The Cost of Higher Education 1

The Cost of Higher Education: an analysis and case study

Jenny Burns Creighton University MLS 675 December 16, 2004

The Cost of Higher Education 2 Introduction The increasing cost of higher education in the United States has been a continuing topic for debate in recent decades. American society emphasizes the importance of education after high school, yet the cost of undergraduate and advanced degrees continually rises at a greater rate than inflation. According to the Advisory Committee on Student Financial Assistance, cost factors prevent 48% of college-qualified high school graduates from pursuing further education (McKeon, 2004, p. 45). The current system requires the majority of students to accumulate extensive debt with the expectation that they gain lucrative post-graduate employment to repay their loans. The cost of higher education raises several ethical issues. Among these are the perpetuation of the cycle of debt in American commercial society, the hierarchy of differing higher education institutions and cost, and the resulting socioeconomic and racial inequities in college demographics. Both an examination of the current trends and figures and a closer look at a real life example show the troublesome state of higher education and its effect on our commercial society.

The Facts about Cost, Financial Assistance, and Loans Research indicates a steep upward trend in the cost of higher education throughout the 20th century. In recent decades, America has witnessed a widening gap between inflation and tuition. An incoming freshman at a typical college incurs charges for tuition, university fees, books, room and board, and other miscellaneous items. During the 1999-2000 academic year the total cost of attendance for full time undergraduates at a 2-year institution averaged $9,083, a 4-

The Cost of Higher Education 3 year public institution equaled $12,601, and a 4-year private institution totaled $23,617 (Berkner, 2003, p. 75).

U.S. Department of Education, National Center for Educational Statistics, 1999-2000 Institution Type Public 2-year Public 4-year Private not-for-profit Private for-profit Tuition and fees $ 1,558 4,251 15,031 8,919 Non-tuition expenses $ 7,525 8,354 8,570 9,438 Total price of attendance $ 9,083 12,601 23,617 18,360 (Berkner, p. 73)

Since the mid 1980s, student fees have increased at a rate approximately double the rate of inflation (Hauptman, 1997, p. 24). A 1996 study by the General Accounting Office indicates a 234 percent increase in tuition and fees at public institutions and a 220 percent increase at private universities since 1980. This compares to an 80 percent increase in inflation since 1980 (Barry, 1998, p. 39). Families today spend a considerably larger percentage of their family income on college than families two decades ago. In 1979, the average four-year tuition at a public college consumed approximately 36 percent of a familys annual income, while a private university consumed 84 percent. By 1994, the percentages jumped to 60 and 156 respectively (Reiland, 1996, p. 36). In addition to increases in tuition, an attitude shift in regard to paying for college contributes to the problem of financing higher education. Parents today are more likely to budget college expenses out of their annual income instead of from savings, and students are expected to contribute more to financing their own education than in the past (Kiesler, 1994, p. 67). Institutions of higher learning in America face the daunting task of competing to meet the expectations of todays college student while finding sufficient resources to keep costs within reach of todays family. The four major sources of revenue for colleges and universities in the

The Cost of Higher Education 4 United States include: state and local funding, the federal government, tuition and fees, and endowment income and private giving (Hauptman, p. 22). The percentage of revenue from each of these sources changes according to economic trends and varies depending upon the type of institution. Trends in Major Revenue Sources Since 1980 Percentage Change Revenue Source 1980-1986 1986-1991 1991-1996 Tuition and fees 77 61 49 Federal government 30 38 22 State and local government 52 34 14 Endowments/gifts 60 50 42 Sales and services 71 67 25 Other sources 50 67 40 Total current fund revenues 58 50 29 Inflation rate 31 21 17 (Hauptman, p. 23) Annual tuition hikes today are less than they were in the 1980s, but tuition increases still exceed the rate of inflation. Tuition remains the largest source of revenue for colleges and universities in the United States. Research indicates a number of factors that contribute to increasing the overall cost of higher education. Colleges and universities have drastically increased their costs without seeing an equal growth in their sources of revenue. The greatest increase in higher education costs in the last 75 years has been seen in administrative costs. According to the National Center for Education Statistics, in the last twenty years these costs grow annually by 19 percentfour times the growth of expenditures on teaching (Reiland, 1996, p. 36). Civil rights regulations and federal mandates, (including the Americans with Disabilities Act, the Student Right to Know Act, and Campus Security Act), plus efforts to increase racial and ethnic diversity require universities to employ additional administration and staff (Reiland, p. 36). In the past twenty years faculty and staff members and their salaries have increased significantly. In the past two

