Fact check: Have declines in state funding driven up tuition at public universities?
University of California, Berkeley
August 10, 2016
By Autumn Lewien
A recently updated analysis from the Center on Budget and Policy Priorities (CBPP) examines the impact of state funding cuts on tuition at public universities.
"Public colleges and universities across the country have increased tuition to compensate for declining state funding and rising costs," the report reads. "These sharp tuition increases have accelerated longer-term trends of college becoming less affordable and cost shifting from states to students."[1]
Is it true that declines in state funding have driven up college tuition? State funding for public two-year colleges and four-year universities has indeed declined in recent years, and tuition has increased. However, while the data notes an association, it does not actually illustrate causation between increased tuition and declining state funding for public higher education. We identify several other variables that may impact tuition levels.
Taking a closer look at the data
The CBPP report cites data from several sources, including the College Board, State Higher Education Executive Officers (SHEEO), and Illinois State University’s Grapevine.[2] Data from these sources does illustrate that state funding has declined while tuition has increased. However, the fact that states reduced education funding and tuition increased in the same period does not mean, as CBPP claims, that the cuts caused the tuition increases. Several other major factors must be considered to determine whether an actual link between the two exists.
To start with, there are some data challenges with the CBPP report. In discussing state funding, the report combines aid for public two-year and four-year colleges and universities. However, two-year public colleges operate differently than four-year universities, and the trends affecting each are different. For instance, in 2013, public two-year institutions, on average, received roughly 20 percent of total revenues from local grants, contracts and appropriations. In comparison, public four-year universities derived about four percent of total revenue from local sources that year.[3]
Additionally, the CBPP analysis starts with the 2007-08 school year, the onset of the Great Recession. Thus, the degree of cuts in state funding in that period are unusually steep.
Tuition and state funding
As a check on the CBPP report, we examined data from the National Center for Education Statistics IPEDS (Integrated Postsecondary Education Data System) which shows that tuition revenue per full-time-equivalent (FTE) student increased by roughly 36.4 percent—from $4,936 to $6,733, or $1,797—between 2003 and 2013.[4] Over that same period, state funding levels (which include revenues from state grants, contracts, and appropriations) per FTE student, adjusted for inflation, fell by 18.2 percent—from $8,625 to $7,052, a difference of $1,573. (See Figure 1.)[5][3][6]
Figure 1.
Tuition, state, and federal revenues at 2- and 4-year public institutions per FTE student
(2003-04 through 2013-14)
*Note: "State Revenues" include revenues from operating and non-operating grants, contract, and appropriations (see chart below for more information).
This data illustrates that cost shifts have occurred. However, there have been shifts in revenue streams other than state funding and tuition.
Other revenue sources
Between 2003 and 2013, total revenues for public universities and colleges increased by 8.2 percent, or $2,561 per FTE student. (See Figure 2.) Increases in tuition and fees ($1,797 per-student) constituted 70 percent of this increase while other revenues, such as the sale and services of hospitals, also increased in the same period. (See Figure 2 and the chart below for a further breakdown of public two-year and four-year education revenues sources.)[5][3]
Figure 2.
Revenues per FTE student at public 2-and 4-year colleges by category
(2003-04 through 2013-14)
| Two-Year and Four-Year Universities Funding Sources: Glossary of Terms | |
|---|---|
| Term | Definition |
| Tuition and Fees | Includes all tuition and fees, net of discounts and allowances, assessed against students for education purposes. |
| State Revenues | Includes revenues from operating and non-operating state grants, contracts, and appropriations (see below). |
| Federal Revenues | Includes revenues from operating and non-operating federal grants, contracts, and appropriations (see below). |
| Local Revenues | Includes revenues from operating local and private grants and contracts, non-operating grants, and appropriations (see below). |
| Appropriations | Refers to all "amounts received by the institution through acts of a legislative body." |
| Operating Grants and Contracts | "Revenues from governmental and nongovernmental agencies and organizations that are for specific research projects or other types of programs that are classified as operating revenues." |
| Non-operating Grants | Includes all non-operating revenues from governmental and nongovernmental agencies “that are provided on a nonexchange basis.” Pell Grants are included in this category. |
| Sales and Services of Hospitals | Includes all revenues generated by a university-operated hospitals from daily patient, special, and other services. |
