College Costs and Prices: Issues for Reauthorization of the Higher Education Act

College Costs and Prices:
Issues for Reauthorization
of the Higher Education Act
October 30, 2007
Rebecca R. Skinner
Specialist in Education Policy
Domestic Social Policy
Blake Alan Naughton
Analyst in Education Policy
Domestic Social Policy



College Costs and Prices: Issues for Reauthorization
of the Higher Education Act
Summary
The rising cost of attending U.S. colleges and universities is a growing concern,
as most Americans believe that college is out of financial reach for qualified students.
For federal policymakers, concerns focus on issues of affordability, access for low-
income students, and whether federal student financial aid is keeping pace with rising
prices. This report presents the current status and historical trends of college costs,
with an emphasis on the prices undergraduate students are ultimately charged at the
varying types of institutions of higher education and how they pay for postsecondary
education using student financial aid.
College tuition and fees have been rising more rapidly than household income
over the past two decades. In 2005-2006, the average price charged for tuition, fees,
room, and board at four-year public and private institutions was $17,447 — a 577%
increase from 30 years ago. On the basis of the mean household income of a
household in the bottom fifth of the population, the price of college in 2005 was

71.3% of their income.


Historically, congressional involvement with issues of college costs and prices
has focused on issues related to student access to postsecondary education. However,
as Congress has considered the reauthorization of the Higher Education Act (HEA),
attention has been given to additional actions that could be taken at the federal level
to address college costs and prices. Actions considered have included creating price
indices, providing incentives for controlling costs, making it easier for students to
earn college credits, reducing regulatory burden, and increasing the availability of
relevant public information. It is not clear which of these strategies would be most
effective at addressing the issue of college costs or prices, or whether some of these
strategies would be more effective if implemented at the state or institutional level.
As Congress continues to debate the reauthorization of the HEA, an expanded federal
role regarding college costs and prices may be considered.
This report begins by exploring three core concepts: college cost (what
institutions spend), sticker price (what students are charged), and net price (what
students actually pay) — defining each and presenting current and historical data.
This information is followed by a discussion of various influences on costs and
prices. The report concludes with an overview of relevant issues for reauthorization
of the Higher Education Act of 1965 (HEA, P.L. 89-329 as amended by P.L. 105-
244). Where data are available, this report considers all types of postsecondary
education institutions: public, private not-for-profit, and private for-profit
institutions.



Contents
In troduction ......................................................1
Definitions of Cost and Price.....................................3
Cost of a College Education.........................................4
Revenues ....................................................4
Expenditures .................................................5
Sticker Price of a College Education...................................7
Subsidizing Costs..............................................8
In-State Versus Out-of-State Tuition at Public Institutions..........9
Price of Attendance............................................9
Other Ways of Interpreting Price.................................12
Tuition and Fees Adjusted for Inflation........................12
Price as a Share of Family Income............................13
Prices by State...............................................17
Net Price of a College Education.....................................19
Federal Financial Aid..........................................20
Pell Grants..............................................20
Loan Programs...........................................21
Students Receiving Aid........................................21
Net Price After Grants.........................................23
Influences on College Costs and Prices................................23
Influences on Costs...........................................23
Establishing Price at Public Institutions...........................24
State Support............................................25
Establishing Price at Private Institutions...........................26
Tuition Discounting and Net Price...............................27
Federal Policy Effects on College Price............................28
Federal Financial Aid and Sticker Price.......................28
Federal Tax Legislation and Sticker Price......................30
Actions at the State and Institutional Levels........................31
Tuition and Fees..........................................31
Reducing Costs..........................................32
College Credits...........................................32
Issues for the Higher Education Act Reauthorization.....................34
Price Indices.................................................34
Controlling College Costs......................................36
Earning College Credits........................................37
Relieving Regulatory Burden....................................38
Providing Better Public Information..............................38
Appendix. Average Undergraduate Tuition and Fees.....................40



List of Figures
Figure 1. Average 4-Year University Tuition and Required Fee Prices,
by Control, 1964-1995 to 2005-2006.............................11
Figure 2. Annual Percentage Increase, Public Four-Year University
Tuition and Required Fees vs. Inflation, 1965-1966 to 2005-2006......13
Figure 3. Percent Changes in Tuition and Fees and Mean Household Income:
1985-1986 to 1995-1996 and 1995-1996 to 2005-2006...............14
Figure 4. Percent Change in Mean Household Income for Households in the
Top, Middle, and Bottom Quintiles andChanges in Tuition and Fees:
1995-1986 to 1995-1996 and 1995-1996 to 2005-2006...............15
List of Tables
Table 1. Total Revenues of Degree-Granting Institutions, by Source of
Funds and Type of Institution, 2003-2004...........................5
Table 2. Total Expenditures of Degree-Granting Institutions, by Type of
Expense and Type of Institution, 2003-2004.........................6
Table 3. Average Undergraduate Tuition and Fees and Room and Board Paid
by Full-Time-Equivalent Students in Degree-Granting Institutions, by Type
and Control of Institution: Selected Years, 1976-1977 to 2005-2006.....10
Table 4. Tuition and Fees as a Percentage of Mean Household Income at Public
and Private Institutions, by Selected Income Quintile for Selected Years..16
Table 5. Average Undergraduate Tuition, Fees, Room, and Board Charged
for Full-Time Students in Degree-Granting Institutions, by Type and
Control of Institution and State: 2005-2006........................18
Table 6. Percentage of Full-Time, Full-Year Undergraduates Receiving Aid,
by Source and Type of Aid and Control of Institution: 2003-2004.......22
Table A-1. Average Undergraduate Tuition and Required Fees, Charged
for Full-Time Students in Degree-Granting Institutions, by Type and
Control of Institution 1976-1977 to 2005-2006......................40



College Costs and Prices: Issues for
Reauthorization of the Higher Education Act
Introduction
The rising cost of attending U.S. colleges and universities is a growing concern,
as three out of five Americans believe many qualified people will not have the
opportunity to pursue a college education, and a large majority of Americans believe
that the students who do make it to college have to borrow too much to go.1 For
students and their families, these concerns raise questions as to whether they will be
able to afford a college education and whether their choice of postsecondary
institutions is limited by price. For federal policymakers, concerns focus on issues
of affordability, access for low-income students, and whether federal student
financial aid is keeping pace with rising prices.
The public, lawmakers, researchers, and the higher education community offer
numerous theories as to why the costs of providing a college education continue to
rise, but there is little consensus as to either root causes or ways of mitigating the
problem. This report presents the current status and historical trends of college costs,
with an emphasis on the prices students are ultimately charged at the varying types
of institutions of higher education (IHEs) and how they pay for postsecondary
education using student financial aid. Although prices are certainly an issue for
graduate and professional education, the focus of this report is on undergraduates,2
particularly full-time undergraduates.
College tuition and fees have been rising more rapidly than household income
over the past three decades. In the 1976-1977 school year, the average price charged
to students for tuition, fees, room, and board at four-year public and private
institutions was $2,577; in 2005-2006, it was $17,447 — a 577% increase.3 Looking
at family resources to pay for college, from the mid-1980s to the mid-1990s, tuition


1 John Immerwahr and Jean Johnson, Squeeze Play: How Parents and the Public Look at
Higher Education Today, by Public Agenda for the National Center for Public Policy and
Higher Education, May 31, 2007.
2 Of the approximately 18 million individuals enrolled in higher education in the fall of
2005, nearly 55% were full-time undergraduates, 31% were part-time undergraduates, and
the remaining 14% were full- or part-time graduate students. (U.S. Department of
Education, National Center for Education Statistics, “Enrollment in Postsecondary
Institutions, Fall 2005; Graduation Rates, 1999 and 2002 Cohorts; and Financial Statistics,
Fiscal Year 2005,” NCES 2007-154, April 2007, pp. 4-5, Table 1.)
3 U.S. Department of Education, National Center for Education Statistics, Digest of
Education Statistics 2006. NCES-2007-017, July 2007. Table 319. (Hereafter cited as ED,
Digest 2006).

and fee levels averaged across public and private four-year institutions and public 2-
year institutions increased by 41%.4 During the following decade, they increased by

36%. Mean household income, on the other hand, increased by 9% and 10%


respectively. The divergence is particularly pronounced for low-income households.
For households in the bottom fifth of the population, their mean household income
increased 5% from the mid-1980s to the mid-1990s and declined by 0.4% during the
following decade.
In general, a complex set of factors affects college prices directly and indirectly,
making it hard to say definitively what are the underlying causes of price increases.
This complexity, coupled with the tremendous diversity of institutions that constitute
postsecondary schools, makes it difficult to determine what can or should be done
about the issue of rising college prices.
Historically, congressional involvement with issues of college costs and prices
has focused on issues related to student access to postsecondary education. However,
as Congress has considered the reauthorization of the HEA, attention has been given
to additional actions that could be taken at the federal level to address college costs
and prices. Actions considered have included creating price indices, providing
incentives for controlling costs, making it easier for students to earn college credits,
reducing regulatory burden, and increasing the availability of relevant public
information. It is not clear which of these strategies would be most effective at
addressing the issue of college costs or prices or whether some of these strategies
would be more effective if implemented at the state or institutional level. As
Congress continues to debate the reauthorization of the HEA, an expanded federal
role regarding college costs and prices may be considered.
This report begins by exploring three core concepts: college cost (what
institutions spend), sticker price (what students are charged), and net price (what
students actually pay) — defining each and presenting current and historical data.
This exploration is followed by a discussion of various influences on costs and
prices. The report concludes with an overview of relevant issues for reauthorization
of the Higher Education Act of 1965 (HEA, P.L. 89-329 as amended by P.L. 105-
244). Where data are available, this report considers all types of postsecondary
education institutions: public, private not-for-profit, and private for-profit.


4 CRS analysis based on U.S. Department of Education, National Center for Education
Statistics, Digest of Education Statistics 2006, Table 319, at [http://www.nces.ed.gov/];
Bureau of Labor Statistics, annual unadjusted Consumer Price Index-Urban (CPI-U) data,
available at [http://www.bls.gov/]; and U.S. Census Bureau, Historical Income Tables —
Households, Table H-6, at [http://www.census.gov/hhes/www/income/histinc/h06ar.html],
and Table H-3, at [http://www.census.gov/hhes/www/income/histinc/h03ar.html].

Definitions of Cost and Price
In discussing how much it costs to attend college, how much it costs to educate
students, or how much families need to save for college, it is critical to distinguish
between two concepts: cost and price. College costs generally refer to what
institutions spend to provide education and educational-related services to students.
Price commonly refers to what students and their families are charged for higher
education and what they pay. As discussed throughout this report, these amounts are
not necessarily the same.
Three distinctions are frequently made in the definition of price. First, there is
sticker price. This is the tuition and fees that institutions charge (e.g., the published
price). The second distinction is the total price of attendance, which is often referred
to as the cost of attendance (COA).5 This includes the tuition and fees that
institutions charge students as well as other expenses related to attending that
institution. These expenses may include room and board for on-campus housing, rent
for off-campus housing, books, and transportation. A third distinction in the
definition of price involves net price. This is what students pay after financial aid is
deducted from the total price of attendance.
Educators and policy makers commonly look at the effects of net price in two
ways. The first is a measure of affordability, subtracting only grants from the total
price of attendance. Loans remain in the total price of attendance for this measure,
as loans must ultimately be repaid by the student or student’s parents. This may
affect decisions to attend college if students and their families are considering the
overall out-of-pocket (today or future) price of college attendance. The second is a
measure of access, subtracting all financial aid, including loans, from the total price
of attendance. This measure focuses on the amount of money a student would need
to attend college in a given year, without considering how much money will
ultimately have to be repaid over time. Students generally are awarded financial aid
based on merit or financial need. These awards may take various forms, including
grants, loans, and subsidized work opportunities. Thus, financial aid may increase
access to postsecondary education but not necessarily reduce the ultimate price
students will pay to attend.
For the purposes of this report, the term price generally refers to the sticker
price. References are also made to net price, but the specific net price measure
considered depends on the data that were available for the analysis.6


5 COA is used in determining federal student aid packages. For more information on COA,
see CRS Report RL33266, Federal Student Aid Need Analysis System: Background,
Description, and Legislative Action, by Charmaine Mercer.
6 An effort will be made to distinguish whether a reference is being made to price net of
grant aid only or to price net all student aid.

