Taking the anxiety out of paying for college

USA Today (Society for the Advancement of Education), July, 1997 by Stuart M. Butler, John S. Barry

The cost of higher education has been rising sharply for the past 25 years. The General Accounting Office (GAO) reported in 1996 that average tuition at public universities has soared since 1980 by 234%, much faster than earnings and general inflation. Tuition at private universities has grown even more rapidly over the same period. These increases have outstripped the general rise in prices as measured by the Consumer Price Index (CPI), which has risen 85% since 1980, and the average family's ability to pay for college as measured by household income, which has gone up 82% since 1980.

There are many important reasons for the explosion in college costs. These include:

The increasing value of a degree. The most important reason costs have escalated is that the value of a college education has increased. The GAO reports that the average college graduate earned about 43% more than the average high school graduate in 1980. Today, the difference in earnings between the same two workers is over 70%. Therefore. more families are finding it necessary to send their children to college, assuring them a better opportunity to succeed in the job market.

Research activities. The prestige of a college or university today is driven in large part by the publishing prowess of the institution's faculty. Publishing requires research, which demands time. This means that professors are doing less teaching and more research. In turn, less teaching on the part of each professor means that course and class selection are reduced, forcing students to take longer to finish a degree, or more professors are required on staff, making the institution spend more for salaries. Either way, the result is greater fixed or overhead costs that typically are passed on to students and parents through higher tuition and fees.

Reduced state funding. The current era of fiscal austerity in government has meant slower growth in state budgets, often leading to slower growth in financial support of public universities. Raising tuition has been the sole recourse for public institutions faced with higher salaries and increased demand.

Federal programs meant to assist students facing steep college costs have added to the rise in tuition. Starting with passage of the Higher Education Act of 1965, the Federal government has guaranteed student loans extended by private banks. The Student Loan Marketing Association (Sallie Mae) was established in 1972 as a government-sponsored enterprise to establish a secondary market in student loans. In addition, a limited direct government loan program was established in 1993. These loan programs not only facilitate indebtedness, but boost the scale of that indebtedness by encouraging steeper tuition hikes. As Thomas Donlan pointed out in Barron's (Dec. 23, 1996), "The faculty and staff can vote themselves higher salaries and more resources if the only consequence is that students and parents just have to sign on the dotted line to borrow some more money." With Federal debt assistance so readily available, schools have no incentive to control the costs of education.

Higher tuition because of increased demand and a rise in value is a natural market occurrence and should not be addressed by government involvement. Similarly, any overemphasis by universities on research will be corrected as students seek out schools focused on education. As for the fiscal restraint manifesting itself at the state level, it is the result of a decision by Americans who feel overtaxed. Therefore, Federal policy should concentrate on correcting the remaining cause of escalating tuition: the effect of Federal programs and their consequences for families.

One side effect of any policy designed to make money more available to help families to afford college will be to boost tuition somewhat. The wisest approach would be to promote saving for college, rather than to make it even easier for families and students to go deeply into debt.

The second issue to address concerning the rising price of higher education is not just that college costs a lot, but that the amount is uncertain. This makes it hard for families to know how much they must put aside or what debt they or their children will have to incur to pay for a college education. Over the past decade alone, private college inflation, as measured by the Independent College 500 Index, has ranged from a low of 5.05% in 1996 to a high of 8.61% in 1989. Tuition increases at public universities have fluctuated from a high of 8.90% in 1986 to a low of 4.69% in 1994.

The uncertainty makes saving particularly difficult because parents never can be sure they are putting aside enough money to cover the full costs of tuition, fees, room, and board. Alternatively, families may budget too much for higher education, in which case they will be sacrificing savings for other expenses such as retirement or a house. The uncertainty surrounding college expenses is like taking out a mortgage without knowing what the final price of the house will be when the closing date arrives.