August 26, 2016

In a University World News article, published August 26th 2016, the recent work of John Aubrey Douglass, Senior Research Fellow in Public Policy and Higher Education at the Center for Studies in Higher Education and Patrick Lapid, Ph.D Candidate, Economics and SERU Research Associate at the Center For Studies in Higher Education are highlighted. Full article below: 

In an era of significant disinvestment in public higher education by state governments in the United States, many public universities are moving towards a ‘progressive tuition model’ that attempts to invest approximately one-third of tuition income into institutional financial aid for lower-income and middle-class students.

Combined with federal and state financial aid programmes, the objective is to mitigate the cost of tuition and keep college affordable. 

But is this model as currently formulated working? What levels of financial stress are students of all income groups experiencing? And are they changing their behaviours?

Utilising data from the Student Experience in the Research University, or SERU, survey of undergraduates and other data sources, our study explores these issues by focusing on students at the nine undergraduate campuses of the University of California and 10 other major flagship public universities that are members of the Association of American Universities.

 All are members of the SERU Consortium, which aims to establish a long-term collaboration among peer institutions and generate longitudinal data to gauge changes in student demographics, behaviour patterns and attitudes.

We also compared the results of an earlier SERU study on affordability based on 2010 data. The post-2008 era is marked by the onset of the Great Recession and significant increases in tuition. The SERU database provides a unique source for understanding the experience and financial stress and behaviours of students by income groups and other variables.

At least to date, the significant increase in tuition and costs related to housing and other living expenses have not had a negative impact on the number of lower-income students attending the University of California or UC.

Reflecting to some degree UC’s robust financial aid policies, and perhaps the growing number of lower-income families in California, there has been an actual increase in the number of these students – a counterintuitive finding to the general perception that higher tuition equals less access for the economically vulnerable.

More results from our study follow shortly, but first we discuss the allure of free tuition and the realities of declining public investment in higher education.

The allure of free tuition

Throughout the world, the cost of tuition at any level is regarded as a significant barrier for university access to disadvantaged socio-economic groups.

In South Africa, students have protested and demanded free tuition at all public universities, shutting down classes and occupying buildings. Similar protests are occurring in Brazil. 

And in Chile, the promise of free university tuition at public universities for students from public high schools propelled the current president into power; with it, the difficulties of defining who should get a highly sought after and limited public good for free, and how a nation can pay for it, have also become talking points.

The political movement for free tuition is often demanded first without a significant plan on how to make up lost revenue. Universities are like other organisations in society: if you cut income significantly there are consequences, including actual reduction in access and rising student-to-faculty ratios.

In the United States, the cost of enrolling in college or a university has been steadily rising, generating considerable concern among American families and intense media attention.

Among lower-income and middle-class students, there is a sense that a public college or university education is increasingly out of reach or a financial burden on a scale never experienced before.

Student debt levels are at an historic high – although largely fuelled by dramatic increases in the number of students entering for-profit institutions and the rise in professional graduate degrees.

The number of students gaining a bachelor degree in the traditional age cohort of 18 to 24 year olds has declined relative to the US’s top economic competitors.

And the cost of attending a public university or college is a major campaign issue in the upcoming election for the presidency, at least within the Democratic Party, with promises by Hillary Clinton of unprecedented levels of federal funding to states to reduce or even eliminate tuition for lower-income and middle-class students.

Shifting the financial burden to students

Why have tuition fees gone up so much in public institutions in the US? The most significant reason is the long-term decline in public investment in public higher education institutions over the past two decades, with a sharp acceleration of this trend with the arrival of the Great Recession in 2008.

One study notes that between 2001 and 2011, some 79% of the tuition fee hikes at public universities was due to declining state appropriations, some 5% was due to increased administrative spending, and another 6% was due to construction costs.

Even as the economy has slowly recovered, state funding for higher education remains far below pre-recession levels for most states. Disinvestment has resulted in a shift of the financial burden to students.

In 1988, public colleges and universities received, on average, 3.2 times as much in revenue from state and local governments as they did from students. They now receive about 1.1 times as much from states and local governments as from students.

At many public universities, like the University of California, students now pay substantially more towards their education than the state does – an historic shift.

Significant reductions in operating costs

Yet, increased tuition has not fully made up for the huge decline in state subsidies. Compounding the challenges faced by public higher education, in states like California, the population is growing and the labour market is in need of students with a bachelor degree or higher.

Even in the midst of declining state investment on a per student basis, UC continued to enrol more students and the number of undergraduate degrees awarded grew by 47% between 2000 and 2014, from 32,741 to 48,069 degrees.

There are few additional public dollars for expanding enrolment and programme capacity to meet the growing demand for one or more forms of post-secondary education – in California, for example, the state provides virtually no funds for capital construction, let alone the adequate funding of maintenance and the upgrading and retrofitting of old buildings.

Within this environment, most state universities have pursued significant reductions in operating costs. This has included cuts in the number of permanent faculty and staff, hiring even more part-time instructors, rising student-to-teacher ratios and reductions in the number of classes and programme offerings.

