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Colleges and
Universities Strange days for colleges facing rising costs
By JOHN L. ALLEN
JR. NCR Staff
America is worried about the cost of college. Time and Newsweek
have run cover stories on the subject, and Congress has created a commission to
study rising costs and to make recommendations. The suggestion from both media
reports and politicians is that tuition is too expensive and should be lower.
If only it were that simple. The truth is that higher education
finance is far too eccentric for such easy formulations. It's a sector of the
economy driven not only by dollars-and-cents business realities, but also by
the shifting and sometimes contradictory decisions of state and federal
legislatures, as well as the unpredictable choices of students, parents,
faculty and alumni. Trying to make economic sense of college budgets can be a
surreal experience. Relationships between supply and demand, for example, or
between price and cost, operate ambiguously if at all.
Matters are further complicated because what's good for one type
of campus -- large public institutions, for example -- may be bad for another,
such as small private colleges. All of this makes understanding trends -- such
as rising costs -- immensely difficult. Sometimes the deeper you dig the odder
things seem.
One thing is certain -- costs are going up. Since 1980, college
tuition has risen 234 percent, according to the General Accounting Office,
running well ahead of the consumer price index each year. While increased costs
may seem in themselves unremarkable, analysts who have studied the phenomenon
have reached some preliminary and in some cases deeply counter-intuitive
conclusions about what's going on. Consider the following:
- To some extent, public and private colleges are reversing their
traditional roles. Increasingly, the children of high socioeconomic status
families are electing to attend flagship public universities, while the
children of the poor are seeking out smaller private colleges with a strong
commitment to student aid. The result is that schools with tuition in the range
of $15,000 to $20,000 sometimes serve a greater percentage of poor kids than
colleges charging $3,000.
- Many observers believe that from a social justice point of view
tuition at public universities should be higher, not lower. Both access and
quality, the argument runs, would be better served by increasing the costs for
those who can afford to pay more.
- Despite their bucolic image, small liberal arts colleges are
today acting like entrepreneurs, hustling to find new products to deliver to
new markets. The result is that some of these smaller colleges, including many
Catholic campuses, are in fact much more innovative than major research
institutions that market themselves as cutting-edge.
- College enrollments are projected to rise up to 20 percent in
the next decade. In virtually any other industry, rising demand would be seen
as a good thing. In higher education, it's viewed with alarm, as educators --
especially in large public institutions -- wonder where the resources to
accommodate new students will come from. Without those resources, bloated class
sizes and more teaching assistants may push quality down.
- Perversely, however, that trend may mean good news for
struggling private colleges. If public institutions run into problems,
image-sensitive parents and students may be drawn in greater numbers to the
private sector. Private colleges may find themselves between the Scylla of
wanting America to make the right educational choices in terms of public
policy, and the Charybdis of survival.
For America's colleges and universities -- including the more than
230 Catholic institutions in the country -- these are strange days indeed.
Changing roles
The image of private colleges as bastions of elitism is so etched
in popular consciousness that it's even become part of sports rivalries. At
games between the University of California-Los Angeles and the University of
Southern California, UCLA fans will sometimes taunt the USC crowd by waving
credit cards, mocking the supposed preppy consumerism of USC students. At
upscale Duke, basketball fans -- legendary for their derisive cheers -- often
shout, "It's alright/it's okay/you're gonna work for us someday" at opposing
teams and their supporters.
To some extent, these images ring true. Duke graduates do often
move up into America's managerial class. But the private school mystique is
also deceiving. The average household income of a UCLA student, for example, is
now higher than for a USC student. In a city long accustomed to thinking of USC
as a "rich kid's school" and UCLA as where the children of the middle class end
up, it's hard for many Angelenos to accept how things have changed.
"The [socioeconomic status] profiles of UCLA and USC students
actually crossed eight years ago," said Professor Morton Schapiro of USC, who
this month published a study of trends in higher education finance coauthored
with Michael McPherson, president of Macalester College in St. Paul, Minn.
"It's just very difficult for people to understand. It contradicts the common
sense notion that the richer kid should be going to the more expensive school."
Schapiro said the shift represents a clear national trend. As
tuition has gone up in all sectors, more and more parents have become
"bargain-hunters," looking to stretch their tuition dollars. "A lot of parents
think, why should I pay tuition at Stanford when my kid can get just as good an
education at Berkeley for so much less?" Schapiro said.
