The Causes and Consequences of Public College Tuition Inflation

Abstract

Everyone in America knows that college prices have been going up at an alarming rate. For nearly three decades, tuition inflation has been the subject of continuing family concerns, student anxiety, gubernatorial proclamations, and congressional investigations. In spite of this, there is no end in sight. In the last three years, tuition inflation has accelerated to its fastest level yet. In 2002–03, tuition and fees at four-year and two-year public institutions rose, often startlingly so, in every state. In Massachusetts, for example, tuition jumped from $3,295 to $4,075, an increase of 24 percent in one year. Iowa, Missouri, and Texas increased tuition by 20 percent. In Ohio, the increase was 17 percent. Sixteen other states increased tuition by more than 10 percent (Trombley, 2003, p. 1). There is no reason to believe that this acceleration of tuition inflation rate was a one-year phenomenon. Rather, it seems likely to be simply the next wave in a steadily accelerating price spiral that has been going on for nearly 25 years. In spite of this, it is important to note that rising prices do not seem to be driving down the demand for higher education. The number of students enrolled in college seems to increase every year. The portion of high school graduates attending college increases as well. In 2002–03, for example, more than 15 million students were enrolled in degree granting institutions of higher education. Twelve million of these stu-dents, about 65 percent, attended public institutions. By almost any measure, more students are entering college in spite of the rising prices. One study put it this way, ''To enhance their opportunities and realize their educational aspirations, Americans work more hours than in the past, incur greater debt, and devote larger portions of their incomes to paying for college'' (National Center for Public Policy and Higher Education, 2002b, p. 1). This chapter explores both the causes and consequences of public college tuition inflation. We have chosen to focus on public colleges for several reasons. The vast majority of students in the United States attend public colleges. In addition, public colleges have traditionally served as a way for lower-income and disadvantaged students to earn the skills necessary to get a get a good job and to obtain entry into the middle class. As prices rise, there is some reason to believe that public colleges may no longer be able to perform this important role. Public and private institutions of higher education are constructed on quite different finan-cial foundations. There have been two outstanding books focusing on the reasons for the price inflation at the nation' s elite private colleges (Ehrenberg, 2000; Clotfelter, 1996). Yet, the best studies of public college tuition inflation are now more than a decade old and predate the rapid tuition inflation of the early 2000s. Finally, we limit our focus to the period after 1980. This is the point at which real public college prices began their current upward trajectory. In addressing these important questions, we begin by looking closely at the patterns of tuition inflation. In the first part of this analysis, we look at recent patterns in tuition and fees at two-and four-year colleges. Next we turn to the factors that seem to be driving prices upward. We examine the different ways in which public colleges set tuition. Then we look at the factors that have contributed to the rising prices. To do this, we take a careful look at the recent changes in the sources of revenue available to public colleges and the spending levels and patterns of these institutions. We will also examine how changes in the level of support provided by state governments have altered the financial basis on which public institutions operate. Here, we consider the particular impact of the recession of the early 21st Century and the rapid increases in Medicaid spending on the ability of state governments to continue to support higher education at traditional levels. In the second part of the chapter, we examine the consequences of tuition inflation on students, families, and institutions. Here, we seek to determine if citizens and policymakers should be concerned about the short-and long-term impact of rising prices. The answer to this is not as straightforward as some people assume. In this section, we show the impact that rising prices have on enrollment, particularly among students from lower income or disadvantaged backgrounds. We do this by looking at the research on the role price plays in determining student 308