Cost of a College Education
Few students in American higher education are asked to pay the full cost of their
education. Although tuition and fees are an important source of revenue at all types
of institutions, other sources of revenue help defray the total costs, and students are
then asked to pay significantly less. As shown in Table 1, for public institutions, the
primary source of subsidy revenue is state appropriations (and local appropriations
for some community colleges), and public institutions are increasingly relying on
private philanthropic support and endowment income as well. Private non-profit
institutions rely heavily on donations, income earned from endowments, supplements
from affiliated religious organizations, and other sources of support. Private for-
profit institutions, by contrast, are most likely to be tuition dependent and to have few
other sources of revenue. Two approaches to cost — revenues and expenditures —
are discussed below, because both are used in discussions of college costs; however,
references to college costs in the remainder of this report refer to expenditures.7
Revenues
Sources of revenues for institutions of higher education have shifted over time
and vary by type of institution. Table 1 shows revenue sources by institution type
for 2003-2004, the most recent year for which data are available. The greatest
revenue source for public institutions was from state support, amounting to 28% of
revenues.
Without large public appropriations, private institutions are more tuition-
dependent than public colleges. Sixteen percent of public institutions’ revenues
come from tuition and fees, but approximately 29% of private not-for-profits’
revenues and 90% of for-profits’ revenues are from student tuition. In addition, not-
for-profit institutions realize 35% of their revenues from private donations and
endowment income.
The mix of revenue sources has also changed over time. For public institutions
of higher education, direct state appropriations (not including state-funded grants and
contracts) have risen from $19.0 billion in 1980-1981 to $53.9 billion in 2003-2004
— but this represents a decrease in share of revenues, from 44% to 24%.8 Although
state support has grown over the past 25 years, public college budgets have grown
faster and have come to depend more heavily on sources other than appropriations.
Private support, from donations and endowment income, has grown from 3% of
public college revenues in 1980-1981 to 7% in 2003-2004.9 Even as colleges
aggressively seek increased private support, over the past two decades, tuition has


7 The use of expenditures in this report as a measure of college costs should not be
interpreted to imply that these expenditures are necessarily efficient. No analysis or
judgment about what it costs to provide a service is made.
8 ED, Digest 2006, Table 339.
9 ED, Digest 2006, Tables 336 and 337.

accounted for an increasing share of revenue. At public institutions, tuition and fees
comprised 13% of revenues in 1980-1981, compared to 16% in 2003-2004.10
Table 1. Total Revenues of Degree-Granting Institutions,
by Source of Funds and Type of Institution, 2003-2004
Source of RevenuePublicPrivate Not-For-ProfitPrivate For-Profit
Total Revenue$221,921,288100%$134,230,762100%$8,989,815100%
Student Tuition and Fees35,150,615 16%38,505,631 29%8,049,205 90%
Public Support114,167,293 51%20,277,057 15%456,940 5%
Federal Appropriations,33,053,729 15%18,335,784 14%397,828 4%
Grants, and Contracts
State Appropriations,61,417,171 28%1,455,556 1%59,112 1%
Grants, and Contracts
Local Appropriations,14,888,344 7%485,717 0% 0%
Grants, and Contracts
Capital Appropriations4,808,048 2%0%0%
Private Gifts, Grants, and8,335,856 4%15,847,571 12%7,079 0%
Co ntracts
Investment Income7,164,011 3%30,896,917 23%16,813 0%
Auxiliary Enterprises and17,907,947 8%13,616,026 10%377,860 4%
Educational Activities
Hospital Sales and Services19,587,282 9%9,657,753 7% 0%
Other19,608,284 9%5,429,805 4%81,918 1%
Source: ED, Digest 2006, Tables 337, 341, and 343.
Notes: Student Tuition and Fees is net of allowances and discounting. Federal support does not include
student financial aid. Private Gifts includes permanent endowment gifts and capital gifts. State support for
private for-profit institutions includes local support. Capital appropriations is from all sources.
Expenditures
Economist Howard Bowen developed the “revenue theory of costs.” The theory
states that college revenues determine college expenditures. That is, institutions
attempt to raise as much money as possible and then spend the money on various
activities including teaching, research, administration, and service. According to this
theory, a single standard could not be used to determine how much college should
cost, as colleges make expenditure decisions on the basis of their particular
ci rcum st ances.11
Postsecondary institutions’ expenditures generally are grouped into several
broad categories: educational and general (E&G) expenditures, auxiliary enterprises,


10 Ibid.
11 D.W. Breneman, “An Essay on College Costs” in U.S. Department of Education, National
Center for Education Statistics, 2001, Study of College Costs and Prices, 1988-89 to 1997-

98, Volume 2: Commissioned Papers, available at [http://nces.ed.gov/pubsearch/pubsinfo.


asp?pubid=2002157]. (Hereafter referred to as ED, Costs and Prices Volume 2.)

independent operations, hospitals, and other expenditures. The E&G expenditures
category includes the majority of institutional expenditures across all types of
institutions and is part of total current-fund expenditures (Table 2). The E&G
expenditure category includes several subcategories such as instruction, research,
public service, academic support, student services, institutional support, operation
and maintenance of plant, and scholarships and fellowships.
Table 2. Total Expenditures of Degree-Granting Institutions, by
Type of Expense and Type of Institution, 2003-2004
Type of All PublicPrivate Not-Private
Expense Institutions For-Prof it For-Prof it
Total Expenditures$315,449,161100%$205,068,500 100%$104,317,870 100%$6,112,791 100%
Education & General239,159,12476154,407,339 75 79,277,972765,473,81390
Instruction92,425,3802956,767,947 2833,909,179 331,748,254 29
Research and44,420,2731430,390,403 1514,011,883 1317,987 0
Public Service
Student Services,
Academic, and93,003,0182959,076,305 2930,255,172 293,671,541 60
Institutional
Support
Net Grant Aid to9,310,45138,172,682 41,101,738 136,031 1
Students
Auxiliary26,455,268815,705,951 810,508,719 10240,598 4
Enterprises
Hospitals26,846,098918,471,970 9 8,374,128 80
Independent4,959,7792736,799 04,222,980 4 0
Operations
Other18,078,891615,746,441 8 1,934,070 2398,380 7
Source: ED, Digest 2006, Tables 347, 353, and 354.
Notes: For public institutions, Institutional Support includes physical plant and other operating expenses. Net Grant
Aid to Students includes scholarships and fellowships, but excludes allowances. For public institutions, Other includes
interest, non-operating expenses, deductions, and depreciation.
In 2003-2004, total expenditures for degree-granting institutions were about
$315.5 billion, and educational and general expenditures were about $239.2 billion,
or about 76% of total expenditures (Table 2). Considering a fall 2003 enrollment of
16.9 million students,12 this represents overall expenditures of $18,670 per student
and E&G expenditures of $14,150 per student.
Spending on instruction was fairly similar across institutions, accounting for
about one-third of expenditures at public (28%) and private not-for-profit institutions13
(33%). At public and private not-for-profit institutions, spending on instruction


12 ED, Digest 2006, Table 176.
13 By comparison, expenditures on instruction in 1980-1981 at public degree-granting
institutions accounted for 35% of expenditures. Historical data showing expenditures for
(continued...)

accounted for the largest or nearly the largest proportion of expenditures. While
instruction also accounted for 29% of expenditures at private for-profit degree-
granting institutions, expenditures for student services, academic support, and
institutional support composed the largest proportion of expenditures (60%).14
One aspect of institutional expenditures particularly relevant for net price (after
deducting grant aid) are institutional expenditures for student support (Table 2).
Scholarships and fellowships15 accounted for 3% of expenditures at public degree-16
granting institutions in 1980-1981, increasing to 4% by 2003-2004. At both private
not-for-profit and for-profit institutions, net grant aid (excluding allowances)
accounted for 1% of expenditures in 2003-2004.
Sticker Price of a College Education
The price of higher education has increasingly become a topic of both public
and congressional debate. It should be noted, however, that during the 2007-2008
academic year, over half of full-time undergraduates at all four-year institutions
attended institutions charging less than $9,000 in tuition and fees.17 At four-year
public institutions, 45% of full-time undergraduates attended institutions charging
less than $6,000. While $6,000 or $9,000 may still be more than most students can
afford to pay, the issue of price may be more productively viewed through this lens
rather than one colored by the relatively high prices of the most selective institutions
in the country. Only 9% of undergraduates attended institutions charging more than
$30,000 for tuition (all of which are private institutions).
There are also public misconceptions about the price of college. For example,
a study conducted for the American Council on Education found that the general
public substantially overestimates the price of tuition at public institutions. In
answering questions about the price of tuition, the average respondent estimate put
the price of tuition more than three times higher than the average actual price.18


13 (...continued)
instruction are reported only for all private degree-granting institutions as opposed to being
reported separately for private not-for-profit and private for-profit institutions for 1980-
1981. The percentage of expenditures on instruction for all private degree-granting
institutions in 1980-1981 was 27% (ED, Digest 2006, Table 345).
14 ED, Digest 2006, Table 354.
15 Scholarships and fellowships only include funds provided in the form of outright grants
and training stipends to students enrolled in formal coursework. This is referred to as net
grant aid in Table 2.
16 ED, Digest 2006, Table 347.
17 The College Board, Trends in College Pricing, 2007, Figure 1, at [http://www.college
board.com/prod_downloads/about/news_info/trends/trends_pricing_07.pdf].
18 American Council on Education, Attitudes Toward Public Higher Education National
Survey Results, 2002, at [http://www.acenet.edu/news/press_release/2002/02february/
national.data.ppt].

Increases and decreases in tuition, fees, and financial aid may affect student
access to college, choice of schools, affordability, and, ultimately, the completion of
a degree or certificate program. This section focuses on sticker price. Data on net
price are discussed in a subsequent section.
Subsidizing Costs
The cost of educating college students exceeds the sticker price charged by
institutions; that is, in general, those students who pay the full price of their bills out
of their own pockets do not pay actually pay the full amount it costs an institution to
educate them. Institutions make up the difference between what students pay and the
actual cost of providing an education through subsidy payments supported by other
sources of revenue, such as state appropriations, endowment earnings, private
donations, and federal grants. Both public and private institutions provide some level
of subsidy to students.19
To illustrate how the subsidy works, assume that the cost of education at a given
institution is $10,000.20 The institution receives $8,000 per student in state
appropriations and charges $2,000 in tuition; thus, each student is then facing a
tuition level of 20% of the actual cost.21 Thus, all students, even students who pay
the full $2,000 in tuition, are subsidized.
As some researchers have noted, increases in college price do not necessarily
mean that costs have increased but could mean that a source of revenue used to
support the subsidy has decreased. Returning to the previous example, suppose the
next year that the state appropriation per student is reduced to $7,000, while the cost
of providing an education remains at $10,000. Tuition is raised to $3,000 to
accommodate the change in state appropriations; thus, each student now pays 30%
of the actual cost, but tuition has increased by 50%. As discussed elsewhere in this
report, the proportion of revenue that institutions derive from tuition and fees has
been increasing over time.
In the previous example, the subsidy came simply from state appropriations,
which is the largest source of revenue for public institutions. The largest source of
funds for subsidizing education costs at private not-for-profit institutions, however,


19 For more information on subsidies, see, for example, G.C. Winston, “Higher Education’s
Costs, Prices, and Subsidies: Some Economic Facts and Fundamentals” in U.S. Department
of Education, National Center for Education Statistics, 2001, Study of College Costs and
Prices, 1988-89 to 1997-98 Volume 2: Commissioned Papers, at [http://www.nces.ed.gov/
pubsearch/pubsinfo.asp?pubid=2002157]. (Hereafter cited as ED, Costs and Prices Volume

2.)