The Cost of Higher Education 5 decades, faculty members increased by 30 percent and non-faculty members grew by more than 60 percent. Student-faculty ratio and class size are two major rating criteria for American universities. The American Association of University Professors found that average salaries for faculty members at public universities rose by 108 percent between 1980 and 1993, and salaries at private universities surged 134 percentnearly double the rate of inflation (Reiland, p. 36). Colleges also require additional expenses in competing to attract potential students and meet higher student and parent expectations. Colleges are judged by their academic qualifications, health services, sports facilities, dorms, campus recreation centers, cafeterias, and other amenities. In order to attain diversity goals and keep enrollment numbers up, colleges and universities offer financial aid packages and scholarships to students. Students received approximately $50 billion in financial aid during 1995-1996 from federal, state, institutional, and private sources (Hauptman, p. 26). According to the U.S. Department of Education 1999-2000 National Postsecondary Student Aid Study, 55 percent of undergraduates received some form of financial aid (Berkner, p. 93). Federally-funded student financial assistance made up the highest percentage for student aid during the 1999-2000 academic year, with 41.7 percent of students receiving federal aid. Institutional grants took second at 37.5 percent (Berkner, p. 53). Percentage of All 1999-2000 Undergraduate Receiving Financial Aid Federal grants State grants Institutional grants Private grants % Ave. $ % Ave. $ % Ave. $ % Ave. $ Any aid 41.7 2,063 24.6 1,681 30.1 3,722 12.5 2,051 Any loan 43.7 2,218 24.3 2,004 29.5 4,574 11.4 1,970 Any grant 52.0 2,063 30.7 1,681 37.5 3,722 15.6 2,051 (Berkner, p. 53) Although the amount of money given to students in the form of financial aid and grants has increased in the last decade, these numbers seem less impressive in real dollar value. Major

The Cost of Higher Education 6 federally funded grant programs, the Pell Grant and the Supplemental Educational Opportunity Grant, make up a large portion of the federal student assistance. Though funding for the Pell Grant has increased in the last two decades, its buying power has remained the same, taking into account the increased cost of college and the number of recipients (Hauptman, p. 26). The 2005 federal budget increases the Pell Grant by less than 10 percent, which falls short of the double digit tuition hikes seen in institutions across America (Malveaux, 2004, p. 39). Private universities succeeded in the 1980s with a high-tuition high-aid approach that capitalized on high inflation by reinvesting a larger percentage of higher tuition dollars into financial aid (Hauptman, p. 30). Their goal was to increase revenue and student diversity. Private universities are currently reevaluating this strategy because high tuition high aid squeezes out the middle class, who often do not qualify for financial aid and cannot afford high tuition. Public institutions faced with lower levels of state funding may look to model this strategy to take advantage of students willing to pay more while maintaining affordability and diversity. The increase in tuition and fees plus the lack of parental savings for college has led to the trend for college students to finance their higher education through loans. The College Board in 1996 published data showing that loans comprised over half of the total financial assistance for students, reaching approximately $30 billion of debt every year (Hauptman, p. 27). Not only the amount of student debt, but the drastic increase in undergraduate loans in the last decade show cause for concern. The $103 billion of total undergraduate loans from 1990-1995 surpasses the debt of all college students from the previous three decades combined (Elfin, 1996).

