CHAPTER:: FIVE NATIONAL TRENDS - Education

I. Increases in tuition have made colleges and universities less affordable for most American families

II. Federal and state financial aid to students has not kept pace with increases in tuition

III. More students and families at all income levels are borrowing more than ever before to pay for college

IV. The steepest increases in public college tuition have been imposed during times of greatest economic hardship

V. State financial support of public higher education has increased, but tuition has increased more

CHAPTER 1: FIVE NATIONAL TRENDS

I. Increases in tuition have made colleges and universities less affordable for most American families

Most American families have lost ground in college affordability. Over the last two decades, the cost of attending two- and four-year public and private colleges (including tuition and other education-related expenses) has grown more rapidly than inflation, and faster than family income as well. As a result, the share of family income that is needed to pay for tuition and other college expenses has increased.

The principal driver of the increased cost of attending college is higher tuition, and only the wealthiest families have seen their incomes keep pace with increases in tuition (see figures 1 and 2). The lowest-income families have lost the most ground, and this is a major factor in their lower rates of college attendance. For example, for the lowest-income families in 1980, tuition at public two-year colleges represented 6% of their family income. For the lowest-income families in 2000, tuition at these colleges represented 12% of their income. Likewise, tuition at public four-year colleges and universities represented 13% of income for the lowest-income families in 1980. In 2000, tuition at these colleges and universities equaled 25% of their income.

Despite this decline in affordability, Americans, particularly those from middle- and high-income families, continue to attend college in record numbers. Based upon the experience of past recessions, enrollments will grow even faster in a weak economy. 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 income to paying for college. They have lost ground-and they will lose more ground if the trends we describe continue.

Yet family income is seldom considered explicitly when colleges and universities advocate or approve tuition hikes, and when governors and legislatures approve or acquiesce in them. Instead, other comparisons usually dominate the policy discussion, such as tuition levels in similar institutions in other states (including states where family income is higher), and the needs of colleges and universities for revenues. These are important and relevant criteria, but the effect of tuition increases on families and the impact on college opportunity merit greater consideration than they usually receive.

From 1992 through 2001, tuition at four-year public colleges and universities rose faster than family income in 41 states. In 36 of these states, state appropriations to higher education also increased faster than enrollment and faster than inflation. Tuition at two-year public colleges increased faster than family income in 34 states. ¹

II. Federal and state financial aid to students has not kept pace with increases in tuition

The second major component of affordability is financial aid for needy students. Traditionally, financial assistance has been offered to students who are eligible to enroll in college but are unable to afford it. Federal and state governments have provided most of this aid.

During the last two decades, federal and state governments have increased their support of student financial aid, but these increases have not kept pace with the increased costs of attending college, particularly those increased costs represented by tuition. From 1986 to 1999, for instance, the purchasing power of the federal Pell Grant program, the nation's largest need-based financial aid program for college students, decreased: Pell Grants now cover a smaller portion of tuition at public four-year colleges and universities than they did in 1986 (see figure 3). State financial aid programs to undergraduate students vary greatly, from none in some states, such as Alaska and South Dakota, to substantial ones in such states as California, Illinois, Minnesota, New York, and Pennsylvania. As with Pell Grants, the portion of tuition covered by state grants has declined (see figure 3). While Pell Grants are need-based, however, not all state grant programs are.

We emphasize the importance of federal and state financial aid to low-income undergraduate students, but there are other sources of such aid, including colleges and universities. The financial assistance that colleges and universities provide to their students-usually referred to as institutional aid-amounts to about $13 billion annually, and private colleges and universities account for about 61% of this amount.² These figures include non-need-based as well as need-based aid. Much of the aid in both public and private institutions, in fact, supports functions other than affordable undergraduate education-including graduate and professional education, athletics, and other special programs. In addition, in both public and private institutions, these resources increasingly are used to recruit students who are attractive academically to the institution. There is no evidence that most of this aid targets low-income students in either the public or private sector.

