July 19, 2007

Dubious Approach to Cost Containment

In a year in which the annual cost of attending one prominent college blew past the $50,000 mark and concern about students’ use of private loans to cover their higher education costs continued to escalate, it is not surprising that controlling college prices remains high on Congress’s agenda.

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Bills moving through both the Senate and the House of Representatives contain provisions aimed at making more information available to the public about how colleges spend their money and how much they charge to students. The measures would also, in one way or another, punish colleges that raise their prices at more than twice the rate of inflation. “With the federal investment in college student aid reaching record levels each and every year, the fact that costs continue to rise should make it clear that money alone is not the solution to the college cost crisis,” Rep. Howard P. (Buck) McKeon (D-Calif.) said in introducing cost-control legislation last winter. “Colleges and universities themselves must be held accountable for their role in increasing tuition and fees year in and year out.”

But a new study suggests that lawmakers’ chosen way of dealing with the issue — trying through public embarrassment and other means to stop colleges from raising their tuitions by excessive rates — will do little to change the behavior of the most expensive institutions.

In a policy paper released by the Wisconsin Center for the Advancement of Postsecondary Education, researchers at the University of Wisconsin at Madison analyzed how public and private, non-religious four year colleges and universities would have been affected by a system that imposed sanctions on institutions that raised their tuition by more than twice the rate of inflation over a three-year period, based on their tuition rates from 2004 to 2006.

It found that public institutions would have been far likelier to run afoul of such a system than private colleges, even though private institutions, on balance, cost more. It found that 278 of the 587 (or 47 percent) of the public colleges studied exceeded the threshold for tuition increases during that period, compared to 145, or 28 percent, of the 526 private colleges in the sample. Nearly 70 of the public colleges and 23 of the private colleges would have avoided penalties because of exemptions contemplated in the federal legislation for institutions with either very low tuitions or very small dollar increases in tuition.

Bottom line, 36 percent of public universities and 23 percent of private colleges would be subject to penalties. (A list of the more than 1,000 colleges examined in the study, and their fate under such a system, can be found here.)

Not only would public institutions be “disproportionately subject to sanctions despite having lower tuition and fees, on average, than private institutions,” the researchers say, but “higher tuition institutions would not be sanctioned more frequently than lower tuition institutions.”

That’s because institutions with already high tuitions can raise their fees by significant dollar amounts without doing so at rates that greatly exceeding the cost of inflation, as seen in the table that follows. (Among the institutions in the table is George Washington University, which, with its 2008 tuition increase to $39,000, pushed its total cost over the $50,000 a year barrier):

“Sanctioning institutions based on the rate of increase doesn’t really get at the question of whether institutions’ tuitions are too high,” said Jocelyn L. Milner, director of the academic planning and analysis office at the University of Wisconsin at Madison, and a co-author, with Clare Huhn, of the study. “If we want to make sure families have information about affordability, and we’re interested in cost containment, then this approach seems like a distraction.”

The Wisconsin study may somewhat overstate the number of institutions that would be subject to penalties under the legislation currently making its way through Congress, because the Wisconsin analysis compares colleges’ tuition rates to the Consumer Price Index, while the House and Senate bills would use a yet-to-be-established “higher education price index” that reflects a more realistic comparison for the sorts of costs colleges face. A comparable review done by the American Association of State Colleges and Universities found that 26 percent of public institutions would face sanctions based on how their tuition increases square with a likely higher education price index, far fewer than the Wisconsin analysis suggests.

But the overall results and “basic shape of the curve” of the Wisconsin study — with lower-priced public institutions far likelier to face penalties than higher-priced private ones — would hold, officials at the state-college association and the Wisconsin center agree.

“As long as you are using percentage change, the risk is that lower cost publics, even with the exemptions, are more likely to be hit by the sanctions than high priced publics or privates,” said Terry W. Hartle, senior vice president for government and public affairs at the American Council on Education. “Both the House and the Senate clearly want more information in the hands of students and parents about college osts, and that’s a reasonable thing for them to do. But the reliance on percentage change by itself doesn’t give you a good indication about the affordability of individual institutions. For that, you really need to give a sense of the actual dollar change, too.”

— Doug Lederman

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