Friday, October 7, 2022

Loan-Forgiveness Debate Rekindles an Old Question: Why Does College Cost So Much?

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The national debate over whether to forgive outstanding student loans has circled around a set of policy questions. How much, if any, student-loan debt should be forgiven: How about $10,000 and below? Or $50,000? All of it? Who would truly benefit? Would such a decision pay off politically or spark a backlash?

Meanwhile, a more fundamental question is also coming up: Why is college so expensive in the first place? This question was asked this month by Sen. Chris Murphy, Democrat of Connecticut, who said that his party’s focus on debt forgiveness “excuses the colleges for this dramatic increase in tuition.”

Members of the public have expressed similar views. A poll released last week by Strategies 360 found that a majority of Californians surveyed found the University of California and California State University systems “unaffordable.”

As readers of The Chronicle know, the reality can be more complicated than the narrative suggests. For students from some low-income families, the cost of college remains prohibitive. Still, many public colleges remain a steal, relatively speaking. And, because of discounting and institutional aid, some private colleges aren’t always as expensive as they initially seem.

Private colleges’ costs are subject to the same structural factors of tuition revenue and payroll costs, but they typically lack the access mission, and the state support, that are meant to keep public institutions affordable. Because about three-quarters of students attend public colleges, that’s where worries about the cost of higher education tend to be directed.

So, when policy makers, advocates, and other stakeholders look for a way to avoid perpetuating an ongoing cycle of student debt, they’re really asking, Why does college — or rather, public college — cost so much?

The explanations for the increases fall into familiar categories, but many of them fail to account for the entire picture. And perceptions don’t always match reality. Let’s look at some of the factors in play.

States have disinvested in public higher education.

The conventional wisdom says that public colleges are more expensive because states contribute less support than they used to, forcing institutions to shift the burden of rising expenses onto the shoulders of students and their families through higher tuition. Like much conventional wisdom, this narrative contains essential truths while glossing over various nuances and complicating factors.

The picture for state support now is relatively rosy, viewed from certain angles. Kevin Carey, vice president for education policy and knowledge management at New America, a think tank, resisted the idea of vast public-college defunding last week in a tweet, citing data from the State Higher Education Executive Officers Association, or Sheeo, to show that state support sank only 3 percent nationally between 1995 and 2020. But, Carey said in an interview, that broader reality doesn’t capture the situation in individual states, where support has risen overall for some and fallen for others. For example, Pennsylvania’s appropriation per full-time-equivalent student has plunged 44 percent in inflation-adjusted dollars since 2001, according to Sheeo data. Meanwhile, Illinois’s appropriation increased 23 percent during that period.

The student-loan narrative “feeds this broad sense of unaffordability, which in many cases is not accurate in any kind of comparative sense.”

Public colleges have been the victims of compounded financial crises that created compounded financial effects, says David Tandberg, senior vice president for policy research and strategic initiatives at Sheeo. State support was near an all-time high when the tech bubble burst in the early 2000s, casting an economic pall that caused statehouses to cut appropriations. State support had only begun to recover when the recession of 2008-9 hit, leading to even deeper slashing. While state support has recovered over the past decade, with increases in most states (even through the uncertainty of Covid-19), public colleges have often raised tuition to make up for lost public dollars.

A 2017 study by Douglas A. Webber, a former associate professor of economics at Temple University and now a senior economist for the Federal Reserve Board of Governors, found that 41 percent of public-college tuition increases since the 2008 recession were due to decreases in state support. Since some of the cuts to colleges were flat percentage cuts across the board, they fell heaviest on institutions — like public comprehensive universities and community and technical colleges — that rely on state support for a bigger percentage of their budget.

Such institutions tend to lack the diverse revenue streams of big research universities and often serve first-generation, low-income, and underrepresented students, who are often most sensitive to college costs. That creates, Tandberg says, “very big, inequitable impacts on institutions and students.”

The volatility of state funding has contributed to the rise of another bit of conventional wisdom: Once public-college tuition increases, it never decreases. On the one hand, ever-rising tuition is a natural reaction to the fiscal environment, says Sophia Laderman, an associate vice president at Sheeo. Few costs are decreasing, and “institutions kept increasing their tuition because they couldn’t count on state funding ever coming back,” she says. But there are exceptions. In 2015, Washington State approved a postrecession statewide tuition decrease of as much as 20 percent for some in-state students.

Whether or not fluctuating levels of state support have played a role, public college is more expensive than it once was, maybe much more, depending on what state you’re in. When Cecilia M. Orphan, an associate professor of education at the University of Denver who studies higher education, was an undergraduate at Portland State University, in Oregon, in the early 2000s, Pell Grants and state grants covered her tuition, and she “had a little bit of money left over to pay for books and rent,” she says. “When I tell my students that, they can’t believe it, and that wasn’t that long ago.”

Colleges spend more money.

Colleges need to charge more money these days because they spend more money these days. There are many reasons for that, some of them entirely justifiable and some perhaps less so.

Much of the growth in public-college expenditures came from external pressures, says Brendan Cantwell, an associate professor of education at Michigan State University who studies higher education. “From the 1990s up to today, there has been this wave of expectations that higher education will do new things,” he says. “Part of it is responding to demands that have been placed on higher education by various stakeholders.” In addition to conducting traditional research, colleges are being asked by government and business to foster innovation, technology transfer, and entrepreneurship. The flourishing of online education and teaching technology led to substantial investments by many institutions. An increased focus on student success and mental health at public colleges also led to spending on additional advisers, tutors, counselors, and other student-support infrastructure.