20 This analysis assumes that students do not receive grant, loan, or other types of student
financial assistance beyond the subsidy.
21 This assumes that the entire $8,000 received in state appropriations for each student is
used to offset the cost of providing education. There is some debate in the literature about
whether this actually occurs. For example, some researchers argue that revenue may be
diverted for other purposes, such as faculty or graduate student use. See D.W. Breneman,
“An Essay on College Costs” in ED, Costs and Prices Volume 2.

is investment income from endowments and annual donations. Even public
institutions are increasingly relying on philanthropic support for operations and
capital projects. By contrast, private for-profit institutions are tuition-dependent and,
in keeping with their business model, price the education they provide higher than
cost in order to make a profit.
In-State Versus Out-of-State Tuition at Public Institutions. The
majority of this report focuses on in-state tuition. Students and families’ tax dollars
support public institutions in the form of appropriation subsidies to state colleges and
universities. Public institutions then grant their state residents a greater subsidy, in
the form of lower tuition, than is provided to out-of-state students (who have not paid
state taxes). Further, state leaders contend that it is in the best interest of the state to
educate its residents in order to subsequently realize long-term human capital gains.
Thus, to encourage attendance and increase access to higher education for state
residents, institutions charge a lower price for in-state residents than for out-of-state
residents.
Although out-of-state tuition is higher than that charged to resident students, the22
differences in these two prices vary from state to state. Several states charge out-of-
state students tuition at or near the full cost of instruction. Other states index non-
resident tuition to the price charged for resident students. Note that although non-
resident students are charged a higher sticker price, they still might be subsidized in
other ways. States and institutions often have pricing policies and scholarship aid
designed to encourage resident students to stay or to encourage out-of-state students
to enroll.
Price of Attendance
Trends in tuition and required fees point to steady increases in current dollars23
over the past 30 years (Table 3). From 1976-1977 to 2005-2006, tuition at all
institutions increased from $924 to $7,601, an increase of 723%. The rate of increase
in tuition and fees was higher at four-year institutions, 744%, and lower at two-year
institutions, 599%. An examination of institutions by control over the same time
period reveals that tuition and fees at public institutions increased more rapidly than
tuition and fees at private institutions. Among all public institutions, tuition and fees
rose 709% compared with a 665% increase at private institutions.


22 For more details about current out-of-state tuition setting policies, see State Higher
Education Executive Officers, 2006, State Tuition, Fees, and Financial Assistance Policies,

2005-2006, at [http://www.sheeo.org]. (Hereafter cited as SHEEO, State Tuition and Fees.)


23 Changes in tuition in constant dollars are addressed in a subsequent section.

Table 3. Average Undergraduate Tuition and Fees and Room
and Board Paid by Full-Time-Equivalent Students in Degree-
Granting Institutions, by Type and Control of Institution:
Selected Years, 1976-1977 to 2005-2006
(in current dollars)
Total Tuition, Fees, Room, and
Year andBoardTuition and Required Fees
Control ofAllAll Four-aTwo-AllAll Four-aTwo-
Institution Institutions Year Year Institutions Year Year
All Institutions (in-state for public institutions)
1976-1977 2,275 2,577 1,598 924 1,218 346
1981-1982 3,489 3,951 2,476 1,457 1,907 590
1986-1987 5,206 5,964 3,295 2,312 3,042 897
1991-1992 7,077 8,238 4,092 3,286 4,385 1,189
1996-1997 9,206 10,841 4,895 4,564 6,118 1,543
2001-2002 11,380 13,639 5,718 5,646 7,786 1,800
2005-2006 14,629 17,447 7,231 7,601 10,279 2,417
Public Institutions (in state)
1976-1977 1,789 1,935 1,491 479 617 283
1981-1982 2,663 2,871 2,224 714 909 434
1986-1987 3,805 4,138 2,989 1,106 1,414 660
1991-1992 5,138 5,693 3,623 1,628 2,117 936
1996-1997 6,530 7,334 4,404 2,271 2,987 1,276
2001-2002 8,022 9,196 5,137 2,700 3,735 1,380
2005-2006 10,454 12,108 6,492 3,874 5,351 1,935
Private Institutions
1976-1977 3,906 3,977 2,971 2,467 2,534 1,592
1981-1982 6,166 6,330 4,746 3,953 4,113 2,605
1986-1987 9,676 10,039 6,384 6,316 6,658 3,684
1991-1992 13,892 14,258 9,632 9,419 9,759 5,754
1996-1997 18,039 18,442 11,954 12,498 12,881 7,236
2001-2002 22,413 22,896 15,825 15,742 16,211 10,076
2005-2006 26,889 27,317 21,170 18,862 19,292 12,450
Source: U.S. Department of Education, National Center for Education Statistics, Digest of Education
Statistics 2006, Table 319, at [http://www.nces.ed.gov/].
Note: Data are for the entire academic year and are average charges paid by students. Tuition and
fees were weighted by the number of full-time-equivalent undergraduates but were not adjusted to
reflect student residency. Room and board were based on full-time students. See source for additional
info r matio n.
a. “All Four-Year” includes universities and other four-year institutions.



Figure 1 presents the average sticker price of tuition and required fee charges
at the nation’s public and private four-year universities24 from 1964-1995 to 2005-
2006. Although college prices have continually increased over the past several
decades, the rate of increase is not even. For example, in the 1980s, public four-year
universities increased tuition and fee charges by 9.28% annually, on average; for
private four-year universities, the average annual increases were 10.53%.25 By
contrast, in the 1990s university price increases slowed down, with public four-year
universities raising undergraduate rates by an average of 6.38% annually and private
four-year universities by 6.45% annually. In the current decade, rates of increases
have begun to climb again for public four-year universities, with tuition and fee
prices increasing by an average of 9.26% annually. For private four-year universities
in the 2000s, increases have slowed to an average of 5.72% annually.26
Figure 1. Average 4-Year University Tuition and Required Fee
Prices, by Control, 1964-1995 to 2005-2006


$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$-
5 -6 8 -7 1 - 7 4 - 7 7 -8 0 -8 3 -8 6 -8 9 -9 2 -9 5 -9 8 -0 1 -0 4
4- 6 967 97 0 97 3 97 6 979 98 2 98 5 988 991 99 4 997 000 003
1 96 1 1 1 1 1 1 1 1 1 1 1 2 2
Public UniversitiesPrivate Universities
Source: Compiled by CRS on the basis of ED, Digest 2006, Table 319.
24 In this example, four-year public universities are used because continuous data are
available for this type of institution. Universities are the subset of four-year public
institutions that are often the most prominent in the state, consisting of an undergraduate
college, diverse graduate programs, and professional schools. Regardless of recent mission
expansions at some other four-year institutions, NCES has not expanded the list of
universities since 1982.
25 CRS calculations from data in ED, Digest 2006, Table 319.
26 Note, however, that as tuition and fees increase over time, subsequent increases in tuition
and fees of the same dollar amount result in lower percentage increases. For example, if
tuition and fees increased from $1,000 to $2,000 over 10 years, an increase of $1,000 or
100%, a subsequent $1,000 increase over the next 10 years from $2,000 to $3,000 will result
in only a 50% increase in tuition and fees.

Other Ways of Interpreting Price
In addition to simply viewing college prices and changes over time, there are
alternate ways of analyzing price. One approach looks at price in relation to overall
inflation increases. A second looks at price as a percent of family incomes.
Tuition and Fees Adjusted for Inflation. Examining tuition using current
dollars identifies changes in tuition over time but fails to take into account
inflationary factors affecting college price. Adjusting college prices for inflation27
using an index such as the Consumer Price Index for All Urban Consumers (CPI-U)
enables direct comparisons in college price to be made across years by adjusting all
prices to be comparable with a base year. More simply, adjusting for inflation means
that the price of tuition in a given year, such as 1981-1982, has been recalculated to
determine what the price of tuition that year would have been in today’s dollars.
When increases in tuition are considered in constant dollars (i.e., dollars
adjusted for inflation), the increase in tuition over the past 30 years is substantially
lower (see Appendix, Table A-1). From 1976-1977 to 2005-2006, the tuition
increase in constant dollars for all institutions was 140% compared with an increase
of 723% in current dollars. Similar differences in increases are evident for four-year,
two-year, public, and private institutions. For example, in constant dollars, the
increase in tuition at public four-year institutions over this time period was 153% in
constant dollars compared with 767% in current dollars.
An alternative method of using inflation to analyze price is to consider whether
price increases are outpacing inflation — whether annual percentage increases in
tuition exceeds annual percentage increases in the CPI-U. Any such increase that
exceeds the inflation rate can be thought of as an increase that “outpaces” inflation.
From 1976-1977 to 2005-2006, average tuition at public and private institutions
increased by 723%. At four-year institutions, the growth has been even higher,
744%, while it was 599% at two-year colleges. By comparison, the CPI-U grew
243% from 1976 to 2005. By this estimation, four-year college tuition has risen by
more than 3 times the rate of inflation over the past 30 years.
Looking more specifically at year-to-year changes, Figure 2 shows annual price
increases for just one segment of higher education institutions — public four-year
universities — in comparison to annual changes in inflation.


27 The CPI-U is a measure of the average change in prices paid by urban consumers for
specific goods and services. It is often used as a proxy measure for the cost of living. See
CRS Report RL30074, The Consumer Price Index: A Brief Overview, by Brian W. Cashell.

Figure 2. Annual Percentage Increase, Public Four-Year University
Tuition and Required Fees vs. Inflation, 1965-1966 to 2005-2006


16.0%


14.0%


12.0%


10.0%


8.0%


6.0%


4.0%


2.0%


0.0%


-6 6 68-6 9 1-7 2 74-7 5 77-7 8 80-8 1 83-8 4 6-8 7 9- 9 0 92-9 3 95-9 6 98-9 9 1-0 2 4- 0 5
1 965 1 9 1 97 1 9 1 9 1 9 1 9 1 98 1 98 1 9 1 9 1 9 2 00 2 00
Public UniversityInflation
Source: CRS analysis based on average tuition, room, and board charges for all four-year universities
(ED, Digest 2006, Table 319) and inflation as measured by the CPI-U (Bureau of Labor Statistics at
[ h t t p : / / www. b l s . g o v / c p i / # d a t a ] ) .
Price as a Share of Family Income. An alternate perspective is to consider
college prices as a share of family income. Researchers have found that family
incomes have not kept pace with tuition increases — particularly for the lowest-28
income families. This analysis focuses on overall mean household income and the
mean household income of households in the lowest and highest 20% of households
according to mean income, as well as households in the middle of this distribution
of mean income (i.e., third or middle quintile).
The share that college prices represent relative to family income has been
growing over the past two decades because tuition is increasing faster than income.
From the mid-1980s to the mid-1990s, increases in tuition levels averaged across
institutions were about four times higher than growth in mean household income.
While the discrepancy in growth diminished during the following decade, tuition
increases continued to outpace the growth in mean household income, across public
and private four-year institutions and public two-year institutions, as shown in
Figure 3.
28 See, for example, the National Center for Public Policy and Higher Education, Losing
Ground: A National Status Report on the Affordability of American Higher Education, 2002.

Figure 3. Percent Changes in Tuition and Fees and Mean
Household Income: 1985-1986 to 1995-1996 and 1995-1996 to

2005-2006


(in constant 2005 dollars)
60
53
4650
4141
373640nge
ha
30 C
2322cent
20er
P
91010
0
AllPub. 4-yr.Priv. 4-yr.Pub. 2-yr.Mean
Household
Income
1985-1986 to 1995-19961995-1996 to 2005-2006
Source: CRS analysis based on U.S. Department of Education, National Center for Education
Statistics, Digest of Education Statistics 2006, Table 319, available at [http://www.nces.ed.gov];
Bureau of Labor Statistics, annual unadjusted Consumer Price Index-Urban (CPI-U) data, available
at [http://www.bls.gov]; and U.S. Census Bureau, Historical Income Tables — Households, Table H-

6, available at [http://www.census.gov/hhes/www/income/histinc/h06ar.html].


Note: Percentage changes were calculated based on dollar figures in constant 2005 dollars. Tuition
and fees were adjusted for inflation using the annual August CPI-U index to coincide with the start of
most academic years. Mean household income was adjusted for inflation using the annual CPI-U
index.
When income is analyzed by households using mean income in the top quintile,
third quintile (or middle quintile), and lowest quintile, other trends become apparent.
From the mid-1980s to the mid1990s, all three groups saw growth in their mean
household income outpaced by increases in tuition (Figure 4). For households in the
lowest quintile, tuition increased at a rate about eight times higher than mean income.
For households in the middle quintile, tuition increased at a rate of about 20 times
that of mean income. For households in the highest quintile, tuition increased at a
rate of about 2.5 times that of mean income. During the following decade, only the
middle and highest income groups experienced growth in mean income; the lowest
income group had their mean income decline by 0.4%. Similar to the previous
decade, the growth in tuition and fees continued to outpace the growth in mean
income for all three income groups, but the difference in growth rates was
particularly substantial for those in the lowest income group.

