Academic journal article College and University

Causes of Faster-Than-Inflation Increases in College Tuition

Academic journal article College and University

Causes of Faster-Than-Inflation Increases in College Tuition

Article excerpt

Abstract This report presents a predictive model of tuition increases by analyzing the relationship between college expenditures and revenues and increases in the price of higher education. Two quantitative models are developed, one for public colleges and universities and one for private colleges and universities. Given these models, it becomes possible to explain why college tuition rates increase faster than the Consumer Price Index (CPI).

College tuition increases is a topic of concern for students, parents, educators, and legislators. USA Today reports, for example, that students at four-year public colleges are facing double-digit increases in tuition and fees, with some schools increasing rates by as much as 26 percent (Marklein 2002). College tuition has consistently increased faster than disposable family income. Every year it becomes more difficult for families to send their children to college.

Not only are college tuition rates increasing, but so are the percentage of students receiving financial aid and the average amount of financial aid. This poses a serious problem for colleges, because eventually they will reach the point of diminishing returns. When 75 percent of a college's student population is receiving financial aid, the college nets only 25 cents of each $1 increase in college tuition. Already there are a handful of colleges where 85 percent or more of their students need financial aid.

Unfortunately, nobody seems to be able to explain why college tuition increases faster than inflation. Even university presidents are hard-pressed to explain the opaque relationship between a college's finances and the price it charges for a higher education. The report of the National Commission on the Cost of Higher Education, Straight Talk About College Costs and Prices (January 21, 1998) stated that

"Quite simply, the available data on higher education expenditures and revenues make it difficult to ascertain direct relationships among cost drivers and increases in the price of higher education (p. 18). "

Without a fundamental understanding of the causes of tuition increases, it is difficult to identify the most effective means for reducing the rate of college tuition increases.

To help address this problem, this report presents a quantitative linear model that relates college expenditure and revenue streams and other factors with the rate of tuition increases. This model also identifies the sensitivity of college tuition to increases or reductions in each independent variable. This will hopefully allow colleges to systematically focus budget cuts where they will be most effective in moderating tuition increases.

Relating College Cost Drivers and Tuition Increases

This model is based on six years of college cost and enrollment data, as published by the National Center for Education Statistics (NCES) in the annual Digest of Education Statistics on the nces.ed.gov Web site. The data are summarized in tables 203, 331, 332, 333, 343, 345, 346, 347, 349, 352 and 358. Some additional data were obtained from the National Postsecondary Student Aid Study (NPSAS), which is conducted by NCES every three years.

The NCES data provide ten primary categories for current-fund revenue and twelve primary categories for current-fund expenditures for all Title IV institutions.

The revenue categories are as follows:

* Tuition and Fees. This includes payments for instruction and other services, equipment, books, and goods the university provides to the students.

* Federal Government. This includes appropriations, unrestricted grants and contracts, restricted grants and contracts, and independent operations (Federally Funded Research and Development Centers). Federally-funded education loans and grants are not included in this category.

* State Governments. This includes appropriations, unrestricted grants and contracts, and restricted grants and contracts. …

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