Cost Of A College Education

The private and public benefits of higher education are indisputable and widely recognized.  Most people understand that a college degree is essential to obtaining a good job in today’s economy.  They also recognize that higher education is major contributor to economic development and an overall benefit to society.  However, parents and students have justifiable concerns about the rising cost of a college education and many fear that it will soon be priced beyond their reach.

Benefits Of A College Education:

A college degree has been the key to personal betterment in America for at least the past 60 years.  The median annual income for workers with a bachelor’s degree is almost $20,000 higher than for high school graduates.  Over a lifetime, college graduates with a bachelor’s degree will earn 60% more than those who have only a high school diploma.  Moreover, this relationship holds true with any amount of increasing education (e.g. master degree holders earn more than bachelor’s degree holders).  More highly educated workers directly benefit the wider society by supporting government services by paying more taxes, they are less likely to need public assistance such as food stamps and unemployment benefits, and they are more likely to participate in elections and engage in volunteer activities.

Tuition Costs in Missouri:

In Missouri, we have a great variety of public and private colleges and universities at both the two-year and four-year level.  These institutions provide widely different college experiences and consequently charge different amounts of tuition and fees.  Public schools received part of their funding from the state and are able to charge lower tuition to students.  Private institutions are more expensive but generally have greater flexibility in offering student financial aid.

It is vitally important for students to select a college that provides a good “fit” with their educational expectations and financial circumstances.  For many students, a lower cost experience at a public community college is the best option.  For others, a traditional residential experience at a four-year university is a better choice.  In all cases, there is a great variety of financial assistance available to help meet the cost of tuition and housing (often referred to as “total cost of attendance”).  The federal government is the most important source of student aid operating both the need-based Pell grant program and the Stafford low-interest loan program.  The second most important source of assistance are the institutions themselves.  All colleges, both pubic and private, provide a variety of institutional aid based on both merit and financial need.  Much of this aid is implemented through tuition discounts.  This is especially true at private institutions where there are wide discrepancies between tuition actually charged to students in the same classroom.  The state of Missouri also offers scholarships to Missouri residents attending Missouri institutions (both public and private) based on need and merit.  The two largest programs are the “Bright Flight” merit scholarship ($16 million) and the Access Missouri need-based scholarship ($96 million).  However, despite these sources of assistance, college costs remain a major obstacle to earning a degree and a growing source of anxiety for Missouri students and families.

Keeping College Affordable:

College costs rise faster than the general rate of inflation (CPI) because so much of their expenses are devoted to personnel costs.  In general, about 70% of university budgets go to salaries and benefits.  While universities can exert some control over wages, they employ a uniquely qualified workforce that commands high salaries.  They have even less control over employee benefit costs like health insurance and retirement contributions for their large workforces.  Technology and building maintenance costs are also typically higher than one would find in other sorts of businesses.

Public colleges and universities get their funding from two primary sources --- student tuition and state appropriations (community colleges also raise funds from local property tax levies).  As recently as about 15 years ago, state appropriations accounted for about 60% of university funding.  This support has eroded until today state appropriations account for an average of about 45% of university funding.  Universities have generally made up for the lack of state funding by cutting costs and increasing tuition.  We have arrived at today’s tuition rates, in large part through a defacto state policy of shifting the cost of higher education from the taxpayer to the student.  The declining role of state funding is perhaps best illustrated by the fact that in fiscal year 2009, state funding for public universities was actually lower (without adjustment for inflation) than it was eight years ago in FY 2001.  Today, Missouri ranks 47th in the nation in per capita funding for public higher education.

Increased student assistance cannot be realistically expected to make up for 10’s (or even 100’s) of millions of dollars that the state has failed to provide.  Also, universities cannot close the funding gap through continued cost-cutting or they will eventually be so diminished that they cannot offer students the quality of education they want and need to succeed.  In 2007, the Missouri general assembly addressed the problem of raising tuition costs by passing a law that limits tuition increases at public universities to no more that the consumer price index (CPI).  The law includes a provision for requesting waivers in extraordinary circumstances.

This makes public universities even more dependent on state funding to accommodate increased enrollment and to maintain quality.

FY 2010 State Budget and Tuition Costs:

The state expects to have only minimal general revenue growth in FY 2010.  Therefore, the Governor has recommended and the House has agreed that public universities will not receive any increase in state funding next fiscal year.  The universities understand that Missouri is facing tough economic times and that now it is more important than ever for students to improve their skills and earn their degrees.  Therefore, the public universities have jointly pledged not to increase tuition in FY 2010 if the state can maintain funding at the current level.  It is likely that the Senate will concur with the proposed level funding.  

However, without stable funding from the state, public universities will soon forced to take counterproductive measures such as limiting enrollment and degree options.