Understanding the Cost of Higher Ed

By Carey C. Manzolillo, MBA

Understanding the Cost of Higher EdIn the summer of 2018, a lending report based on data from about half of the colleges in America indicated a startling fact: Pennsylvania scholars carried the highest debt load in the country, at more than $36,000 per student.

The report sparked much debate.

The York Daily Record delved into Penn State campuses, saying that at $37,300 the average debt at the college’s main campus was higher than the public and private state average of $36,193. Harrisburg Patriot News looked more closely at the figure for all students, pointing out that it was an increase of 2.9 percent from the previous year.

But according to the College Board, the average sticker price of private college tuition fees, room and board was $48,510, more than double that of the $21,370 average for public universities. So why was the debt load greater for graduates of public institutions?

State pundits wondered aloud how Pennsylvania private college graduates could have borrowed an average of about $2,000 less than their public university counterparts. Data showing that a larger percentage of private college students were finishing their degrees in four years was likely a piece of the puzzle. But what about institutional aid versus state funding? Did that play a role?

Perhaps most importantly, just how much has the cost of higher education gone up over time? And are college degrees still worth the cost and effort?

Sticker Shock

To be clear, advertised higher education prices are absolutely rising — as much as 37 percent at public four-year institutions and 26 percent at private nonprofit four-year colleges over the last decade. The College Board’s long-range study showed that tuition fees, room and board — for private, nonprofit four-year colleges rose an average of 2.6 percent each year over the last 40 years. Public college tuition changes have been a bit higher at 3.5 percent over the last 40 years.

But the net amount that families actually pay for college can often be quite different from the publicly advertised “sticker” price. Institutional aid, grants and discounts significantly offset costs. According to a 2018 Association of Independent Colleges and Universities (AICUP) study, private college students who receive financial aid pay an average of 63 percent less than published tuition rates.

Most college students make use of institutional, state and Federal aid. But in response to stagnant family incomes and a push to increase access to low and middle-income students, a number of private colleges have bolstered in-house aid to hold down the net cost of tuition and fees. In fact, private colleges provide an average of 74 percent of their students’ grant dollars.


While advertised tuition continues
to rise, actual cost has gone down.

So while advertised tuition continues to rise, the actual price that students pay for tuition and fees at private, nonprofit four-year colleges has gone down nearly five percent over the last decade.

“Between 2007-08 and 2010-11, tuition prices rose rapidly, particularly at public colleges and universities,” said Sandy Baum, coauthor of the College Board’s 2018 Trends in Higher Education Report. “Federal expenditures on student aid increased dramatically, helping a growing student population to finance their education. At the same time, students borrowed more and more. Since 2010-11, all of these trends have reversed.”

graph showing cost of college

How the debt load is divided

Part of the reason that public university graduates are struggling with increased debt dates back to the country’s Great Recession, during which sharply falling state revenue forced a shifting of debt from the state to schools, and from parents to students.

Though 10 years have passed, state funding has not rebounded. Adjusted for inflation, Pennsylvania’s funding for public higher education in 2017 remained 34.2 percent lower than what it was in 2008. On average, the state spent $2,533 more per student in 2008 than it did in 2017. Though it cut significantly more higher education funding than most states in the country, Pennsylvania is far from alone. By 2017, only five states increased funding above 2008 levels; some are still cutting.

Students in private, nonprofit colleges were similarly impacted by a nearly 33 percent reduction of the Pennsylvania Higher Education Assistance Agency (PHEAA) State Grant program dollars between 2008 and 2017. This impacts both the amount of money each eligible student can access and how many students are eligible. Last year, PHEAA grants were awarded to 2,330 fewer students than the year before.

graphs showing amounts of aid

Certainly, this doesn’t mean that student need is dropping. In fact, it’s quite the opposite and is perhaps best illustrated by the number of undergraduates eligible for Federal Pell Grants, which has risen from 6.85 million students in 2006 to 10.55 million students in 2016. Though students with an annual family income of less than $50,000 are eligible for Pell Grants, most of the awards go to those with family incomes falling below $20,000. For 2016, that meant that 32 percent of Pell eligible students did not receive the Federal education funding.

But instead of discouraging students from attending college, drastic funding cuts seemed to merely shift the financial burden to new students and institutions. In fact, through institutional aid, private colleges now fund more than twice the amount that average students pay.

According to the AICUP, the average institutional aid for full-time undergraduate students in Pennsylvania’s private colleges is over $21,000 per student per year or $84,000 over four years (233% of the average $36,089 student debt). The median monthly student loan payment for state graduates is $203. So is the investment worthwhile?

College grads earn more;
are more successful

A study from Georgetown University found that on average, college graduates earn one million dollars more over their lifetime than those who don’t earn a degree. According to the Pew Research Center, the median income gap between high school and college graduates’ earnings is roughly $17,500 each year. So after graduates use some of that money to pay off college loans, they are more able to afford homes and travel, and more likely to give to their communities or create funds to benefit their children.

And while graduating from college sets people up for success, the success of graduates of liberal arts colleges statistically far exceeds the success of graduates from other four-year bachelor degree-granting institutions.

The overarching goal of liberal arts institutions is to help graduates learn how to learn and be prepared to embrace changes in careers and lives. A commonly misunderstood term, “liberal arts” has nothing to do with political views. Liberal, in this context, refers to “more” or “broad” — as in an education that encompasses a wide variety of skills and knowledge. And clearly, the approach continues to be relevant and valuable as workforce changes become ever more dynamic, by the day. Projections show that students currently in high school and college will have an incredible 17 jobs in five different industries throughout their lives. And according to the Bureau of Labor Statistics, 65 percent of future jobs have not even been created yet. A study completed last year showed that number to be even higher — saying that 80 percent of jobs that will exist in 2025 have also not yet been created.

“So in order to help the next generation prepare for those jobs, likely with technology that hasn’t been invented yet, we have to teach our students to learn how to learn,” says Albright President Jacquelyn S. Fetrow, Ph.D. ’82. “We have to shine a light on their curiosity so that they are prepared and welcome a world that is constantly changing, and perhaps lead that evolution.”

graph

A sustainable Albright future

So is it working? Yes. Though most Albright students (60 percent) begin among the lowest family income percentile, they fare among the highest earners of selective private colleges after graduation. Eighteen percent of Albright students move up at least two or more socioeconomic quintiles — among the highest movement compared to Pennsylvania schools and selective private colleges across the nation.

But that doesn’t mean the college is standing still.

In line with traditional higher education practices, Albright has historically raised tuition annually (by an average of 4 percent each of the last 10 years). It’s a practice that campus officials say does not align with the college’s commitment to educating students of academic promise for success in lives and careers. With this commitment driving its actions, Albright will break from its traditional financial model beginning with the 2019-20 academic year, and will right-size its tuition by reducing it 45 percent, from $44,206 to $24,500.

Price tags graphic

In addition, Albright has traditionally offered significant financial aid to first-year students, but less need-based institutional aid to cover year-to-year tuition increases for sophomore, junior and senior students. Therefore, new fundraising initiatives will focus on endowed scholarships for rising sophomore, junior and senior students.

“In an era in which family incomes have stagnated and higher education costs have outpaced incomes, Albright is taking important steps to close the gap and make education affordable,” said Fetrow. “It is simply the right thing to do.”