Bottom line on college tuition

The recent College Board announcement about double-digit tuition increases at public universities and higher sticker prices at independent colleges may leave many families wondering whether any college is within their financial reach. The more encouraging news in the report about “net price” may just leave families confused.

What’s the real story?

I learned a great deal several years ago when I served as chairman of the Congressional Commission on the Cost of Higher Education. One of the most important lessons: Higher education is fundamentally different from the world of commerce.

For almost every other sector of the American economy, price equals cost plus (it’s hoped) profit. For colleges and universities, price equals cost minus subsidy.

“Price” represents the tuition and fees institutions charge. “Cost” is what colleges and universities spend to provide education. “Subsidy” is the difference between the cost to the institution and the tuition and fees charged to students.

All college students, whether they attend a public or private institution, receive this subsidy and pay a price that is often significantly less than cost. This general subsidy does not include the additional subsidy many students receive through scholarships and other forms of financial aid.

For most American families, the most meaningful distinction is not cost vs. price but net price — what students pay after financial aid is subtracted from the total price of attendance. With almost 3 in 4 undergraduates receiving some type of financial aid, getting a clear picture about net price and net price increases is the crux of determining college affordability.

The tuition bill for most private college students, after grants are taken into account, represents about 60 percent of average published tuition. Since most aid is need-based, the net price of college is lower for families with lower incomes.

For example, families with annual incomes of $70,000 or more paid a net price of $3,728 at public universities in 1999-2000. Those with adjusted gross incomes of less than $15,000 paid $2,632. The net price for low-income students at both public and private institutions increased less than $200, adjusted for inflation, through 1993 through 2000.

Financial aid at all colleges and universities has been increasing faster than tuition. The average net price at private colleges, adjusted for inflation, has declined over the last decade.

There is room for improvement. College and university presidents are making college affordability a priority. There are hundreds of examples of creative strategies for cutting costs and redesigning programs to keep price increases to a minimum.

At Rhodes College in Memphis, Tenn., for example, we are working to redesign dramatically the experience of student workers. This new program will help contain rising personnel costs while providing students with more meaningful work experiences.

As Congress begins considering the reauthorization of the Higher Education Act — the funding bill for all federal financial aid programs — it is imperative that federal policymakers and college and university leaders work more closely than ever to keep higher education affordable.

Colleges must continue to work creatively to contain costs. Congress and higher education leaders must work together to ensure that students and families have the information they need, and that federal financial aid is available to those who need it through a simple, straightforward and efficient process.

Story Continues →