question is, "Why is it we should
be subsidizing students anyway?" Economists like to answer
that question in terms of arguments of efficiency and equity.
- There are public benefits involved with having an educated
citizenry. If we didn't subsidize students, we as a society would
get less production from higher education than would be optimal
for us because people are only basically willing to pay for the
benefit to themselves.
Another reason is "credit markets." If we didn't subsidize
students at least through guaranteeing their loans, they wouldn't
be able to come up with the money to pay for college.
- Then there are, of course, the equity reasons. We at least
pay lip service to the idea of "equality of opportunity,"
and that education is a merit good. It is something people deserve
to have access to, regardless of whether they can afford it or
not. None of that tells us how much we should subsidize them,
whether tuition should be 19 percent or 13 percent or 50 percent
or zero at public institutions.
WHY WORRY?
We may think we have low-cost public education and
that everybody should be able to enroll. College participation
rates by income levels though are frightening when you look at
the differences. In the lowest income quartile, 57 percent of
18-24 years olds participate in college, but at the highest-income
quartile, 86 percent do so. It is not just a lack of preparation.
Even if you control for test scores and you control for parents
education level, it is still true that there is a significant
difference in the participation rates based on family income.
Some people do not have enough money and we do have to worry
about their access to college.
As we all know, tuition has been rising. As states begin announcing
tuition for next year, we are going to see a lot of high increases
because of the economy and state budgets. One issue is how we
measure it. For example, North Carolina has low tuition, it is
now announcing big increases-Chapel Hill is raising tuition 21
percent. This amounts to $500. Now, $500 sounds a lot less daunting
than 21 percent. How we say that matters. If the increase is
presented as a "huge" increase, then students say,
"I just can't afford it." It is important for students
to understand the real dollar amount.
However, there is also a significant amount of available student
aid. In fact, over the last decade, grants that come from states
to their students have increased 90 percent in real terms. So
state grants, even though they are only 6 percent of student
aid, are making up an increasing portion of how students are
paying tuition costs.
The fact that aid is part of the picture and many students
don't pay the full "sticker price," means you can't
just compare tuition levels in different states. In Vermont in
2001, they had high tuition levels ($6,918), but they had generous
student aid ($6,250). In South Dakota, they had moderate tuition
levels ($3,206), but they didn't have a student grant program
($0). It matters how the state student aid programs and tuition
levels fit together when you are thinking about affordability.
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PROBLEM OF ACCESS
One of the problems with state grant programs in recent
years is the same as the problem with institutional grant programs
and federal aid. Increasingly, we are not giving the money to
the students who need it the most. The distribution of student
aid at all three levels is moving away from lower-income students
toward middle-income students. (Average public subsidies to upper-income
students is more than $15,000.) We need to worry about this in
terms of access.
But need-based aid is far from going away. If you look at
state scholarship programs and how they have grown, merit aid
is skyrocketing, need-based aid is flat. We are moving away from
need toward merit. But, there is still a lot of need-based aid
out there. Seventy-eight percent of state grants are still need-based.
So, public tuitions are rising, private tuitions are rising.
But the publics are going up faster this year, and need-based
aid is covering less of college costs and loans are outweighing
grants. There's a lot of bad news.
There is also good news. Part of the good news is that aid
is still need-based and even these high tuition rates of increases
in the public sector are on the basis of tuitions that are still
really quite low. Education is still a good buy. The rate of
return for the investment in higher education is very high and
keeps increasing. And the state is subsidizing education tremendously.
To say, "It is too expensive, I shouldn't go," is usually
not a wise decision.
We can affect public perceptions by giving people better information-understanding
that students are not paying the whole cost of their education,
that they are being subsidized and that headline-grabbing tuitions
are not the tuitions that most students pay.
Also, less than 1 percent of students go to colleges that
charge more than $27,000; 40 percent go to schools that have
tuitions and fees that are $4,000 or less. Most students aren't
paying $100,000 over four years for their education.
So, in the end, students need to know that there are benefits
from higher education. There is a payoff and it isn't just about
money. They need to know that they don't pay the full tuition
price themselves and there is availability of student aid. It
is true that students are accumulating more and more debt, and
more than they can handle. But that said, borrowing for college
is a good investment. Students will get returns for the rest
of their lives.
Adapted from remarks made in March in Ann Arbor, Michigan,
at a seminar sponsored by the Education Writers Association and
the Michigan Journalsim Fellows.
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Web Sites on
College Costs
www.NACUBO.org / institutional _ effectiveness; NACUBO.org
/ public _ policy / cost _ of_ college; www.nces.ed.gove and
www.
nces.ed.gov/ipeds; www.indiana.edu / ~iepc /; www.luminafoundation.org
ADMISSIONS WATCH
So Goes Harvard.... Following the events of September
11, some admissions experts speculated that there might be a
downturn in college applications particularly for those institutiosn
far from home. Harvard found that its applicants from most areas
remained the same or increased, with gains in the Midwest, South
and New England, according a recent issue of the Harvard University
Gazette. At the same time, there was a 6 percent decrease
in applications from abroad and some regions in the western U.S.
showed slight decreases.
Indeed, for the 11th time in the past 12 years, record numbers
applied for admission to Harvard this year for the Class of 2006-19,520
students. Harvard attributes the increase to its Capital Campaign
that enhanced its laboratories, classrooms, dorms and technology
as well as financial aid. The average annual scholarship is now
more than $20,000. Women comprise nearly 50 percent of the applicant
pool.
Early Admits Up. The University
of Chicago total applicant pool was up 10 percent over last year
to 8,179. The biggest increases, according to the University
of Chicago Chronicle, came from Illinois and the West. Applications
from African Americans increased by 30 percent and from Hispanic/Latino
students 38 percent. Early Applications were also at an all-time
high and 1,114 were admitted, with 73 percent coming from the
top 5 percent of their class. The admit rate among early applications
declined, however, from 54 to 46 percent.
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COLLEGE BOUND's Publisher/Editor: R. Craig
Sautter, DePaul University; Chief Operating Officer: Sally
Reed; Contributor: Marc Davis; Circulation: Irma
Gonzalez-Hider; Illustration: Louis Coronel; Board
of Advisors: Rosita Fernandez-Rojo, Choate-Rosemary Hall;
Claire D. Friedlander, Bedford (N.Y.) Central School District;
Howard Greene, author, The Greenes' Guides to Educational
Planning Series; Frank C. Leana, Ph.D., educational
counselor; Virginia Vogel, Educational Guidance Services;
M. Fredric Volkmann, Washington University in St. Louis,
Mary Ann Willis, Bayside Academy (Daphne, Ala.).
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