The Rising Cost of College

Until the 1944 GI Bill rewrote the script on higher education, few outside America’s elite could afford to attend college. But under the bill’s umbrella, and with help from a host of other financial and societal changes, college attendance surged, tripling between 1960 and 1975 and increasing 65 percent between 1975 and 2007, according to U.S. Census data. For many, college became more rite of passage than unattainable American dream—at least for a while.

Tuition and attendance fees rose 439 percent between 1982 and 2006, according to the National Center for Public Policy and Higher Education, and the American middle class, battered by deep recessions in the 1980s and ’90s, felt the pinch. By the time the current recession hit its stride in 2008, college affordability was already a national concern.

Now, with layoffs and foreclosures continuing, personal lines of credit constricted, job openings shaky and real economic stability at least two years away, parents, politicians and academics can’t help but wonder if there really is such a thing as a higher-education bubble. And if so, has that bubble finally burst?

Is higher ed overpriced?

Economic bubbles occur when commodities sell at a level far greater than their actual value—and it’s that five-letter word, v-a-l-u-e, that makes what’s happening in higher education a hot topic of debate.

In a May 2009 editorial written for the Chronicle of Higher Education, Joseph Marr Cronin, former Massachusetts secretary of educational affairs, and Howard Horton, president of New England College of Business and Finance, argue that the term is apt.

“Consumers who have questioned whether it is worth spending $1,000 a square foot for a home are now asking whether it is worth spending $1,000 a week to send their kids to college,” they write. “There is a growing sense among the public that higher education might be overpriced and under-delivering.”

On the flip side are data that prove higher education generates results. Among the most compelling are U.S. Census statistics that show that workers with a bachelor’s degree earned an average of $57,181 and those with an advanced degree earned an average of $80,977 in 2007, while those with only a high school diploma earned an average of $31,286.

The obvious takeaway is that those with college degrees earn more and almost always recover the cost of their higher-education investment.

Still, arguments that point only to higher education’s long-term value don’t address the fundamental concerns of parents like John Worden (BA ’81), who spend months looking for schools that are a good educational and financial fit, only to reach the conclusion that “unless you have a bucket of money available somewhere, a college degree is very difficult to obtain.”

Private colleges and universities nationwide are being forced to confront the very real potential for middle-class flight to more affordable public counterparts.

Although DU hasn’t encountered that problem yet—applications for the 2009-10 academic year were almost 30 percent higher than they were in 2008—the sentiment that leads some families to choose public over private education is understandable.

“Private higher education has gotten to be very expensive. It’s an extraordinary investment for students and their families,” says DU Chancellor Robert Coombe. “We have been working hard to control costs, but we are well aware of the fact that if costs continue to escalate, then no matter what their origin, even if they’re just associated with the real cost of doing business, the audience for private higher education will simply grow narrower and narrower.”

For Worden, sticker shock caused scholarships to become the determining factor in his family’s college search.

“My kids are student-athletes,” Worden says. “We’re finding colleges willing to help them [with financial aid], but basically schools that are not interested in my children coming and playing athletics are completely ruled out. That narrowed the field considerably. I’m not saying that’s necessarily a bad thing, but it’s definitely affected the schools we look at and the choices we feel we have.”

The policy response

In a 2008 National Center for Public Policy and Higher Education survey, 55 percent of respondents said a college degree is necessary to succeed, but only 29 percent said qualified students can afford the investment. Combine statistics like that with a chorus of voter complaints about higher-education costs, and politicians take notice.

This year, the Obama administration announced 2010 budget proposals for higher education that include establishing a Pell Grant maximum of $5,550 for the 2010-11 academic year and indexing the maximum grant to grow faster than inflation; increasing the tuition tax credit for the first two years of college from $1,800 to $2,500 and making it partially refundable; increasing Perkins Loans from $1 billion to $6 billion a year and from 1,800 participating schools to 4,400; providing new student and parent loans through the federal government; and a new five-year, $2.5 billion fund to improve college access and completion. The administration also streamlined the Free Application for Federal Student Aid (FAFSA).

These changes fall on the heels of those mandated when former President George W. Bush signed the Higher Education Opportunity Act into law in 2008. A portion of the act created six College Affordability and Transparency Lists that will document, among other things, the top 5 percent of institutions with the largest percent change in tuition and fees over the past three academic years. Schools that fall into this category will be required to submit letters to the secretary of education that identify the portions of their budgets that generated the largest cost increases, explain why those increases occurred and outline their plans to reduce similar cost increases going forward.

Uninvited policymaker tinkering may be part of the new normal for higher education, but it’s not government intervention that really has schools worried.

