Natalie Korman
September 2017

Why Is College Tuition So High?

Why is college tuition so high? There’s no simple answer. This question brings up controversial issues of student debt and college accessibility. It’s a fierce debate. But we can tell you a few theories that explain why college tuition is so darn high.

Easy Access to Federal Aid

Many people believe easy access to federal student loans drives up tuition. Students can now take out federal loans with little difficulty and seem to be willing to take out bigger and bigger loans to match tuition hikes. In this way, schools are guaranteed their tuition dollars regardless of price.

This theory was first described in 1987 by US Secretary of Education William Bennett in a New York Times op-ed entitled “Our Greedy Colleges.” He writes, “[I]increases in financial aid in recent years have enabled colleges and universities blithely to raise their tuitions, confident that Federal loan subsidies would help cushion the increase.”

A few studies have been conducted to test Bennett’s hypothesis. One of them examined the effects of merit-based aid given by individual states to students and found no notable difference in tuition.

However, another study, conducted by researchers at the New York Federal Reserve, specifically examined how availability of federal loans affected tuition. They looked at tuition prices before and after federal loan expansions and found that prices did in fact go up.

Is that it, then? Some still doubt how conclusive this study is. One argument is that the NY Fed study only looked at sticker price — the published price of tuition — and many colleges actually offer discounted prices to their students.

Lack of State Education Funding

Other researchers say the problem lies at the state level. State governments provide a significant amount of funding for public universities and colleges, and state budgets might be affecting tuition. A study by the Center for Budget and Policy Priorities cited a “lost decade of state spending” as responsible for more recent tuition hikes at public higher ed schools. Since a majority of American students attend public universities or colleges, this is noteworthy. After the Great Recession hit in 2008, state spending on higher education plummeted. As state spending fell, tuition at public universities and colleges rose.

Does this correlation equal causation? Researchers note that tuition at public institutions has not only risen, but now covers a bigger percentage of operating costs. In the late 1980’s tuition covered less than 35 percent of institutional revenue. Now it’s almost 50 percent. These public institutions are relying more and more on tuition, so the theory that state spending and tuition are directly connected might ring true.

However, there is no consensus about this conclusion, either. The study, much like the NY Fed report, limits its study to sticker prices only. Since state spending only affects state schools, the rising cost of private non-profit and for-profit schools is not addressed at all.

Status and Prestige

Other theories say it’s not just about money, but about image, too.

Some colleges and universities may want to raise tuition to gain prestige. The idea is high tuition gives the impression a college is elite or powerful, and therefore especially worthy of attendance.

Some believe institutions will seek more revenue in order to gain prestige. This idea is known as Bowen’s rule and says that:

  • “excellent, prestige, and influence” is a primary goal of higher educational institutions;
  • there’s no limit on how much money a school can potentially devote to this pursuit of prestige and influence;
  • each institution raises as much money as possible;
  • each institution spends what it raises;
  • so therefore, the school will keep raising as much revenue as possible to achieve prestige.

It’s unclear how many institutions this affects or whether Bowen’s rule is accurate. At least one study has confirmed it, but that’s by no means a scientific consensus. We know that in order to be successful (i.e., turn a profit), for-profit schools do not aim to spend all of their revenue, which does not align with Bowen’s rule. Higher education in America is comprised of thousands of schools with many individual goals and financial structures.

All that being said, these theories are just the beginning. The reasons why college tuition is high are complicated. Many hypotheses have been tested and re-tested, but the debate rages on. It’s an intensely political conversation, too, because the theories often involve government funding.

What we do know is tuition keeps rising way ahead of inflation. Tuition has also risen at a rate way above that of median household income. Whether tuition prices will drop or level off is a matter of speculation, but in the meantime, we think we all can agree college tuition is too high!

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Natalie Korman

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