The Cost of Higher Education 7

35% 30% 25% 20% 15% 10% 5% 0% 1975-76 1980-81 1985-86 1990-91 1994-95 Tuition, Fees, Room , and Board Financed by Loans

(Hauptman, p.27) Trends in Student Aid 2003

Other Aid 11% Non-Federal Loans 7% State Grants $5.6 Federal Loans $47.7 5% 47% Federal Pell Grants $11.7 11% Institutional Grants $20.4 19% Federal Loans $47.7 Institutional Grants $20.4 Federal Pell Grants $11.7 State Grants $5.6 Non-Federal Loans Other Aid

(Financing, p. 41) Case Study Comparison Most of the documents on the topic of higher education costs and its toll on families and college students contain information on overall trends and averages. As a recent graduate of Creighton University and a first-year graduate student, my personal financial situation offers a real life example on this issue. I received a partial academic scholarship and a full athletic scholarship to play basketball for Creighton University. The remaining charges for room, board, tuition, fees, and books after my academic scholarship were all financed through the athletic

The Cost of Higher Education 8 department at Creighton. I currently work for the athletic department as a graduate assistant womens basketball coach. As part of my job, I receive free tuition and fees at Creighton for my masters degree. Very few people graduate with bachelors and masters degrees from a private university without paying any tuition or fees. Because of the rarity of my situation, I can compare my financial life now with what it would have been without a full scholarship. Fortunately, my skills as a basketball player allowed me to graduate from a top-rated private university without acquiring any debt. Without the scholarship my life and the choices I have made would have been drastically different. My parents did not save for my college education; thus, without scholarships, I would have incurred extensive school loans. Currently, the College of Arts and Sciences at Creighton costs $19,746 in tuition, $764 of fees, and approximately $7,500 for room and board annually. I spent four and a half years at Creighton with the total cost of my education equaling approximately $125,000. Without an athletic scholarship, my financial situation would be remarkably different. If I worked a part time job while in college and still received the Karl M. Reinart academic scholarship of $5,000 a year, I would have needed to finance three fourths of the remaining costs in a loan of approximately $71,250. If I took ten years to pay off my loan at five percent interest, I would be making monthly payments of $756 after graduation and would have to pay back an additional $19,436 in interest on top of the $71,250 I borrowed. The numbers are even more staggering when considering graduate school. To finish the 36-hour masters program in two years at Creighton it costs a total of $21,940, which does not include living expenses. If I were not on a full-tuition scholarship and financed my masters degree in addition to my undergraduate loan, I would be $93,190 in debt. In order to pay

The Cost of Higher Education 9 everything back within 15 years I would need to make monthly payments of $737 and have to pay back an additional $39,459 in interest. Realistically, like many middle-class Americans, I simply could not and would not have been able to afford to go to school at Creighton. Without an athletic scholarship I would have attended a more moderately-priced state school, such as the University of Minnesota. The yearly costs for the University of Minnesota total $11,347, which includes $8,029 in tuition, $1,865 in campus housing, and $1,453 for a meal plan. The cost of a four year degree for an in-state resident equals approximately $45,388. Although the cost is significantly less than Creighton, I would still have needed to finance approximately one third of the costs through a loan. If I took out a loan of $30,250 at five percent over a ten year time frame I would make monthly payments of $321 and pay back an additional $8,252 in interest. Adding a masters degree from the University of Minnesota increases those numbers to a loan of $49,300, monthly payments of $523, and interest totaling $13,488. With this financing plan a four-year and masters degree from the University of Minnesota, including interest payments, costs approximately $77,926.

Ethical Issues Concerning the Cost of Higher Education The cost of higher education in America is a controversial issue today, in large part, because of the ethical issues it raises. Our society places an emphasis on the importance of higher education, yet the cost of college and advanced degrees continues to climb. In order to achieve social and economic success in our society it is imperative to obtain schooling beyond the high school level. With few exceptions, this requires a person to take out extensive loans, thus entering the cycle of debt that most Americans never break. Our commercial economys system of inflation and interest rates creates the reality that most college students and/or their

The Cost of Higher Education 10 families pay not only for the education, but large amounts of interest as well. The notion of paying back large sums for tuition, fees, room and board, etc. becomes even more challenging when considering an interest rate of five percent or more. In the last two decades tuition rates have made a significant jump, far exceeding the increases in inflation in many cases. College students have more options for student aid, scholarships, and financing than in the past, but in many cases this assistance has not increased in real dollar value and is only available to minorities and lower-class students. The high-tuition, high-aid-strategy used by American colleges has had the greatest negative impact on the middleclass student, who does not qualify for assistance and cannot afford high tuition prices. The discrepancy in cost for different types of schools also raises an ethical issue. Generally speaking, the more competitive a university, the more it costs a student to attend. State schools, community colleges, and trade schools cost considerably less that private universities. High costs successfully exclude capable lower-and middle-class students who do not qualify for school grants from prestigious institutions like Harvard and Yale. There is a definitive correlation between an institutions educational rating and the ticket price. The 2005 edition of Barrons Profiles of American Colleges lists colleges and universities in both a cost range directory and according to the level of competitiveness. Fifty-four of the 70 colleges listed as most competitive and 65 percent of colleges listed as highly competitive fell in the $26,000 a year and higher price range (Barron, 2004). The colleges designated as less competitive fell in the lower price rages. Earning a marketable and valuable degree from a competitive institution just is not within financial reach of the majority of Americans. Thus, under the current American higher education system, the rich stay rich and the middle and lower classes continue to struggle.