“All you have to do is take a look at data concerning the socioeconomic distribution of college graduates today,” Coombe says. “Something like two-thirds of all students who graduate with a bachelor’s degree by the time they’re 24 come from families in the top quartile of family incomes; less than 10 percent come from the bottom quartile. [Because] students who earn a bachelor’s degree or higher have far greater incomes throughout their lives, their children are far more likely to go to college and graduate. There is a feedback loop that contributes to economic polarization.

“To the extent that higher education becomes less and less accessible to those with lower family incomes or to students coming from families where they are the first generation going to college, this polarization widens,” Coombe adds. “It’s imperative that higher ed respond in ways that make higher education more affordable for a very broad socioeconomic distribution of people.”

Cutting costs, increasing aid

What will that response look like?

Voluntary limits on tuition increases are clearly step one. Earlier this year, the National Association of Independent Colleges and Universities reported that private, nonprofit colleges and universities enacted the smallest average increase in tuition and fees since 1972. DU’s 4.9 percent tuition increases for the 2008-09 and 2009-10 academic years were its lowest in a decade.

Step two requires schools to find innovative ways to cut costs.

“The primary driver of expense increases is people. This is an extraordinarily labor-intensive combination of both education and student-life programs,” says DU Provost Gregg Kvistad.

In the coming year, faculty and staff compensation is expected to comprise nearly 60 percent of the University’s operating expenses—an increase of 7 percent in five years.

“Cost is a big deal,” Kvistad adds. “There’s a fair amount of rhetoric, as there is with all sorts of policy issues about waste and inefficiency, but certainly universities and colleges need to tighten up. They need to look at what they’re doing and be very critical of that, both from the perspective of what is being produced by the dollars they spend and who is being employed to do that work.”

Approaches vary campus to campus. Last fall, DU initiated a series of cost-cutting measures that ranged from a voluntary and non-voluntary staff severance program that reduced headcount by 125 positions to streamlining supply and expense budgets. The effort cut expenses by more than $12 million and did so in a manner that, Coombe says, “has no adverse impact on our mission to provide the highest quality education to our students, grow a thriving and productive research enterprise and actively serve the public good.”

The savings were funneled into critical areas such as financial aid, where they provided a bump to the base amount of money qualifying students receive, increased the base amount of merit scholarships, and added $4 million to the University’s fund for emergency financial aid.

Currently, about 80 percent of DU students receive some form of financial support, with roughly 44 percent receiving need-based aid from the University, 22-24 percent receiving talent and merit scholarships, and the remainder receiving student loans from federal and private resources. The pool of undergraduate institutional financial aid—DU scholarships and grants, tuition waivers and student employment—has increased by an average of 9.9 percent annually since 2004, and the University awarded more than $46 million in 2008-09, says Julia Benz, assistant vice chancellor for scholarships and financial aid. (Financial aid numbers for 2009-10 were not yet available when this article went to press.)

Even so, DU can’t match the likes of Ivy League offers of free tuition for families earning less than $60,000 annually. So while the University’s rising reputation attracts the best young minds, it has to work doubly hard to retain them, says Tom Willoughby, DU’s vice chancellor for enrollment.

“We’ve experienced a significant increase in the number of appeals to financial aid decisions, and the reality is that there is increased financial need,” Benz says. “We require updated documentation to review appeals, and what we receive often shows huge changes in financial circumstances.

“We also field a lot of phone calls from people asking about want-based aid,” Benz adds. “It usually happens when there isn’t a huge shift in the family finances, but they’re worried about the future. We work very closely with these families to let them know that if the bottom drops out, if they lose their job, we’re here for them—but until that event happens or we have something that documents that their financial situation has changed, it’s hard for us to respond.”

Ultimately, budget cuts, headcount reductions, streamlined operations and greater need for financial assistance are just one part of the big picture. Endowments, which fund scholarships and often are used to pay a portion of schools’ operating budgets, lost value—DU’s dropped 22 percent from a 2008 high of about $300 million before beginning to climb back with help from recovering markets and fundraising efforts.

“We have to work independently to address cost concerns apart from whatever the federal or state governments may do,” Coombe says. “Leaders of colleges and universities have to be thinking about how to change their fundamental operating model in a manner that makes it more affordable for students.

“For us, it really gets down to the value proposition. Are the value of the education and the vast array of experiences associated with it worth the net cost? In investigating any school, if I were a student or a parent, I’d be asking, ‘What’s the nature of the education here? What’s the nature of the special experiences? What sort of person am I likely to become? What am I going to be capable of doing when I graduate from this place? And what does that look like relative to comparative costs and to net costs?'”