Several states have adopted similar approaches-that is, funding grants for students who meet high academic standards yet do not demonstrate financial need. Some states use financial aid to encourage their highest-performing high school graduates to forego out-of-state college opportunities, and to attend college in-state. The federal government, through its income tax strategy, now allows federal income tax credits for tuition and other expenses, yet does not allow the most financially needy students to receive these benefits.

While need-based student financial aid has lost ground to tuition increases, programs for students without demonstrated financial need have proliferated. In 1981, 91% of state financial aid was allocated on the basis of need or a combination of need and academic qualifications. In 1999, 78% of state aid took need into account. ³

III. More students and families at all income levels are borrowing more than ever before to pay for college

Students and families have been coping with higher college tuition and the increased demands on family income in a variety of ways. Some students work more hours; some reduce their course loads, lengthening time to graduation; and others attend less expensive colleges and universities.⁴ Our third finding, however, is that the most widespread response to increases in the cost of higher education involves debt-more students are borrowing more money than ever before.

Since 1980, federal financial aid has been transformed-with little explicit policy debate-from a system characterized mainly by need-based grants to one dominated by loans. In 1981, loans accounted for 45% and grants for 52% of federal student financial aid. In 2000, loans represented 58% of federal student financial aid, and grants represented 41% (see figure 4).

The rich as well as the poor borrow money to attend college, but a higher percentage of low-income students borrow (see figure 5), and borrowing is a much greater burden on low-income students and parents. From 1989 to 1999, average cumulative debt by seniors at public colleges and universities increased substantially for all income groups (see figure 6). For those in the lowest income quartile, such debt grew from $7,629 to $12,888 (in constant dollars).

Borrowing is a legitimate and important aspect of paying for college for many students, but it also raises several policy issues. Equitable opportunity is one: Prospective students from low-income families, and those who would be the first in

their families to attend college, may be inhibited from enrolling by fear of high debt. In most cases, families of the lowest income students cannot help repay loans. And low-income college students are more likely than other students to be contributing to the support of their families while attending college. Another important issue involves the financial consequences of high debt for students' later lives, particularly their ability to purchase a home and to save for retirement. But this issue extends beyond individuals; society has a stake in the impact of student debt. Students' professional and career choices may be skewed by heavy debt and the responsibilities of repayment. Efforts to attract college graduates into needed but not necessarily high-paying careers, such as teaching, may be undermined by substantial debt burdens.

IV. The steepest increases in public college tuition have been imposed during times of greatest economic hardship

Economic recessions have an adverse impact on both a state's public services and on individuals' finances: A decline in tax revenues results in lower funding of public services, and higher rates of unemployment translate, on aggregate, into smaller increases-or actual decreases-in family income. For college and university students and their families over the last 20 years, however, the impact of recession has been compounded: The steepest tuition increases in public higher education have been imposed during recessions (see figure 7), when students and families (particularly those from the lowest income groups) are least able to pay.

During good economic times, state appropriations to colleges and universities tend to rise "disproportionately to appropriations for other (state) functions," in the words of Harold Hovey, a prominent expert of public finance. During economic downturns, on the other hand, appropriations to higher education are often the "balance wheel in state finance," absorbing disproportionately larger cuts than other state-funded services.⁵

Steven Gold, in his study of state responses to the recession of the early 1990s, found that as the economy worsened and state revenues declined, state budgetary flexibility was reduced. A greater proportion of state revenues shifted to non-discretionary spending items, such as public assistance caseloads, Medicaid costs, federal mandates in health care, and formula-driven increases in public school and corrections budgets. According to Gold, "Higher education took the worst beating of any major spending category... Appropriations in 1992-1993 were less than one percent higher than in 1989-1990."⁶ Early indications point to similar trends in the current recession.

During recessions, state leaders and public colleges and universities confront difficult policy questions: When state budgets must be cut, how much of the reduction should colleges and universities absorb? How much should be passed along to students and families? When tuition is increased, how can student financial aid for the most needy families be supported when budgets are already tight? During recent recessions, the answer to these policy questions has been alarmingly consistent: compensate for state budget cuts to higher education by precipitously increasing tuition for students and families.

