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

Publication Date: October 2003

Publisher: Library of Congress. Congressional Research Service

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Research Area: Education

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Abstract:

Questions are being asked by policymakers, as well as students and their families, about the driving forces behind college prices and whether current increases in tuition are merited. For students and their families, these questions focus primarily on 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, and access, and whether increased funding for federal student financial aid programs further escalates the price of higher education.

Based on available data, college tuition and fees have been rising more rapidly than household income over the past 2 decades. The divergence is particularly pronounced for low-income households and becomes less pronounced as household income increases. Some research has identified specific factors related to increases in college price. For example, price increases at public 4-year institutions are strongly related to decreases in state appropriations. Given the current budget crisis that is affecting states nationwide, double-digit increases in tuition and fees are slated in some states for the 2003-2004 academic year.

It should be noted, however, that during the 2002-2003 academic year, over half of full-time undergraduates at all 4-year institutions attended institutions charging less than $8,000 in tuition and fees, while only 7% attended institutions charging $24,000 or more. At 4-year public institutions, 78% of full-time undergraduates attended institutions charging less than $5,000. While $5,000 or $8,000 may still be more than some students can afford to pay, the issue of price is more productively viewed through this lens rather than one colored by the relatively high prices of the most selective institutions in the country.

In analyzing price increases, researchers have considered whether a relationship exists between federal aid and price increases. While federal grant aid does not seem to affect college prices, 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 a relationship may exist under certain circumstances. 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 coupled with the tremendous diversity of institutions makes it difficult to determine what can or should be done about the issue of rising college prices.

There are several ways Congress could consider addressing the issue, such as imposing price controls, offering incentives for controlling prices or costs, ensuring the public is better educated about college cost and price issues, reducing regulatory burden, or changing federal financial aid programs. It is not clear which of these strategies would be most effective, or if Congress has appropriate tools at its disposal to address the issues of costs and prices. This report will not be updated.