Tuition at Public Colleges and Universities: Policy Trends and Projections
Context
The advent of summer brings a renewed round of tuition setting for public colleges and universities nationwide. This year’s round takes place
against the backdrop of continued strength in states’ finances translating into further moderation in tuition/fee increases for students and their
families. At the same time, upward price pressures on salaries and infrastructure are acting as a counterweight against more softening in rate hikes.
Additionally, state policymakers face a growing list of demands for their budget surpluses meaning that higher education leaders must keep their funding
expectations in check.
Even with the improved fiscal situation, campus and system leaders, legislators, and governors are viewing tuition and fee policies with ongoing concern
and continue to explore policy alternatives to contain rate increases and leverage pricing policies to achieve student access and success. The rising
prominence of this issue stems in part from long-standing concerns over state and national competitiveness, but also from political considerations,
as college costs and prices are quickly becoming a key “checkbook issue” for middle-class voters. All of this points to a window of opportunity
for campuses and systems to review or revise policy and to take steps on the funding front that will make short- and long-term improvements regarding
predictability and stability in pricing. That window may not be open for long, though, and policymakers must be prepared to move quickly—and thoughtfully.
Observations
1. Strong state fiscal conditions are benefiting higher education, with appropriations returning to or exceeding pre-recession levels. These
funding increases are being consumed by inflation and enrollment growth. The National Association of State Budget Officers reports that strong revenue
growth fueled a 6.3 percent budgeted increase in state general fund expenditures for Fiscal Year 2006 (FY06), slightly below the 6.5 percent increase
posted for Fiscal Year 2005 (FY05) but consistent with the 28-year average of 6.4 percent.
Consistent with previous state budget cycles, higher education spending has improved significantly during this expansion. According to the Grapevine
survey (Illinois State University), state higher education funding rose 6 percent in FY06, with 45 states boosting their spending over the previous
year. The five-year annual average spending increase of 2.0 percent from Fiscal Year 2000 to FY05 suggests that institutions in many states may be playing
“catch up” for a time, but continued growth in Fiscal Year 2007 (FY07) will help with this. Though a number of states are still finalizing
their FY07 budgets, AASCU projects that higher education appropriations will increase again, likely in the neighborhood of 6.5 percent.
[see Figure]
Data on state appropriations per full-time equivalent (FTE) student from the State Higher Education Executive Officers (SHEEO) show that input price
increases and enrollment growth are quickly gobbling up funding increases. Inflation-adjusted state appropriations per FTE reached a 25-year low of
$5,825 in FY05, 18.2 percent below the 25-year high of $7,124 in Fiscal Year 2001.
2. The improved budget situation is moderating tuition and fee increases at state colleges and universities. Catch-up pressures on infrastructure
and faculty salaries, as well as price hikes in utilities and materials, are preventing further softening in the rate of increase. The College
Board’s Annual Survey of Colleges shows that average in-state tuition and fee increases at public four-year institutions have fallen from nearly
14 percent in 2003-04 to 7 percent in 2005-06, the result of recent improvement in state appropriations. Given the expected strength of state higher
education funding for FY07, tuition and fee hikes at these institutions should again be smaller for 2006-07. AASCU projects that the average in-state
tuition and fee increase for public colleges and universities for the upcoming academic year should register in the range of 5.5 percent.
Further softening in rate increases will be checked by two primary factors. One is the need to play catch up from the years of stagnant and/or decreased
funding earlier in the decade, particularly with respect to capital maintenance and improvements and faculty/staff salaries. The other is significant
price growth in higher education’s “market basket,” especially employee benefits and materials and utility costs. According to the
Commonfund Institute, the Higher Education Price Index jumped 5.0 percent in FY06, compared with a 3.5 percent increase in FY05 and an average annual
increase of 3.8 percent from Fiscal Year 2002 to FY05.
3. Regional differences in demographic trends and institutional capacity are having an impact on tuition policy. Recent demographic
and student migration trends underscore significant regional differences in enrollment demand, with many institutions in the West and South experiencing
excess demand, while a number of campuses in the Midwest and Northeast are grappling with excess capacity. These trends are playing a role in pricing
decisions, particularly in states with unused capacity. In South Dakota, university system regents sliced non-resident tuition rates in half last fall
in response to projections of decline in the number of high school graduates. The University of Wisconsin System made a similar move earlier this year.
In North Dakota, Mayville State University is currently seeking authority to slash out-of-state rates by 43 percent to stem recent losses in non-resident
students and fill the resulting budget gaps.
4. Higher education leaders and policymakers are exploring a range of options to hold the line on tuition and fee increases, boost predictability
and stability in rate setting, and leverage rates for revenue and enrollment management purposes. Issues on the table include:
• Using budget surpluses to partially or completely “buy out” proposed tuition increases. This strategy has been pursued
in states such as Maryland and Tennessee, and is currently on the table in California.
• Implementing tuition guarantees or “lock-ins.” Georgia recently became the second state to approve a four-year freeze on tuition
rates for each incoming class, and proposals were offered in Arizona and New York.
• Establishing price differentials to encourage timely degree completion. Institutions in Texas and Georgia are moving forward with planned rate
hikes for students that enroll part-time or significantly exceed time-to-degree.
• Offering in-state tuition to undocumented aliens. This year, Nebraska became the 10th state to approve such a policy, while a number of other
states (including Arizona, Florida, Maryland, Minnesota, Mississippi, and New Jersey) considered but did not adopt proposed legislation. Additionally,
legal wrangling continues in some states where laws are already on the books.
Conclusion
The October release of 2006-07 tuition increases by the College Board will likely bring good news in the way of smaller price hikes at public four-year
institutions, which will be welcome news for higher education leaders, policymakers, and students and families. This moderating trend will continue as
long as states’ bottom lines remain healthy and input prices such as energy stabilize. Expectations must be kept in check as upward pressures remain
and state leaders find their surpluses rapidly depleted by demands in areas such as health care and primary/secondary education.
As a result, campus, system and political leaders should approach this period mindful of the need to balance short-term political and marketing gains
with long-term policy objectives such as boosting student access and success. The cost of inaction or short-sighted action in the face of this “window
of opportunity” could be high, both for students served by state colleges and universities and for states seeking to improve their position in the
evolving race for human capital.
RESOURCES
American Association of State Colleges and Universities. AASCU tracks tuition trends and policy decisions affecting those trends through
its State Budget Update (weekly) and its Student Charges and Financial Aid (annual).
aascu.org
The College Board. Each October, The College Board releases Trends in College Pricing, a compendium of national and state-level data
regarding change in tuition and fee rates at two-year and four-year institutions.
collegeboard.com
Grapevine. Housed at the Center for the Study of Education Policy at Illinois State University, this resource includes current and historical
trend data on state higher education appropriations.
coe.ilstu.edu/grapevine
National Association of State Budget Officers. This organization publishes two primary resources on state fiscal conditions—the
State Expenditure Report (annual) and the Fiscal Survey of the States (bi-annual).
nasbo.org
National Conference of State Legislatures (NCSL). NCSL’s Education Committee follows a wide range of P-20 policy issues (including
finance), and its Fiscal Affairs Division publishes regular updates on state budget developments and an annual assessment of state budget and tax actions.
ncsl.org
State Higher Education Executive Officers (SHEEO) publishes State Higher Education Finance, an annual look at state higher education
spending on a per-student basis. SHEEO also compiles 50-state data on tuition/fee policies and other finance-related areas.
sheeo.org
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