It is unlikely that higher education or any other major area of state expenditure will be exempted from the impact of state budget cuts during recessions. However, excessive reductions in state support for higher education make dramatic tuition hikes and their consequent hardships for families practically inevitable. Over the past two decades, college students and their families have seen relatively stable tuition in good times, have enjoyed tuition freezes and even reductions in the most prosperous times, and have suffered steep price increases during recessions. This pattern-a cycle of eroding affordability-raises prices when students and families can least afford it, and is a windfall to those fortunate enough to attend college when the economy is strong.

V. State financial support of public higher education has increased, but tuition has increased more

For the nation as a whole, state appropriations to public colleges and universities increased by 13% from 1980 to 1998 (in constant dollars per student). During the same period, total institutional revenues (likewise in constant dollars per student) rose by 41%, from $10,265 to $14,502 (see figure 8). Given the 13% increase in appropriations from states, how did public colleges and universities increase their revenues by 41%? One answer is tuition. From 1980 to 1998, tuition revenues at public institutions of higher education increased by 107%, from $1,696 to $3,512 (in constant dollars per student).

As state appropriations for higher education were increasing per student, even as enrollment grows, the proportion of state budgets devoted to higher education declined nationally.⁷ This decreasing share of state budgets devoted to higher education is sometimes cited as indicative of decreasing state support of public colleges, and as an explanation or justification for increasing tuition. Yet appropriations to higher education often have increased while higher education's overall share of state budgets has decreased. This has been a nationwide pattern as states have taken on greater responsibilities for public schools, Medicaid, and public assistance. In the face of these multiple competing demands, the states in the aggregate have not reduced their support of higher education-just the opposite. State budgets as a whole have grown faster than the portion allotted to higher education, but state appropriations to higher education have increased.

We do not know of any accepted measure of the adequacy of financial support of higher education. At present, there is no credible methodology for determining whether the increased costs of providing higher education, including those costs supported by state appropriations and tuition, are essential for the quality and accessibility of public higher education. Nor is there an accepted way to determine whether the same or higher levels of accessibility and quality could have been reached with less state expenditure or with lower tuition levels.

Regarding affordability, we know that state support of public colleges and universities has increased; that these increases have not been commensurate with the rising costs of providing higher education; that the largest portion of these costs has been borne by students and families through increases in tuition; and that tuition is increasingly financed by student borrowing. Our conclusion regarding the affordability of a college or university education is this: Americans are losing ground.

¹ See State Trends (the appendix of this report) for state-by-state information about state appropriations per student, changes in tuition and fees, and changes in median family income-all adjusted for inflation.

² U.S. Department of Education, National Center for Education Statistics, Digest of Education Statistics 2001 (Washington D.C.: 2002), pp. 390-392. Figure is for 1995-96, the most current year available.

³ National Association of State Scholarship and Grant Programs, NASSGAP 13th Annual Survey 1981-1982 (Harrisburg: 1982), table 1; and NASSGAP 31st Annual Survey 1999-2000 (Albany: 2000), table 1.

⁴ For a more in-depth look at how students are paying for college, see chapter 7, "Profiles of American College Students."

⁵ Harold A. Hovey, State Spending for Higher Education in the Next Decade: The Battle to Sustain Current Support (San Jose, CA: National Center for Public Policy and Higher Education, 1999), p. 19.

⁶ Steven D. Gold, editor, The Fiscal Crisis of the States: Lessons for the Future (Washington, D.C.: Georgetown University Press, 1995), p. 25.

⁷ National Association of State Budget Officers, State Expenditure Report 1990 (Washington, D.C.: 1991), p. 15, tables 1-4; and National Association of State Budget Officers, 2000 State Expenditure Report, Summer 2001 (Washington, D.C.: 2001), p. 11, table 5.

Figures 1 and 2
Tuition at public two-year and four-year colleges and universities as a percentage of family income, by income quintile, 1980-2000. Tuition at private four-year colleges and universities as a percentage of family income, by income quintile, 1980-2000.

