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While everyone recognizes the importance of our colleges and universities, the economic health of the sector often is neglected, and policy-makers increasingly regard public and private institutions of higher education with considerable suspicion.
Among the many reasons for this erosion of public trust is the widespread feeling that higher education costs too much. Recent spikes in tuition stoke public anxiety about whether the next generation will be able to afford a college degree. The first public policy response often is to threaten whatever agency is raising the prices, and Republican Rep. Howard P. "Buck" McKeon of California has offered just that.
Congress must renew the Higher Education Act this year, and the education committee of the House of Representatives has made cost control one of its priorities.
Under a proposal by Mr. McKeon, any college or university whose cost of attendance rises by more than twice the rate of inflation over two consecutive years would be ineligible for federal financial aid programs. Since the congressman's expressed concern is affordability for low-income families, his threat to cut off need-based aid is a rather crude and ironic cudgel.
It's easy to provide examples of institutions with exemplary behavior that nevertheless would run afoul of Mr. McKeon's proposed limits.
Consider the case of a state-supported university that responds to a cut in its state appropriation by raising tuition to make up only 90 percent of the budget cut. Given the magnitude of the difficulties facing state budgets, the rise in tuition and fees could easily top Mr. McKeon's arbitrary price increase limits (3.2 percent in 2001 and 4.8 percent in 2002, which are twice the inflation rates for those years).
The actions of a private institution facing lower income from its endowment could produce exactly the same result. Schools that rely most heavily on endowment income to keep tuition low or who use that income to discount their listed tuition to aid lower-income students would be the most likely to be hurt by the limits.
We doubt these institutions are the ones Mr. McKeon intends to punish. He might argue instead that proposals like his would put pressure on state legislatures to maintain financial support of their state institutions. Clearly, states have a lot to lose if their schools become ineligible for federal financial aid programs.
Yet the likely outcome of federal threats isn't restored state support but the same cut in state appropriations coupled with state-imposed limits on tuition increases.
Since tuition price controls would have no effect on the stock market, any binding cap would put private institutions in the same position as state-supported schools. To keep their federal aid, these institutions likely would choose to limit the increase in their listed price but eliminate much of their own need-based aid in order to make up some of the lost revenue.
The instinct to cap prices may be a natural political response to public anxiety. But it reflects an unhealthy confusion about how much it costs to provide a higher education, what prices most students actually pay and how the difference is financed.
It also reflects a deep-seated feeling that university administrations are the source of the problem. In this view, schools ought to be able to educate the same number of students at a lower cost, and tuition caps force them to become more efficient.
The problem is that increases in efficiency are hard to distinguish from decreases in quality. Colleges and universities respond to budget cuts by lowering the number of courses offered, increasing average class sizes, using more graduate assistants in the classroom and reducing support for libraries, laboratories, information technology and other support services.
In the longer run, failure to compete in the market for talented faculty will compromise the fundamental purposes of higher education and destroy American leadership in research.
The larger problem for colleges and universities is that policy-makers like to think that they can control the three basic features of the American higher education system - price, the size of the public subsidy and the quality of the programming.
In fact, they can influence any two of these, but only two. Increasing public funding allows higher quality programs at a constant tuition. Higher tuition permits better offerings at existing subsidy levels.
Unfortunately, the public commitment to higher education subsidies peaked in 1978 at $10.56 per $1,000 of personal income. Today the figure is more than 30 percent lower. Given the present and future demands on state budgets to finance health care, K-12 education and now homeland security, together with continuing political pressures to cut taxes, there is little reason to expect any reversal in this trend.
The loss of these subsidies, which are generally hidden from consumers, would force institutions to raise tuition and/or cut quality. Given the magnitudes of recent decreases in both state appropriations and stock market returns, the combined outcome - tuition increases and reductions in quality - is very likely.
Adding a limitation on how much tuition can rise just enlarges the amount that quality must fall.
Robert B. Archibald and David H. Feldman teach in the Economics Department at the College of William and Mary in Williamsburg, Va. Mr. Archibald is the author of Redesigning the Financial Aid System (Johns Hopkins University Press, 2002).
Copyright © 2003, The Baltimore Sun
