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The Cost of College

As State Funds Dry Up, College Costs Skyrocket

The cost of a college education jumped significantly this fall as recession-weary schools passed more costs onto students and families to make up for budget shortfalls, according to a College Board report released today.

This year, public school students—who make up the vast majority of undergraduate students—are bearing the brunt of the tuition increases. Tuition and fees for the current school year average $8,244 at public four-year colleges, 8.3 percent higher than in the 2010-11 academic year. Meanwhile, at public two-year colleges, tuition and fees went up a whopping 8.7 percent this year.

Low tuition at colleges and universities has been a hallmark of public education for the last 150 years, but that is starting to change, says Terry Hartle, a senior vice-president for government and public affairs at the American Council on Education (ACE). The public university sector is at a crossroads, with schools running out of easy ways to cut costs and state governments under more pressure than ever to balance state budgets, he says. Complicating matters is a spike in total postsecondary enrollment. From the fall of 2007 to the fall of 2010, an additional 2.8 million undergraduate students enrolled in school, the College Board noted.

“It is the worst of all possible worlds,” says Hartle. “What we are really seeing is not just a big price increase over a single year, but a long-term trend in that state governments are increasingly viewing higher education as a private good, rather than a public good, and they are letting the beneficiaries pay more.”

Out of Reach?

As states like California, Washington, and Arizona posted double-digit percentage increases in tuition this fall, the cost of public education is increasingly becoming out of reach for many families. For example, California’s 21 percent tuition increase this year was so hefty it drove up average tuition and fees at public four-year colleges nationally by an additional 1.3 percentage points, the College Board noted. Without California—which enrolls 10 percent of the nation’s public college students—the average tuition increase this year for four-year public schools would have been 7 percent, the College Board said. With budget crunches so severe, many public universities are trying to attract more out-of-state students to make up for their budget shortfalls.

Tuition and fees also continued their upward climb at four-year private colleges and universities, though not quite as dramatically as at their public counterparts. Published tuition and fees at private schools for this school year averaged $20,770, which was $1,235, or 4.5 percent, higher than a year earlier. Some private schools this year managed to keep tuition increases at historically low levels, including Princeton University in New Jersey, which increased tuition just 1 percent this fall, its lowest increase in 45 years, and Syracuse University in New York, which raised tuition 3.8 percent this fall, its lowest increase in 46 years, according to the National Association of Independent Colleges and Universities’ website. Overall, the percentage tuition increases in the past three years are among the lowest for private schools since 1972, a fact the NAICU attributes in part to the work many private institutions are doing to control costs, from consolidating administrative units to flattening bureaucratic structures.

This is the fifth year in a row the percentage increase in tuition and fees at public universities outpaced that of private schools, says Sandy Baum, a College Board policy analyst and economics professor at Skidmore College in Saratoga Springs, N.Y.

“It’s hard to be surprised that tuition went up, but when you put all the pieces together and watch tuition go up year after year, it means we do have issues that we really have to face,” she says.

Inflation Outpaced Again

This year, both the 8.3 percent hike for four-year public in-state tuitions and 4.5 percent hike for privates continued to outpace the rate of inflation. The consumer price index rose 3.6 percent from July 2010 to July 2011, the College Board said.

The tuition increases come at a time when state appropriations for public university students continue their downward slide, the College Board said. State appropriations per full-time student declined by 9 percent in the 2007-08 academic year, and fell by another 6 percent in 2009-10 and by 4 percent in 2010-11, the organization noted.

“Families are struggling because their income is not increasing. States are struggling and one effect of the struggle is seen in the declining appropriations states give for higher education,” Baum says.

Fortunately, the sticker price for a college education is not what most students and families ultimately end up paying for college. The net price, or what the average student pays after grants, student aid, and tax benefits are factored in, is a more accurate indicator of the real cost of an education today, Baum says.

At public institutions, the average student receives about $5,750 in grants and tax benefits, bringing the total annual cost down to $2,494. At private colleges and universities, aid totals about $15,530, taking the annual cost to $12,970, the College Board said.

Tax Credit Savings

This year, families realized significant savings from the American Opportunity Tax Credit, a federal tax credit implemented in 2009 as part of President Obama’s stimulus legislation. Through a combination of tax credits and deductions, the program saved families $14.8 billion in each of the two most recent school years, significantly more than the $7 billion families received in the 2007-08 academic year, Baum says.

“We knew the tax credit program had become more generous, but we didn’t know how extreme it was,” Baum says. “It has really changed the story of how the federal government subsidizes students. I think that is quite surprising.”

At the same time, federal grant aid is about two and a half times greater in the 2010-11 academic year than it was a decade earlier, the College Board said. But whether federal aid will continue to offset tuition increases in the future remains an open and worrisome question, says ACE’s Hartle. It is unlikely that the $5,550 maximum Pell Grant award—a federal program that gives grant aid to the neediest students—or the amount that students can borrow under federal student loan aid programs is going to increase any time soon, he says. Even more concerning, this year the government eliminated year-round Pell Grants and the $64 million federal Leveraging Educational Assistance Partnership program, which provided matching funding to states to encourage them to spend their own resources on need-based financial aid, was cut.

“Federal student aid has increased significantly over the last 15 years, and gone up faster than tuition, but the fact is you are not going to see continued increase in federal student aid,” Hartle says. “Save for a very quick return to full employment, there is no short-term fix on the horizon.”

Damast is a staff writer for Bloomberg Businessweek.

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