In some states, the search for additional revenue has included limits and even cuts in the number of state-resident undergraduates and the recruitment of out-of-state and international students who pay higher tuition.

As noted, a persistent assumption in the public discourse over rising fees, and state disinvestment, is that it will result in a significant decline in the enrolment of lower-income and middle-class students in the nation’s public universities and generate unmanageable debt levels for those students who do enrol.

There are many different types of higher education institutions in the US with different missions and costs, and different demographic mixes of students – community colleges, vocational institutions, liberal arts colleges, masters-granting universities and research-intensive universities, most public and some private, some open to all students with many being enrolled part time and some highly selective with full-time students.

Hence, there are very different dynamics among the institutions related to the operational costs of educating students, what students are charged, and what levels of debt they may or may not incur.

Progressive tuition models

In response to rising tuition and fee costs for students, many highly selective public universities, such as the University of California, have invested increasing amounts of needs-based aid for their students.

They have targeted their evolving financial aid programmes to support lower- and middle-income students. Institutional aid at these public universities at the scale now invested is a relatively new phenomenon.

The intent is to complement federal financial aid grant programmes for low-income students, specifically Pell Grants, and the growing direct loan programme, as well as state-based financial aid programmes such as California’s Cal Grants.

This has resulted in what can be called the ‘progressive tuition model’ that, in essence, charges higher-income students more to help reduce the cost and debt for lower-income students and their families.

The state used to do this via tax and spending policies, but now public universities are taking the role of what might be called taxing the rich to pay for the poor.

Mitigating the impact

To partially make up for the funding loss, at all nine undergraduate campuses of the University of California student tuition and fees were raised substantially. In 2005-06, tuition and fees was US$7,430 per year at UC’s nine undergraduate campuses; by 2011-12 it climbed to US$14,460.

In this period, UC continued to enrol additional students to help maintain its social contract with the people of California – even though it was not receiving state funding for the increased workload. The result? Student to faculty ratios climbed and the overall expenditures per student declined from approximately US$18,000 per student (undergraduate and graduate) to US$16,500.

To help mitigate the impact of increased tuition for lower- and middle-class students, UC devotes some 33% of all tuition income to needs-based financial aid that differentiates net costs across income groups.

This is in addition to federal and state programmes for lower-income students, such as Pell Grants and Cal Grants. Approximately US$8,500 dollars of the current US$14,460 in tuition and fees goes now to financial aid primarily for lower-income students.

Between 2007-08 and 2015-16, institutional aid spending more than doubled at the universities, growing from US$313 million to an estimated US$735 million at UC. Institutional aid includes the Blue and Gold Opportunity Plan, established in 2009-10, which fully covers tuition and fees for students with family income under US$80,000 a year. The Middle Class Scholarship, a state funding aid programme, partially covers tuition for families up to US$150,000 in annual income.

About 55% of undergraduate students at UC receive aid sufficient to fully cover tuition and fees; an additional 9% receive partial tuition coverage.

In determining needs-based aid, UC first applies applicable federal and state aid on a student’s behalf and assumes each student must contribute US$9,500 through work or borrowing. It then uses institutional aid to fill any remaining gap between available resources and the cost of attendance. UC’s average gift aid per recipient from all sources exceeds tuition by about US$4,600 – meaning the average aid award pays for some living costs.

It appears that the University of California is attempting to pursue this ‘progressive tuition model’ in a more aggressive manner than most public universities. As part of a system-wide approach to financial aid, all its campuses must divert substantial tuition income to needs-based aid.

Because this model is relatively new and in an experimental stage, it is not a policy well understood by most Californians or by increasingly hostile lawmakers who equate higher tuition with decreased access, declining socio-economic mobility and increased financial stress for California families.

Do they work? 

At least to date, and as noted, the increase in tuition and costs related to housing and other living expenses have not had a negative impact on the number of lower-income students attending UC. Indeed, their numbers have increased.

At the same time, there is evidence of a ‘middle-class’ squeeze, with a marginal drop in the number of students from this economic class. UC enrols a high percentage of low-income undergraduates, with some 40% of students with family incomes below US$53,000 – the federally designated level in which a family with two children are living in poverty.

Data also shows that the net cost of attendance, including living expenses, has diverged greatly by family income since the introduction of UC and state financial aid plans starting in 2009-10 that include returning approximately 33% of all undergraduate tuition income to aid for low-income students.

As a result, lower-income UC students have seen little change in their net costs, while higher-income students are paying significantly more to attend.

There is evidence of increased financial stress and changed behaviours, like working more or cutting costs. But not to a degree that would cause students to drop out.

When asked if the total cost of attendance is manageable, around 60% of students in the lowest and highest income groups agree with the statement. The share of students agreeing drops in the middle-income groups before rising again for the highest-income students.