Figure 4. Percent Change in Mean Household Income for
Households in the Top, Middle, and Bottom Quintiles and
Changes in Tuition and Fees:

1995-1986 to 1995-1996 and 1995-1996 to 2005-2006


50(in constant 2005 dollars)


41
40
36
30ange
Ch
20cent
1614
Per
10
56
20
0
Lowest IncomeMiddle IncomeHighest IncomeTuition-All
Institutions
1985-1986 to 1995-19961995-1996 to 2005-2006
Source: CRS analysis based on U.S. Department of Education, National Center for Education
Statistics, Digest of Education Statistics 2006, Table 319, available at [http://www.nces.ed.gov];
Bureau of Labor Statistics, annual unadjusted Consumer Price Index-Urban (CPI-U) data, available
at [http://www.bls.gov]; and U.S. Census Bureau, Historical Income Tables — Households, Table H-

3, available at [http://www.census.gov/hhes/www/income/histinc/h03ar.html].


Note: Percentage changes were calculated based on dollar figures in constant 2005 dollars. Tuition
and fees were adjusted for inflation using the annual August CPI-U index to coincide with the start of
most academic years. Mean household income was adjusted for inflation using the annual CPI-U
index.
As a percentage of income, tuition consumed a larger proportion of mean
household income for households in each of the quintiles over time for each of the
education options considered in Table 4 but consistently consumed a larger share of
household income for households in the lowest quintile. For example, the percentage
of household income for households in the lowest income quintile needed to pay
tuition at public and private four-year and public two-year institutions increased from
38.9% in 1985 to 71.3% in 2005, while increasing from 9.3% to 16.4% for
households in the middle quintile and increasing from 3.3% to 4.8% for households
in the highest quintile. When only public institutions were considered, the
percentage of mean household income needed to pay tuition and fees dropped,
particularly for public two-year institutions, but still required a substantially greater
proportion of mean household income from households in the lowest quintile than
from those in the middle- or higher-income quintiles.

Table 4. Tuition and Fees as a Percentage of Mean Household
Income at Public and Private Institutions, by Selected Income
Quintile for Selected Years
(in constant 2005 dollars)
All Public and
Private Four-Year
and Public Two-
Year InstitutionsPublic Four-YearPublic Two-Year
Year andPercentPercentPercent
IncomeMeanof Meanof Meanof Mean
Quint ile inco me Price Inc o me P r ic e Inc o me P r ic e Inc o me
1985 (Mean Income) and 1985-1986 (Tuition and Fees)
Lo we s t $10,190 $3,966 38.9% $2,397 23.5% $1,166 11.4%
quintile
Middle $42,863 $3,966 9.3% $2,397 5.6% $1,166 2.7%
quintile
Hi ghe st $120,434 $3,966 3.3% $2,397 2.0% $1,166 1.0%
quintile
1995 (Mean Income) and 1995-1996 (Tuition and Fees)
Lo we s t $10,694 $5,572 52.1% $3,658 34.2% $1,591 14.9%
quintile
Middle $43,707 $5,572 12.7% $3,658 8.4% $1,591 3.6%
quintile
Hi ghe st $140,210 $5,572 4.0% $3,658 2.6% $1,591 1.1%
quintile
2005 (Mean Income) and 2005-2006 (Tuition and Fees)
Lo we s t $10,655 $7,601 71.3% $5,351 50.2% $1,935 18.2%
quintile
Middle $46,301 $7,601 16.4% $5,351 11.6% $1,935 4.2%
quintile
Hi ghe st $159,583 $7,601 4.8% $5,351 3.4% $1,935 1.2%
quintile
Source: CRS analysis based on U.S. Department of Education, National Center for Education
Statistics, Digest of Education Statistics 2006, Table 319, available at [http://www.nces.ed.gov];
Bureau of Labor Statistics, annual unadjusted Consumer Price Index-Urban (CPI-U) data, available
at [http://www.bls.gov]; and U.S. Census Bureau, Historical Income Tables — Households, Table H-

6, available at [http://www.census.gov/hhes/www/income/histinc/h03ar.html].


Note: Percentage changes were calculated on the basis of dollar figures in constant 2005 dollars.
Tuition and fees were adjusted for inflation using the annual August CPI-U index to coincide with the
start of most academic years. Mean household income was adjusted for inflation using the annual CPI-
U index.



These comparisons are based on sticker prices, not net prices. Because many
students do not pay the sticker price to attend college, the discrepancies between
increases in income and tuition may not be as substantial if net price were
consi d ered. 29
Prices by State
This section provides a brief overview of the price of higher education across
the 50 states and the District of Columbia during the 2005-2006 academic year. As
shown on Table 5, the average tuition, fees, room, and board charged for full-time
students attending public four-year degree-granting institutions was $12,108. The
average tuition, fees, room, and board at private (non-profit and for-profit) four-year
degree-granting institutions was more than twice this amount. The difference in
average tuition, fees, room, and board charged by public and private four-year
degree-granting institutions was driven primarily by differences in average tuition
and required fees ($5,351 versus $19,292, respectively), as the difference in average
room and board between public and private four-year degree-grant institutions was
about $1,300. The average tuition and fees at public two-year degree-granting
institutions was just under $2,000. In just over half the states, average tuition and
fees at public two-year institutions were less than or equal to 50% of the average
tuition and fees at public four-year institutions in the same state.


29 Net price is discussed in the next section of this report.

Table 5. Average Undergraduate Tuition, Fees, Room, and
Board Charged for Full-Time Students in Degree-Granting
Institutions, by Type and Control of Institution and State: 2005-
2006
Public Four-YearPrivate Four-YearPublicTwo-Year
Tuit io n Tuit io n Tuit io n
St a t e and Room and Room and
To t a l Required and To t a l Required and Required
Fees (in-BoardFees (in-BoardFees (in-
st a t e ) st a t e ) st a t e )
United States12,1085,3516,75727,31719,2928,0251,935
Alabama 9 ,625 4,578 5,047 18,520 12,426 6,094 2,764
Alaska 10,620 4,054 6,566 21,651 14,891 6,760 2,353
Ar izona 11,480 4,426 7,054 18,734 11,397 7,336 1,344
Ar kansas 9,192 4,643 4,549 18,122 12,691 5,431 1,780
California 13,685 4,408 9,277 31,266 21,691 9,575 718
Co lorado 11,569 4,465 7,104 27,779 18,493 9,286 1,991
Co nnecticut 14,658 6,709 7,949 36,026 26,183 9,843 2,536
Delaware 14,326 7,074 7,253 18,176 10,819 7,357 2,240
District ofna2,070na32,55622,7489,808na
Columbia
Florida 10,141 2,941 7,200 24,985 17,503 7,482 1,844
Georgia 10,062 3,632 6,430 26,081 18,120 7,961 1,645
Hawaii 9,042 3,226 5,816 19,437 10,334 9,103 1,226
Idaho 8 ,982 3,919 5,063 11,614 5,490 6,125 1,891
Illinois 13,976 7,158 6,818 27,875 19,406 8,469 2,104
Indiana 12,388 5,892 6,497 27,582 20,851 6,731 2,589
Iowa 12,329 5,619 6,710 23,444 17,513 5,932 3,032
Kansas 9,980 4,560 5,421 20,741 15,044 5,697 1,938
Kentucky 10,663 5,136 5,527 20,674 13,764 6,910 2,404
Lo uisiana 8 ,506 3,679 4,827 17,207 11,264 5,944 1,469
Maine 12,568 6,027 6,541 29,550 21,508 8,042 3,039
Maryland 14,793 7,045 7,747 32,617 23,934 8,682 2,833
Massachusetts 14,651 7,290 7,361 37,282 27,335 9,947 2,925
Michigan 13,693 6,938 6,756 19,732 13,303 6,429 2,076
Minneso ta 12,777 6,912 5,865 27,314 20,519 6,795 4,085
Mississippi 9,461 4,177 5,284 17,112 11,839 5,273 1,660
Misso ur i 11,861 5,831 6,030 22,441 15,718 6,722 2,247
Mo ntana 10,613 4,952 5,661 18,093 12,937 5,156 2,721
Nebraska 11,286 4,880 6,406 21,017 15,234 5,782 1,899
Nevada 10,865 2,671 8,194 20,691 12,622 8,069 1,635
New 15,479 8,458 7,021 31,154 22,534 8,620 5,720
Hampshire
New Jersey17,7088,6499,05931,33522,1149,2212,712
New Mexico9,5793,7015,87820,00613,2566,7501,179
New York13,2754,9878,28832,47822,9009,5793,181
North Carolina9,6753,6316,04426,41119,1667,2451,295
North Dakota9,8295,0384,79113,5539,3764,1773,084
Ohio 16,032 8,457 7,576 26,906 19,901 7,006 3,127
Oklaho ma 9,404 3,806 5,598 20,113 14,033 6,080 2,111
Or egon 12,720 5,348 7,373 27,945 20,844 7,101 2,635
Pennsylvania 15,464 8,710 6,754 31,963 23,450 8,514 2,976
Rhode Island14,3156,3167,99833,10124,1408,9602,470
South Carolina13,1457,3375,80822,17016,1656,0052,932



Public Four-YearPrivate Four-YearPublicTwo-Year
Tuit io n Tuit io n Tuit io n
St a t e and Room and Room and
To t a l Required and To t a l Required and Required
Fees (in-BoardFees (in-BoardFees (in-
st a t e ) st a t e ) st a t e )
South Dakota9,4934,9084,58518,93013,6865,2453,154
T ennessee 9 ,956 4,765 5,190 23,039 16,552 6,488 2,395
T exas 10,973 4,666 6,307 23,440 16,809 6,630 1,273
Utah 8,745 3,445 5,300 11,275 5,249 6,026 2,224
Vermont 16,571 9,279 7,292 29,072 21,273 7,799 4,012
Virginia 12,279 5,912 6,367 23,823 17,185 6,637 2,049
Washington 12,384 5,250 7,135 27,280 20,110 7,170 2,554
West Virginia9,9923,8166,17620,00213,8566,1472,509
Wisconsin 10,560 5,672 4,888 25,656 19,083 6,574 2,965
Wyoming 8 ,946 2,874 6,072 na 9,450 na 1,772
Source: Table prepared by CRS based on data available from the U.S. Department of Education,
National Center for Education Statistics, Digest of Education Statistics, 2006, table 320.
Note: Data are for the entire academic year and are average charges. Tuition and fees were weighted
by the number of full-time-equivalent undergraduates, but were not adjusted to reflect student
residency. Room and board are based on full-time students. Degree-granting institutions grant
associate’s or higher degrees and participate in Title IV federal financial aid programs. Private
four-year institutions include both non-profit and for-profit institutions. For additional information
about the data, see the source noted above.
Net Price of a College Education
After considering the cost of a college and the price students are initially asked
to pay, a third measure of college expenses is net price. Net price is a measure of
price that takes into account financial aid provided to students. It is the actual price
students and their families need to pay out of their own pockets to attend college.
Student aid for postsecondary education may be need-based aid or merit-based
aid. Need-based aid addresses concerns of access and affordability through grants
and loans, while merit-based aid programs are designed to recognize student
achievement through tuition waivers and scholarships. Numerous entities provide
student aid, including states, local governments, institutions, foundations, and the
federal government.
In 2006-2007, over $149.0 billion was awarded in student aid from all sources.30
About 58% of this amount was generated by the federal government through
appropriations, loan guarantees, and tax credits. For the federal government,
providing access to postsecondary education for low-income students has been the
focus of student aid programs. Federal grant aid from all programs totaled $19.6


30 The College Board, Trends in Student Aid 2007, October 2007, at [http://www.college
board.com/prod_downloads/about/news_info/trends/trends_aid_07.pdf]. (Hereafter cited
as The College Board, Student Aid.)

billion in the last academic year, while federally backed loan disbursements totaled
$59.6 billion. From federal, state, institutional, and private sources, grant aid to
students — which does not have to be repaid and therefore lowers out-of-pocket
payments — totaled $63.9 billion.
Total federal aid has grown 128% over the past ten years (starting from $37.9
billion). However, its overall proportion of student aid is falling: in 1996-1997,
federal aid represented 66% of all aid, compared with about 58% in 2006-2007.
State, institutional, and private aid have been outpacing federal aid growth over the
past decade, with private grants growing by 206% and private loans growing by

