College Cost

A Background Primer

No start of an academic year goes by without renewed consternation about the ever-increasing price of a college education. Although parents, students, and policymakers have been voicing their concerns for years about colleges raising tuition and fees at seemingly astronomical rates, the recent economic downturn has brought forth a heightened sense of alarm. In a survey of adults ages 18 and older, 65 percent of respondents believed college prices were growing faster than other items and services, and 83 percent said students have to borrow too much to go to school.[1] Further, with increasing numbers of students taking on larger amounts of debt to finance their college education, the present day conversation about the price of college often turns to talk of a college tuition and student loan debt bubble, akin to the housing bubble, and speculation about when and how that bubble will burst.

For the 2013-2014 school year, the average published tuition and fees for undergraduates at public four-year colleges were $8,893, up 2.9 percent from the prior year; for private non-profit four-year colleges, the average published tuition and fees were $30,094, up 3.8 percent from the 2012-2013 school year; and for public two-year colleges, the average published tuition and fees were $3,264, up 3.5 percent from the 2012-2013 school year.[2] Over the last decade, the increases in published tuition and fees were even greater—at four-year public colleges, the average published tuition and fees in inflation adjusted dollars increased 51 percent; at private non-profit four-year colleges the average published tuition and fees increased 25 percent; and at public two-year colleges, the average published tuition and fees rose 35 percent.[3]

As the price of college has risen, so has the number of students who need financial assistance. Over the last ten years, the number of Pell grant recipients has risen from 4.8 million to 8.8 million.  Additionally, in the last decade, the federal government’s investment in student aid through federal grants, loans, work-study, and tax credits and deductions, adjusted for inflation, has risen from $82.7 billion in 2002-2003 to $169.7 billion in 2012-2013, a 105 percent increase.[4] This level of dramatic increase has led many to conclude that the current system of higher education costs and spending has grown unsustainable for students, parents, and the American taxpayer.  

The Price of College

When students and parents are thinking about college, one of the first questions they ask is “how much is this going to cost?” The answer to this seemingly simple question is “it depends.” While many in higher education do not like the analogy, looking at college tuition is in many ways like looking at the price of a car – there is a sticker price (i.e., the published or suggested retail price), and then a price (i.e., the net price) that is often lower and not readily known to the general public but determined on the basis of various individual factors (e.g., family income) that lead to a discounted price for students and their families. 

Sticker Price

The sticker price is the published price. This is a non-discounted price and does not take into account what a student or family must actually pay out-of-pocket after accounting for grant and scholarship aid.  It is the sticker price that typically grabs headlines.

Over the last several decades, college tuition and fees, as measured by the published price, have risen sharply and well outstripped increases in the rate of inflation and increases in wages.  In the 1980s and 1990s, the highest rate of increase in the sticker price for tuition and fees occurred among private nonprofit four-year colleges and universities. In this most recent decade, however, public four-year colleges and universities have taken the lead with their published tuition and fees having risen twice as fast as the average published price of private non-profit four-year schools. Additionally, in the last ten years, public two-year colleges have likewise raised their published prices, having risen 35 percent even after adjusting for inflation.[5]

While the historic trend lines shown below demonstrate a rather smooth, upward increase in college tuition, it is also useful to look at patterns in year-to-year increases in college tuition and fees. There, we see a far more erratic pattern of small annual percentage increases sometimes followed by sharp double-digit percentage increases.

During the last few decades, some institutions have actually frozen or even decreased tuition for a year or more. However, these freezes in tuition and fees have in a number of instances been followed by exceedingly large percentage increases in tuition and fees to make up for previous dips in revenue. This rather erratic pattern of the rate of increase in published tuition and fee rates has made financial planning for students and their families exceedingly difficult, since there is no clear pattern for predicting how much or how little tuition will go up in any given year.

Although media reports most often report on the sticker price at the most expensive colleges and universities in the nation, typically the $40,000 and above club, it is useful to keep in mind that most undergraduates are not enrolled in the highest-priced institutions. For the 2013-2014 academic year, 52 percent of undergraduates enrolled in four-year colleges (public and private nonprofit) were enrolled in schools with a published price of less than $12,000 for tuition and fees.

Nevertheless, it is always important to keep in mind that tuition and fees are only part of the total cost of attendance.  There are also expenses of books and supplies, room and board, health insurance and transportation among others.

Net Price

As discussed earlier, the published sticker price is not the price many students and their families actually end up paying. Net price is the price a student or family pays after subtracting the amount of grant and scholarship aid from the published price of attendance. In 2012-2013, 8.8 million undergraduates received a Pell grant and 1.6 million undergraduates received a Federal Supplemental Educational Grant.  Although student loans may be a significant part of a student’s financial aid package, because the loans must eventually be repaid out-of-pocket (unlike a grant or scholarship), student loan aid is not subtracted out of the sticker price to determine the net price.

Focusing on net price, rather than the sticker or published price, has become very popular among policymakers and college and financial aid administrators in recent years. Surveys conducted over the years have indicated that many students and parents, especially lower-income, first generation college students, overestimate the amount they will be required to pay out of pocket for college and underestimate the amount of financial aid for which they are eligible. This misperception deters some students from even applying for school out of a belief that there is no way they could ever afford to go to college.