These perceptions about managing the cost of attendance are similar when comparing UC and other Association of American Universities, or AAU, institutions’ respondents: lower-income students are the most likely to agree, while upper-middle income students from families making US$80,000 to US$125,000 in income are the least likely to express agreement.

UC students from families making over US$80,000 a year are less likely to agree that the cost of attendance is manageable compared to other AAU students.

Cultural, racial and ethnic differences in perception

Students’ concerns with paying for their education and accumulated college debt follow a more predictable pattern; these concerns are highest among students from families making under US$35,000 in annual income, and are similar for students in the US$35,000 to US$80,000 range before decreasing among students from higher-income families.

 This pattern of concern for paying for undergraduate education is similar across institutional types, but concerns about paying for education and educational debt are somewhat lower at other AAU campuses versus among students in the UC system.

Within UC campuses, students who identify with an underrepresented minority, or URM, group, such as Latina/os, Hispanics, American Indians, African Americans, Native Hawaiians and Pacific Islanders, are more likely to express concern with financing their education when compared to Asian and White students in the same income groups.

Concern with paying for their education, as well as student debt, is considerably higher among URM students, and slightly higher among Asian students compared to White students in similar income categories.

When asked in the SERU survey if the cost of attendance is manageable, lower-income URM students agree at similar rates to White and Asian students, but URM students from families making over US$80,000 a year are slightly less likely to agree, compared to higher-income Asian and White peers.

At the same time, URM students, followed by Asian students, had higher concerns over debt accumulation than White students, again across income groups. Yet a lower percentage of Asian students across all income groups are also reported to be less likely to be employed than their URM and White counterparts.

This raises the issue of cultural, racial and ethnic differences among students regarding the reality and their perceptions of affordability that could, in addition, be further illuminated by looking at variables such as the discipline or major that students are pursuing.

It also indicates that incomes alone are incomplete measures of the ability to pay for college; asset ownership of real estate and savings, which are considerably higher among White and lower among URM families, are likely very important in understanding the perception of students regarding college costs. This is a topic we plan to further explore with the SERU data.

Concluding thoughts

 With some important qualifications and concerns more fully explored in our study, the ‘progressive tuition model’ appears to be working, keeping college affordable for all or most income groups. 

Higher tuition rates at public universities, if accompanied by robust federal, state and institutional financial aid, is a viable path for maintaining access to lower-income students and for generating income needed for institutions to maintain or improve student-to-faculty ratios and other measures of quality.

 Low or no tuition at public universities also correlates with higher attrition rates and longer time to graduate; at the same time, higher tuition rates often influences students to graduate in ‘norm’ time (four years in the US), with the obvious behavioural effect of students and their families seeking to avoid greater costs. This is the case at the University of California and other major public universities.

Time-to-degree is important, because it can mean less space for new students to enter selective universities. As one of us has postulated in past writings, tuition and fees at public universities can be too high, but they can also be possibly too low, particularly if they starve institutions of funding and therefore their ability to meet their purpose in society.

At least in our American case study, focused on a selective group of public universities within the SERU Consortium, and with the caveat of a robust financial aid system, demanding lower or no tuition does not appear to be based on any clear analysis of the correlation of tuition and affordability.

It appears more as a politically attractive way to appeal to the public and voters, while ignoring the financial consequences for public colleges and universities and the quality of the student experience and the regressive nature of free tuition.

Particularly in societies with substantial disparities between the rich and poor, and without strong social welfare services, free tuition represents a substantial subsidy for more wealthy students who often crowd out lower-income students in the world’s leading universities. 

Yet we also stress that these results are not necessarily predictive of the future if tuition rates go up further, or if financial aid support declines relative to the cost of tuition and living expenses. Further, our conclusions are not necessarily applicable in other national contexts.

 The fact is that we still do not know much about the elasticity of tuition pricing and its effects when accompanied by robust financial aid policies, or the effects of debt aversion and similar behaviours among socio-economic groups or within developed versus developing economies.

This points to a significant gap in the research in an age where public universities must develop a dramatically revised funding model if they are to provide access that promotes significant levels of socio-economic mobility.

The US is in a relatively new and not yet completed transition from a network of public universities with relatively robust public subsidisation and low tuition and housing costs to the new world of public disinvestment and an increased focus on funding via students and their families.

How successful research-intensive universities are in generating this new model will significantly influence the nation’s socio-economic mobility rates and, more generally, their economic viability.

 John Aubrey Douglass is senior research fellow in public policy and higher education at the Center for Studies in Higher Education or CSHE at the University of California, Berkeley and the UC Berkeley PI of the Student Experience in the Research University, or SERU, Consortium. His latest book is The New Flagship University: Changing the paradigm from global ranking to national relevancy(Palgrave Macmillan 2016). Patrick Lapid is a doctoral candidate in economics at the University of California, Berkeley, a SERU research associate and a Gardner Fellow at the Center for Studies in Higher Education. This article reflects a recent CSHE study entitled “College Affordability and the Emergence of Progressive Tuition Models: Are new financial aid policies at major public universities working?”.