The Changing Face of Higher Education in America

Presentation to Higher Education Finance Working Group

With college education costs rising every year, it is not surprising that elected officials are increasingly turning to taxpayers to help pay the bills. As demand and enrollment have also increased sharply, traditional models of financing postsecondary learning are straining to keep up.

Tuition costs nationally have risen at twice the Consumer Price Index for much of the past decade. As a percentage of the average family’s monthly paycheck, tuition now costs over 50 cents on the dollar, before taxes, for private schools, and close to 20 cents for public schools. According to The College Board, tuition and fees at 4-year public institutions and 4-year private institutions increased 54% and 37% in constant, inflation-adjusted dollars since 1995-96.

To meet growing demands, the federally-insured student loan market has more than doubled in the past 10 years, and now provides 30 percent of all payments for college tuition. Some economists have argued that increased government funding and loans have even put upward pressure on college costs, ultimately making college less attainable.

In short, federal student financial aid can no longer be relied upon to keep pace with the rising cost of higher education in America. The landscape has changed substantially since Congress passed the Higher Education Act of 1965, and policies must adapt to meet this changing landscape.

Nowhere is this more noticeable than with the facebook of American higher education:

It’s a much larger population, and it’s still growing: the undergraduate population has increased by more than 75 percent, and the Department of Education predicts that the college age population will increase further, by approximately 12 percent by 2014.

“Traditional” full-time students, enrolling immediately after high school, have become the exception, not the rule. Nearly 40 percent of today’s postsecondary students are self-supporting adults, age 24 and older. Almost half attend school part time, more than a third work full time, and 27 percent have children themselves, according to the National Center for Education Statistics.

Research from the Education Trust helps us fill in other critical details about this changing population. Only half of “college qualified” students from low-income families enter 4-year colleges, compared with over 80 percent of students from high-income families with the same qualifications. When President Lyndon Johnson made this case to Congress in 1965, this number for low-income students was only one in three.

Nonetheless, as Ross Wiener from Ed Trust put it in his testimony to the House Education Committee earlier this year, “The sad reality is that America’s highest-achieving low-income high school graduates go directly on to college at the same rate as our lowest achieving, high-income high school graduates.”

There has also been much written on the changing face of the higher education population as it relates to race. African-American students are roughly half as likely to earn a bachelor’s degree by age 29 as white students, while Latino students are only a third as likely. These gaps have gotten worse over the past 30 years, which we’ll discuss more fully later this morning.

To succeed in this new environment, policies will also need to adapt. I’d like to mention three critical areas:

1. Remedial Costs

Colleges are currently required to pay billions of dollars each year to remediate students whose public education failed to equip them with the required skills — shifting these costs from secondary to postsecondary education without modifying funding streams. Only 17 percent of high school seniors are considered proficient in math, and only 36 percent in reading, according to the federal Education Department.

2. Outdated or Flawed Delivery Systems

State funding for higher education has fallen – by 14 percent when adjusted for inflation between 1999 and 2004, according to The College Board. As college costs rise faster than government student aid can keep up, the increased burden is regularly being passed on to students. Student loan providers would likely do the same thing should their profit margins be cut in half, as some currently-proposed “solutions” would effectively do.

Unless current trends are reversed, a number of current Congressional proposals would produce the additional, expensive effect of raising default rates on student loans, leaving taxpayers holding the bag.

Companies that profit from guaranteed student loans have become a fashionable target. But data show that default rates are significantly higher for loans made under the government’s Direct Loan program than by federally guaranteed loans by private lenders. Student loan debt is unique in that it cannot be erased through personal bankruptcy, and it is not surprising that private companies have proven more adept at using technology and innovation to keep track of customers.

3. Runaway Spending

Any effective solution must include a strategy for managing rising college costs. To keep tuition increases as small as possible, while also maintaining quality, institutions must set and achieve clear and well-understood goals, and maintain the budgeting discipline to adhere to those goals.

One remedy is for higher education institutions that increase their cost to students at twice the rate of inflation to offer an explanation and a plan to hold down future costs. There are strong benefits to such transparency in operations, even though colleges and universities have put up staunch resistance when lawmakers have sought to require it.

Most Americans would agree that a higher education is worth the investment, and is increasingly necessary in the 21st century economy. But in order to best support the rising costs, policymakers must ensure that each new appropriation represents the best strategy and mechanism for delivering on that investment.