Schapiro and McPherson estimate that 38 percent of freshmen from
families earning more than $200,000 are now attending public colleges; in 1980,
the figure was barely above 30 percent. This trend holds even for the so-called
"second tier" public colleges, such as the State University of New York
campuses or the California state system, which are capturing an increasing
market share of upper-income students.
"It really was never the case" that private schools primarily
served wealthy families, said Jesuit Fr. Charles Currie, president of the
Association of Jesuit Colleges and Universities, a service and advocacy group
in Washington, which represents America's 28 Jesuit institutions. Currie noted
that in the 1970s, data showed a significant number of low socioeconomic status
students were enrolled in Catholic colleges. Still, Currie agreed that the
current tendency among more affluent families to choose public universities
means that lower-income students are coming to private schools in growing
numbers. "It's getting tougher for schools to meet the total need of poorer
students," he said.
Gentrification couldn't have come at a better time for public
universities. Over the past decade, state governments have been less generous
in budget allocations; higher education as a percentage of state budgets
dropped from 14 to 12 percent. Federal student aid has declined as well.
Between 1979 and 1995, for example, the Pell Grant lost 50 percent in real
value. Meanwhile, labor, technology and construction costs have exploded,
putting strong upward pressure on tuition. As a result, public universities
need to enroll students from families who can pay more in absolute terms, and
who can pay a greater percentage of the total cost of education. Increasingly,
affluent families looking for educational bargains and public colleges looking
for better-paying customers are finding each other.
Demand surges
In an era of low enrollment, this match might not mean much. But
given the surging demand for higher education, every space in a public college
taken by a high-income students means a low-income kid looking elsewhere. A
projected 20 percent increase in the number of Americans in the 16-to-24-year
age range, coupled with data showing that the income differential between those
with a college degree and those without has never been greater, is creating an
unparalleled demand for higher education.
While many low-income students squeezed out of public colleges
enroll in two-year community colleges or don't go to school at all, growing
numbers of them find their way into smaller liberal arts colleges, including
many Catholic institutions. Most of these small Catholic or other private
campuses charge substantially higher tuition fees.
How can the poor and lower middle class afford it? The answer lies
in the difference between the "sticker price," that is, the charge for tuition
as it appears in the student handbook, and the "actual price." The latter is
determined by subtracting from the sticker price all the financial aid a
student is offered, combining federal, state and institutional sources.
Depending upon how much need a student has, the actual price of attending a
private college can sometimes be competitive with what he or she would pay in
the public sector. The result is that, while many poor students can't get into
the flagship public universities, the doors of private education remain open.
Analysts suggest two reasons for this phenomenon. The first is
that small private colleges, especially Catholic institutions, have
historically had a strong commitment to student aid. Today, private schools
devote a much higher percentage of their operating budget to student
assistance. "The privates recycle far more of their tuition dollars in the form
of aid," McPherson said. "That's how they're able to stay affordable even for
very poor students."
Necessity, however, also plays a role. "Practically speaking,
smaller privates are being forced to recycle those dollars," McPherson said.
More elite private campuses, such as Harvard -- or, in the Catholic context,
Notre Dame or Georgetown -- do not face quite the same pressures.
Second, while public universities also have been forced to pick up
the slack in aid as the state and federal commitment has declined, they have
increasingly shifted to merit-based aid rather than need-based. Fifty-four
percent of institutional aid at public colleges is now merit-based, a sharp
reversal from a decade ago. Simply put, merit-based aid tends to attract
wealthier students. "The publics need wealthier kids to pay more of the cost,"
Schapiro said. He noted that a political demand for results has also played a
role in the shift to merit-based aid. "When colleges are under pressure to
prove how good they are, one way to do it is to attract better students to
begin with -- you want the valedictorians, the kids with good SAT scores," he
said, noting that these students are also typically from more affluent
families.
Educating the poor
Thus, several factors -- bargain-hunting parents, declining state
and federal support, increasing enrollment and political demands for
accountability -- are pushing wealthy parents and public colleges together. At
the same time, private colleges, especially smaller -- and often Catholic --
institutions are becoming the gateway to post-secondary opportunity for
America's lower classes.
"These colleges, many of them Catholic, aren't receiving public
support, but they are definitely performing a public service," Schapiro said.
