State-Imposed Tuition Freezes Come With Unintended Costs for Students

State lawmakers have instituted tuition caps or freezes over the years in the hopes of lowering college costs for students, a strategy that tends to enjoy bipartisan support. But these policies lose colleges money and can unintentionally raise price tags for low-income students, given that they often result in a decrease in institutional aid or higher tuition costs down the line, according to a new report released Tuesday by the Postsecondary Education and Economics Research Center.

“We can’t say for sure that in every situation it’s a bad thing to do a tuition freeze or cap, but just that, on average, we do see these kind of negative effects,” said co-author Lois Miller, assistant professor of economics at the University of South Carolina. Most policymakers interested in tuition restrictions “are trying to improve college affordability, and so making sure that you’re aware of these potential negative consequences can help towards those bigger goals.”

The report looked at state-mandated tuition regulations between 1990 and 2019 and their ripple effects on students and higher ed institutions, using institution-level data from the Integrated Postsecondary Education Data System. It found that 22 states enacted at least one tuition cap or freeze over that period.

But the results were a mixed bag.

On the positive side, the report found that these policy shifts do bring tuition rates down. It showed that state-mandated tuition caps and freezes reduced the growth in average sticker price at four-year colleges by 6.3 percentage points per year during a cap or freeze, and by 7.3 percentage points two years after the policies ended.

But the report also found that four-year colleges make up for the lost revenue by cutting back on institutional financial aid to students. During state-mandated tuition caps or freezes, institutional aid growth at four-year institutions fell an average of 11.3 percentage points per year. Two years after the policies lifted, financial aid growth dropped 19.5 percentage points below where it would have been had there been no tuition cap or freeze.

Some institutions reduced aid more than others. During tuition regulations, four-year colleges that offer graduate programs or rely more heavily on tuition dollars tended to cut more institutional aid and hiked up tuition more rapidly after the regulations lifted. The report noted that institutional aid is “rarely regulated,” making it an easy target for four-year colleges looking to make up for lost revenue.

As a result, low-income students—who are more likely to rely on institutional aid—can suffer from such policies, while wealthier students, who don’t need the institutional aid, enjoy lower tuition rates with few drawbacks, the report argues. More than a third of Pell Grant recipients and 27 percent of students from the lowest income quartile get institutional aid, compared to 16 percent of students from the top income quartile and 18 percent of non-Pell-eligible students.

Varied Impacts

The report notes that students at two-year colleges can also be negatively affected by state-mandated tuition regulations in the long run.

While community colleges don’t generally dole out much institutional aid, they’ve been found to sharply increase their tuition rates after caps and freezes end to make up for lost time. The report found that, during these policies, two-year colleges reduced the growth of their sticker prices by 9.3 percentage points on average. But three years after caps and freezes, sticker price growth was only 4.8 percentage points lower, showing tuition rates jumped back up significantly in a short period of time.

A range of other factors can also influence how students experience state-mandated tuition caps and freezes, including how tuition-reliant their colleges are and when students start college relative to when tuition regulations began.

For example, the report noted that students who enroll at high-research-activity universities in the first year of a tuition cap or freeze end up with a 3.6 percent tuition discount on average. By contrast, students who enroll at an undergraduate-only college right after a tuition regulation lifts would pay 3.8 percent more tuition on average than they would have if there had been no policy shift; those students don’t get the benefit of lower tuition rates but are still affected by resulting cuts to institutional aid.

Miller said that if lawmakers still want to institute tuition cuts and freezes, it’s possible to modify them to cushion their unintended consequences. For instance, state lawmakers could add regulations preventing colleges from reducing student aid or bolster financial supports for low-income students in the state.

Regardless, the report stresses that “these are important impacts for policymakers to understand” before introducing such policies.

“While tuition freezes and caps do have the potential to lower sticker price tuition, policymakers need to consider—and perhaps regulate—net tuition to ensure that those regulations are not ineffective at best and harmful to needy students at worst,” the report reads. “Specifically, policymakers should ensure institutions do not simply seek to make up for lost tuition revenue at the expense of students, including through later tuition growth or by redistributing or reducing institutional aid dollars.”