Every $1,000 in state cuts cost students $257 in tuition

State funding reductions do lead to tuition increases, according to a new study that attempts to cut through disagreement about the sensitive topic, Rick Seltzer reports for Inside Higher Ed.

The debate about whether cuts to public funding causes colleges and universities to raise tuition can be bitter. On one side of the debate are those who say that state funding cuts force colleges and universities to raise tuition. On the other side are those who say that cuts to public funding do not affect tuition, and that colleges have raised tuition for other reasons such as the "amenities arms race."

New research attempts to take a neutral stance on the issue, Seltzer reports. The study was published in the Economics of Education Review by Douglas Webber, an associate professor of economics at Temple University. Webber aimed to find out whether disinvestment does or does not get passed on to students in the form of tuition increases, and if so, to what extent.

How was the research done?  

Webber used data from the Integrated Postsecondary Education Data System about institutional financing between 1987 and 2014 at 479 four-year public institutions.

Webber's goal for his research was to consider factors that similar studies have overlooked, Seltzer writes. For example, some states have laws that restrict institutions' ability to increase tuition, so Webber adjusted his research accordingly. In addition, some states use strategies like recruiting more out-of-state students in order to increase revenue, so Webber used institutions' net tuition and fee revenue for his research instead of their posted tuition rates, Seltzer writes.

What did the study find?

The key finding from Webber's research is that, over the past few decades, each student has paid, on average, $257 more in tuition and fees for every $1,000 cut from state and local appropriations, Seltzer writes. Behind that average figure is a big increase over time. Prior to 2000, each $1,000 cut from appropriations meant a $103 increase in tuition. After 2000, the tuition increase jumped to $318.

Webber hypothesizes that the jump in tuition increases came because schools had already trimmed all the "fat in the budget." Colleges generally only turn to tuition increases as a last resort, after they've already cut the "low-hanging fruit," Webber argues. But after the 1980s and 1990s, much of that low-hanging fruit diminished, and institutions could no longer afford to shield students from tuition increases, he says.

What can you gain from this?

The bottom line is that disinvestment, on a continuous basis, does indeed get passed on to students, and the rate at which this happens has increased exponentially during the last two decades, Seltzer writes. And while this issue has become very divisive, Webber says his findings don't really fit well with either side. "I'm hoping to move the conversation from shouting past each other to actually thinking more seriously about the magnitude of trade-offs," he says.

But institutions do have the option of seeking alternative revenue sources in order to help make up for public cuts. From hotels and sustainable housing, to farms and greenhouses, some institutions have gotten very creative in their approach to these sources. Others have simply focused on student persistence and retention to increase revenue (Seltzer, Inside Higher Ed, 7/24). 

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