"They are taking over responsibility for the education of our poor."
So enrollment is going up, government support and student aid is
going down and competition for space at lower-priced public universities is
more intense than ever. Legions of parents are sweating tax forms and bank
statements, wondering how they're going to pay for it all. What should colleges
do?
For McPherson and Schapiro, the answer is simple: Raise tuition.
"The truth is, the wealthy are getting an incredibly good deal
right now," McPherson said, referring to affluent families who enroll their
children at public universities. "They pay nowhere near the actual cost of
their kid's education and they could afford to pay a good deal more."
Herein lies one of higher education finance's most striking
peculiarities -- the way to keep the product affordable is not always to lower
the cost.
Higher education is an expensive commodity. With faculty salaries,
technology, construction and support services, high-profile public universities
can easily spend $15,000 or more per student. Most of them recover only $4,000
or $5,000 of that in tuition. Traditionally, state support and endowments have
supplied the rest.
While right now is a good time for endowments -- the Dow's
exceptional performance has helped higher education, whose endowments are
heavily invested in stocks -- state support is declining. As enrollment surges
over the next decade, costs will go up, putting even more strain on college
budgets. To preserve access and maintain quality, new funds are going to have
to come from somewhere.
Schapiro and McPherson argue that the relatively low cost of
public higher education -- in 1996, tuition and fees at an in-state public
university cost on the average $2,966 while the average private institution
charged $12,823 -- amounts to a massive taxpayer subsidy for wealthy families.
"It's an obvious form of regressive taxation," Schapiro said. "By keeping
tuition low, public colleges in effect take from the poor and middle class and
give to the rich."
Not high enough
While granting that the cost of public higher education has gone
up dramatically, McPherson argues that it hasn't gone up nearly enough at
public colleges, at least from a social justice point of view. "Don't give a
wealthy family a $15,000 education for $3,000," he said. "They can pay more. We
should charge more and use that money to hold the truly needy harmless," he
said.
McPherson recognizes how idiosyncratic that suggestion sounds,
given the present political climate. "The last thing politicians want to hear
right now is that tuition should be even higher," he said. "They're under
massive pressure from middle- and upper-class parents to bring tuition down,
not jack it up."
Therein lies one reason why the social justice argument advanced
by Schapiro and McPherson is unlikely to get much of a hearing -- politics.
Congressman Howard P. "Buck" McKeon, R-Calif., chair of the postsecondary
education subcommittee of the House Economic and Educational Opportunities
Committee, led a successful effort this spring to create the Commission on the
Cost of Higher Education. The stated purpose of this commission, according to a
press release issued by McKeon's office, is to "get these [college] costs under
control" and to "make higher education once again affordable."
The 11-member commission is made up of university administrators,
faculty and representatives of education groups, including the independent
college associations of Massachusetts and California, which count several
Catholic colleges as members. It is scheduled to deliver its report to Congress
by the end of December.
"I'm really not sure they can come up with anything of quality
that fast," Currie said, "especially with all the political rhetoric flying
around."
"The commission has the potential to be useful, if it gets into
real analysis," McPherson said. "On the other hand, if they simply haul in a
bunch of college presidents and call them jerks for raising prices, it won't
accomplish very much."
Schapiro expects the commission to generate pressure on colleges,
both public and private, to control rising costs. The effect would be much
greater in the public sector, since price increases there have been running at
an annual rate of 4.5 percent over the 1990s, as opposed to approximately 2
percent for private colleges.
If tuition is lowered rather than raised, "it will make for
disastrous public policy," McPherson said. "Essentially, middle- and
upper-income parents will be getting a break at the expense of everyone else.
If we believe that higher education is an important public good that ought to
be available to anyone who desires it, this is unconscionable."
Whatever the pressures at public institutions, these are even
tougher times for most private colleges and universities. A privileged handful
have endowments of sufficient magnitude to buffer the effect of cost increases,
but most are much more tuition-dependent than their public counterparts;
tuition accounts for 15 to 20 percent of the budget at an average public
college, while it makes up between 50 and 75 percent of the operating budget at
private institutions. As their best-paying customers move in larger numbers to
the public sector, private colleges are finding that "business as usual" just
won't cut it anymore.
