College tuition in the United States is the cost of higher education collected by educational institutions in the United States, and paid by individuals. It does not include the tuition covered through general taxes or from other government funds, or that which is paid from university endowment funds or gifts. Tuition for college has increased as the value, quality, and quantity of education have increased.[citation needed] Many feel that increases in cost have not been accompanied by increases in quality, and that administrative costs are excessive. The value of a college education has become a topic of national debate in the U.S.
Under the Tenth Amendment to the United States Constitution, the powers of the federal government are limited to those mentioned explicitly in the Constitution. As education is not mentioned, educational policy and schools are state matters in the United States. The federal government operates military academies, but there is no national university nor national academic standards. The development of national standards has been driven from outside, especially the accounting industry, as more and more money became involved.
An important predecessor was the Morrill Act of 1862, which provided for land-grant colleges using surplus federal lands recently acquired.
The size and cost of U.S. public higher education increased dramatically after World War II with the introduction of the GI bill and greater federal funding for higher education.[1] Policy makers believed that university-based research had played a critical role in determining the outcome of World War II and would be essential for success in the Cold War. With the launch of the Sputnik satellite by the Soviet Union, many feared that the United States was falling behind on science and technology because it relied on private wealth to fund higher education, in contrast to the Soviet system, which was publicly funded and perceived by some to be more meritocratic and more closely tied to the needs of the economy and the military. In the United States, many families were unable to borrow sufficient funds to finance a high-quality education for their children, and to thereby increase their children's earning capacity and standard of living, until after the introduction of federal student loans. As public subsidies fell and costs and quality of education increased, loans played an increasingly important role in higher education finance.[2]
During the late 1960s, as the nation's economic growth slowed, the question of who should pay for higher education came under fresh political scrutiny. Decades-old no-tuition policies at some campuses fell by the wayside as politicians promoted new austerity policies. In California, Governor Ronald Reagan promoted cuts to higher education as a way to win favor with business interests and conservative voters. He justified tuition as necessary given voters' aversion to any increase in taxes. In New York, federal and state politicians forced austerity on New York city to satisfy bond holders. New York reformers claimed that The City University of New York's longstanding no-tuition policy was no longer financially feasible. In the context of a stagnant economy and a growing conservative movement embracing government austerity, no-tuition policies fell out of favor in many areas of the country during this period.[3]
Overview of tuition rates in the U.S.
The United States has one of the most expensive higher education systems in the world,[4][5] and also one of the most successful in terms of the boost to earnings from higher education. Public colleges have no control over one major revenue source — the state.[6] In 2016–17, the average cost of annual tuition in the United States ranged from $9,700 for public four-year institutions to $33,500 for private four-year institutions.[7] Private colleges increased their tuition by an average of 1.7 percent in 2016–17, the smallest rise in four decades, according to the U.S. Consumer Price Index.[7] The average college tuition has decreased in the 2020-2021 school year in both private and public schools.[8] Due to the high price of college tuitions about 43 percent of students have to reject their first choice of schools.[9]
Study comparing college revenue per student by tuition and state funding in 2008 dollars.
Between 2007–08 and 2017–18, published in-state tuition and fees at public four-year institutions increased at an average rate of 3.2% per year beyond inflation, compared with 4.0% between 1987–88 and 1997–98 and 4.4% between 1997–98 and 2007-08.[11] One cause of increased tuition is the reduction of state and federal appropriations to state colleges, causing the institutions to shift the cost over to students in the form of higher tuition. State support for public colleges and universities has fallen by about 26 percent per full-time student since the early 1990s.[12] In 2011, for the first time, American public universities took in more revenue from tuition than state funding.[10][13] Critics say the shift from state support to tuition represents an effective privatization of public higher education.[13][14] About 80 percent of American college students attend public institutions.[12]
Critics also note that investments in higher education are severely tax disadvantaged compared to other investments. Heavy taxes and inadequate subsidies to higher education contribute to underinvestment in education and a shortage of educated labor, as demonstrated by the very high pre-tax returns to investments in higher education.
The view that higher education is a bubble is controversial. Most economists do not think the returns to college education are falling.[15] On the contrary, they appear to be both increasing and much higher than the returns on other investments such as the stock market, bonds, real estate, or private equity.
