How to Defuse the Financial-Aid Time Bomb ...

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The National Commission on the Cost of Higher Education recently presented to Congress a report listing a number of reasons why the cost of a college education has risen dramatically over the last 20 years.

What the report didn't address is the so-called "financial-aid time bomb" - the huge, unsustainable financial-aid investments private colleges have made, and continue to make, in an attempt to keep higher education accessible.

The numbers at Smith College in Northampton, Mass., are typical. In inflation-adjusted dollars, tuition, room, and board at Smith have risen 91 percent since 1977. At the same time, we've increased our financial-aid budget more than fourfold - some 321 percent. Without public understanding of what this trend means, the commission's report will do little to relieve finger-pointing among students and parents and the aid programs in which they've placed their hopes.

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To understand how we got to this point, we need to recall the 1970s, a period of double-digit inflation, year-to-year tuition increases, and generous federal funding to students. Costs rose, but so did inflation and salaries, so college remained affordable. This balance eroded in the 1980s, as changing demographics lowered the number of high school graduates by as much as 20 percent. Suddenly, colleges had too many beds and not enough bodies.

Meanwhile, the conservative ethos of the Reagan years portrayed higher education as an inappropriate area for public subsidy. A crescendo of inflammatory stories about higher education fueled this fire. When the economy slowed, and some salaries began lagging behind inflation, bad publicity had eroded public trust. The cost burden once borne by the government had shifted to families.

Since families could not, or would not, pay more, private colleges poured money into financial aid, just as they were trying to provide greater access to low-income students and to address maintenance issues on their campuses. There was no choice but to raise tuitions - with disastrous, cyclical results.

Raising tuition increases the need for financial aid; more financial aid requires greater revenue; the need for greater revenue requires higher tuition. Slowing costs and low inflation have moderated tuition increases in recent years, but the relationships and trends remain the same.

The higher education commission made clear its lack of support for "price controls." Nevertheless, the possibility (or threat) of price controls was mentioned five times in the report. As anyone who lived through the 1970s-era price controls on oil can attest, government-imposed price controls are bad public policy. They're particularly ill-suited to US higher education, whose chief strength has always been the diversity of its institutions and its accessibility to students. Price controls often lead to rationing, and the last thing Americans want is to stand in line for education.

Far better than price controls is conscious discipline on the part of colleges and universities, coupled with increased support from other players. The first part of this bargain is already under way on many campuses - or should be. Smith, for example, has managed to cut costs significantly in areas such as utilities, employee benefits, and physical plant operations as a result of a thoughtful, campuswide budgeting effort.

Government should not play the major role in paying for higher education; that role belongs to students, families, and colleges. But the commission is right in asserting that "government needs to invest in higher education as a public good." And government officials can do so knowing their money is well-placed. At least one study has found that the federal government recoups in taxes four times what it spends in student financial aid. Add to that the indirect gains in reduced social welfare costs and the sound you hear is not that of a ticking time bomb but, rather, the steady uptick of a solid, long-term investment.

* B. Ann Wright is chief public affairs officer and former dean of enrollment management at Smith College.

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