The emergence of an entrepreneurial drive on small liberal arts
campuses may strike those who haven't been paying attention as surprising. Such
places are, in the mind's eye, associated with capital-T tradition. Their very
names -- Swarthmore, Williams, Smith -- conjure up images of sculling, crew
neck sweaters and seminars on Wittgenstein's Tractatus. While students can
still find plenty of sweaters and obtuse seminars on private campuses as well
as the occasional sculling squad, such places now actually define the cutting
edge in terms of retooling the delivery of educational services to serve new
markets.
Mostly, this is a matter of survival, which is why entrepreneurial
creativity is much more characteristic of lesser-known and smaller private
colleges. Still, everybody's getting in on the act to some extent. As wealthier
families shop around, private colleges have been forced to keep a lid on
tuition. At the same time, larger pools of needy students have meant more
institutional aid. The private college budget has been placed in an economic
vise, making "bang for the buck" paramount.
Most private colleges will weather the storm and come out alive,
if transformed. "Most struggling colleges don't go out of business," McPherson
said. "They change the business they're in."
High-tech Marist
How are small private colleges, especially Catholic ones,
redefining the nature of their business? For an example, consider Marist
College, a 30-year-old college in the Marianist tradition nestled in the Hudson
River Valley in Poughkeepsie, N.Y. With an enrollment of 3,400, Marist is no
bigger than a mid-sized high school in one of America's urban centers. It's
exactly the type of private college -- small, relatively rural, expensive and
religiously affiliated -- that should be struggling in today's climate.
Instead, Marist has earned the sobriquet "Construction U" because
of all the building going on. In the last few years, new dormitories, a new
recreation center and now a new library have come to the campus, with more new
facilities on the way. Applications far outnumber available space, and this
year's freshmen class of 950 is reputed to be the best and brightest in
institutional memory.
How has Marist done it? In part, the answer lies in the old real
estate maxim: "location, location, location." IBM's main research and
development center is also in Poughkeepsie, and the school has formed a
partnership with the computer giant to subsidize its new "digital library."
Because of IBM's assistance, Marist was the first campus in America to be fully
networked, back in the 1980s when such technology was considered a luxury.
Today, Marist attracts students because of its high-tech prowess. A recent
survey named it one of the four most technologically sophisticated campuses in
America.
Part of the school's success, however, comes down to the pluck of
university administrators, who have scrambled to tap every possible source of
support. Area businesses have been enlisted to provide scholarship support,
leading among other things to the unique designation of two Marist students as
McDonald's Scholars.
"Our local McDonald's gave us about $5,000," said Tim Massie,
spokesperson for Marist. "So we got a couple of kids who had worked there who
qualified for aid and we decided to call them 'McDonald's Scholars,' " he said.
"When the donor came in for the ceremony and realized he knew the kids who were
getting the money, it really made him feel good," Massie said. "It put a face
on the whole process for him."
While some ivy-covered-walls colleges might be embarrassed to
boast McDonald's Scholars -- suggesting as it does corporate hucksterism -- not
so Marist. "We believe in partnerships with businesses in the Hudson Valley
area," said Massie. "It's one of the reasons we're doing so well."
Fisher commitment
Marist offers one model for how smaller private colleges can
remain viable despite upward pressures on cost and institutional aid. St. John
Fisher College in Rochester, N.Y., is another. With an annual tuition of
$12,300 and an enrollment of 1,400, St. John Fisher is, like Marist, a school
at risk in the present fiscal climate. But, like Marist, it is also a school
that has responded creatively to the new pressures it faces.
At St. John's, that creativity takes the form of the "Fisher
commitment." In simple terms, it's a guarantee that a Fisher graduate who
follows the college's advice will get a job. If not, the school agrees to pay
the graduate $417 a month for 12 months -- a total of $5,000 -- or until he or
she receives a job offer.
"We realize that a private college education is an expensive
investment," said Amy Israel in St. John Fisher's Student Development Center.
"Students and parents today are looking around for the best value for their
money." Moreover, Israel says the college understands that value means
something different today. "Students have a much more pragmatic understanding
of what they're after," she said. "It isn't some vague sense of the college
experience. They want to know that they're being prepared to land a good job.
This program offers them that assurance."
Available to incoming freshmen only, the Fisher commitment is a
four-year program. Students and the school sign a contract that specifies
certain steps the student must take, such as maintaining a 2.75 grade point
average and participating in extracurricular activities. "We looked at the
research on what makes a graduate successful in the job market," Israel said,
"and designed the program around it." If a graduate follows all of the steps
and is still unable to land a job, the payments begin seven months after
graduation and can continue for up to a year.
