It’s Affordability, Stupid

February 4, 2020

The coming decline in the number of high-school graduates might be grabbing all the headlines, but there’s a related threat facing higher ed in the decade ahead not discussed as much: the affordability crisis.

Perhaps it’s because after decades of talking about rising college prices. we’ve become numb to the issue.

The big picture: The average sticker price of tuition, fees, room, and board at public institutions is $21,950, a figure that has risen by more than 60 percent since the year 2000. At private colleges, the total price is $49,870, up nearly 45 percent over the same period, according to the College Board.

But wait, no one pays full price, right? Well, some do, but a lot fewer in the last decade.

• Today, about 28% of students pay full sticker price of a college; in 2006-7, about 39% did.
• The result, according to Moody’s Investors Services, is that net-tuition revenue—that's the cash colleges have left after giving out financial aid to students—is essentially flat or declining at three-fourths of public colleges and three-fifths of private colleges.

What’s happening: The modern era of financial aid can be traced back to the passage of the Higher Education Act in the late 1960s. With a new infusion of cash to students, colleges set up financial-aid offices and started to dedicate more of their own funds to aid, as did the states.

• Higher ed was seen as a public good, so paying for it was a shared responsibility.
• The shared responsibility started to fray in the last 40 years, and particularly in the last 20, as the buying power of the federal Pell Grant and state aid declined.
• As a result, institutions and individuals have been left holding the bag to pay for rising costs.
• One stat: When the Pell Grant was enacted, it covered some 80% of the cost of going to a four-year public college. Today, it covers around 30%.

Meanwhile, the cost of college just kept increasing.

“Let's start with the whole issue of accountability—what are the universities doing with the money.” - George Miller

Miller is a former congressman from California. He was chairman of the House Education and Labor Committee from 2007 to 2011.

Most important, Miller is a Democrat, a party long seen as friendly to higher ed. But support for higher ed is falling among even Democrats.

⚡︎Half of Democrats say say higher education is "going in the wrong direction," according to polling by the Pew Research Center

As I talked with George Miller this week, he sounded a lot like Republicans have for decades on higher ed costs.

• College tuition is rising because institutions are taking in as much as they can spend, Miller said.
• But, he told me several times he wasn’t attacking colleges. He just thinks they can do more on controlling costs.
• Miller wants accreditors to pay more attention to rising costs. “It isn’t enough to count the number of volumes in the library,” he said. “I want to know how well run the school is.”

Back to the Future: Public anxiety about college prices has risen along with increases in tuition. Financing a college education is a serious and troublesome matter to the American people.

That's from 1998, a passage the final report of the Congressionally mandated National Commission on the Cost of Higher Education. Yet, we’re still having this conversation.

Why Affordability, Why Now?

Three things to consider about why affordability might matter now more than in the past:

?First, the economic recovery of the past decade has meant barely keeping up for most families.

?Second, more students are “gapped” in their financial-aid packages, as family incomes stay flat and college prices rise. Gapping is what happens when an aid formula tells families what they're expected to pay for college, but an institution gives them less—in some cases, a lot less.

I'll write more about gapping in a future edition, but in the meantime two numbers:

• $11,000: average gap at public colleges, up from $6,500 in 2008.
• $16,000: average gap at private colleges, up from $11,000 in 2008.

?Third, there’s this graphic I show in many of my talks.

These are our future college students. Lots of people in the audience take pictures of this slide because if you know anything about demographics, the states in black are where the majority of high-school grads are coming from in the decade ahead.

It’s a 4-Year Degree, Not a 1-Year Degree

When talking to families about financial aid, they often explain how they figured out how to pay the tuition bills for the next year.

But, so many haven’t figured out yet how to pay for the whole degree.

It’s a 2-year or 4-year degree, so why isn’t it priced and financed as one? After all, we don’t buy and take out loans for two tires and the steering wheel of a car, or just the kitchen and bedroom of a house.

• In 2013, the University of Dayton pioneered a 4-year price guarantee and financing option, laying out for incoming students what four years of expenses and aid would look like. Many other Ohio colleges have followed, including those in the public sector.
• In the last 7 years, Dayton’s retention rate—the percentage of undergraduates who return each year—has gone up 3 to 4 percentage points from cohort to cohort, Jason Reinoehl, the university’s vice president for strategic enrollment management, told me.
• The university’s 6-year graduation rate is now 81.5%, the first group that entered with the guarantee and an increase of four percentage points since the strategy was put in place.
• What's more, borrowing by undergraduates has fallen.

“We are in the business of a degree, not educating students one year at a time.” -Jason Reinoehl

?About Reinoehl: He’s a graduate of the Arizona State-Georgetown University Academy for Innovative Higher Education Leadership, an 8-month intensive program on leadership and university design that I help lead.

So why don’t more follow Ohio’s lead on 4-year pricing? As Reinoehl and others described, it’s a delicate dance between a university’s CFO and enrollment leaders.

• On one hand you have the CFO who wants to hedge against risk of something happening two or three years from now by pushing the initial price as high as possible.
• On the other hand, you have enrollment managers who worry about filling a class and scaring off potential students with high prices.

Bottom line: The growing afforability gap in higher ed has happened in a good economy. Seems like we're one recession away from a real crisis.

What do you think can be done to address affordability in higher ed? Hit reply or drop me a note and I’ll feature some responses in a forthcoming edition.

SUPPLEMENTS

Louisiana's Commissioner of Higher Education, Kim Hunter Reed, joins Jeff and guest co-host Paul Fain to talk about the state's new master plan for higher ed, which sets an ambitious goal for doubling the number of credentials produced annually.

Half of colleges experienced a decline in applications submitted through the Common App compared to last year. Applications to private colleges are down across the board, except for small and mid-sized schools in the South.

RECOMMENDED READING

Want to read more about the role of higher ed in society? Sign up for The Weekly Dispatch, a newsletter by my former colleagues Sara Hebel and Scott Smallwood. Next is part of a family of newsletters under Open Campus, the nonprofit news organization Scott and Sara have created to transform local reporting on higher ed.

Their newsletter focuses on topics like colleges’ role in social mobility, whether college pays off (and if that’s even the right question), and what’s behind the growing resentment toward higher ed. Here’s the most-recent issue — about how one city is a microcosm of our higher ed issues — and where you can sign up.

?Finally, if you're in Atlanta, join me and a panel of experts this Thursday, February 6, at a screening and discussion of The Test and the Art of Thinking, a film about the role of the SAT/ACT in the pathway to higher ed.

Until next time. Cheers — Jeff

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