One rebuttal to the claims that a bubble analogy is misleading is the observation that the 'bursting' of the bubble are the negative effects on students who incur student debt. For example, the American Association of State Colleges and Universities reports that "Students are deeper in debt today than ever before...The trend of heavy debt burdens threatens to limit access to higher education, particularly for low-income and first-generation students, who tend to carry the heaviest debt burden. Federal student aid policy has steadily put resources into student loan programs rather than need-based grants, a trend that straps future generations with high debt burdens. Even students who receive federal grant aid are finding it more difficult to pay for college."[16]
Student loans
Another proposed cause of increased tuition is U.S. Congress' occasional raising of the 'loan limits' of student loans, in which the increased availability of students to take out deeper loans sends a message to colleges and universities that students can 'afford more,' and then, in response, institutions of higher education raise tuition to match, leaving the student back where he began, but deeper in debt. College fees begin to accumulate when people start college, such as orientation and freshman fees, and additional charges upon your departure, such as senior and commencement fees.[17] In 1987, then-Secretary of Education William Bennett argued that "... increases in financial aid in recent years have enabled colleges and universities blithely to raise their tuitions, confident that Federal loan subsidies would help cushion the increase."[18] This statement came to be known as the "Bennett Hypothesis."
The nonpartisan New York Fed studied the effect of increased loan supply on tuition following large policy changes in federal aid program maximums available to undergraduate students that occurred between 2008 and 2010 found "that institutions that were most exposed to these [loan limit] maximums ahead of the policy changes experienced disproportionate tuition increases around these changes, with effects of changes in institution-specific program maximums of Pell Grant, subsidized."[19]
However, many empirical studies that have tested the effects of student loans on college tuition find no evidence of an increase in tuition, especially net of scholarships and after taking into account increases in the quality of education funded by increases in tuition. Moreover, the widespread availability of private student loans makes it unlikely that public student loan availability limits demand for education. [citation needed]
An additional rebuttal to the student loan theory is the fact that even in years when loan limits have not risen, tuition has still continued to climb, and tuition has increased more at public institutions than at private institutions.[20] Public college tuition has jumped 33 percent nationwide since 2000.[21]
One recent working paper posted online by the Federal Reserve Bank of New York in 2015 (revised in 2016) concluded that undergraduate institutions more exposed to increases in student loan program maximums tend to respond with modest raises in tuition prices.[22] The working paper has not yet been subject to peer review.
Lack of bankruptcy protection
A third, novel theory claims that the recent change in federal law removing all standard consumer protections (truth in lending, bankruptcy proceedings, statutes of limits, the right to refinance, adherence to usury laws, and Fair Debt & Collection practices, etc.) strips students of the ability to declare bankruptcy, and, in response, the lenders and colleges know that students, defenseless to declare bankruptcy, are on the hook for any amount that they borrow, including late fees and interest, which can be capitalized and increase the principal loan amount, thus removing the incentive to provide students with a reasonable loan.[20] However, changes in the availability of bankruptcy discharge for private student loans caused no changes in the pricing or availability of private student loans, suggesting that this theory is implausible.[23]
Additional factors
Other factors[14] that have been implicated in increased tuition include the following:
The practice of 'tuition discounting,' in which a college awards financial aid from its own funds. This assistance to low-income students means that 'paying' students have to 'make up' for the difference: increased tuition.[14] According to Inside Higher Ed, a 2011 report from the National Association of College and University Business Officers explains more about the practice of tuition discounting. The article notes that "while the total amount spent on institutional aid for freshmen rose, the average amount that institutions spent per student actually dropped slightly" and gives, as one possible reason for the drop, that between 2008 and 2011 "colleges and universities had to lower the amount they gave to each student to help cover a larger number of students."[24]
According to Mark Kantrowitz, a recognised expert in the area, "The most significant contributor to tuition increases at public and private colleges is the cost of instruction. It accounts for a quarter of the tuition increase at public colleges and a third of the increase at private colleges."[21]
Kantrowitz' study also found, "Complying with the increasing number of regulations — in particular, with the reporting requirements — adds to college costs," thus contributing to a rise in tuition to pay for these additional costs. Since deregulation, the average cost of tuition and fees at the state's public universities has increased by 90 percent, according to the Texas Higher Education Coordinating Board. Of the 181 members of the state's 83rd Legislature, more than 50 have voted at least once to advance efforts to end tuition deregulation, and fewer than 20 have consistently voted to uphold it. Many have never voted on the issue, and more than 40 members are freshmen. The rise, however, is not entirely negative. Tuition increases help universities make up for that in their budgets.[21]
Recommendations
Commentators have recommended certain policies to varying degrees of controversy:
State and federal governments should increase appropriations, grants, and contracts to colleges and universities.[25][26][27]
Federal, state, and local governments should reduce the regulatory burden on colleges and universities.[14]
Minimize the risk of investment in higher education through loan forgiveness or insurance programs.[28] The federal government should enact partial or total loan forgiveness for student loans.[29][30][31]
Colleges and universities should look for ways to reduce costs without reducing quality.[25]
"Disproportional inflation" refers to inflation in a particular economic sector that is substantially greater than inflation in general costs of living.
