University of California
Type of paper: Thesis/Dissertation Chapter
Most people have heard an elder complain about rising prices saying, “When I was your age I could go to the store with a quarter and buy a bag of chips, a few pieces of candy, some cookies, a drink and still have change left over.” Although the prices from decades ago are ideal, the concept of inflation and the decrease in the value of money have been accepted. Inflation affects the price of everything like milk, clothing, medical care, gas, and especially college tuition. According to the Bureau of Labor and Statistics, college tuition prices have increased at the highest rate compared to any consumer item, medical care, or even gas. In fact, college tuition and fees, as of 2012, are 600% of the tuition and fees in 1985 (Rampell 4). This statistic poses the question of why the cost to obtain higher education is steadily rising. A simple explanation can be found in the key economic principle that demand drives prices up, but the issue goes much deeper than that. The structure of the financial aid system, additional accommodations offered by colleges, and most of all the decrease in government funding toward higher education are the causes directly correlated to the continuous rise in tuition.
Firstly, the structure of the financial aid system is a contributing factor to the steady increase in college tuition. Dr. Joshua Robinson, an economics professor at the University of Alabama at Birmingham, explained that it is often argued that the increase in federal aid simply leads colleges to raise their tuition costs to reflect the financial aid in hopes that it will buffer the increase. This idea represents the Bennett Hypothesis, which was created by U.S. Secretary of Education, William J. Bennett (Robinson). There is much argument over this hypothesis, but there have been many credible findings that support this idea. Title IV deals with the federal student aid programs. According to an article by Judith Scott-Clayton, similar programs offered by non-Title IV “cost about 75 percent more when offered at Title IV institutions – with the difference in tuition roughly approximating the size of a Pell Grant (Scott-Clayton 8).” In addition, the amount of financial aid given out to undergraduate students on a national level has sharply increased over eight billion dollars since 2007, which means that more students are attending college and needing financial aid (Schworm 3).
Referring back to the same information from the Bureau of Labor Statistics, it is especially interesting to note that from the year 2007, when financial aid increased, to present day the percentage increase in college tuition became exponentially higher than the rest of the increasing percentages (Rampell 4). This proves that the federal aid system has a significant connection to the increasing tuition rates. Another way that the structure of the financial aid system contributes to the rise in tuition is through the scholarships that colleges give out. In the academic article entitled “Why Tuition Costs are Rising So Quickly,” Robert Martin explains how the scholarships that colleges offer are a factor in the rising tuition crisis. He shares that when colleges offer scholarships they are really price discounts, so “the education and general expenses are overstated by the amount equal to scholarships.” Martin also shares that for colleges to ensure that their funds balance out, they “record tuition revenue as if every student paid the posted price for tuition (Martin 93).”
In other words, the amount of revenue that a college lacks once all tuition is paid is equal to the amount in scholarships given. As a result, the tuition goes up for the non- scholarship students as a whole to make up for the amount dispersed in scholarships. With this occurring at colleges all across the nation it is clear to see how financial aid is a causal factor in the increase in tuition. The rise in college tuition is also affected by the additional accommodations that these institutions have found to be “necessary” benefits. Just as the world evolves, institutions of higher learning evolve in the same way. This means colleges have become much more dynamic as far as the things they offer to their students and employees. For instance, many institutions have invested in having emergency alert systems. Most colleges did not have this feature many decades ago, so implementing this requires additional funding, which can explain a portion of the increasing tuition cost. For example, public universities spend 23% more on offering services like counseling compared to what they were spending in 1995 (Clark 6). This additional focus on accommodating the student is partly stemming from the rise in tuition, which means that colleges are trying to satisfy their consumer by bettering their services to sustain or increase demand.
Though the previous reasons are factors of the rising tuition, the primary factor of the continuous increase is due to the decrease in government funding toward higher education. Ronald Ehrenberg, the director of the Cornell Higher Education Research Institute and a trustee of the State University of New York System, explains that “If you’re a state legislator, you look at all your state’s programs and you say, ‘Well, we can’t make prisoners pay, but we can make college students pay (Rampell 10).’” This particular reasoning clarifies the thought process that led to the decrease in funding colleges receive from the government. The basis of the issue stems from the fact that these institutions of higher learning now have to come out of pocket on expenses that the government used to fund. In 2006, “the per-student subsidy state taxpayers sent colleges” was $1,270 less than the amount sent in 2002 (Clark 4). That is a significant decrease in funding that colleges had to find a way to make up for, which resulted in raising the tuition cost. When interviewing Dr. Robinson, he also explained that at one point professors salaries were paid completely by taxes, but because of cutbacks in government expenses tuition must cover their salaries now. If there was not a decrease in government funding for higher education, colleges would not have to raise tuition to offset financial aid or the implementation of accommodations, which is why it is regarded as the primary reason for the rising tuition.
Inflation is a very relevant concept in today’s society because prices of all types are rising. As previously stated, college tuition costs are increasing at the highest rate compared to any consumer item, gas, and medical care. This is quite ironic because most people equate obtaining a college degree to financial stability. Even so, the explanation for this steady increase in tuition is a very popular topic. On a very simple scale the rise in tuition can be explained by the basic economic principle that explains demand increases prices. However, the explanation goes much deeper than this economic principle to include the structure of the financial aid system, additional accommodations offered by colleges, and most of all the decrease in government funding toward higher education.
Nothing in life ever truly comes free, which shows to be true when observing how the structure of the financial aid system contributes to the rise in tuition. The same concept proves to be true as colleges provide additional accommodations or benefits for their students and employees, but these too come at a cost. Even so, there is a large amount of money no longer available to these institutions of higher learning due to the lack of government funding. In order for these institutions to sustain, the money must come from somewhere, which results in the increase in tuition and fees for the students. It is important to understand these causes of the rising college tuition because this is the only way a solution will be reached.
Clark, Kim. “The Surprising Causes of Those College Tuition Hikes.” Usnews.com. U.S.News &
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Scott-Clayton, Judith. “The Hidden Majority of For-Profit Colleges.” New York Times. New
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Martin, Robert. “Why Tuition Costs Are Rising So Quickly.” Challenge 45.4 (2002):88-
108. Jstor. Web. 1 March 2013.
Rampell, Catherine. “Why Tuition Has Skyrocketed at State Schools.” New York Times. New
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Robinson, Joshua. Personal interview. 4 Feb. 2013.
Schworm, Peter. “Colleges Boosting Financial Aid to Students.” Boston.com. The Boston Globe,
17 August 2012. Web. 5 March 2013.