Tuition source: College Board. Trends in College Pricing 2001. Washington, D.C.: 2001, page 8, table 5.

Income source: U.S. Census Bureau. March Current Population Survey, 1980-2000. Table F-3. http://www.census.gov/hhes/income/histinc/f03.html.

Figure 3
Federal Pell Grant aid and state grant aid as a percentage of tuition at public fouryear colleges and universities, in current dollars, 1986-1999. Pell and State Aid Sources:

College Board. Trends in Student Aid: 1980 to 1988. Washington, D.C.: 1988, p. 10, table 5.

College Board. Trends in Student Aid 1999. Washington, D.C.: 1999, p. 9, table 4a.

College Board. Trends in Student Aid 2001. Washington, D.C.: 2001, p. 9, table 4a. Tuition source: College Board. Trends in College Pricing 2001. Washington, D.C.: 2001, p. 8, table 5. CPI source: U.S. Department Of Labor, Bureau of Labor Statistics. Consumer Price Index for All Urban Consumers. http://www.bls.gov/cpi/.

Figure 4
Percentage of federal student financial aid devoted to grants vs. loans, 1981-2000.

College Board, Trends in Student Aid 2001. Washington, D.C.: 2001, p. 14, table 8.

Figures 5 and 6
Percentage of 4th and 5th year seniors at public four-year institutions who had ever borrowed, by income quartile, 1989 vs. 1999. Average cumulative amount borrowed by 4th and 5th year seniors at public four-year institutions who had ever borrowed, by income quartile, 1989 vs. 1999, in 1999 dollars. 1989 source: U.S. Department of Education. National Center for Education Statistics. Trends in Undergraduate Borrowing: Federal Student Loans in 1989-90, 1992-93 and 1995-96, NCES 2000-151. Washington, D.C.: 2000. 1999 source: U.S. Department of Education, National Center for Education Statistics. National Postsecondary Student Aid Survey 2000. Washington, D.C.: 2001. http://nces.ed.gov/das/.

CPI Source: U.S. Department Of Labor, Bureau of Labor Statistics. Consumer Price Index for All Urban Consumers. http://www.bls.gov/cpi/.

Figure 7
Percentage change since previous year in tuition at public four-year colleges and in median family income, 1981-2000. Note: percentage change since previous year in tuition is based on 50-state averages of percentage change in tuition from previous year.

Income source: U.S. Census Bureau, Median Income for Four-Person Families by State. http://www.census.gov/hhes/income/4person.html. Tuition source for AK, DE, HI and WY: Washington Higher Education Coordinating Board. Research Institution Tuition 1972-2001 [database]. Olympia, WA: 2001, table 1.

Tuition source for all other states: Washington Higher Education Coordinating Board. Comprehensive Tuition 1972-2001 [database]. Olympia, WA: 2001, table 5.

Figure 8
Per student revenues of public institutions of higher education, 1980-1998, in 1999 dollars. Note: this includes revenues from tuition and fees, the federal government, state and local governments, private sources, and endowment income. Category excludes revenue from higher education sales and services, for which auxiliary enterprises and hospitals generate most of the revenues. Revenues for each year were divided by the number of public FTE for that year. All figures are then adjusted for inflation (1999 dollars) using the consumer price index. Totals are based on totals for revenue streams included in the analysis. Totals do not include revenues from sales and services and other sources.

Revenue source: U.S. Department of Education, National Center for Education Statistics. Digest of Education Statistics. Washington, D.C.: annual publication years 1984 to 2001. Data for 1997-98 and 1998-99 are preliminary data from the National Center for Education Statistics, IPEDS Peer Analysis program. NCES states that this data should not be used for aggregate figures. FTE source: U.S. Department of Education, National Center for Education Statistics. Digest of Education Statistics, 2000. Washington, D.C.: 2001, p. 230, table 201.

CPI source: U.S. Department Of Labor, Bureau of Labor Statistics. Consumer Price Index for All Urban Consumers. http://www.bls.gov/cpi/.

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