Why Public College Tuition Has Grown

Many tie explosive public college tuition growth to diminished state funding for higher education but there is really much more to the story.

For most of our nation’s history, tuition and fees represented 10 percent or less of what public colleges and universities spent per student. This reflected state policymakers’ belief that low tuition was essential to keep public higher education affordable and accessible. This high level of subsidy per student was possible because before the Second World War, less than 20 percent of the population went to college, and so states could afford to pay all or most of the bill for all the students attending their public institutions.

But two post-War developments changed this basic equation. One was that the G.I. Bill, the baby boom and other demographic factors led to a quadrupling in the number of college students between 1950 and 1975; three-quarters of these new students enrolled in public institutions. Second, beginning in the 1960s, rising funding requirements for health care, elementary and secondary education, and other programs, many of which grew out of the Great Society, created heightened competition for state funds.

Then, in the early 1970s, two national commissions, citing the higher lifetime earnings of college graduates, called for gradually increasing the student share of educational spending from one-tenth to one-third of the actual cost. Most states were slow to adopt these recommendations, but by the late 1970s increasingly tight state and local budgets spurred officials to accept the need for greater cost-sharing. As a result, the student share of cost at public institutions drifted up from one-tenth in the 1970s to one-quarter in the mid-1980s to roughly one-half today. And since that’s the average, in many states the student share of educational-related costs now exceeds 50 percent.

But the 50-percent figure overstates the student cost share because tuition revenues include those paid by out-of-state, international, and graduate students, who typically pay the full cost of their higher education. Systematic data are not available, but a reasonable estimate is that if tuition paid by non-state residents and graduate students were excluded from the calculation, in-state undergraduates pay 40 percent or less of what is spent on them, instead of the more highly publicized rate of 50 percent or more. Nonetheless, it is clear that the student share has gone up.

There are two popular explanations for this growth in the student share. One is that state funding for public higher education has been eroding for decades, forcing public institutions to increase what they charge their students. The other popular explanation is that the only way that public institutions can respond to funding cuts is to increase the tuition they charge to state residents, which then results in increases in student cost sharing. But both of these popular assertions are misleading and warrant further exploration.

With regard to state funding over time, the reality is that sustained increases in state funding were critical in fueling the tremendous growth in public higher education throughout the second half of the 20th century. State and local support of higher education peaked in 2007, just before the Great Recession, and then dropped 25 percent between 2008 and 2013.

Some have concluded from this that state funding has permanently waned. But in fact aggregate state and local funding recovered from the recession and is now at its highest level ever when adjusted for inflation. Moreover, roughly half of the decline in per-student funding between 2008 and 2013 was a function of the rapid growth in enrollments brought about by the recession. In short, state funding grew in real terms, but enrollment grew faster.

The second popular explanation for the rapid growth over time in public sector tuition is that the only way public institutions can react to cutbacks in state support during recessions is to raise the tuition they charge to state residents. But the fact is that public institutions do have other ways to react to state funding cuts and, in fact, often utilize these options. For example, as discussed above, many public institutions have increased the numbers of out-of-state and international students to augment their revenues. Another example is that many public institutions have cuts their costs and shrunk their enrollments to maintain their spending per student when state revenues slip.

Another example is that enrollments in public institutions tend to grow during recession and these increased numbers of students allow public institutions to boost their revenues without necessarily raising their prices. In this context, we should note that increasing in-state enrollment by 10 percent nets colleges as much revenue as hiking tuition 10 percent for a static number of enrollees.

It’s worth noting that increasing in-state enrollments would be much more politically attractive than raising tuition and other charges. So why don’t more public institutions boost enrollment when state funds are cut back, rather than raising tuition? One reason may be that public college officials fear that expanding the numbers of students would undermine their school’s reputation for quality and the cachet that comes with exclusivity.

It is also worth noting that recession-induced state and local funding cutbacks have not been as drastic as many have argued. The critical figure to consider in judging the impact of cutbacks on institutions is the combination of state funding and net tuition revenues — what the State Higher Education Executive Officers (SHEEO) organization refers to as “educational resources.” In fiscal 2018, (the latest figures available) SHEEO reports that educational resources reached $159 billion, the highest level ever in real terms, 14 percent higher than 10 years earlier and 64 percent higher than 25 years earlier.

In terms of educational resources per full-time equivalent (FTE) student, that figure was more than $14,500 in 2018, the highest ever; it was 6 percent higher than inflation-adjusted figure 10 years earlier (before the Great Recession) and 23 percent higher than 25 years earlier.

So what to make from this data recitation? My chief conclusion is that state policy makers and institutional officials decided over the past several decades that the best way to deal with bulging demand for public higher education was to raise the tuition charged to students rather than raise the amount of taxpayer dollars devoted to supporting public higher education. But that is not a sustainable strategy and ought to be reconsidered going forward.