Rising costs set to change the face of US higher education

As funding for public universities falls, poorer students will feel the pinch. John Gill reports

August 21, 2010

The scale of the financial problems facing public universities in the US is laid bare in a recent report by the National Conference of State Legislatures. The analysis shows that 39 states are using federal stimulus money to prop up their higher education budgets, compared with just 14 last year.

Yet as one expert in the field explained, there is “very little of the federal stimulus left for this fiscal year, and it looks unlikely that there will be any more for higher education”.

If this prediction proves accurate, the expectation is that public universities will turn to their usual remedy for holes in their finances: higher student fees.

The NCSL study, State Funding for Higher Education in FY 2009 and FY 2010, says that higher education has been hit harder than any other US sector since the recession began in 2007.

It is only through the injection of stimulus funding that public universities’ budgets have been maintained. However, despite an overall rise of 2.3 per cent, the NCSL says that 23 states reported a decline in funding year on year, including eight that experienced a drop of more than 5 per cent and two that suffered retrenchment of more than 10 per cent.

The worst affected, Hawaii, saw state funding for higher education fall by more than 25 per cent.

One of the reasons for the pain public universities are feeling is that, unlike the federal government, states are required to balance their budgets, so large revenue shortfalls during the recession have translated directly into cuts for state services.

“State funding for higher education is heavily influenced by the states’ fiscal situation, reflecting a cycle unique to higher education,” the report explains.

“Funding typically takes a disproportionate hit when state fiscal conditions are weak, but experiences more robust increases when state budgets recover.”

This happens, in part, because state-elected officials often view support for higher education as more discretionary than funding for other programmes.

William Zumeta, professor of public affairs and education at the University of Washington, explained that it was a “long-standing pattern” that higher education is first in line for cuts, adding that policymakers expected universities to turn cap in hand to their students.

“This is the easiest course for state policymakers because higher education is the one major state-supported function where the clients can successfully be charged more, unlike Medicaid, prisons, welfare and elementary or secondary education,” he told Times Higher Education.

He added that several of these other recipients of public funds actually needed more money during recessions because the number of people using their resources tended to increase in such situations.

Recession hits students hard

The NCSL report adds that, because of the breadth of the global financial crisis, another key university income stream – endowments – has also been hit, resulting in a double blow for institutions that has left them even more reliant on fees.

According to figures cited in the report, the upward pressure on fees is already evident: tuition-fee income increased by 2 per cent between 2008 and 2009.

At the most extreme end of the spectrum, the board of regents at the troubled University of California system approved a plan last November to raise fees by a staggering 32 per cent.

More than 37 per cent of total higher education revenue in the US now comes from fees, the report says, compared with just 25 per cent in 1984.

Professor Zumeta said that history suggests this trend is likely to continue. “Once economic recovery arrives, states have tended to budget cautiously for several years before restoring substantial funding increases across the board, and higher education tends to be last in line,” he said.

He predicted that the rate of increase in tuition fees would slow during the upturn but would remain well above general inflation rates, as it has since 1980.

Professor Zumeta added that the proximity of the past two recessions had compounded the problem.

“Since the dot-com recession and the current one were not far apart, there were only a couple of reasonably prosperous years for higher education appropriations before this recession hit the states’ coffers hard, and thus only a few years of moderate tuition increases,” he explained. “Most ominously, the prospects for recovery in state budgets this time around appear very gloomy indeed for as far ahead as can be reasonably forecast – a period of about two to three years.”

Donald Heller, director of Pennsylvania State University’s Center for the Study of Higher Education, was quoted in the Lansing State Journal as describing the recession as a “double whammy” for students. “Students and parents have fewer resources to pay for college during recession, and at the same time, tuition is going up,” he said.

Making the problem even worse is the fact that many states have reduced funding for financial-aid programmes, he added, although the Obama administration has enacted reforms to the student-loans system to ease the pressure on students and graduates (see fact file below).

Despite these measures, Dustin Daniels, president of the student body at Florida State University, said that the fee increases were having a devastating impact on some.

“I don’t think we’ve gotten to the point where we’re pushing a lot of students who can’t afford tuition to the wayside, but I think we’re getting there really fast,” he said.

Professor Zumeta said that the long-term trend of above-inflation fee increases, with big jumps during the past two recessions, had “provoked a political reaction”.

“I don’t think the existing patterns are politically sustainable, yet prospects for large-scale restoration of public financial support do not look good even after economic recovery,” he said.

“Institutions will naturally try to cope as best they can to sustain their revenues, as well as, I think, attempting some serious restructuring to reduce cost growth.”

One pattern, most prominent among elite institutions, is to “recycle” some tuition-fee income into needs-based aid for low- and moderate-income students, he said. Some institutions also offer “merit” aid, which is allocated on the strength of students’ ability, thereby providing discounts to students from more affluent families, too.

Professor Zumeta said that private fundraising by institutions for both types of scholarship had increased. The net result, he said, was that universities in the US were now in effect charging different prices according to students’ ability or willingness to pay.

But he warned that “in the end, the combination of tuition growth and cost-cutting”, along with “strong demand for higher education, threatens to lead to higher prices”. This in turn would restrict “those of modest means” from accessing traditional institutions.

It would also lead to reduced instructional resources and student services, and prompt a considerable increase in business for the for-profit colleges, “which are growing [rapidly] and not only in the US”.

He also predicted an increase in “online learning, competency-based certification and the like”.

In short, Professor Zumeta said, the US higher education system is likely to change dramatically if current fiscal trends continue.

“It may not be the best way to serve the increasing numbers of financially needy and less academically prepared students, but it may be all that the nation is willing to afford,” he said.


State Funding for Higher Education in FY 2009 and FY 2010

Easing the pressure: Obama’s student-aid reforms

To try to ease the burden of debt on graduates, the US Senate passed a variation of the Student Aid and Fiscal Responsibility Act as part of the Health Care and Education Reconciliation Act of 2010, signed by President Barack Obama in March.

Loans will now be administered directly by the Department of Education, putting an end to private banks receiving subsidies from the federal government for federally insured loans. Their interest rates will be capped at 6.8 per cent, with poorer students receiving a better rate.

Other reforms include a funding increase of more than $5 billion (£3.2 billion) for community colleges, historically black colleges and universities, other minority-serving institutions and a widening-access scheme for deprived students.

From 2014, new loan recipients will be able to cap their repayments at 10 per cent, rather than the current 15 per cent, of discretionary income. Loans may be written off after 20 years, rather than the current 25, as long as graduates have made regular payments towards the debt.

Pell Grants – non-repayable grants awarded to cash-strapped students – have been raised to $5,550 for the next academic year. Future increases will be linked directly to rises in the consumer price index, and it is estimated that the grants will increase in value to about $5,900 by 2017.


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