"The Fisher commitment is a way of standing behind our graduates,"
Israel said. "It's also a way of distinguishing ourselves in a very competitive
environment."
McPherson comments, "This is the sort of thing smaller private
colleges are doing all over the place. They're becoming high-tech, and they're
moving aggressively to form partnerships with businesses and other
institutions."
McPherson noted that many small colleges have also shifted heavily
into graduate education, away from their traditional but shrinking
undergraduate market and toward evening and weekend programs. "It's all about
staying competitive," he said. "Because small private colleges -- and again,
Catholic colleges are very much part of this picture -- have been forced to
adapt much more quickly, they've become a laboratory to sort out what works and
what doesn't."
Of course, all the entrepreneurial zeal in the world won't matter
much if the students just aren't there. Small rural colleges are especially
marginal because for them it's much more difficult to shift away from
undergraduate, liberal arts education to more lucrative business and
professional graduate programs. The commuter students to whom such offerings
appeal don't exist in those areas. Even for colleges in urban areas, however,
the double whammy of rising costs and falling federal aid sometimes proves too
much.
Monika Hellwig, executive director of the Association for Catholic
Colleges and Universities, said, "It wouldn't surprise me to see a handful of
our colleges fail this decade. After all, a handful closed in the last decade."
McPherson said, "When you go to national meetings [of private
colleges] there's a lot of sweating and hand-wringing over these issues.
Everybody is desperately seeking solutions," he said.
A Faustian dilemma
Over the next decade or so, the coming boom in the college-age
population should provide some relief for struggling private colleges. At the
same time, however, it creates a near-Faustian dilemma for the private sector.
What do you hope for: that burgeoning enrollment will overwhelm public
universities, driving appalled parents back into private colleges or that the
right public policy decisions will keep public universities strong -- and
perhaps consign more privates to oblivion?
"It's a tough situation," McPherson said. "We like to say as
administrators that what's good for one college is good for all, but that's not
always the case."
The problem of coping with new enrollment demonstrates once again
how higher education is different from other areas of economic activity. In
other industries, when more customers are chasing the same product, prices rise
and demand levels off. Public colleges, however, do not have the authority to
determine their own prices. That happens in the state legislature. Most of them
are also under statutory obligations to admit a certain percentage -- in some
states, it's all -- of in-state high school graduates. In other words, more
students means greater demand for services without a corresponding increase in
revenues.
Schapiro said, "States aren't going to allow tuition to rise fast
enough to keep pace with enrollment growth. Nor are they going to kick in
enough new money to do the job."
If that prophecy holds up, public universities will have real
problems. Class sizes will shoot up, more classes will be taught by teaching
assistants, it will take longer for students to graduate because of difficulty
in getting the classes they need and campus life will generally be unpleasant.
That's exactly what happened the last time a big demographic wave washed over
the public universities in the early 1980s.
If so, some of the shine will start to wear off from public
universities for those bargain-conscious, affluent families that are currently
their biggest growth market. "It's not just price, it's value," McPherson said.
"What's attracting parents to the public sector right now is the perception,
backed up by all these national ranking services, that there's not much
difference in quality between expensive private schools and many publics," he
said. "If that starts to change, they'll go back to the privates."
Of course, more than competition between the public and private
sectors is at stake. "From a public policy point of view, it would be a real
tragedy if the quality of public universities is allowed to deteriorate,"
McPherson said. "Public higher education represents a substantial investment in
our future.
"Nevertheless, bad news for public colleges could be good news for
the privates," he said.
"It makes sense generically that if students aren't going to
public colleges, they're probably considering privates more," said Currie of
the Jesuit colleges and universities association. "To that extent, if the
perception is that public universities are struggling, it may benefit Catholic
colleges."
The real danger, Currie said, is that students stay away from both
sectors -- in other words, don't attend college at all. For that reason, Currie
said he supports "win/win scenarios" rather than the win/lose dynamic of the
present debate over costs and quality.
"Our rallying cry in America has always been that every student
should be able to attend the college of his or her choice," Currie said. "This
means that both the public and private sectors have to be strong. The question
is, can we deliver on that promise?"
National Catholic Reporter, September 26,
1997
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