989%. 31


Although student financial aid from non-federal sources contributes
substantially to lowering net price, the focus of this section is on federal student aid
programs and their role in lowering out-of-pocket expenses for students. The two
largest federal aid programs, Pell Grants and federal student loans, are authorized
under Title IV of the HEA. The third largest (measured in terms of aid provided)
source of financial assistance is federal income tax-related credits, deductions, and
benefits. 32
Federal Financial Aid
The federal government currently provides several forms of support to help
students pursue a postsecondary education. This aid takes the form of grants, loans,
tax credits, tax deductions, and tax-favored education savings benefits.33 Pell Grants
and federal student loans are the two largest federal aid programs.34
Pell Grants.35 The Pell Grant program, authorized by Title IV of the HEA, is
the single largest source of grant aid for postsecondary education provided by the


31 Ibid.
32 For more information on tax deductions and credits, see CRS Report RL31129, Higher
Education Tax Credits and Deduction: An Overview of the Benefits and Their Relationship
to Traditional Student Aid, by Linda Levine and Adam Stoll. For more information on tax
benefits for college savings, see CRS Report RL32155, Tax-Favored Higher Education
Savings Benefits and Their Relationship to Traditional Federal Student Aid, by Linda
Levine and Charmaine Mercer. Also see CRS Report RS21870, Education Tax Benefits:
Are They Permanent or Temporary?, by Linda Levine.
33 Federal student aid authorized by Title IV of the HEA is only available to students
attending eligible institutions of higher education. For more information about institutional
eligibility for Title IV programs, see CRS Report RL31926, Institutional Eligibility for
Participation in Title IV Student Aid Programs Under the Higher Education Act:
Background and Issues, by Rebecca Skinner.
34 For an overview of the smaller federal aid programs authorized in the HEA, see CRS
Report RL34214, A Primer on the Higher Education Act (HEA), by Charmaine Mercer and
Rebecca R. Skinner.
35 For more information, see CRS Report RL31668, Federal Pell Grant Program of the
Higher Education Act: Background and Reauthorization, by Charmaine Mercer.

federal government. Pell Grants are need-based aid intended to be the foundation for
all federal student aid awarded to undergraduate students. There is no absolute
income threshold that determines program eligibility, but most Pell Grant recipients
are low-income students. For FY2006, it is estimated that the program provided
nearly $13 billion to about 5.4 million undergraduate students. For FY2007, the
maximum Pell Grant award was $4,310.
Loan Programs.36 The federal government operates two major student loan
programs: the Federal Family Education Loan (FFEL) program, authorized by Part
B of Title IV of the HEA; and the William D. Ford Direct Loan (DL) program,
authorized by Part D of Title IV of the HEA. These programs provide loans to
undergraduate and graduate students and the parents of undergraduate students to
help them meet the costs of postsecondary education. The FFEL and DL programs
provide more direct aid to students pursuing postsecondary education than any other
single source. The loans made through these programs are low-interest loans. In
FY2005, these programs provided $56.2 billion in new loans to students and their
parents.
Loans made through the FFEL and DL programs are provided to students
pursuing a postsecondary education on at least a half-time basis at eligible
postsecondary institutions. Student borrowers receiving loans through these
programs are able to postpone loan repayment until they complete their academic
programs and may also defer payment to pursue additional postsecondary studies.
Students Receiving Aid
In 2003-2004, about 76% of all full-time, full-year undergraduates received
some form of financial aid (Table 6). The percentage of students receiving any
federal aid varied by control of institution, ranging from 56% of students at public
institutions to 87% of students at private for-profit institutions. Over two-fifths
(41%) of full-time, full-year undergraduates attending public institutions received
federal loans. Higher percentages of students received federal loans at private
institutions, with 64% of students at private not-for-profit institutions and 78% of
students at private for-profit institutions receiving federal loans. Nearly a quarter of
full-time, full-year undergraduates at private not-for-profit colleges received federal
work study, but far fewer students did so at other types of institutions.


36 For more information, see CRS Report RL33673, Federal Family Education Loan
Program and William D. Ford Direct Loan Program Student Loans: Terms and Conditions
for Borrowers, by Adam Stoll.

Table 6. Percentage of Full-Time, Full-Year Undergraduates
Receiving Aid, by Source and Type of Aid and Control of
Institution: 2003-2004
Percentage of Students Receiving Aid by Source of Aid
Federal
Control ofFederalFederalWork
InstitutionAny AidAny FederalGrantsLoansStudy
All 76.1% 61.7% 33.2% 48.5% 10.3%
Public 71.1 56.1 31.6 41.1 7 .3
Private Not-88.673.131.964.423.0
For-Profit
Private For-92.186.954.878.23.1
Profit
Source: U.S. Department of Education, National Center for Education Statistics. Digest of Education
Statistics: 2006, Table 327. Data drawn from National Postsecondary Student Aid Study (NPSAS),

2004, at [http://www.nces.ed.gov/].


Surprisingly similar percentages of students in different income groups received
financial aid in 2003-2004. Nearly 63% of dependent undergraduates from families
earning less than $20,000 per year received some form of aid, while approximately
61% of students from families earning over $100,000 did so.37 However, the
distribution of aid by income group varies significantly by type of aid. For example,
over 32% of dependent undergraduates in the lowest income group were awarded
federal grant aid, while these awards went to 1% of dependent undergraduates in the
highest income group.
Reliance on loans to finance higher education is increasing. In 1996-1997,
students and their parents took out nearly $28.8 billion in federal student loans. By

2006-2007, students and families are expected to borrow approximately $59.6 billion38


in federal student loans — more than doubling in 10 years.
37 ED, Digest 2006, Table 327.
38 The College Board, Student Aid.

Net Price After Grants
A recent study of college price and financial aid awards for 2003-2004
examined the issue of net price by type of institution.39 Defining net price as total
price of attendance minus grant aid, the average net price for all students (including
those not receiving any grant aid) was as follows: at public two-year colleges,
$8,700; at public four-year institutions, $12,400; at private not-for-profit four-year
institutions, $17,400; and at private for-profit institutions, $20,600.40 For low-
income families of dependent undergraduates (whose incomes are in the bottom
quartile of families, earning less than $32,000), net price was lower: at public
two-year colleges, $6,700; at public four-year institutions, $9,000; at private not-for-
profit four-year institutions, $15,500; and at private for-profit institutions, $15,700.
Influences on College Costs and Prices
Researchers have been studying the issue of tuition increases for many years.
On the basis of their work, it has been determined that the price of postsecondary
education is established in multiple ways and differs for public and private
institutions. Because of limitations in the data, however, it has been difficult to
determine specific internal and external factors that have a strong relationship with
price increases.
Influences on Costs
Researchers have studied whether institutional costs, that is, trends in the cost
of items for which colleges and universities pay, drive increases in price. Current
analysis suggests that there is not a strong relationship between costs colleges incur
and price.41 Although evidence does not point to a strong relationship, it could be
argued that revenue must cover or exceed institutional costs or an institution may go
into debt. Researchers have determined, however, that most postsecondary
institutions do not function like businesses (with the notable exception of for-profit
colleges). The labor-intensive nature of providing a higher education makes it
difficult to realize productivity gains. For example, increasing class sizes to reduce
costs might result in a decline in quality rather than an increase in productivity.42


39 U.S. Department of Education, National Center for Education Statistics, Student
Financing of Undergraduate Education: 2003-04: With a Special Analysis of the Net Price
of Attendance and Federal Education Tax Benefits, NCES 2006-186, 2006, at
[http://www.nces.ed.gov/pubs2006/2006186.pdf].
40 Data for private for-profit institutions were not disaggregated by level.
41 ED, Costs and Prices Volume 1, p. 21.
42 See for example, Testimony of Sandy Baum, U.S. House of Representatives, Committee
on Education and the Workforce, Subcommittee on 21st Century Competitiveness,
Affordability in Higher Education: We Know There’s a Problem; What’s the Solution?,
hearing, July 10, 2003, at [http://edworkforce.house.gov/hearings/108th/21st/afford71003/
baum.htm]. (Hereafter cited as House Education and the Workforce, Affordability in Higher
(continued...)

Researchers have identified various factors that drive institutional costs. For
example, a recent summary of relevant literature identified five primary cost drivers:
(1) revenue availability; (2) institutional aid; (3) mission and discipline; (4) faculty
compensation and workload policies; and (5) class size.43 Other researchers have
pointed to specific costs that institutions are facing, including the provision of
technology, increasing health care costs, burdens associated with government
regulation, facilities, enrollment, and student expectations.44
More specifically, for example, the mission and discipline of an institution can
have substantial cost ramifications, as institutions with research programs, graduate
education, and public service missions have higher costs than other institutions.45
These costs may be even higher if the institution offers engineering or other science
programs with laboratory components. Providing students, faculty, and staff with
access to technology incurs infrastructure costs, as well as costs associated with
continual updating of hardware, software, and connections. Some institutions have
imposed new technology fees to have students cover some of these costs.
Establishing Price at Public Institutions
States differ in the basic philosophy that guides their decision making with
respect to setting tuition levels for public institutions. The majority of states have
embraced a philosophy of low tuition to maximize access to postsecondary education
by making it as affordable as possible.46 States that have adopted a philosophy on the
basis of higher levels of tuition, on the other hand, often provide substantial student
financial aid to help ensure access for low-income students.
Primary authority to establish tuition levels may rest with the legislature, state
coordinating or governing agency, individual system boards, or individual
institutions. In 13 states, the state coordinating/governing agency has the primary
authority to establish tuition levels. Fourteen states delegate this power to individual
institutions with varying levels of discretion, while 26 states rely on individual


42 (...continued)
Education.)
43 ED, Costs and Prices Volume 1, p. 21.
44 See House Education and the Workforce, Affordability in Higher Education; or The
National Commission on the Cost of Higher Education, Straight Talk About College Costs
& Prices, 1998, at [http://www.eriche.org/government/talk.html]. (Hereafter cited as NCC,
College Costs & Prices.)
45 According to a recent SHEEO survey of state higher education agencies, most of the
responding agencies (41 of 46) reported charging different levels of tuition for
undergraduate and graduate students, and 32 of 46 agencies reported charging different
prices for credit and non-credit bearing enrollment. For more information, see SHEEO,
State Tuition and Fees.
46 SHEEO, State Tuition and Fees.

system or local district boards. Five states give primary tuition-setting authority to
the state legislature.47
According to states, when setting in-state tuition, state general fund
appropriations have the most significant influence on this decision.48 For most states,
there are no formal incentives to limit tuition increases, but many operate under
informal incentives, such as the desire to provide an affordable education.49 States
or institutions also may opt to place self-imposed limitations on tuition increases.50
For example, a State Higher Education Executive Officers study found that 18 states
had applied some type of limitation on tuition increases during the previous three
fiscal years, including capping tuition increases at a certain percentage, freezing
tuition at a specific level, or indexing tuition to a measure of inflation.
An NCES-commissioned study examining college costs and price provides
some evidence as to factors that may be related to tuition increases. The specific
factors differ according to the level and control of the institution. At public four-year
institutions, a decline in state appropriations revenue was found to be the most
important factor associated with changes in tuition. According to the Institute for
Higher Education Policy (IHEP), the increase in price results from institutions
attempting to maintain their total revenue when state appropriations decline.51 An
increase in instructional expenditures also was associated with changes in tuition, but
the relationship was not as strong. At public two-year institutions, changes in
revenues, including state appropriations, and expenditures accounted for only a small
proportion of changes in tuition. This is attributed to overriding efforts by public
two-year institutions to maintain relatively low tuition. These institutions often will
opt to make other changes, such as reducing courses, eliminating programs, or
reducing services before they will increase price. Thus, tuition changes at public
two-year and public four-year institutions are affected by different factors.
State Support. For FY2006, state tax funds appropriated for higher education
operating expenses (e.g., colleges and universities, student aid, governing boards)
totaled $67.2 billion.52 This represented an overall increase of 7.1% in appropriated
funds from the previous year and a 14.4% increase in appropriated funds from


47 Ibid. Note that states may have identified more than one tuition-setting authority,
reflecting differences in policy among various state institutions.
48 See for example, SHEEO, State Tuition and Fees; IHEP, Reauthorizing HEA; and ED,
Costs and Prices Volume 1.
49 SHEEO, State Tuition and Fees.
50 For example, limits on tuition increases may be instituted or encouraged by state
legislatures, governors, or institutions.
51 IHEP, Reauthorizing HEA, p. 117.
52 All data on state tax funds appropriated for higher education operating expenses were
provided by the Center for the Study of Education Policy, Illinois State University, available
at [http://www.grapevine.ilstu.edu/fifty_state_summary.htm]. Appropriations for capital
outlays and debt service are not included in the total amounts reported by states. In addition,
appropriation of funds derived from federal sources, student fees, auxiliary enterprises, and
other non-tax sources were also excluded.

