Why Public University Tuition Keeps Rising Even as State Funding Increases
Public universities were built on the promise of affordability and accessibility for students. In the past, governments focused on subsidizing higher education in order to keep tuition low and to increase opportunities for students. Today however, this reality has changed. Instead of keeping tuition affordable for students attending public universities, tuition has risen even though state funding continues to rise. The old expectation of state funding easing the financial burden of students is no longer the case.
In the past, American public universities were established with a clear cut vision that higher education must be affordable and accessible. State governments contributed to the success of public universities by subsidizing tuition expenses and ensuring that college education was available to everyone regardless of their socio-economic backgrounds. But this paradigm has significantly shifted in recent times. Although the total expenditure allocated by state governments for higher education increased in the recent past, tuition rates continued to climb, raising serious concerns among students about why the price of higher education is increasing.
When did this rift between state funding and tuition begin? The reason behind all this is not one particular reason, but rather a combination of different aspects in higher education financing. It cannot be said that tuition rates are linked directly to changes in state funding anymore. Other factors like inconsistent state funding trends, rising operational expenses, and pricing strategy of colleges are responsible for the constant increase in tuition rates. It is imperative to study these trends to understand the reasons behind the rising cost of tuition and ways to mitigate the problem.
Irregular Funding
A common belief about the reasoning behind public university tuition increasing is the “disinvestment hypothesis” which states that states have intentionally reduced funding for public universities, and in order to compensate, schools then have to raise tuition fees. While this hypothesis holds some truth, it is only a small piece of the narrative.
The research by the Bipartisan Policy Center (2024) shows that the connection between funding and tuition is quite poor and unreliable. Sometimes increased funding does not result in reduced tuition costs; sometimes, on the contrary, tuition costs are increasing in spite of increased funding. So, it can be assumed that funding these days only slightly impacts tuition costs.
In the long term, the American Academy of Arts & Sciences notes that despite any increases in state budgets, there has been a reduction in per student funding. What this implies is that even as states increase their budgetary allocations, they are allocating the funds to an increasing number of students, thereby having minimal effect on tuition levels.
Economists David Deming and David Figlio, argue against the claim that tuition hikes occur as a consequence of state disinvestment by demonstrating that university tuition increases occur independently of reductions in funding from the state governments. Simply put, even if there was state funding, universities would not necessarily lower tuition.
Inconsistency of state funding creates financial uncertainty for universities. State funding is dependent on economic cycles and political shifts, meaning that using it as a dependent revenue source is unreliable. To combat this uncertainty, most colleges shift to keeping tuition high as a means to create a predictable form of revenue for the institution. This dependence makes it less likely that any increase in funds will lead to permanent decreases in tuition costs.
Ultimately, the problem is not just how many resources the state provides to the university, but how stable those resources are. Without stability, universities will be forced to rely on their safety net tuition fees.
Institutional Costs are Skyrocketing
While many believe tuition hikes are directly related to instructional expenses, the bulk of the spending increase has been in areas other than instruction.
As the Urban Institute explains, higher education internal fees have grown massively in the past few decades, the majority of the fees coming from areas which are non-instructional. Some costs include; staff administration, services for students, technology needs, campus buildings, and regulatory requirements imposed by government agencies.
As another cause of increasing fees, the State Science & Technology Institute (2024) highlights the increase in operational expenses. Today, universities need money for building new facilities, equipping them with computers, installing security systems, providing psychological counseling services, and other aspects. All of these things cost money, although sometimes it is important to invest to remain competitive and satisfy the needs of students.
The relationship between state support for higher education institutions and increased tuition fees can be explored in relation to a major public institution like the University of Michigan or the University of California system. Both the institutions mentioned above spend a significant amount on research, physical plant, and student life to ensure that they get the best of everything, including students and faculty.
Of course, such spending improves the quality of the institution but, at the same time, makes it expensive. The costs associated with providing the high quality services and maintaining the quality have to be covered somehow. In fact, universities are known to cover costs related to these issues in their tuition fees.
However, even if the state provides extra funding, it will be unable to cover all the costs associated with them, forcing universities to increase tuition. One of the reasons that can be ignored regarding increasing tuition fees is that universities do not consider tuition fees as an exact measure of their cost. Universities set tuition fees in such a way that the model used includes generating income, distributing financial assistance, and marketing.
According to (Cook & Turner, 2022), universities have been found to employ a progressive pricing scheme, which suggests that universities charge high fees but also provide financial assistance to some individuals to offset the cost. This ensures maximum income from wealthier students and keeps low income students enrolled in the university.
Similarly, according to (Ward, 2020), there is a strong relation between tuition fees, state funding, and financial aid, which are interconnected and strategically oriented. The reduction in tuition fees in case there was an increase in the level of state funding does not apply since tuition fees are used to fulfill several roles aside from being just a way to recover costs.
For instance, tuition can be increased despite state funding because the increase in tuition reflects on the prestige of the university. At the same time, increasing financial aid will make sure that students who cannot afford to pay their tuition fees will still have access to university education. Therefore, the "sticker price" of tuition may go up despite keeping the net tuition cost steady.
The model provides an insight into how students feel about the rising tuition fees despite increasing financial aid. As it is seen, tuition fees tend to become visible due to the high "sticker prices," which lead to perceived increases in tuition.
Also, there is the competition aspect. The fact that the universities compete among each other for students and high rankings is another factor that plays its role in shaping the tuition fees.
Conclusion
The further increase in tuition fees at the public universities despite increased state appropriations is linked to a complex and persistent issue. As illustrated in this analysis, the issue is based on the following aspects: inconsistent state funding, increasing costs and strategic price-setting. These factors are consistent across various sources and therefore provide an indication that the issue is reliable.
This indicates to readers that the increasing cost of education at the colleges and universities is not caused by some policy failure or decision-making failure but is instead the product of a bigger picture in which finances, stability and competitiveness matter. Understanding the complexity of the issue is vital in gaining confidence in the analysis conducted.
To address the issue, it is critical to coordinate efforts between the university authorities and state governments. States should consider adopting a consistent approach towards state appropriations by focusing on providing stable appropriations on a per-student level.
Furthermore, there should be greater transparency in tuition-setting and funding. The clearer the message regarding the connection between cost, aid, and pricing strategy is, the more likely the students and their families will be able to get an accurate estimate of how much attending college will actually cost them.
Lastly, there needs to be discussion on the place of colleges and universities in society. In order for public institutions to maintain accessibility and affordability, they will need to find a proper balance.
It seems that without changes, the discrepancy between the ideal of public education and the reality that students face will keep widening. This problem requires attention not just because of the interests of individuals, but also from the standpoint of economic development in the long run.
References:
Bipartisan Policy Center. “Public Higher Education Funding and Tuition Trends.” 2024.
Cook, Philip J., and Turner, Sarah E. “The Rising Price of College and the Role of Financial Aid.” National Bureau of Economic Research, 2022.
Deming, David, and Figlio, David. “Accountability in US Education: Applying Lessons from K–12 Experience to Higher Education.” Journal of Economic Perspectives.
State Science & Technology Institute. “Why Is the Cost of College Rising So Fast?” 2024. Urban Institute. “Higher Education Expenditures and Trends.”
American Academy of Arts & Sciences. “Public Research Universities: Changes in State Funding.”
Ward, Jason. “The Interplay Between Tuition, Financial Aid, and State Funding.” 2020.
