Why are college costs going up?

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It’s no secret to anyone struggling to pay a college tuition bill: The cost of higher education is going up. The question is why.

“The most obvious reason why the tuition level at public colleges and universities is rising more rapidly is tight state budgets and declining appropriations,” says Sandy Baum, senior policy analyst for the College Board.

Simultaneously, the need to survive in a competitive economy is pushing record numbers of students into colleges and universities, says Joni Finney, vice president of the National Center for Public Policy and Higher Education.

“Part of the reason is that the economy now requires more and more Americans to have some education beyond high school, and we’ve never accommodated the numbers we have now and the numbers we’ll have in the future,” says Finney.

This year, tuition at private colleges rose 6 percent, says Tony Pals, director of public information for the National Association of Independent Colleges and Universities. “Public universities rose 10.5 percent.”

That’s the latest in a string of increases. The full cost of a year at a public four-year school has jumped an average of 83 percent in the past 12 years, according to figures from the College Board. At a four-year private school, the price climbed an average of 74 percent.

Inflation, federal spending priorities, the cost of living and even the cost of health insurance are all having a significant impact on the cost of education. And as more students apply to colleges, federal student loan dollars are spread more thinly. In addition, many states are cutting support to public colleges and universities, while private colleges are suffering shrinking donations and reduced investment returns from endowments. End result: Students and their families pick up the slack and the cost of higher education climbs higher than ever.

Public colleges receive “about one-third of their revenues from state appropriations,” says Baum. “So when state appropriations decline — as they have in the past couple of years — or even rise slowly, tuition levels tend to increase more rapidly.”

Some educators also worry that colleges are spreading themselves too thin financially in an effort to draw prospective students. “We are concerned that a lot of colleges and universities are increasing the amenities that they offer to students in order to attract students,” says John Curtis, director of research for the American Association of University Professors. “It’s a competitive market for students and that is probably out of proportion to the spending on instruction, which should be at the core.”

He also worries that growing executive salaries are a drain. “Presidents are being paid in line with corporate CEO salaries,” Curtis says.

Finney agrees. “Executive compensation is out of control,” she says. “It’s going to ratchet the whole system up, and that’s really a very dangerous trend.”

Think private schools might have it easier with finances? Not by a long shot.

For private colleges, endowments are “a major funding source,” says Pals. But the revenue from those endowments has been depressed with the economy. “Private college endowments earned 2.9 percent in 2003. That follows losses of 3.6 percent and 6 percent in two previous years.”

While private schools had been used to double-digit percentage increases in philanthropic gifts, they’ve started seeing declines. From 2001 to 2003, contributions went down 1.2 percent, says Pals. “And that drop was the first decline in 14 years,” he says.

The good news is that administrators expect to earn larger returns on their endowment money in the next few years, says Pals.

What about financial aid?
Students are also getting pinched when it comes to obtaining financial help. Record enrollment has left more students competing for stagnant or slow-growing sources of financial aid.

“At the same time states are cutting budgets for colleges and universities, they are not putting money into financial aid,” says Jacqueline King, director of the center for policy analysis for the American Council on Education. “States, in most cases, have not raised their spending on student aid to keep up with the increases they’ve approved in tuition.

“Aid increased proportionally during the 1990s,” says King. “Since then, we’ve gone into an economic downturn, which has hit the states particularly hard. We’ve seen much larger increases in prices than in financial aid.”

For the most part, federal money hasn’t increased with demand, either, says King. Grants and loans “have gone up,” she says. “But both amounts have not gone up substantially vs. inflation.”

Ask not for whom the Pell tolls …
For many families making $40,000 or less annually, the cost of college just went up. The 2005 congressional budget changed the formula families use to determine their income when applying for federal need-based Pell grants. Families will not be able to subtract as large a portion of state and local taxes from their incomes. And since family earnings will appear higher on paper, many students will have their grants reduced or eliminated.

About 1.3 million students, a full quarter of those receiving Pell grants, will have their grants cut by some amount, according to numbers from the American Council on Education. These students come from families earning approximately $20,000 to $35,000. Another 90,000 students, many from families making $35,000 to $40,000 annually, will lose the grants entirely, according to the group.

“Any change in federal policy that would take student aid money away from families is not good policy,” says Pals. “If anything, the government needs to be supportive of families and students who want to be able to afford higher education.”

Curtis fears that the formula of higher prices, more students and less aid will change public access to college. “One of the things that we’re concerned about, even among public institutions, is that schools are being more selective and that higher tuition prices aren’t matched with increased aid ability,” he says. “That’s where you have higher education only available to the few.”

Dana Dratch is a freelance writer based in Atlanta.