A new conventional wisdom has emerged that state funding cuts are the main factor behind increases in college tuition. So argues economics professor Doug Webber of Temple University in a recent column at FiveThirtyEight. The logic makes sense on its surface: when universities see their state appropriations decline, they must raise tuition to cover the shortfall. But there are several problems with this argument.
“The most likely culprit is the growing availability of indirect subsidies through federal student aid programs.”
For starters, it ignores the tuition increase at private universities. Since 2000, the net cost of attendance at a public four-year university has risen $5,610, according to the College Board. But the same figure for private nonprofit four-year universities is comparable, at $5,190. Private universities do not receive direct state appropriations, and so their tuition should be mostly unaffected by budget cuts. Since both the public and private sectors have experienced large price increases, this suggests that systemic factors are driving the increase.
The most likely culprit is the growing availability of indirect subsidies through federal student aid programs. Pell Grants and subsidized student loans enable students to pay more for college, so it is unsurprising that schools—both public and private—have raised tuition or cut back on institutional financial aid to take advantage of the largesse.
Webber concedes that this may be the case for for-profit colleges, and indeed there is quite a bit of evidence for that. But he does not entertain the idea that public colleges could be susceptible to this as well. Instead, he argues that cuts in state appropriations account for three-quarters of the increase in public college tuition since 2000. To arrive at this number, he assumes that schools raise tuition by one dollar for every dollar reduction in per-student state appropriations. This assumption is questionable to say the least.
If budget cuts really explained 75% of tuition increases, we would expect to see a strong association between changes in state appropriations and changes in tuition. In other words, schools which experienced deeper cuts should raise tuition more and vice versa. Below I have plotted the per-student change in state appropriations at 537 four-year public institutions against each institution’s change in tuition revenue from 2006 to 2013, a period during which many states tightened their belts to deal with the Great Recession.
This is, of course, just a correlation. But if the relationship between state budgets and tuition were really as strong as Webber suggests, it would certainly show up here. Instead, on a per-student basis...
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Preston Cooper is a policy analyst at the Manhattan Institute's Economics21. Follow him on Twitter here.
This piece originally appeared in Forbes