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“The Great Cost Shift”: How Higher Ed Cuts Undermine Us All

The completion of postsecondary education has become a minimum requirement for young adults seeking a place in America’s middle class. By the late 2000s, the typical person with an associate’s degree earned 51% more each year than someone with a high-school diploma, while the average holder of a bachelor’s degree earned almost twice as much as a high school graduate. Besides earning more, college graduates are more apt to participate in the labor force, work on a full-time basis and hold jobs that offer important benefits like health insurance.
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Higher education enriches not just individuals, but society as a whole. Businesses and the larger economy prosper from access to skilled workers, just as communities reap dividends from the high levels of volunteerism, voting and civic engagement common among graduates. This combination of personal and social benefits is the rationale behind public support for higher education and efforts to boost the share of Americans completing education beyond high school. In the near future, the imperative to invest in higher education will grow more pronounced, given that occupational forecasts suggest that 63% of the jobs that the United States will net by 2018 will require workers with some kind of postsecondary education credential.


MIDDLE CLASS

Americans of all ages have recognized the importance of higher education as a pathway to the middle class, and more people are attending college than in the past. In fall 2010, an estimated 40.5% of young adults between the ages of 18 and 24 – some 12.4 million individuals in total – enrolled in a two-year college or four-year university; 20 years earlier, the enrollment rate was 29.4%. Furthermore, the number of adults older than age 24 enrolled in a college or university rose over the same period, climbing to 7.9 million from 5.8 million. In 2010, approximately 40% of all college students were older than age 24, with the bulk of these students attending school on a part-time basis.

Responsibility for educating the swelling ranks of college students has fallen overwhelmingly to America’s 1,000 public two-year colleges and 672 public four-year universities. In fall 2009, public institutions enrolled 76.2% of the nation’s undergraduate students. Contrary to popular perception, most public college students do not attend research-intensive flagship campuses but two-year colleges and four-year non-doctoral universities. In fact, nearly half of all public college students in 2009 attended two-year colleges, and another quarter studied at non-doctoral universities.


STATE SPENDING

At the same time that growing numbers of Americans are pursuing higher education in the hope of bettering their lives, state governments – the units of government that traditionally have assumed major responsibility for funding public higher education – are investing less in the institutions educating the bulk of America’s college students. Despite appropriating $75.6 billion for higher education in 2010-2011, states actually devoted less of their wealth to higher education and invested less on various other measures than they did 20 years ago.

It would be comforting to attribute such trends to cyclical economic factors. After all, the United States experienced two recessions during the 2000s, one of which continues to affect state budgets today. Three years after the onset of the Great Recession, total state appropriations for higher education were 5%, or $4 billion, lower. While temporary federal aid offset much of the decline, total state spending nevertheless fell by 1.5%, even though undergraduate enrollments swelled by 10.3%. Funding per public full-time equivalent (FTE) student is consequently lower now than at any point since 1990-1991.

A review of financial and enrollment data from 1990 onwards suggests that structural change in state support for higher education is underway. While state spending on higher education increased by $10.5 billion in absolute terms from 1990 to 2010, in relative terms state funding of higher education declined. Real funding per public FTE dropped by 26.1% from 1990-1991 to 2009-2010. After controlling for inflation, states collectively invested $6.12 per $1,000 in personal income in 2010-2011, down from $8.75 in 1990-1991 – despite the fact that personal income increased by 66.2% over that period.

Over the past 20 years there has been a breakdown in the historical funding pattern of recessionary cuts and expansionary rebounds. The length of time for higher education funding to recover following recessions has lengthened for every downturn since 1979, with early evidence suggesting that the recovery from the Great Recession will be no different.

By investing less, states are effectively shifting costs to students and their families in the form of escalating charges for tuition. This is a change that is transforming the very nature of public higher education. Since 1990, published prices for tuition at public four-year universities have risen by 112.5%. After adjusting for inflation, the real value of tuition and fees at two-year institutions has climbed 71%. Higher prices are particularly troubling in light of the national stagnation of household incomes. In 2010, the median inflation-adjusted annual income among US households was only 2.1% higher than in 1990.


DEBT

A radical reorientation of the financial aid environment has exacerbated the cost pressures. At the federal level, financial aid has shifted from grant-based aid toward loans. In addition, many states have shifted their aid programs from need-based assistance, which tends to benefit low-income students, to merit-based aid, which favors wealthier students. Though merit-based aid remains rare at public two-year colleges, the proportion of students with merit aid at four-year institutions now exceeds the share with need-based assistance. Rising costs, coupled with declining aid and flat incomes, have led many students, particularly low- and moderate-income ones, to borrow at alarmingly high levels. By the middle of 2011, Americans collectively owed more in outstanding student loan debt than credit card debt. To avoid or minimize indebtedness, many students elect to work long hours and enroll on a part-time basis – seemingly logical actions that actually heighten their odds of never completing a program of study.

In short, states have disinvested in public higher education over the past two decades and, in the process, have shifted costs to students and their families. At the same time that postsecondary education has become a critical pathway into the middle class, increasing numbers of students are struggling to finance and complete the postsecondary educations needed to secure middle-class lives.

State disinvestment has occurred alongside rapidly rising enrollments and demographic shifts that are yielding a more economically, racially and ethnically diverse college-age population that has greater financial need. In 2009, for example, 36 of every 100 undergraduate students were members of a racial or ethnic minority group, up from 21 of every 100 in 1990. Higher costs to students and their families are especially alarming in light of stagnant household incomes and the shift in state financial aid away from need-based programs.


COMMITMENT

These patterns threaten not just the future well-being of individual students, but also our longstanding commitment to equal access to higher education regardless of one’s socioeconomic background, for as the costs of higher education increasingly shift to the individual, low-income students are becoming priced out of an education. It also threatens the future economic health of states, as low rates of college completion deprive states of the educated workforces needed to thrive in the 21st century. In short, state disinvestment in public higher education has exacted a high toll from individual students, their families and society at large, particularly during the 2000s, the period when the sizable Millennial generation began to reach college age.

To reverse these dangerous trends, policymakers and administrators must alter course and renew their support for public higher education

This article is adapted from “The Great Cost Shift: How Higher Education Cuts Undermine the Future Middle Class,” a report from Demos, a public policy research and advocacy organization based in New York City. The full report, and sources for the information above, are available
here.

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