Three Key Themes of Affording College: Costs, Debt, and the Way Forward

by Don Hossler

In the 9th annual conference sponsored by the Center for Enrollment Research, Policy, and Practice, we examined the intersection of societal concerns, public policy debates, and institutional anxieties about college costs. We focused on how institutions are dealing with more accountability, rising internal costs, less willingness to pay on the part of students, and the implications of a growing use of loan debt to pay for college costs.

There is no doubt that Great Recession exacerbated concerns about college costs. In addition, increases in underemployment and unemployment, stagnating or declining income, and historic high levels of tuition at all higher education sectors have resulted in increasing doubts about whether or not a college is affordable, whether it is worth it, and how students will repay growing levels of loan debt. Declines in state support for public institutions and a growing realization amongst non-medallion private institutions that they were losing prospective students because of costs – despite high discount rates, have resulted in greater internal scrutiny of institutional expenditure patterns.
With this introduction, there were 3 major themes for colleges and universities, but also for public policy makers, students, and parents.

Theme 1 – Is College Worth It For Students?
There is clear evidence of the follow patterns. (1) Wage premiums for a postsecondary degree have never been higher; however, the increase is largely due to a decline in the earning power of high school graduates. (2) Unemployment declines as the level of education increases. (3) Most recent college graduates did not end up in dead-end jobs. However, financial rates of return can be very different depending upon the student’s major and where they reside. Not only is college a good investment, data from the College Board indicates that when all forms of financial aid are considered including federal and state grants, money that flows to students/families through the Hope Lifetime Credit tax refunds, institutional grants, and student loans that the net price of going to college has not increased dramatically.

However, these perspectives understate the complexity of the long term costs of pursuing a college degree. Breaking college graduates down by family income bands, the data reveal that the rate of return on a college degree can vary widely. Wage premiums tend to be lower for low and moderate income college graduates. More importantly, approximately half of the people who go to college don’t graduate. So we cannot say that by borrowing is always a good investment. For those who do not graduate it is not a good investment. ROI is best for those who complete their degrees.

Going a step deeper, these presentations establish that most college graduates can expect a reasonable rate of return, but there are large variations by major and by family income. College graduates who come from low income families are more likely to end up in lower paying jobs and high levels of debt can be a problem for these students. More importantly, low and moderate income students are less likely to graduate. For these students the accumulation of loan debt can be a very heavy burden that they carry for many years after they withdrew from the postsecondary education.

Theme 2 – Student Educational Outcomes and High Levels of Student Debt
In an effort to hold institutions more accountable for their educational outcomes, the U. S. Department of Education is making more and more data available about the characteristics of students who enroll, their odds of graduating, and the amount of loan debt they accumulate. In addition there are federal proposals that if enacted would require institutions to pay a percentage of the debt of students who fall into default on their loans. At the state level more than half of all states have adopted some form of performance based budgeting (PBF). States adopt PBF budgeting models to build incentives to influence the decisions of public institutions. Common examples of incentives include targets for reduced amounts of loan debt, a reduction in the number of students who default, the matriculation and graduation of low-income students, and so forth. In addition, some states have enacted or are considering enacting no tuition for students who enroll in community colleges. PBF could result in perverse incentives for institutions. On one hand, these incentives encourage public institutions to enroll fewer low- and moderate-income students because they are more likely to borrow large amounts of money and more likely to default. Thus if state PBF budget incentives are not sufficiently high for enrolling low income students, colleges and universities will not respond to PBF and thus PBF will not have the desired effects.
Free community college initiatives would also be likely to increase the already growing number of students who start at community colleges. This could create serious funding problems for both public and private four-year colleges, an issue that will be examined more in the third theme that emerged from this conference.

Theme 3 – Is the Funding Model for Colleges and Universities Still Viable?
From the perspective of both college presidents and experts on higher education finance, colleges and universities are struggling with higher levels of price sensitivity, reductions in state subsidies for public institutions, and the growing costs of tuition discounting. Two other concerns emerged during the conference that received little notice. (1) The growing number of students starting their careers at community colleges threatens the economic model of most institutions. Typically, 100 and 200 level courses subsidize 300 and 400 level classes. Furthermore, the humanities and some social science majors are attracting fewer majors and the loss of general education courses at the 100 and 200 hundred level places additional financial pressure on these academic programs. In addition, there is another threat that colleges and universities need to follow. An increasing number of postsecondary institutions derive more than half of all their tuition revenue from student loan debt. With growing efforts to reduce student reliance on debt financing, it is quite possible that private and high cost public institutions may find more and more students and families reluctant to take out loans to pay their tuition and fees which of course begs the question– will even more families and college-bound students increasingly start at community colleges?
In future months we will see how these intersecting trends influence the college going behaviors of traditional age students and how postsecondary institutions respond to pressures on their cost structures.

Be sure to put a hold on your calendar for the dates of January 22-24, 2017, for the 10th annual CERPP conference where we will be considering new models for approaching undergraduate and graduate admissions.