College Costs: Are Net Prices Rising?

July 19, 2010

A parent responds thoughtfully to my recent post about merit aid and ruinous competition among colleges.

“I quite agree that net cost of higher education matters more than the sticker price,” she writes.  “However, I’m tracking public higher education costs pretty steadily now for my work, and the net cost to students and their families is also rising much faster than inflation.  If the private sector is restraining net cost growth, I haven’t seen the evidence–and your blog post did not offer it.”

She’s certainly right that I offered no evidence that net prices (the prices students and parents actually pay) is rising no faster than inflation at independent colleges and universities.  I simply asserted that these institutions (and public ones, too) are using more and more merit aid (financial aid that isn’t tied to need), and that such discounting strategies were creating a beggar-thy-neighbor kind of (ruinous) competition.

Her question is exactly on point: are net prices among independent institutions rising faster than inflation?  I think they probably are, but only a little faster than inflation, and less than they appear to be rising if you look only at sticker prices.

This turns out to be a very difficult subject on which to obtain trustworthy data.  Most colleges and universities guard closely guard information about their financial aid strategies.  While higher education institutions all have to report some financial information to the federal government through its IPEDS system, institutions have too much latitude in how they report income and expense items for these data to be completely trustworthy and comparable regarding net prices.  (More on IPEDS data in a post coming soon.)  So I can speak most confidently about Earlham, and our net prices have been rising just a little faster than inflation over the past decade, but with some significant year-to-year variations.  We can’t anticipate very accurately the net effect of simulataneous changes in sticker price and financial aid awarding policy.

My parent respondent raises another issue that’s worth noting. “If net costs are a shrinking
or steady share of family income, that’s important, too.” I think this is more important than the inflation question.  Why?  Because the majority of the costs of providing an education involve compensation to faculty and staff.  As American family incomes rise, we should expect to see net prices rise, too, so that higher education faculty and staff can be compensated appropriately relative to others outside higher education.

Overall, American family incomes have been relatively flat over the past decade, so we should be concerned if college net prices have been increasing.  But of course the important story with family incomes is not about average family incomes, it’s about growing inequality among families.  The most affluent are growing steadily more affluent, and the bottom 60% are seeing their incomes sag.

As my respondent says, “If both published charges and net costs are rising faster than family income, the important conversations are about opportunity, inclusion, investment, and stewardship.”

Amen.  There’s the public policy issue.  If family incomes are growing more unequal, and if children are born disproportionately to the those in the lower three-fifths of the income distribution (they are), then we are brewing a crisis of access to higher education.

About Doug Bennett

Doug Bennett is Emeritus President and Professor of Politics at Earlham College. He has a wife, Ellen, and two sons, Tommy (born 1984) and Robbie (born 2003).
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