What's Driving Up College Tuition?

Today, the College Board put out its annual report on college tuition trends. You might have thought that, since the economy has been experiencing some deflation, with a year-over-year decrease in the Consumer Price Index of 2.1% from July 2008 to July 2009, tuition and fees should also be decreasing. You'd be wrong. The nominal all-in college price tag, including tuition, fees, room and board, has increased by 4.3% and 5.9% for public and private universities, respectively. Of course, if inflation -- or really deflation for this past year -- is taken into account, those numbers look even worse. With that adjustment, the average price increased by 6.5% and 8.2% for public and private universities, respectively. What's going on here?

Clearly, there's more to the story than the mere price level, and the story differs for public and private universities. I spoke to Sandy Baum, the author of the College Board report. She confirmed my suspicions.

Public Universities

One interesting observation is that public universities saw significantly higher increases price than private. This means that the public universities must be getting less money from state and local governments, so they must make up for that funding by charging students more. This reflects the fact that many state governments have been cutting education funding as a response to fiscal problems. According to the report:

Total state appropriations for public colleges and universities declined from $82.2 billion (in 2008 dollars) in 2007-08 to $78.5 billion in 2008-09.

Private Universities

Clearly, state budget deficits provide no excuse for the increase in price of private college education. But they're suffering a lack of funding as well, but from different sources. You've probably read about how badly many university endowments have been hit as a result of the stock market and real estate declines this year. Here's a chart from the College Board report showing that decline through 2008:

Endowments CB 2009.PNG

While the stock market has been doing better lately, that probably didn't do much for students. The price they have to pay was set last spring/summer when they enrolled. At that time, the stock market hadn't rallied.

Additionally, alumni donations are down. According to a report (opens .pdf) from Giving USA, charitable giving declined by 2% in 2008. In the first half of 2009, it's unlikely that there was much rebound, as the economy hadn't shown many signs of recovery at that time.

Some Good News

But the news isn't all bad. Students are actually paying less than last year. The report also includes an estimate of this net price for 2009-2010, based on subtracting grants and tax credits from the all-in price. Compared to the 2008-2009 figures, I found that net price paid actually decreased by 7.45% and 11.20% for public and private colleges, respectively. This means grants and tax credits have more than compensated for this year's increase in price.