Discussion: (2 comments)
Comments are closed.
A public policy blog from AEI
Yesterday the College Board released brand new editions of its most-cited publications: Trends in College Pricing and Trends in Student Aid. Together, they provide the most comprehensive look at the challenges families face when paying for college.
The pricing report is chock full of information, but two basic measures tend to get the most attention:
You’ve likely heard by now that college tuition has increased much faster than the rate of inflation year after year. Despite this trend, you can always count on the optimists at the College Board to find a good-news story to tell. In recent years, the message was that we shouldn’t worry about massive increases in sticker prices, because net prices haven’t grown nearly as fast (2010, page 4; 2011 page 4).
This year, the rosy picture is reversed: though net prices “have grown more rapidly than published prices” since 2010, sticker prices increased “only” 2.9% since last year (after adjusting for inflation). Based on this “relatively small increase,” the authors conclude that the increases of the past five years “did not signal a new era of accelerating prices.”
None of this is actually good news, folks. Here’s another way to tell the story: During the recession, states cut higher education funding and endowments fell. Institutions responded by increasing their tuition. But an unprecedented, one-time increase in the federal Pell Grant program kept net prices low. Between 2008 and 2011, federal spending on Pell more than doubled from $16 billion in 2007-08 to $37.5 billion in 2010-2011 (in 2012 dollars). The number of recipients grew more than 80% between 2006 and 2012.
In other words, the “good news” on net price over the past few years was the result of a massive influx of federal Pell Grant dollars. We spent a ton of money, which kept net prices low for a bit. But the increase in federal spending has been completely eroded by rising tuition prices. Now the flood of federal cash has plateaued, and sticker prices remain high and growing (albeit more slowly). Hence, net prices are rising.
What to do?
Advocates (including the College Board) say it’s the states’ turn to make education a “higher priority” (translation: step up the subsidies).
But endlessly subsidizing the price of college is like bailing out a leaking boat with a pint glass when it’s taking on water by the quart. You can stay afloat for a time, but eventually the leak’s going to swamp even your best effort. Instead trying to keep up with the leak, a better strategy is to fix the hole in the boat.
In higher education, college prices are the leak, and college spending is the hole. So long as colleges spend more each year to educate their students, either students or taxpayers will have to foot the bill. To keep prices down, public subsidies have to increase, whether that’s state appropriations or federal student aid dollars. But as soon as we put more money in, its purchasing power is quickly washed away by further increases in spending.
We’ve been treading water like this for decades, but eventually the money runs out. The feds and the states can take turns bailing, but pretty soon somebody won’t have the will to pitch in.
It’s time to fix the hole in the boat by reducing the cost of providing a college education, not just subsidizing its price. That’s the argument at the heart of Stretching the Higher Education Dollar, my latest edited volume with New America’s Kevin Carey.
Now, some will argue for an “all of the above” approach—that colleges should become more cost-effective and the public more generous in funding them. But the latter affects the former. To take us back to the boat analogy: your fishing buddy will be far less concerned about the hole in the boat if you’re bailing furiously to keep him afloat. Until colleges and universities have an incentive to contain their costs, all the subsidies in the world will be hard-pressed to keep college affordable over the long haul.
Comments are closed.
1150 17th Street, N.W. Washington, D.C. 20036
© 2016 American Enterprise Institute for Public Policy Research