FY2004. Looking at trends over time, from FY1996 to FY2006, overall state
appropriations increased 54.7%, with increases in appropriations occurring in every
state for which data were available.53
When states contend with serious financial difficulties, resulting in smaller
increases in support for higher education than in previous years or outright reductions
in support for higher education, public institutions are affected by these decisions.
A substantial decline in state appropriations, especially at four-year institutions, may
lead to large percentage or dollar increases in tuition (or both), regardless of whether
the actual cost of providing the education also increases. In addition, as enrollment
in higher education continues to increase, per student appropriations may be reduced
if corresponding increases are not made in state appropriations for higher education.
Research has shown that changes in revenues and expenditures do not have as
substantial an effect on tuition at public two-year institutions. These institutions may
maintain current tuition levels or eliminate the need for large tuition increases by
reducing course offerings, services, or enrollment. These types of changes ultimately
may be restricting access to postsecondary education, as there may be fewer seats or
services available. This could be particularly troublesome for low-income students,
non-traditional students, and individuals seeking to return to school for additional
training.
Decreases in state appropriations may also mean less money is available to
support institutional aid, which may, in turn, reduce student access to postsecondary
education. For example, institutions that rely on state appropriations to offer
institutional aid may find that they need to shift money that would have been used to
provide aid to other purposes. They might use available state appropriations to affect
tuition levels rather than using state appropriations to support student aid. Although
this practice may be beneficial to all students in terms of the price of college, low-
income students dependent on institutional aid may no longer receive needed support.
Establishing Price at Private Institutions
In a discussion of primarily non-public institutions, IHEP divides the non-public
sector into three markets: (1) highly selective institutions — predominantly private
not-for-profit institutions, as well as a few highly selective public institutions; (2)
competitive institutions; and (3) proprietary institutions.54 Highly selective
institutions are primarily private not-for-profit institutions that experience excess
demand for their available openings. These institutions tend to compete against one
another on the basis of non-price mechanisms, such as institutional reputation. They
generally have similar prices and often have higher levels of institutional wealth than
other types of institutions.55


53 Ibid.
54 IHEP, Reauthorizing HEA, p. 116-117.
55 In the 1980s, the U.S. Department of Justice launched an investigation into possible
antitrust violations by private institutions. The primary focus of the investigation was on
(continued...)

Competitive institutions also compete with their peer institutions but on a
regional rather than national level. They tend to compete through non-price
mechanisms and tuition discounting for specific groups of students. Prices within a
specific group of peer institutions tend to cluster in a narrow range.
Less is known about proprietary institutions. However, by definition, these for-
profit institutions exist to make a profit. As previously discussed, tuition is their
primary source of revenue, so the costs of educating students at these institutions may
be more closely related to price than at other types of institutions.
The NCES study examining college costs and prices found that factors affecting
tuition at private not-for-profit four-year institutions are more varied.56 That is,
unlike public four-year institutions, no single factor is strongly related to tuition
changes. Rather, prices at private not-for-profit four-year institutions are driven by
internal institutional budget controls and external market conditions. Among the
internal factors associated with higher tuition were higher costs for institutional aid
and faculty salaries and declining revenues from endowments and private giving.
Among the external factors associated with tuition changes were the availability of
institutional aid, price of public institutions in the same state, and per capita income
in the state.
Tuition Discounting and Net Price
Tuition discounting is a practice by which institutions charge students less than
the sticker price. This is intended to increase net revenue, attract minority students,
increase enrollment, or attract academically talented students.57 It is unclear whether
this strategy ultimately accomplishes these goals. For example, one question focuses
on whether reductions in tuition provided for students who are able to pay based on
formulas such as the Expected Family Contribution (EFC), but are unwilling to pay
the sticker price, results in enrollment in the institution that otherwise would not have


55 (...continued)
the 23 institutions, including all of the Ivy League universities, composing the Overlap
Group, which met annually to compare financial aid offers made to students admitted to two
or more member institutions. As a result of the suit, the institutions discontinued their
collaboration with respect to financial aid packages. Through the Higher Education Act,
however, Congress has authorized an exemption for institutions that do not consider a
family’s ability to pay in making admissions decisions (need-blind admissions) to permit
them to discuss their financial aid policies. The exemption currently is approved until 2008
(P.L. 107-72).
56 The NCES study only included private not-for-profit four-year institutions. Private not-
for-profit two-year institutions and private for-profit institutions were not examined. (U.S.
Department of Education, National Center for Education Statistics, 2001, Study of College
Costs and Prices, 1988-89 to 1997-98 Volume 1, available at [http://www.nces.ed.gov/pub
search/pubsinfo.asp?pubid=2002157]. (Hereafter cited as ED, Costs and Prices Volume

1.)


57 For more information on tuition discounting, see L. Lapovsky, Institutional Financial
Health: Tuition Discounting and Enrollment Management, in ED, Costs and Prices Volume

2.



occurred, potentially contributing to net revenue. Another issue focuses on whether
by subsidizing students able to pay to attend college, funds are being diverted from
needy students or from improvements in academic programs or services. A third
issue focuses on whether the practice of tuition discounting causes institutions to
raise prices, knowing that many students will not pay the full sticker price ultimately.
Last, the question remains whether an alternative strategy of across-the-board
reductions in price to the level at which tuition is generally discounted would result
in increased enrollment, increased net revenue, or recruitment of the desired student
body.
A recent study conducted by the Lumina Foundation examined the use of tuition
discounting.58 Researchers state that the practice does work successfully at some
institutions but that, when institutional aid practices are examined across all
institutions, tuition discounting has some adverse financial effects on low-income
students in terms of accessibility and affordability. For example, researchers suggest
that if institutions use financial resources to attract students that could afford to pay
to attend, then institutions had fewer funds to provide institutional support to low-
income students. Researchers support this argument on the basis of data from the
National Postsecondary Student Aid Study, which show that between 1995-1996 and
2000-2001, institutional grant aid for higher-income undergraduates rose more
quickly than for lower-income undergraduates at four-year institutions. The Lumina
Foundation study also found that the use of tuition discounting does not always
produce the desired result of increased net revenue, nor does it necessarily lead to the
recruitment of the most academically talented students based on the median SAT
scores of the students attending institutions using tuition discounting.
Federal Policy Effects on College Price
In analyzing college prices, researchers have considered whether a relationship
exists between federal aid and price increases. Although federal grant aid does not
seem to affect college prices directly, less is known about the effects of federal loans
and tax credits. A direct relationship between loans and higher tuition has not been
identified, but an indirect relationship may exist. With respect to tax credits, limited
evidence suggests that a relationship may exist under certain circumstances.
Federal Financial Aid and Sticker Price. Federal student aid takes many
forms, including grants, loans, and education tax credits. Concerns have been raised
by researchers, interest groups, and some Members of Congress about whether
increased federal aid contributes to increasing college price. Debate about whether
federal financial aid provides incentives for tuition increases was widespread in the

1980s.59 By the 1990s, much of the debate had narrowed to focus on the relationship,


if any, between federal loan aid and price.


58 Lumina Foundation for Education, Unintended Consequences of Tuition Discounting,
May 2003, at [http://www.luminafoundation.org/publications/Tuitiondiscounting.pdf].
59 ED, Costs and Prices Volume 1.

Students apply for federal grants and loans using the Free Application for
Federal Student Aid (FAFSA) form. Based on information reported on the FAFSA,
ED calculates the EFC. In general, most institutions use the EFC to determine
students’ financial need by determining the difference between the price of
attendance and the EFC. Since this calculation takes the price of attendance into
account, a direct relationship between federal aid and price only would be likely if
increased financial need resulted in increased federal aid. However, federal grant and
loan aid are capped at specific amounts.60 These amounts generally are lower than
the price of attendance at many institutions. Thus, an incentive for institutions to
increase their price in anticipation of students receiving additional financial aid may
exist for institutions with relatively low prices, but it is not as clear that this is so at
institutions whose price already exceeds available federal aid.61
According to one of the major recent reviews of research, in general, research
has shown that no relationship exists between federal grants and college prices.62
Research on the relationship between federal student loans and tuition, however, has
been less conclusive, with some researchers believing that there may be an indirect
relationship between federal student loans and college price. For example,
institutions may raise prices knowing that students can apply for loans to cover
tuition increases. Institutions then may use revenue from tuition increases to provide
additional institutional aid to make it possible for some students to access and afford
the price of college. At the same time, increased loan availability could reduce the
need for institutions to increase price to generate revenue to provide institutional aid
because students can receive aid in the form of loans. Thus, it is difficult to
determine whether federal student loan programs are contributing to tuition increases.
In its examination of college costs and prices, NCES found virtually no
associations between price and most student aid variables, including federal grants
and loans, and tuition. The only association that was identified was that institutional
aid had a positive association with tuition increases at comprehensive public
institutions and comprehensive private not-for-profit institutions.63 This could be
related to institutions increasing tuition to increase revenue to provide institutional
aid to students. Thus, in the NCES study, federal grants and loans were not found
to have a positive relationship with tuition increases.


60 For more information about federal grants and loans, see, for example, CRS Report
RL30655, Federal Student Loans: Terms and Conditions for Borrowers, by Adam Stoll;
and CRS Report RL31668, Federal Pell Grant Program of the Higher Education Act:
Background and Reauthorization, by Charmaine Mercer.
61 Incentives for price increases also may be created when grant and loan limits are increased
and an institution currently charges a price below these levels.
62 ED, Costs and Prices Volume I.
63 For the purposes of this study, the researchers developed a modified version of the
Carnegie classification codes. Comprehensive institutions include institutions offering a full
range of bachelor’s programs that are also committed to graduate education through the
master’s degree. These institutions award 20 or more master’s degrees annually in one or
more disciplines.

Federal Tax Legislation and Sticker Price. Limited data are available
about the effect of federal tax credits on tuition increases.64 A recent Government
Accountability Office study concluded that data and methodological challenges make
it difficult to identify and isolate the effects of tax credits, as well as grants and loans,65
on attendance, choice, completion, or costs.
In a recent survey of state higher education agencies, few states reported raising
tuition in response to new tax credits or taking federal tax credits into account when66
calculating student aid eligibility. Most states reported taking advantage of
opportunities to create a tax-advantaged state prepayment or college savings plan,
and many states indicated they publicize the availability of federal tax credits to help
finance college.
However, an analysis of the effect of tax credits on state support for higher
education and changes in college prices found that a relationship does exist between
tax credits and state appropriations and tax credits and price under certain67
circumstances. For example, the study found that when other factors were held
constant, state appropriations to public two-year institutions charging less than
$2,000 fell relative to other institutions after the introduction of tax credits. At the
same time, states that had developed a track record of supporting student aid
programs continued to support, and possibly bolster, these programs despite the
availability of additional federal aid.
At the institution level, incentives existed for institutions to increase their prices
for students who benefitted from the tax credits; that is, the tax credits increased
student income, providing students with more money to pay for college. Evidence
indicates that public two-year colleges raised prices higher than what could be
explained by fluctuations in state appropriations, and the increases were greater at68


schools with higher percentages of tax credit-eligible students.
64 The aforementioned NCES study of college costs and prices did not include federal tax
credits in its analysis.
65 Government Accountability Office (then called General Accounting Office), September
2002, Student Aid and Tax Benefits: Better Research and Guidance Will Facilitate
Comparison and Effectiveness of Student Use, GAO-02-751, at [http://www.gao.gov/].
66 SHEEO, State Tuition and Fees.
67 B.T. Long, “The Impact of Federal Tax Credits for Higher Education Expenses” in
Caroline M. Hoxby, ed., College Costs: The Economics of Which College, When, College,
and How to Pay for It, Chicago: University of Chicago Press, 2004. (Hereafter cited as
Long, Impact of Federal Tax Credits.)
68 Ibid.