Other new expenses, Cantwell says, have been fueled by institutions and institutional leaders who hope to “make a name for themselves, get status, get prestige.” While most major campus-construction projects are paid for by state or donor dollars, he adds, “if you’re doing more and more things, it costs more, and you’ve got to come up with that revenue somehow. And the easiest place to get that revenue is from tuition.”

That doesn’t mean that all new cost increases are optional. “There is always going to be pressure for new spending,” says Liz Clark, vice president for policy and research at the National Association of College and University Business Officers. Colleges maintaining their insurance coverage against cyberattacks could be in for an unpleasant surprise, for example — premiums for such policies could continue to rise as much as 300 percent, as they did last year,
according to a report by Gallager, a risk-management company. Leaders may put off investing in climate-change mitigation for another year, but widening droughts and worsening wildfires may make such procrastination seem unwise. The effects of inflation, now at a 40-year high, are offsetting the fiscal gains colleges are seeing from state-support increases or endowment returns, and increasing the price of key commodities like gasoline, electricity, and food.

The biggest expense at any college is people, with salary and benefits making up as much as 70 percent of a college’s operating budget — and the salary and benefits of certain employees tend to lead to charges of “administrative bloat.” It’s easy to make a new upper-level administrator the villain, but “even one person who has a very high salary is not, in the aggregate, driving much of the cost,” Cantwell says. “What’s driving it is the infrastructure that that person is overseeing.” A new vice president for student success, for example, probably costs an institution less than hiring more success coaches, paying for training, buying software, and other associated costs of building up a student-success office. The growth in college staff has taken place largely in the mid-range administrative and technical areas, he adds, “not the top, and not so much the faculty.”

One popular activity among college administrators these days is looking for efficiencies — finding ways to outsource services, consolidate positions, or save money through streamlining personnel or operations. Over the past decade, several states and state systems have merged institutions in pursuit of efficiency, although such mergers haven’t always been shown to save much money at all. The University System of Georgia’s merging of 18 public colleges into nine new ones saved only about $30 million a year, about 1 percent of its annual operating budget of more than $2.3 billion.

The money “saved” through efficiencies helps the institutions, and may help students, but it typically doesn’t lower tuition. The Pennsylvania State System of Higher Education, known as Passhe, is in the process of merging six of its 14 universities into two institutions. Charles E. Patterson was president of Mansfield University of Pennsylvania during the early stages of the merger process and has also streamlined, through attrition, some leadership positions at his new institution, Shippensburg University, where he is now president and which isn’t being merged. If a college loses an administrator who makes $150,000 to $200,000 a year, “you’re going to take those savings and put it back into the operations of the university,” he says. “That savings does not necessarily pass on to students directly, but we’re providing better support for students and developing strategies to stabilize and increase our enrollment.”

In fact, if colleges didn’t try to find efficiencies, Clark says, “you would see costs go up even more.” As the saying goes, higher education is great at starting things, but not so great at stopping them, so every new center or program adds to the bottom line. Even if a college’s operating expenses grow by just a few percentage points each year without adding new revenues, Cantwell says, “pretty quickly, that compounds, and costs have gone way up.”

The public’s sense of what college costs is askew, and colleges are largely to blame.

College is expensive by any measure, but the sticker price often means very little.

Public colleges increasingly supplement need-based aid with so-called merit aid to draw students in an increasingly competitive landscape, as do their private-college peers, making the true price of an education even more difficult to parse. “Many states and institutions changed to a high-tuition high-aid model in the last two decades,” says Laderman, of Sheeo, “and we — ‘we’ being higher education and higher-education policy — have not explained that well.”

This obfuscation can pose a particular challenge for the students public colleges are meant to serve. “First-generation and low-income students and students of color are very sensitive to the sticker price of college,” says Orphan, of the University of Denver. As college costs increase, “the number of students that maybe would have considered going to college don’t, because they think they can’t afford it, even though sticker price often isn’t actually what students pay.”

The student-loan debate has further muddied the waters, says Carey, of New America. “There is a very powerful cultural narrative in place now around student loans, which is: There is a student-loan crisis because college is too expensive,” he says. “People have internalized that to a point that they just can’t really sort of see some of the numbers for what they are.” The majority of dollars borrowed in student loans are for attending graduate school or a private undergraduate institution, Carey says, and nearly 70 percent of Americans who go to college attend more affordable public institutions, and many can now benefit from free-tuition programs in many states. Carey notes that college is more expensive than it used to be and acknowledges that many lower-income students still struggle to pay for tuition, books, and living expenses, but the student-loan narrative “feeds this broad sense of unaffordability, which in many cases is not accurate in any kind of comparative sense.”

Finally, people don’t understand, or misunderstand, or understand too well, all of the above.

Orphan says she likes to play a game when she’s getting a coffee or a haircut: She asks the stylist or barista why they think college costs so much. “The perception is that colleges and universities are greedy, and they’re wanting to charge as much tuition as they can so that they can get more money,” she says. But then, as voters, people don’t always make decisions that would help defray tuition. In Colorado, where she lives, funding increases for public colleges are subject to ballot initiatives, and those initiatives often fail because voters “look at tuition price and say, ‘Why would we give them more funding?’” she says. “They don’t make that connection. That is, for me, one of the biggest nuts to crack.”

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