The Cost of Higher Education 11 Conclusions The controversy surrounding increases in cost of higher education has many Americans questioning the value of education and searching for better options. Studies indicate that college graduates in 1980 earned an average of 40 percent more than high school graduates, and in 1990 that number grew to 75 percent (Reiland). On the flip side, Emily Feistritzer, the Director of the National Center for Education, stated that of the 29 million people 25 years of age and older with a college degree, 5.8 million held jobs that did not require a college degree (Reiland, p. 36). Despite hikes in tuition, more people are attending college today than ever before and flooding the job market. Unfortunately, this equates to higher competition for college level jobs. Percentage of the Population Enrolled in Higher Education
8% 7% 6% 5% 4% 3% 2% 1% 0% 1947 1955 1963 1971 1979 1987

% of Population 16 years of Age and Older

(Hauptman, p. 21) Kristina J. Shelley, a Bureau of Labor Statistics specialist, estimates that at least 22 percent of all college graduates entering the work force between 1994-2005 were or will be either unemployed or in jobs for which a bachelors degree is not ordinarily considered a necessity (Elfin, 1996). The increase in the cost of higher education reflects a shift in perspective. People now view college and advanced degrees as an investment rather than merely a pursuit of knowledge. Debt is considered an acceptable and natural part of our commercial economy. Seventy-five percent of undergraduate students own at least one credit card, 45 percent carry a balance, and

The Cost of Higher Education 12 the average balance is greater than $3,000 (Laurence, 2003, p.3). This attitude will cause problems in the future with a glut of debt-ridden college-educated people competing in a limited job market.

The Cost of Higher Education 13 Resources Barron. (2004). Profiles of American Colleges, 2005 edition. Barrons Educational, 2004, (4651, 237-247). Barry, J.S. (1998, winter). Rigging the price for higher education. Academic Questions, 11. Retrieved November 28, 2004 from Academic Search Premier. Berkner, L. et al. (2003, March). Student financing of undergraduate education, 19992000. Natl. Postsecondary Student Aid Study. Natl. Center for Education Statistics. NCES 2002-167. Retrieved December 5, 2004 from, http://www.nces.ed.gov/pubsearch/pubsinfo.asp?pubid=2002167. Elfin, M. (1996, September). The high cost of higher education. U.S. News & World Report, 121. Retrieved November 29, 2004 from Academic Search Premier Database. Financing higher education. (2004, spring). New Englands Journal of Higher Education & Economic Development, 41-44. Hauptman, A.M. (1997, spring). Financing American higher education in the 1990s. New Directions for Institutional Research, 93, 19-35 Kiesler, C. (1994, July). Whats behind soaring college costs? USA Today, 123, 66-67. Retrieved November 29, 2004 from Academic Search Premier Database. Laurence, D. (2003, winter). Notes on the English major. ADE Bulletin 133, 3-5. Malveaux, J. (2004, July). Will tuition become a campaign issue? Black Issues in Higher Education, 21. Retrieved November 30, 2004 from Academic Search Premier Database. McKeon, H. P. (2004, January). Intervention is needed. USA Today, 1/5/04. Reiland, R. (1996, September) Deconstructing the ivory tower. National Review, 48, 36. Retrieved November 29, 2004, from Academic Search Premier Database. Through a different lens: A new angle on the price spiral in higher education. (2000, January/February). The National Center for Postsecondary Improvement. University of Minnesota. (2004). Retrieved December 12, 2004 from http://www1.umn.edu/twincities/01_about.php