Are tuition fee rises sustainable?

After decades of tuition fee increases at US tertiary institutions, the tolerance of the public and their elected officials appears to be reaching exhaustion point.

I have previously noted in University World News that the primary cause of the annual fee increases lies with the unsustainable business plan employed by the bulk of the nation’s public and non-profit institutions.

Rather than aggressively controlling expenditure to match expected revenue, their plan tended to regard the bulk of operating costs as fixed. To balance budgets, institutions employed a mix of enrolment and tuition fee increases.

In spite of a US Department of Education 2003 longitudinal study reporting significant declines in graduate proficiency, institutions have been able to raise tuition fees, moderated by enrolment fees, with near impunity. One might legitimately ask why it took so long to reach a tipping point.

There have been three complementary influences that have enabled the US tertiary community to continue to enjoy a thriving seller’s market.

The American dream

Firstly, a college degree has for decades been seen by the majority of American families as the prerequisite for fulfilling the ‘American dream’. Degrees have led to economic security and elevated social status. Many students have lifted themselves out of poverty with the help of degrees. Offspring with degrees have, until recently, been expected to enjoy a quality of life superior to that of their parents.

This is despite a growing body of evidence undermining the dogma that a college degree predictably produces a return on investment far greater than the out-of-pocket expenses and opportunity costs incurred.

The degree’s value remains entrenched in the American psyche. A recent study by Sallie Mae, a major private source of college loans, reported that a college degree continues to be a goal for most American families in spite of the waning return and waxing debt burden carried by many recent graduates.

While the value of a college degree is deeply engrained in the American psyche, the burden of annual tuition increases has been eased by government and private lenders.

Federal grants and loans

Secondly, large-scale federal grants and loans date from the mid-20th century. Greater access to tertiary education has been provided by elected officials pursuing a well-intentioned yet counterproductive remedy.

While legislative initiatives enabled more students to pursue the American dream, there was an unintended consequence: being assured of ever-increasing revenue, US tertiary institutions were given a cost control waiver.

The Bennett Hypothesis, coined in 1987 by former US secretary of education William J Bennett, noted that federal financial aid, designed to at least partially assuage the impact of tuition fee increases, actually encouraged institutions to increase their charges. These subsidies gave tertiary institutions an implicit cost-cutting waiver that would be required in any other industry.

This well-intended legislation fell into a cycle that required periodic reauthorisation as tuition fees continued to increase. Higher costs provided elected officials with a populist justification to moderate the annual tuition fee increases. With the passage of decades, federal and state initiatives could not keep up with the ever-increasing demand for grants and subsidised loans and the private sector happily responded.

The US Consumer Financial Protection Bureau has reported that outstanding college debt has risen to approximately one trillion dollars. About US$864 billion is owed to the federal government. The remaining US$150 billion is owed to private for-profit corporations.

Coincidentally, the latter have spawned the Lumina Foundation to promote increased college enrolment. The foundation’s stated goal is to increase the proportion of Americans with degrees and credentials to 60% by 2025.

The private loan industry has portrayed itself as key enabler in the pursuit of the American dream. With an advocacy foundation aligned with a fundamental American belief and lenders ready to respond, for-profit lenders have done very well in pursuit of a widely appealing goal.

Regional accreditation organisations

Thirdly, to date assessment of institutional quality has been the province of the nation’s six regional accreditation organisations. They are self-regulating membership organisations. Their inherent conflict of interest risk has been generally ignored.

Accreditation organisations have in fact enjoyed the nation’s sanction since their formation in the 19th century. The Department of Education requires that an institution hold regional accreditation in order for its students to be eligible for federal grants and subsidised loans.

In sum, these organisations appear to have focused on quality maintenance in response to larger enrolments. Did institutions employ sufficient qualified full-time faculty and support staff to serve the annual increased enrolment? Input metrics, faculty-student ratios, average class size and infrastructure projects provided justification for ever-larger budgets, which in turn required larger enrolments.

Accreditation organisations have done more to promote the growth of American tertiary education’s flawed business plan than to encourage cost control.

It is interesting to conclude with the note that Sallie Mae recently released a study saying that in spite of the probable debt and decline in the long-touted financial value of a degree, the majority of families still support the pursuit of the dream. Colleges have many friends.

* William Patrick Leonard is vice dean of SolBridge International School of Business in Daejeon, Republic of Korea.