The following graph shows the inflation rates of general costs of living (for urban consumers; the CPI-U), medical costs (medical costs component of the consumer price index (CPI)), and college and tuition and fees for private four-year colleges (from College Board data) from 1978 to 2008. All rates are computed relative to 1978.[37]
Cost of living increased roughly 3.25-fold during this time; medical costs inflated roughly 6-fold; but college tuition and fees inflation approached 10-fold. Another way to say this is that whereas medical costs inflated at twice the rate of cost-of-living, college tuition and fees inflated at four times the rate of cost-of-living inflation. Thus, even after controlling for the effects of general inflation, 2008 college tuition and fees posed three times the burden as in 1978.
Economic and social concerns
Economic factors
Most economists believe that the benefits of higher education exceed the costs by a wide margin and that higher education more than pays for itself.[38]
Social factors
Besides economic effects of rapidly-increasing debt burdens placed on students, there are social ramifications to higher student debt. Several studies demonstrate that students from lower income families are more likely to drop out of college to avoid debt. Middle class families are at risk because the increasing cost of college tuition may limit their acquisition of the education that allows them to succeed in their communities.[39][40][41]
Recent reports also indicate an increase in suicides directly attributable to the stress related to distressed and defaulted student loans.[42][43][44][45] The adverse mental health impacts on the student population because of economic-induced stress are becoming a social concern.[46]
Though some universities use a cohort tuition model, many universities raise tuition on current students without proportional increases in financial aid to make up the difference. This forces students to decide between taking out more loans or dropping out.[47]
Student loan debt
A closely related issue is the increase in students borrowing to finance college education and the resulting in student loan debt. In the 1980s, federal student loans became the centerpiece of student aid received.[48] From 2006–2012, federal student loans more than doubled and outstanding student loan debt grew to $807 billion.[48] One of the consequences of increased student borrowing is an increase in the number of defaults.[49] Meanwhile, two-year default rates increased from 5.2 percent in 2006 to 9.1 percent in 2012 and more than doubled the historic low of 4.5 percent set in 2003.[50]
Since data collection began in 1987, the highest two-year default rate recorded was 22.4 percent in 1990.[50] In 2012, the U.S. Department of Education released detailed federal student loan default rates including, for the first time, three-year default rates. For-profit institutions had the highest average three-year default rates at 22.7 percent, and public institutions rates were 11 percent and private non-profit institutions at 7.5 percent. More than 3.6 million borrowers from over 5,900 schools entered repayment during 2008–2009, and approximately 489,000 of them defaulted. For-profit colleges account for 10 percent of enrolled students but 44 percent of student loan defaults.[51]
In 2011, the Project on Student Debt reported that approximately two thirds of students who graduated with bachelor's degrees from four-year nonprofit universities had taken out student loans, with an average debt of $25,250, an overall rise of five percent from 2009.[52] In 2010, student loan debt surpassed credit card debt.[53]
In his 2012 State of the Union Address, U.S. President Barack Obama addressed the rising cost of higher education in the United States. Through an executive order in 2011, Obama laid out a student loan plan, "Pay As You Earn", which allows former students to pay education debts as a percentage of their incomes.[54] Furthermore, the Obama administration has developed an optional standardized letter to be sent to admitted students indicating the cost of attendance at an institution, including all net costs as well as financial aid received.[55] Since 2012, the total amount of student debt has increased.[56] Due to the coronavirus, the Relief and Economic Security Act was passed in March 2020, which ensured that the interest rate for federal student loans was set to 0% and most of the student loan payments were on hold until September 30, 2021.[57]
↑ Campbell, Robert; Barry N. Siegel (1967). "The Demand for Higher Education in the United States". The American Economic Review. American Economic Association. 57 (3): 482–494. JSTOR1812115.
↑ Lazerson, Marvin (1998). "The Disappointments of Success: Higher Education after World War II". The Annals of the American Academy of Political and Social Science. Sage Publications, Inc. 559: 64–67. doi:10.1177/0002716298559001006. JSTOR1049607. S2CID154198910.
