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Tuition and Student Debt Levels Reflect National Priorities

University Business, Oct 2007

COLLEGE TUITION HAS INCREASED 35 PERCENT in the last five years, according to the College Board. There are several reasons why tuition rises at a rate faster than inflation. The first is that there are real cost increases associated with organizations that are both personnel and technology intense-and higher education fits that model.

At Juniata College, for example, 60 percent of our budget goes to compensation. And then we add technology to the mix. When a business buys technology it is usually to improve productivity and reduce cost. A college, by contrast, buys technology to stay competitive, and it increases cost.

Market demand is the second reason for tuition increases. Prospective students and their parents want cutting-edge technology and plush dorms and recreational facilities. And in a competitive market for higher education we know that if we do not provide them, our "customers" will select one of more than 3,000 other choices.

Third, the federal government has backed away significantly from its commitment to college financial aid. This has required all colleges and universities to redirect their own limited resources toward making up much of that loss.

Recognizing that we eventually could be priced out of the market if these trends continue, a group of more than 260 private colleges and universities developed a prepaid tuition 529 plan to provide assistance and incentives to families who have realized that they must save for a college education. More about that later.

The federal government has backed away from its commitment to college financial aid.

Of the three upward pressures on tuition and student debt-the institutional characteristics of higher education itself, market demand, and the role of the federal government-it is the latter that may be least understood. So let's examine it in some depth.

American attitudes toward higher education have shifted over the years. Each move has impacted tuition. In the 19th century, when college was a privilege for society's wealthy and elite, tuition was high. Even then, however, most colleges were exempt from local taxes, a sign that higher education was valued by their communities and ought to be encouraged.

It wasn't until after World War II that the federal government and the states concluded that widespread access to higher education should be a central national goal. Due to the generous educational benefits of the G.I. Bill of Rights and other measures, Americans who before never dared to dream of college enrolled, graduated, and went on to create the enrolled affluent society we live in today.

As a college president, I know that budgets reflect priorities. After World War II, the United States decided that higher education was a priority and subsidized it accordingly. This attitude continued through the educational years of the baby boomers. Tuition was low as a result. It is revealing that the median tuition charged state residents at public universities in 1967 was $333. In that same year, public universities in California, Connecticut, Kentucky, and Idaho charged no tuition at all. Few baby boomers, even those who attended private colleges, graduated with student loan debt.

Today the situation is quite different. More than two-thirds of today's college graduates are in hock the minute they pick up their diplomas, a trend that is accelerating. As recently as 1993 fewer than one-half of graduates had student loan debt, according to the National enter for Education Statistics.

More than two-thirds of graduates are in hock the minute they pick up their diplomas.

The average level of debt for graduating seniors exceeded $19,000 in 2004, according to NCES numbers, and that figure is not much smaller at public universities. The Project on Student Debt says students graduate from public institutions with an average of $17,250 in debt.

Simply put, higher education is no longer seen as a national priority. "In 1980, the federal government began to cut back dramatically on its direct financial support to students," observed Frank Harold Trevor Rhodes, former president of Cornell University. "Prior to 1980 a full 80 percent of the financial aid the government awarded to students was given in the form of grants and scholarships that did not have to be repaid," he said in his 2001 book, The Creation of the Future: The Role of the American University.

The other 20 percent of federal aid came via loans that did have to be repaid. Today the ratio is reversed, with about 20 percent of the federal government's higher education financial aid coming in the form of grants and scholarships and 80 percent as loans.

This is a dramatic shift in priorities. In essence, the baby boom generation, which benefited from a strong federal higher education subsidy, has been unwilling to provide the same benefit to its own children. One can argue whether this shift was good or necessary given the press of other national demands. No one, however, can argue that a major change in priorities did take place.

Nowhere is the change more clear that in the example of what has happened to the G.I. Bill. This much-loved program used to cover all of a veteran's tuition, room, and board. Now it covers-in practical terms-between one-and-one-half and three years of a college education depending where the veteran enrolls.

Federal funds for postsecondary education fell 29.6 percent between 1980 and 1996. In the years between 1965 and 2000, federal support for higher education "in constant 2000 dollars" was essentially flat, with a marked decline between 1980 and 2000.

As tuition rose due to institutional factors, market demand, and declining government support, criticism mounted. Who is at fault? The schools themselves, claimed former Education Secretary William Bennett in a 1987 New York Times op-ed titled "Our Greedy Colleges." He suggested that universities systematically raised their prices when student aid and subsidies increased. But subsequent research by Michael McPherson and Morton Shapiro found no evidence of a relationship between more federal grant aid and tuition increases for private four-year institutions and only a weak correlation among public universities.

The National Commission on the Cost of Higher Education in 1998 concluded that for public universities the correlation between tuition increases and government aid was actually inverse. "For public four-year institutions, the single most important factor associated with tuition increases has been decreasing revenue from government appropriations," the report said.

Most colleges do work hard to hold down costs and tuition increases. At Juniata, for example, we added 110,000 square feet of new buildings over the last few years, but because of an aggressive energy conservation program we actually reduced energy consumption. Notre Dame outsourced its cashier's office and found it could save money by doing so. MIT consolidated suppliers and streamlined facilities operations. Contrary to what many think, there is a lot of effective bean counting taking place on campuses.

To sum it up, higher education was a national priority for about 35 years after World War II. The financial burden on individuals remained low as a result. For the last 27 years, higher education has been a lower priority. The outcome is that students pay a greater share of the load.

To be sure, higher education is always a priority in speeches. It ranks right up there with motherhood and a hot lunch for orphans. But budgets reflect the real priorities of our national discourse. And there, higher education is increasingly perceived as a private benefit for those who take advantage of it and not as a public benefit to the nation at large. Like all priority shifts, our collective national decision has consequences. College students who start their working lives with significant debt are more likely to disregard altruistic but lower-income careers in favor of jobs with a high monetary payoff that may be less beneficial to their own psyches and to society as well.

So tuition is high. Due to massive influxes of institutional aid, however, few people pay the full sticker price. And even those who lay out the full sticker price do not pay the total cost of education. Tuition covers, on average, only 62 percent of the cost of educating a college student.

Nonetheless, the trajectories are clear. Tuition is going up. Given this situation, parents are well-advised to begin saving early for their children's college education. The bad news is that many of us are not saving anything at all. The U.S. Commerce Department says that in 2005 Americans spent more than they earned-a negative savings rate of one-half of one percent for the year, the first time that has happened since the Great Depression.

Financial advisors always counsel parents to maintain a diversified portfolio of savings vehicles for college. I agree. Among the best deals for parents are the federal tax-favored 529 plans, both savings and prepaid tuition plans.

These plans became an even better vehicle last year when the federal government declared them to be permanently tax-free. While the state-sponsored 529 prepaid tuition plans are aimed at public universities, Independent 529 Plan (, extends the benefits of prepaid tuition savings to over 260 private colleges and universities around the nation. And it does so at zero risk to the purchaser and for no annual fee.

In summary, institutional pressures related to technology and personnel commitments, market demand, and national budget priorities are responsible for rising tuition and student debt. Faced with this situation, parents and grandparents should set their own individual savings priorities to ensure a college education for their children and grandchildren.

Thomas Kepple is the president of Juniata College (Pa.).

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