Paying for college

While colleges and universities feel their way across the changing higher-education landscape, the terrain hasn’t altered much for students and families struggling with the conundrum of needing degrees they can’t afford.

The grants, federal loans, federal work-study and federal tax credits and deductions they receive—more than $143 billion during the 2007-08 academic year, according to the College Board — rarely cover all their costs. Two years ago, students borrowed about $19 billion from state and private sources to finance their educations, and many then turned to credit cards to fill the remaining gap. A 2008 Sallie Mae study reports that 30 percent of undergraduates used a credit card to pay tuition and almost one-fifth of college seniors carried balances greater than $7,000.

Even those who aren’t funding college with credit cards or loans from questionable sources feel the strain.

“My father told me, wherever you get in, I will pay the tuition. He set the bar pretty high,” says Tom Cryer (BSBA ’76). “I wanted to say the same to my kids.”

Cryer’s oldest, Caroline, graduated from Duke. His middle son, William, is enrolled at Notre Dame. His youngest, Andrew, starts DU this fall—but the economy is in a very different position now than it was just four years ago.

“I sell real estate,” Cryer says. “When Caroline started at Duke in 2005, we paid her tuition out of cash flow. It wasn’t a big deal. This year we took money out of savings for the first time to pay tuition.”

Knowing what their families are sacrificing to pay for college is tough for some students to handle.

“I think this causes all of us to re-explore our values,” says Jo Calhoun, associate provost for student life. “I think students, in general, love being here, but they’re trying to be as thoughtful as they can about how they can make ends meet and how they can graduate from DU.”

During spring quarter 2008, the University created positions for two part-time student advocates whose sole purpose is to work with students who are considering leaving DU because of financial concerns.

“We connected the advocates with financial aid, mental health services and student life, then we sent a notice to faculty, staff, RAs, anybody in a student leadership role—literally everyone at the University we could think of—to let them know the student advocates were available,” Calhoun says.

More than 40 students took advantage of the new resource in the spring quarter alone, and administrators from other colleges have expressed interest in replicating the program on their campuses.

“This was a really homegrown idea,” Calhoun says. “Because of the size school that we are, we’re able to keep a handle on our undergraduate student population. I don’t mean that we can identify every student who’s leaving, but we have a good enough network that, if somebody’s struggling, there’s usually somebody who knows it, be it a faculty member, a resident assistant or a student life staff member. We have that advantage.”

The student loan legacy

Without question, the steps most incoming students take to earn a degree will be far different than those taken just a generation before.

Some students work. Some sleuth out little-publicized funding opportunities and then create a patchwork of loans, grants and scholarships that meets their needs. Some take a circuitous route to a degree, starting at a lower-priced community college, then transferring to a large public or private university.

Some, like Sajal Klee (MMP ’09), do all of the above. Home-schooled through elementary and high school, Klee started mapping a path to a college degree early in his senior year.

“Economics were a big consideration,” he says. “One of the ways I saved money was to do two years at a community college to fulfill all my general education requirements, then transfer to a university for my junior year.”

Klee had DU, Metro State College and the University of Colorado-Denver on his short list, but “DU would only be affordable if I could bring the costs similar to what CU-Denver would be,” he says. “There are certain things that happen automatically when you apply, but a lot of times it really does fall to the student to lead the initiative. I took out federal loans and a couple of private loans. I did work study in the financial aid office and I did DU’s 4+1 program to make everything work.”

Under the 4+1 program, Klee earned undergraduate and graduate degrees simultaneously and retained access to undergraduate grants and scholarships from the school. He graduated in August with a BA in political science and public policy, a master’s in public policy, and about $45,000 in student debt.

According to a survey conducted by the Project on Student Debt, more than 50 percent of college graduates say the need to pay back student loans is a significant consideration when making a career decision. Even with student loan debt far below that of many of his peers, Klee is definitely part of that debt-conscious group. He drives his mother’s 10-year-old car, has no plans to buy a home anytime soon and plans to live very frugally for the next few years while launching a career.

“My dream job would be to be a senior adviser to the president. That’s what I’m shooting for,” Klee says.

To get there, he’ll need to go law school.

“I’ve applied for three different financial aid advising jobs at George Washington University. The nice thing is, once I work there for six months, I get a tuition waiver so I’ll be able to go to law school part time for free,” Klee says. “Again, it’s all about being proactive and looking at different avenues to finance an education.

“I mean, it is your college and your future. In my case, I’m not going to sit around and wait for someone to tell me what I should do or what I should look for.”

In recognition of the recession’s impact on students’ family finances, University Advancement has intensified its efforts to grow DU’s endowed scholarship funding. Read more online. Go to www.du.edu/annualreport to download the University’s 2007-08 and 2008-09 annual reports.