↑ Lucca, David O., Taylor Nadauld, and Karen Shen. "Credit Supply and the Rise in College Tuition: Evidence from the Expansion in Federal Student Aid Programs." Newyorkfed.org. Federal Reserve Bank of New York, Mar. 2016. Web. 19 Apr. 2016.
↑ Darolia, Rajeev; Ritter, Dubravka (2015). "Do Student Loan Borrowers Opportunistically Default? Evidence from Bankruptcy Reform". FRB of Philadelphia Working Paper No. 15-17. SSRN2592600.
↑ Kiley, Kevin (2011). "Discounting the Bottom Line". National Association of College and University Business Officers. Inside Higher Ed. Retrieved 28 June 2013.
1 2 Taylor, A. N. (2012). Undo undue hardship: An objective approach to discharging federal student loans in bankruptcy.Journal of Legislation, 38(2), 185-236
↑ Jones, J. (2010). Advocates urge quick action on rules governing for-profits: Institutions account for 10 percent of enrolled U.S. college students but 44 percent of student loan defaults. Diverse Issues in Higher Education, 27(12), 7.
↑ United States Senate. (2010). Emerging Risk?: An Overview of Growth, Spending, Student Debt and Unanswered Questions in For-Profit Higher Education. Washington, DC: U.S. Government Printing Office.
↑ Lewin, Tamar (2011). College Graduates' Debt Burden Grew, Yet Again, in 2010.{{cite book}}: |work= ignored (help)
Tuition payments, usually known as tuition in American English and as tuition fees in Commonwealth English, are fees charged by education institutions for instruction or other services. Besides public spending, private spending via tuition payments are the largest revenue sources for education institutions in some countries. In most developed countries, especially countries in Scandinavia and Continental Europe, there are no or only nominal tuition fees for all forms of education, including university and other higher education.
Debt consolidation is a form of debt refinancing that entails taking out one loan to pay off many others. This commonly refers to a personal finance process of individuals addressing high consumer debt, but occasionally it can also refer to a country's fiscal approach to consolidate corporate debt or government debt. The process can secure a lower overall interest rate to the entire debt load and provide the convenience of servicing only one loan or debt.
A student loan is a type of loan designed to help students pay for post-secondary education and the associated fees, such as tuition, books and supplies, and living expenses. It may differ from other types of loans in the fact that the interest rate may be substantially lower and the repayment schedule may be deferred while the student is still in school. It also differs in many countries in the strict laws regulating renegotiating and bankruptcy. This article highlights the differences of the student loan system in several major countries.
Tuition fees were first introduced across the entire United Kingdom in September 1998 under the Labour government of Tony Blair to fund tuition for undergraduate and postgraduate certificate students at universities; students were required to pay up to £1,000 a year for tuition. However, only those who reach a certain salary threshold (£21,000) pay this fee through general taxation. In practice, higher education (HE) remains free at the point of entry in England for a high minority of students.
Student financial aid in the United States is funding that is available exclusively to students attending a post-secondary educational institution in the United States. This funding is used to assist in covering the many costs incurred in the pursuit of post-secondary education. Financial aid is available from federal and state governments, educational institutions, and private organizations. It can be awarded in the form of grants, loans, work-study, and scholarships. In order to apply for federal financial aid, students must first complete the Free Application for Federal Student Aid (FAFSA).
The Ontario Student Assistance Program (OSAP) (French: Régime d'aide financière aux étudiantes et étudiants de l'Ontario ) is a provincial financial aid program that offers grants and loans to help Ontario students pay for their post-secondary education. OSAP determines the amount of money that a student is eligible to receive by considering factors such as tuition, course load, and the financial resources of the student. More than 380,000 students – more than half of all full-time students –received student financial aid in 2014-15.
A public university or public college is a university or college that is owned by the state or receives significant funding from a government.
In the United States, higher education is an optional stage of formal learning following secondary education. It is also referred as post-secondary education, third-stage, third-level, or tertiary education. It covers stages 5 to 8 on the International ISCED 2011 scale. It is delivered at 3,931 Title IV degree-granting institutions, known as colleges or universities. These may be public or private universities, research universities, liberal arts colleges, community colleges, or for-profit colleges. US higher education is loosely regulated by the government and by several third-party organizations.
The Higher Education Act of 1965 (HEA) was legislation signed into United States law on November 8, 1965, as part of President Lyndon Johnson's Great Society domestic agenda. Johnson chose Texas State University, his alma mater, as the signing site. The law was intended "to strengthen the educational resources of our colleges and universities and to provide financial assistance for students in postsecondary and higher education". It increased federal money given to universities, created scholarships, gave low-interest loans for students, and established a National Teachers Corps. The "financial assistance for students" is covered in Title IV of the HEA.