Federal Response to Increases in the Price of College

The setting of college tuition and fees is a responsibility reserved for individual colleges and universities. Although the federal government does not have jurisdiction over how much colleges and universities charge, because the federal government provides substantial financial aid to assist students in paying for college, there has been discussion concerning what role the federal government should or might play in addressing college costs. During the last full reauthorization of the Higher Education Act, the _Higher__ Education Opportunity Act of 2008 (HEOA), _Congress included a number of provisions  related to the price of college.

Net Price Calculators

In recent years increasing attention has been given to making the net price of college better understood to lower income families through tools such as a net price calculator. Every college and university receiving Title IV federal financial aid is now required to have on its website a net price calculator that students and families can use to estimate the net cost of attending college. Schools have the option of using a net price calculator designed by the U.S. Department of Education or designing their own net price calculators, provided they meet the minimum requirements of the statute. 

Since these net price calculators are so new and so varied in design (from the very simple to the very detailed and complex), it is too early to know if students and families, especially those of lower income, find them useful in planning for and making decisions about going to college. In addition to the net price calculator, on the Department of Education’s College Navigator website (http://nces.ed.gov/collegenavigator/), the average net price for beginning full-time undergraduate students, disaggregated by income levels, is now reported for every  institution eligible for Title IV federal financial aid.

Tuition Lists

Also included in the Higher Education Opportunity Act of 2008 is a requirement for the U.S. Secretary of Education to annually make public a list for each of the various sectors of higher education (4-year, 2-year, less than 2-year, public, private nonprofit, and for-profit) of the 5% of schools with the highest tuition and fees, the 5% of schools with the highest net price, the 5% of schools with the highest increase in tuition and fees, the 5% of schools with the highest increase in net price, the 10% of schools with the lowest tuition and fees, and the 10% of schools with the lowest net price.

The first annual reporting of these lists was required by July 1, 2011, and may be found at the Department’s College Affordability and Transparency Center website (http://collegecost.ed.gov/catc/). Schools with the highest increases are required to file reports with the Secretary of Education detailing the reasons for the increase in cost and its plans to contain those costs.

College Cost Drivers

Although there is much information in the realm of the anecdotal as to what is driving up the cost of college  and what to do about it, little research has been conducted demonstrating what would or would not be effective in reducing the cost of providing a college education. Research on this topic has been complicated by the complex and varied cost structures of colleges and universities across the United States (e.g., public versus private nonprofit versus private for-profit, the Tier I research institution versus the local community college) and further complicated by a lack of transparency and common reporting of college expenditures and revenues.

College costs drivers include but are not limited to labor costs and structures (e.g., salaries and benefits, tenure), decreased state appropriations in an increasingly competitive and crowded state budget (e.g., K-12 education, Medicaid, infrastructure), low-levels of efficiency (e.g., high maintenance cost facilities that are used for a small number of hours each day), the adding of new programs and resistance to eliminate programs, athletic programs, and student demand for expensive services and amenities (e.g., new dorms, computer services, gyms, student centers, parking). Additional student-centered costs drivers include increased time to graduation, the need for remediation, and lack of ease of transfer of credits from one institution to another.

At present, state and institutional initiatives aimed at reducing the cost of college are generally focused on improved cost efficiencies (e.g., consolidation of administrative functions, reduction in energy costs, reduction in growth of salary and benefit costs) and improved student learning productivity (e.g., increase in student retention and on-time graduation rates, reduction in excess degree credits, increase in number of credits accepted for transfer, and increase in acceptance of prior leaning and credit-by-exam). However, as mentioned earlier, because of the lack of transparency and common reporting surrounding college revenues and expenditures, very little is known about the degree of effectiveness of any one of these strategies.

Further, when efforts to reduce the cost of college are successful, such costs reductions may or may not result in reducing the price of college for students since colleges can shift cost savings in one area to increased spending elsewhere in the institution. Finally, even if strategies prove to be effective for reducing the cost of college, colleges and universities have much to do to turn the tide of public sentiment on the issues of college costs and price. In a recent survey of adults ages 18 and older, 60% of respondents believed colleges are like most businesses and care more about their bottom lines than they do about students and families, and 54% believed colleges could spend less and still provide a quality education.[6]  

[1] John Immerwahr, Jean Jackson, Amber Ott, and, Jonathan Rochkind. Squeeze Play 2010: Continued Public Anxiety on Cost, Harsher Judgments on How Colleges Are Run. (New York: Public Agenda, 2010). http://www.publicagenda.org/files/pdf/SqueezePlay2010report_0.pdf.

[2] College Board, Trends in College Pricing 2012, http://trends.collegeboard.org/college_pricing. (The College Board’s Trends in College Pricing does not have a comparable data set of tuition data for for-profit institutions.)

[3] College Board, Trends in College Pricing 2012, http://trends.collegeboard.org/college_pricing.

[4] College Board, Trends in Student Aid 2012, http://trends.collegeboard.org/student_aid.

[5] Within this report, all references to inflation are to the Consumer Price Index-Urban Consumers (CPI-U). The CPI-U is typically the measure of inflation used in media reports related to college costs and tuition.

[6] John Immerwahr, Jean Jackson, Amber Ott, and Jonathan Rochkind. Squeeze Play 2010: Continued Public Anxiety on Cost, Harsher Judgments on How Colleges Are Run. (New York: Public Agenda, 2010). http://www.publicagenda.org/files/pdf/SqueezePlay2010report_0.pdf