Actions at the State and Institutional Levels
Congress may include provisions related to college costs and prices in HEA
reauthorization legislation, but there are also steps to increase affordability that could
be taken or are being taken by states and institutions that could either complement
federal actions or minimize the need for federal action in some areas.69 This section
provides several examples of strategies currently being implemented by states and
institutions to address issues of college costs and price. More specifically, the
overview focuses on three key areas: (1) tuition and fees, (2) reducing costs, and (3)
college credits.
Tuition and Fees. States and institutions have taken a variety of approaches
to making college more affordable for students. For example, Harvard University
and the University of Virginia have eliminated tuition and fees for students whose
family incomes fall below a specified level.70 Colorado implemented a voucher71
system that provides directs stipends to students for tuition payments. Arizona,
Mississippi, and New York are considering or implementing tuition policies that link72
tuition increases to increases in measures of inflation. For example, the former
chancellor at the State University of New York (SUNY) proposed tying tuition
increases to the Higher Education Price Index (HEPI, discussed below). Other states
have proposed freezing tuition and fees at a certain level for a specific number of
years. For example, Illinois implemented a strategy to keep tuition at a constant level
for four years for each entering class beginning fall 2004,73 and similar policies are74
being or have been considered in other states, such as Kansas, Texas, and Indiana.
Under a policy that locks in tuition, the tuition charged to a cohort of freshman
students will remain constant for four years or more. This enables families to plan
for the price of college, essentially making a payment for a college education similar
to a mortgage payment that can be anticipated monthly. Questions have been raised
about tuition freeze proposals, including concerns that there will be substantial
differences in the price charged from one cohort to another.


69 For examples of recommendations of state and institutional strategies that could be
implemented to address the issues of college costs and price, see Commission on the Future
of Higher Education, 2006, A Test of Leadership: Charting the Future of U.S. Higher
Education, at [http://www.ed.gov/about/bdscomm/list/hiedfuture/index.html]; Dickerson,
R.C., 2004, Collision Course: Rising College Costs Threaten America’s Future and
Require Shared Solutions, at [http://www.collegecosts.info/]; and Lumina Foundation, 2005,
Course Corrections: Experts Offer Solutions to the College Cost Crisis, Indianapolis, IN:
Author.
70 Fischer, K. “Well-Heeled U. Of Virginia Tries to Balance Access With Prestige.”
Chronicle of Higher Education, May 12, 2006.
71 Fischer, K. “Colorado’s ‘Noble Experiment.’” Chronicle of Higher Education, July 15,

2005.


72 Ibid.
73 For more information, see University of Illinois Guaranteed Tuition Plan Summary, at
[http://www.vp aa.uillinois.edu/policies/tuition_guarantee_summary.pdf].
74 Hebel, S. “Push for Tuition Predictability.” Chronicle of Higher Education, May 20,

2005.



Reducing Costs. Many states and institutions have already taken the
initiative to reduce costs.75 For example with respect to health care, institutions have
formed their own health-care consortia; linked employee contributions to health care
costs to salary, meaning that staff members with higher salaries pay more; and76
focused on employee wellness to achieve costs savings. Other institutions have
focused on finding cost savings by sharing other services. For example, five colleges
in Massachusetts built their own fiber-optic network rather than paying high fees for
broadband Internet service.77 Institutions in Wisconsin formed a consortia to share78
office functions while enhancing services at a reduced cost.
Some institutions have accepted greater financial risks in exchange for likely
long-term savings.79 For example, institutions are raising insurance deductibles and
altering borrowing strategies to get better interest rates while assuming more risk.
Others are considering energy efficiency in their building designs and renovations to80
achieve long-term savings.
A more widespread cost-saving initiative is to replace tenured, full-time faculty
with lower-paid, part-time faculty.81 Some institutions have instituted differential
tuition levels, whereby students in more expensive programs (e.g., engineering) are
charged a higher tuition. Institutions are also outsourcing services.82 Although this
has been done for a number of years with respect to bookstores and food services,
institutions have now started to outsource facility management, on-campus housing,83
payroll, and printing.
College Credits. One of the major areas in which states and institutions are
focusing their efforts to reduce college costs and the total price of college attendance
is with respect to enabling students to earn college credits prior to college attendance
and ensuring that credits earned at one institution will be accepted at another
institution. According to data collected by the Education Commission of the States
(ECS), dual enrollment policies have been implemented through state statute, board


75 As previously discussed, as institutions implement strategies to reduce costs, the general
concern is a reduction in the quality of the education and services provided to students.
76 Gose, G. “Colleges Rely on Consortia, Contractors, and Ingenuity to Cut Costs.” The
Chronicle of Higher Education, January 27, 2006. (Hereafter referred to as Chronicle,
“Consortia, Contractors, and Ingenuity.”)
77 Chronicle, “Consortia, Contractors, and Ingenuity.”
78 Ekman, R. “Many Small Private Colleges Thrive with Modest Endowments.” The
Chronicle of Higher Education, June 2, 2006.
79 Chronicle, “Consortia, Contractors, and Ingenuity.”
80 Ibid.
81 IHEP, Reauthorizing the HEA.
82 Ibid.
83 Chronicle, “Consortia, Contractors, and Ingenuity.”

policy, or institutional agreement in 47 states.84 These policies enable high school
students to earn college credits while in high school. Many institutions also award
students credits on the basis of the completion of Advanced Placement (AP) courses
and specific levels of performance on the AP tests. Some institutions also provide
students with college credit for completion of an International Baccalaureate (IB)
diploma and specific levels of performance on the related tests. Texas recently
implemented a law that provides students graduating from a Texas high school with
an IB diploma and specific scores on the IB exams with at least 24 semester credits
upon enrollment in a Texas public IHE.85
All states have some type of agreement with respect to the transfer of credit.86
These agreements may be established by legislation or created voluntarily on a
course-by-course, department-to-department, or institution-to-institution basis. Often
these agreements are created between two-year institutions and four-year institutions
to facilitate the transfer of credit as students move from one type of institution to the
next. They may also exist solely among four-year institutions, two-year institutions,
a group of institutions, or just two institutions. The more extensive the agreement
in terms of the number of institutions included, the greater the benefit to the student.
Some states have enhanced their articulation agreements by establishing a set of
general education core curriculum requirements. A general education core
curriculum generally refers to a set of courses that fulfill lower-division general
education requirements at all institutions participating in the core curriculum system.
Some states have adopted common general education courses, while others have
identified blocks of courses that are guaranteed to transfer from one institution to
another. Overall, 37 states have general education common core courses that transfer
from one institution to another under specific circumstances.87 The completion of
these requirements often carries some type of benefit, such as transferring from a
two-year institution into a four-year institution with junior status. Nine states have
also developed common course numbering.88 Having common course numbers at
two-year and four-year institutions makes it more likely that students will enroll in
courses that will ultimately transfer from one institution to another.89


84 Hale, G. (2001). Postsecondary Options: Dual/Concurrent Enrollment. Available online
from the Education Commission of the states at [http://www.ecs.org/clearinghouse/28/

11/2811.doc].


85 Mellon, E. “Extra Effort in the Classroom Pays Off: International Baccalaureate Puts
Participants on College Fast Track.” Houston Chronicle: January 4, 2007.
86 Based on an analysis of the use of articulation agreements in all 50 states conducted by
CRS in December 2006.
87 Based on findings from an unpublished analysis conducted by CRS.
88 Based on findings from an unpublished analysis conducted by CRS.
89 Education Commission of the States, Articulation and Transfer, [http://www.community
collegepolicy.org/ html/toolkit/articulation/].

Issues for the Higher Education Act Reauthorization
Work on the reauthorization of the HEA began during the 108th Congress andth
has continued through the 110 Congress. During this time, Congress has held
numerous hearings on and introduced and passed bills addressing affordability and
accessibility issues. Clearly there are concerns about students’ and their families’
ability to afford college and, consequently, their ability to access postsecondary
education opportunities. Congressional involvement with the issue of college price
has historically been limited, focusing on issues of access. This raises the question
of what the appropriate federal role is, if any, in relation to college prices.
Concomitantly, a second question of whether Congress has tools at its disposal that
will effectively address issues of college price and cost can be asked. A key issue is
how to develop and implement effectively a federal policy related to college price
given the diversity of institutions, policies, and price drivers affecting those
institutions nationwide.90 Regardless of the approach ultimately selected, Congress
faces the need to balance concerns about affordability and access with the goal of
maintaining a high quality system of postsecondary education.
Price Indices
Traditionally, Congress has not embraced a policy role with respect to the prices
charged by public and private institutions, choosing instead to address issues of
access and affordability from the student financial aid perspective. However,
proposals for indexing increases in college price to some measure have been
introduced in the 108th, 109th, and 110th Congresses.91 For example, proposals have
been introduced that would compare an institution’s percentage increase in tuition
and fees against two times the increase in the Consumer Price Index-All Urban
Consumers (CPI-U), and require institutions whose percentage increase in tuition and
fees exceeded two times the increase in the CPI-U to submit to additional reporting
requirements or other penalties. Congressional debate may continue to focus on the
use of price indices as a means to temper anticipated increases in tuition.
When considering the implementation of a price index requirement, perhaps the
most obvious issue is what to select as the measure to which tuition and fees will be
indexed. Three options have been considered in recent years. The first is the CPI-U,
produced by the Bureau of Labor Statistics (BLS). The CPI-U is a measure of
changes in the price of a market basket of goods and services purchased for
consumption by all urban consumers.92 BLS also produces indices that make it
possible to examine changes in the price of college textbooks and college tuition and
fees, although these items have not been included in a single index.93


90 NCC, College Costs & Prices, p. 21. The National Commission on the Cost of Higher
Education argues against a one-size-fits-all approach for reducing price or controlling costs.
91 See for example, S. 1642 in the 110th Congress and H.R. 609 and S. 1614 in the 109th
Congress.
92 For more information, see [http://www.bls.gov/cpi/home.htm#overview].
93 These indices may be calculated at [http://data.bls.gov/PDQ/outside.jsp?survey=cu].

A second measure that has been discussed is the Higher Education Price Index
(HEPI).94 The HEPI was created in 1961 by Dr. Kent Halstead and was first
published by the U.S. Department of Education in 1975. Since 2005, the HEPI has
been managed by the Commonfund Institute.95 According to the Commonfund, the
“HEPI measures the average relative level in the prices of a fixed market basket of
goods and services purchased by colleges and universities through current fund
educational and general expenditures excluding expenditures for research.”96 The
HEPI is calculated using a regression formula that includes professional salaries (e.g,
faculty and administrative salaries), nonprofessional wages and salaries (e.g., clerical
salaries), fringe benefits, contracted services, supplies and materials, and utilities.97
It functions as a tool to examine the purchasing power of colleges and universities.
That is, by reporting only price changes, without quality or quantity changes, the
index essentially tells institutions how much it will cost to maintain the status quo.
Although there are several differences between the CPI-U and the HEPI, two in
particular are worth considering. First, as previously discussed, most spending by
colleges and universities is for personnel, primarily faculty. Salary increases for
postsecondary education personnel are different from those included in the CPI-U,
which includes urban wage earners and salaried clerical workers. In addition, the
HEPI focuses specifically on goods and services purchased by colleges and
universities, while the CPI-U also includes housing, transportation, medical care, and
other items. While the CPI-U does have a separate index for tuition and fees, for
example, this index has not been considered for use in HEA reauthorization bills that
have been reported out of committee in recent years.
Finally, the third index option that has been considered is to create indices using
a market basket of higher education goods and services, possibly having a different
index for different types of institution on the basis of level and control. It is unclear
exactly how this type of index would be different from the HEPI, for example, except
that the indices may be designed to further account for distinctions among different
types of institutions.
A second difficulty associated with using price indices is related to differences
between (1) percentage increases in price and (2) dollar increases in price. If a certain
percentage increase is set as a limit in price increases, institutions with relatively low
tuition may be penalized for making small changes in the actual dollar amount being
charged to students, while institutions with already high tuition levels may be able