The William D. Ford Federal Direct Loan Program provides "low-interest loans for students and parents to help pay for the cost of a student's education after high school. The lender is the U.S. Department of Education ... rather than a bank or other financial institution." It is the largest single source of federal financial aid for students and their parents pursuing post-secondary education and for many it is the first financial obligation they incur, leaving them with debt to be paid over a period of time that can be a decade or more as the average student takes 19.4 years. The program is named after William D. Ford, a former member of the U.S. House of Representatives from Michigan.
A private student loan is a financing option for higher education in the United States that can supplement, but should not replace, federal loans, such as Stafford loans, Perkins loans and PLUS loans. Private loans, which are heavily advertised, do not have the forbearance and deferral options available with federal loans. In contrast with federal subsidized loans, interest accrues while the student is in college, even if repayment does not begin until after graduation. While unsubsidized federal loans do have interest charges while the student is studying, private student loan rates are usually higher, sometimes much higher. Fees vary greatly, and legal cases have reported collection charges reaching 50% of amount of the loan. Since 2011, most private student loans are offered with zero fees, effectively rolling the fees into the interest rates.
In discussions of the cost of college in the United States, the cost of attendance (COA) is a statutory term for the estimated full and reasonable cost of completing a full academic year as a full-time student. The cost of attendance is published by each educational institution and includes:
The Student Loan Scheme (SLS), introduced in New Zealand in 1992, provides student loans and allowances for course fees, course-related costs, and living costs to tertiary students who meet StudyLink's funding criteria. StudyLink is the public organisation part of the Ministry for Social Development and is responsible for administering student loans and allowances. Eligibility criteria apply, and courses must be approved.
Student loans and grants in the United Kingdom are primarily provided by the government through the Student Loans Company (SLC), an executive non-departmental public body. The SLC is responsible for Student Finance England and Student Finance Wales, and is a delivery partner of Student Finance NI and the Student Awards Agency for Scotland. Most undergraduate university students resident in the United Kingdom are eligible for student loans, and some students on teacher training courses may also apply for loans. Student loans also became available from the 2016/17 academic year to postgraduate students who study a taught Masters, research or Doctoral course.
In the United States, student loans are a form of financial aid intended to help students access higher education. In 2018, 70 percent of higher education graduates had used loans to cover some or all of their expenses. With notable exceptions, student loans must be repaid, in contrast to other forms of financial aid such as scholarships, which are not repaid, and grants, which rarely have to be repaid. Student loans may be discharged through bankruptcy, but this is difficult. Research shows that access to student loans increases credit-constrained students' degree completion, later-life earnings, and student loan repayment while having no impact on overall debt.
Student debt refers to debt incurred by an individual to pay for education related expenses. This debt is most commonly assumed to pay for tertiary education.
The higher education bubble in the United States is the possibility that excessive investment in higher education could have negative repercussions in the broader economy. Although college tuition payments are rising, the supply of college graduates in many fields of study is exceeding the demand for their skills, which aggravates graduate unemployment and underemployment while increasing the burden of student loan defaults on financial institutions and taxpayers. Moreover, the higher education bubble might be even more serious than load of student debts. Without safeguards in place for funding and loans, the government risks creating a moral hazard in which schools charge students expensive tuition fees without offering them marketable skills in return. The claim has generally been used to justify cuts to public higher education spending, tax cuts, or a shift of government spending towards law enforcement and national security. There is a further concern that having an excess supply of college graduates exacerbates political instability, historically linked to having a bulge in the number of young degree holders.
For-profit higher education in the United States refers to the commercialization and privatization of American higher education institutions. For-profit colleges have been the most recognizable for-profit institutions, and more recently with online program managers, but commercialization has been a part of US higher education for centuries. Privatization of public institutions has been increasing since at least the 1980s.
Financial issues facing students in the United States include the rising cost of tuition, as well as ancillaries, such as room and board, textbook and coursework costs, personal expenses, and transportation.
College Promise is a national non-partisan campaign that supports funding the first two years of higher education, starting with community colleges in the United States. While state-level campaigns often lack funding, College Promise highlights growing concerns about unaffordable college costs and student loan debt in the United States. College Promise is an initiative of Civic Nation, a 501(c)(3) non-profit organization founded in 2015.
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