College tuition in the United States is the privately borne cost of higher education collected by educational institutions in the United States, excluding the portion that is paid through taxes or from other government funds as supply-side subsidies to colleges and universities, or demand-side subsidies to students, or that is paid from university endowment funds or gifts through scholarships or grants.
Tuition for college has increased as the value, quality, and quantity of education has increased. These increases have occasionally been controversial.
College attendance increased dramatically after World War II with the introduction of the GI bill and greater federal funding for higher education.
University based research was believed to have played a critical role in determining the outcome of WWII, and was believed to be essential for success in the Cold War. With the launch of the Sputnik satellite by the Soviet Union, many feared that the United States was falling behind on science and technology because it relied on private wealth to fund higher education, whereas the Soviet system was believed to be generously publicly funded, more meritocratic, and more closely tied to the needs of the economy and the military. Many families were unable to borrow sufficient funds to finance a high quality education for their children, and to thereby increase their childrens earning capacity and standard of living, until after the introduction of federal student loans. As public subsidies fell and costs and quality of education increased, loans played an increasingly important role in higher education finance. Except for its military academies, the U.S. federal government does not directly operate and control higher education institutions. Instead it offers loans, grants, tax subsidies and research contracts. Land grants date back to the Morrill Act during the U.S. Civil War and direct grants to students date back to the "G.I. Bill" programs implemented after World War II.
The United States has one of the most expensive higher education systems in the world, and also one of the most successful in terms of the boost to earnings from higher education. Public colleges have no control over one major revenue source — the state. In 2016-17, the average cost of annual tuition in the United States ranged from $9,700 for public four-year institutions to $33,500 for private four-year institutions. Private colleges increased their tuition by an average of 1.7 percent in 2016-17, the smallest rise in four decades, according to the U.S. Consumer Price Index.
Between 2007-08 and 2017–18, published in-state tuition and fees at public four-year institutions increased at an average rate of 3.2% per year beyond inflation, compared with 4.0% between 1987–88 and 1997–98 and 4.4% between 1997–98 and 2007-08. One cause of increased tuition is the reduction of state and federal appropriations to state colleges, causing the institutions to shift the cost over to students in the form of higher tuition. State support for public colleges and universities has fallen by about 26 percent per full-time student since the early 1990s. In 2011, for the first time, American public universities took in more revenue from tuition than state funding. Critics say the shift from state support to tuition represents an effective privatization of public higher education. About 80 percent of American college students attend public institutions.
Critics also note that investments in higher education are severely tax disadvantaged compared to other investments. Heavy taxes and inadequate subsidies to higher education contribute to underinvestment in education and a shortage of educated labor, as demonstrated by the very high pre-tax returns to investments in higher education.
The view that higher education is a bubble is controversial. Most economists do not think the returns to college education are falling. To the contrary, they appear to be both increasing, and to be much higher than the returns to other investments such as the stock market, bonds, real estate, or private equity.
One rebuttal to the claims that a bubble analogy is misleading is the observation that the bursting of the bubble are the negative effects on students who incur student debt. For example, the American Association of State Colleges and Universities reports that "Students are deeper in debt today than ever before...The trend of heavy debt burdens threatens to limit access to higher education, particularly for low-income and first-generation students, who tend to carry the heaviest debt burden. Federal student aid policy has steadily put resources into student loan programs rather than need-based grants, a trend that straps future generations with high debt burdens. Even students who receive federal grant aid are finding it more difficult to pay for college."
Another proposed cause of increased tuition is U.S. Congress occasional raising of the loan limits of student loans, in which the increased availability of students to take out deeper loans sends a message to colleges and universities that students can afford more, and then, in response, institutions of higher education raise tuition to match, leaving the student back where he began, but deeper in debt. College fees begin to accumulate when people start college, such as orientation and freshman fees, and additional charges upon your departure, such as senior and commencement fees. In 1987, then-Secretary of Education William Bennett argued that “... increases in financial aid in recent years have enabled colleges and universities blithely to raise their tuitions, confident that Federal loan subsidies would help cushion the increase.” This statement came to be known as the “Bennett Hypothesis.”
The nonpartisan New York Fed studied the effect of increased loan supply on tuition following large policy changes in federal aid program maximums available to undergraduate students that occurred between 2008 and 2010" found "that institutions that were most exposed to these [loan limit] maximums ahead of the policy changes experienced disproportionate tuition increases around these changes, with effects of changes in institution-specific program maximums of Pell Grant, subsidized."
However, many empirical studies that have tested the effects of student loans on college tuition find no evidence of an increase in tuition, especially net of scholarships and after taking into account increases in the quality of education funded by increases in tuition. Moreover, the widespread availability of private student loans makes it unlikely that public student loan availability limits demand for education.
An additional rebuttal to the student loan theory is the fact that even in years when loan limits have not risen, tuition has still continued to climb, and tuition has increased more at public institutions than at private institutions. Public college tuition has jumped 33 percent nationwide since 2000.
One recent working paper posted online by the Federal Reserve Bank of New York in 2015 (revised in 2016) concluded that undergraduate institutions more exposed to increases in student loan program maximums tend to respond with modest raises in tuition prices. The working paper has not yet been subject to peer review.
A third, novel theory claims that the recent change in federal law removing all standard consumer protections (truth in lending, bankruptcy proceedings, statutes of limits, the right to refinance, adherence to usury laws, and Fair Debt and Collection practices, etc.) strips students of the ability to declare bankruptcy, and, in response, the lenders and colleges know that students, defenseless to declare bankruptcy, are on the hook for any amount that they borrow -including late fees and interest (which can be capitalized and increase the principal loan amount), thus removing the incentive to provide the student with a reasonable loan that he/she can pay back. However, changes in the availability of bankruptcy discharge for private student loans caused no changes in the pricing or availability of private student loans, suggesting that this theory is implausible.
Other factors that have been implicated in increased tuition include the following:
Based on the available data, recommendations to address rising tuition have been advanced by experts and consumer and students rights advocates:
"Disproportional inflation" refers to inflation in a particular economic sector that is substantially greater than inflation in general costs of living.
The following graph shows the inflation rates of general costs of living (for urban consumers; the CPI-U), medical costs (medical costs component of the consumer price index (CPI)), and college and tuition and fees for private four-year colleges (from College Board data) from 1978 to 2008. All rates are computed relative to 1978.
Cost of living increased roughly 3.25-fold during this time; medical costs inflated roughly 6-fold; but college tuition and fees inflation approached 10-fold. Another way to say this is that whereas medical costs inflated at twice the rate of cost-of-living, college tuition and fees inflated at four times the rate of cost-of-living inflation. Thus, even after controlling for the effects of general inflation, 2008 college tuition and fees posed three times the burden as in 1978.
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