| Sales and Services of Auxiliary Enterprises | Refers to revenues generated from enterprises that “exist to furnish a service to students, faculty, or staff,” such as residence halls, food services, student health services, intercollegiate athletics, college unions, college stores, and movie theaters. |
| Other Operating and Non-operating Revenues | Includes Independent operations, gifts, investment income capital appropriations, capital grants and gifts, additions to permanent endowments, and others. |
| Source: For more information about each revenue category see: National Center for Education Statistics, "IPEDS 2015-16 Data Collection System - 2015-16 Survey Materials: Glossary," accessed July 20, 2016 and National Center for Education Statistics, "Draft Instructions for Revised GASB forms," May 3, 20102 | |
As Figures 1 and 2 show, revenues from the federal government, (which includes the Pell Grant program—the nation’s largest need-based student grant program for postsecondary undergraduate education) increased by $258 per FTE student—from $4,462 to $4,900—between 2003 and 2013. We draw attention to this specific revenue source because some research documents that schools respond to increases in federal financial aid by increasing tuition. This is called the "Bennett hypothesis."[7]
Indeed, a February 2016 National Bureau of Economic Research (NBER) working paper, authored by Grey Gordon and Aaron Hedlund, found that “demand-side shocks”—consisting mostly of expansions in grants and loans—“account for the lion’s share of the higher tuition.” And "changes in the [Federal Student Loan Program] (FSLP) generate a 102% tuition increase." Moreover, the study suggests that fluctuations in non-tuition revenues, such as state funding for higher education, “do not lead to large increases in tuition.” Instead, the results suggest that “tuition falls in response to supply shocks alone.”[8]
Similarly, a recently revised study conducted by the Federal Reserve Bank of New York, analyzing the "extent to which increased access to student credit has contributed to rising tuition" found that "changes in the sticker price of tuition are, on average, sensitive to changes in the supply of subsidized loans, Pell Grants, and unsubsidized loans."[9]
Increased spending
Finally, spending levels by colleges and universities is also a factor. Between 2003 and 2013, average spending per student at public schools grew 7.4 percent, or $2,138 per FTE student. (See figure 3.)[10][11] Tuition increases are one method universities use to cover higher spending.
Figure 3.
Total revenues and spending at 2- and 4-year public universities per FTE student
(2003-04 through 2013-14)
Conclusion
In a recently updated report, the CBPP claimed that, "Public colleges and universities across the country have increased tuition to compensate for declining state funding and rising costs."[1]
State funding for public higher education has indeed declined in recent years, and tuition revenues have increased. However, those two data points alone do not establish a cause-and-effect relationship between declining state funding and higher tuition. Other variables, including higher spending and increases in federal funding should also be considered.
See also
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Sources and Notes
- ↑ 1.0 1.1 Center on Budget and Policy Priorities, "Funding Down, Tuition Up," May 26, 2016
- ↑ See: CollegeBoard, "Trends in College Pricing 2015," 2015, State Higher Education Executive Officers, "State Higher Education Finance FY 2013," 2014, and Illinois State University, "Summary Tables, Fiscal Year (FY) 2015-16," accessed August 2, 2016
- ↑ 3.0 3.1 3.2 National Center for Education Statistics, "Table 333.10 Revenues of public degree-granting postsecondary institutions, by source of revenue and type of institutions: 2007-08 through 2013-14," accessed July 28, 2016
- ↑ All financial data presented in this report are adjusted for inflation and presented in constant 2015 dollars unless otherwise noted.
- ↑ 5.0 5.1 National Center for Education Statistic, "Table 352 Revenues of public degree-granting institutions, by source of revenue and type of institutions: 2003-04 through 2006-07," accessed July 28, 2016
- ↑ National Center for Education Statistics, "Table 307.10 Full-time-equivalent fall enrollment in degree-granting postsecondary institutions, by control and level of institution: 1967 through 2025," accessed August 2, 2016
- ↑ In a 1987 New York Times op-ed titled "Our Greedy Colleges", then secretary of education William Bennett asserted that “increases in financial aid in recent years have enabled colleges and universities blithely to raise their tuitions, confident that Federal loan subsidies would help cushion the increase.” See: New York Times, "Our Greedy Colleges," February 18, 1987
- ↑ Gordon, Grey and Aaron Hudlund, National Bureau of Economics, "Accounting for the Rise in College Tuition," February 2016
- ↑ Federal Reserve Bank of New York, "Credit Supply and the Rise in College Tuition: Evidence from the Expansion in Federal Student Aid Programs," July 2015
- ↑ National Center for Education Statistics, "Table 362: Expenditures of public degree-granting institutions, by purpose of expenditure and type of institution: 2003-04 through 2006-07," accessed July 29, 2016
- ↑ National Center for Education Statistics, "Table 334.10: Expenditures of public degree-granting postsecondary institutions, by purpose of expenditure and level of institution: 2007-08 through 2013-14," accessed July 29. 2016
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