94 The discussion of the HEPI is based on information available from the Commonfund,
College and University Higher Education Price Index, 2004 Update, at
[ h t t p : / / www.commonf und.or g/ T e mp l a t e s/ In ve st o r S e r v i c e s / R E S O URCE_REQUEST /
target.pdf?RES_GUID=2CE78A52-3B56-40E6-8744-CCE745989978]. (Hereafter referred
to as Commonfund, HEPI.)
95 The Commonfund Institute focuses on providing nonprofit organizations with investment
information and professional development programs. It is the education and research arm
of the Commonfund, an investment firm.
96 Commonfund, HEPI, p. 16.
97 HEPI was originally based on 25 budget components that were organized in 8 categories
(e.g., professional salaries, non-professional wages, contracted services, utilities).

to make relatively small percentage increases resulting in relatively large dollar
increases without penalty. Similar problems could arise from establishing a specific
dollar increase as a price increase limit. One possible way to address these problems,
in part, would be to establish an index by which to evaluate percentage increases in
tuition and fees, while including an exception for institutions for whom violation of
the established requirement is associated with a relatively small dollar increase in
tuition and fees. Another issue to consider is that, depending on the implementation
timeline of such a policy, in the years just prior to the policy taking place, institutions
nationwide may seize on their last opportunities to have relatively large tuition and
fee increases (in dollars, percentages, or both) without being subject to penalties.
Controlling College Costs
College costs, as previously discussed, refer to what institutions actually expend
to educate students. In examining ways to reduce price increases experienced by
students, some attention has been given to reducing college costs as a means to
reduce the need for institutions to increase their prices. One problem with this
approach is the subsidy that students at public and non-profit institutions receive —
even students paying the sticker price to attend college are not paying what it actually
costs institutions to educate them. Therefore, it is possible that institutions may raise
their prices to reduce the subsidy provided to students rather than to address an actual
increase in costs.
Congress has proposed addressing college prices via college costs through
incentive programs. For example, a demonstration program could provide grants to
consortia of institutions working together to reduce costs (e.g., by sharing
administrative functions or purchasing health care collectively).98 As previously
discussed, institutions are already forming these consortia on their own, but it is
possible that more consortia would be formed if incentives to do so existed. It might
also be useful to examine the levels of costs savings and areas in which cost savings
have been achieved by existing consortia to help determine how to structure an
effective incentive.
Encouraging institutions to control costs might be more appealing and more
feasible than other routes for controlling price increases, but these strategies may not
have as large an impact on prices as desired, as productivity gains in labor-intensive
enterprises are difficult to obtain. In addition, efforts to control costs could
inadvertently result in diminished quality and quantity of courses, programs, and
services. Finally, providing funding directly to institutions as incentives to increase
college affordability rather than to students through the federal student aid system has
not been the primary traditional role of the federal government in higher education.
In general, however, Congress has not focused as intensively on college costs as it
has on college prices, but it could be argued that college costs could be addressed
indirectly by legislation focused on college prices. That is, by encouraging
institutions to reduce their price increases, institutions may find it necessary to also
reduce their cost increases.


98 For example, see S. 371 in the 109th Congress.

Earning College Credits
Another approach to making college more affordable for students focuses on the
development of articulation agreements, the transfer of credits, dual enrollment, and
programs to help students finish their coursework. Although many of these proposals
also represent actions that could be taken by states and institutions, Congress may
continue to examine ways to encourage these practices.
These types of measures may result in cost savings to institutions and reduce the
overall price students pay for higher education. For example, articulation agreements
(also known as cooperative agreements), transfer agreements, and transfer of credit
agreements, are generally established to facilitate students’ transfer of credit from one
postsecondary institution to another. They are intended to help students understand
which of their credits may be accepted at another institution; reduce the time, effort,
and money required to review transcripts and determine compatibility between
courses; reduce the number of courses that a student may need to repeat, thereby
saving the student time and money; and potentially reduce the amount of federal aid
needed by a student to complete an education.99
Congress could also consider addressing the transfer of credit issue more
specifically by requiring institutions to make public their transfer of credit policies
or place restrictions on these policies, such as prohibiting institutions from denying
the transfer of credit on the basis of the accreditation held by the sending
institution.100 While transfer of credit requirements may be helpful to students in
many of the same ways that articulation agreements are beneficial, they may also
result in increased costs at IHEs that had previously made decisions about the transfer
of credit on the basis of the accreditation held by the sending institution. That is, if
IHEs were required to examine every transfer applicant’s transcripts on an individual
basis, it could increase the amount of time and effort needed to make a determination
about the transfer of credit. These costs could potentially be passed on to students,
resulting in increased tuition and fees. The use of articulation agreements, however,
could help to reduce these potential burdens, and widely publishing institutions’
transfer of credit policies may help students make more informed decisions about
their postsecondary education.


99 For example, H.R. 2739 and H.R. 2960 in the 109th Congress would have established
articulation agreement demonstration programs. S. 1642 in the 110th Congress would
require institutions to provide to current and prospective students a list of other institutions
with which they have established articulation agreements.
100 For examples of proposed transfer of credit policies, see S. 1642 in the 110th Congress
and H.R. 609 and S. 1614 in the 109th Congress. For more information about transfer of
credit issues, see CRS Report RL32989, Accreditation and Reauthorization of the Higher
Education Act, by Rebecca R. Skinner and Jody Feder.

Relieving Regulatory Burden
Regulations encompass requirements that function as control strategies (e.g.,
accountability measures), but these regulations often add to the costs institutions
shoulder in providing higher education to students. Postsecondary institutions and
some researchers have agreed that institutions may already be overburdened by
regulation. Most agree that public accountability is essential, but there are questions
about whether public accountability could be maintained through less costly and
cumbersome measures and whether the related savings would be passed on to
students. For example, performance-based models and requirements could be
implemented, allowing institutions to determine how to meet specific requirements,
rather than specifying both standards and procedures for meeting standards.
Congress has previously considered implementing a demonstration program that
would have supported innovative approaches in the delivery of higher education and
student financial aid at reduced costs for students and institutions.101 A specific goal
of the program would have been to identify specific statutory and regulatory
requirements that should be modified to allow for the more efficient and effective
delivery of federal student aid, as well as to provide access to distance education, to
enable students to complete their postsecondary education more efficiently. It is
possible that continued consideration may be given to relieving regulatory burden as
Congress continues work on HEA reauthorization.102
Providing Better Public Information
Another possible approach to the issues of price and cost is to provide potential
and current students with more and better information about these issues, enabling
them to make more informed decisions about their postsecondary education; that is,
providing information to enable the higher education market to operate more
efficiently without controls or incentives. Some information is available to the
general public through various college guides and websites, but concerns have been
raised by researchers that there is not enough information available. It has also been
suggested that data related to college costs and price should be designed to be useful,
accurate, timely, and understandable. On the basis of the bills already introduced by103
Congress related to these issues, Congress may continue to consider how to make
better information more readily available to current and prospective students.
While Congress may consider addressing the need for more useful information
to be made available to the public (e.g., additional data on instructional expenditures,
completion and graduation rates, or faculty information), it might do so by building
on existing data collection strategies. Current legislation mandates that the National
Center for Education Statistics (NCES) collect data from postsecondary institutions
and that institutions respond to the Integrated Postsecondary Education Data System
(IPEDS) surveys in a timely manner. There are some concerns, however, that


101 See for example, H.R. 609 in the 109th Congress.
102 See for example, H.R. 3746 in the 110th Congress.
103 See for example, S. 1642 and H.R. 3746 in the 110th Congress and H.R. 609 and S. 1614
in the 109th Congress.

institutions do not respond appropriately to IPEDS.104 In addition, there are time lags
between when the data are collected and released to the public. This could be a
problem, however, with any data collection designed to include the universe of
institutions.
In addition, existing HEA legislation requires institutions to provide current and
prospective students and their families with a variety of institutional information.105
While institutions are required to tell enrolled students what information is available,
Congress could consider strengthening existing requirements by specifying how data
must be presented in terms of user-friendly formats and how individuals must be
notified about the existence of the data and how to easily obtain it. There also is
discussion of adding additional accountability measures for institutions. If these
measures are added, provisions could be made to ensure that this information is made
available to students and their families.
The U.S. Department of Education currently maintains an online database of
information about postsecondary institutions known as the College Navigator.106
Congress could use the College Navigator as one venue for making any additional
information about postsecondary institutions available to the public and could
consider whether changes are needed in the design of the website or in the
information presented on the current site to improve the usefulness of the data.


104 In July 2003, ED announced that about 470 institutions had failed to complete at least one
of the 10 IPEDS surveys. In August 2003, ED announced that it was fining about 80
institutions.
105 HEA, Section 485.
106 The College Navigator was formerly known as the College Opportunities On-Line
(COOL) website.

Appendix. Average Undergraduate
Tuition and Fees
Table A-1. Average Undergraduate Tuition and
Required Fees, Charged for Full-Time Students in Degree-
Granting Institutions, by Type and Control of Institution
1976-1977 to 2005-2006
(in constant 2005 dollars)
All InstitutionsPublic InstitutionsPrivate Institutions
Yea r Four- Tw o - Four- Tw o - Four- Tw o -
All Yea r Yea r All Yea r Yea r All Yea r Yea r
1976-1977 $3,172 $4,182 $1,186 $1,643 $2,117 $973 $8,467 $8,698 $5,464
1977-1978 3,173 4,162 1,219 1,649 2,110 988 8,456 8,702 5,496
1978-1979 3,213 4,184 1,231 1,626 2,060 980 8,589 8,860 5,484
1979-1980 3,128 4,070 1,213 1,569 1,984 954 8,420 8,676 5,546
1980-1981 3,054 3,979 1,246 1,505 1,905 927 8,291 8,572 5,719
1981-1982 3,130 4,098 1,267 1,534 1,954 934 8,49 8,838 5,596
1982-1983 3,290 4,330 1,365 1,615 2,087 957 8,983 9,388 6,088
1983-1984 3,496 4,595 1,432 1,748 2,251 1,035 9,511 9,986 6,077
1984-1985 3,732 4,826 1,544 1,825 2,308 1,098 9,990 10,443 6,551
1985-1986 3,959 5,054 1,613 1,896 2,392 1,163 10,507 11,109 6,665
1986-1987 4,120 5,421 1,599 1,971 2,519 1,177 11,254 11,865 6,564
1987-1988 4,226 5,503 1,391 2,094 2,643 1,213 12,014 12,234 7,153
1988-1989 4,387 5,732 1,617 2,121 2,718 1,205 12,317 12,747 7,953
1989-1990 4,472 5,985 1,540 2,136 2,803 1,191 12,832 13,224 8,184
1990-1991 4,507 5,990 1,625 2,173 2,821 1,231 13,108 13,572 8,323
1991-1992 4,711 6,288 1,705 2,334 3,035 1,343 13,507 13,994 8,251
1992-1993 4,896 6,615 1,776 2,480 3,270 1,427 13,839 14,329 8,434
1993-1994 5,173 6,919 1,890 2,625 3,428 1,520 14,288 14,803 8,609
1994-1995 5,330 7,104 1,960 2,711 3,533 1,571 14,642 15,130 9,112
1995-1996 5,559 7,415 1,951 2,792 3,649 1,588 15,204 15,690 9,092
1996-1997 5,681 7,616 1,921 2,827 3,718 1,588 15,557 16,034 9,007
1997-1998 5,786 7,727 2,062 2,872 3,784 1,599 15,576 16,238 9,083
1998-1999 6,006 8,055 2,067 2,912 3,869 1,589 16,089 16,742 9,410
1999-2000 6,140 8,257 2,018 2,937 3,926 1,568 16,506 17,102 9,653
2000-2001 6,099 8,360 1,926 2,906 3,970 1,511 17,013 17,546 10,283
2001-2002 6,227 8,586 1,985 2,978 4,119 1,522 17,360 17,877 11,112
2002-2003 6,516 9,020 2,066 3,151 4,393 1,610 17,785 18,266 11,563
2003-2004 7,013 9,582 2,308 3,523 4,868 1,806 18,391 18,869 12,255
2004-2005 7,363 10,035 2,417 3,752 5,197 1,911 18,769 19,234 12,533
2005-2006 7,601 10,279 2,417 3,874 5,351 1,935 18,862 19,292 12,450
Source: CRS analysis based on U.S. Department of Education, National Center for Education
Statistics, Digest of Education Statistics 2002, Table 319, at [http://www.nces.ed.gov/]; and Bureau
of Labor Statistics, annual unadjusted Consumer Price Index-Urban data, at [http://www.bls.gov/].
Note: All data are reported in constant 2005 dollars.