A Study of Tuition in Public Comprehensive Universities and Colle

Western Michigan University ScholarWorks at WMU 6-1994 A Study of Tuition in Public Comprehensive Universities and Colleges: A Model for Analyzing Factors that Affect Tuition Michael

Western Michigan University

ScholarWorks at WMU

6-1994

A Study of Tuition in Public Comprehensive Universities and

Colleges: A Model for Analyzing Factors that Affect Tuition

Michael J Roy

Western Michigan University

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A STUDY OF TUITION IN PUBLIC COMPREHENSIVE UNIVERSITIES AND COLLEGES: A MODEL

FOR ANALYZING FACTORS THAT AFFECT TUITION

by Michael J Roy

A Dissertation Submitted to the Faculty of The Graduate College

in partial fulfillment of the requirements for the Degree of Doctor of Education Department of Educational Leadership

Western Michigan University Kalamazoo, Michigan June 1994

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A STUDY OF TUITION IN PUBLIC COMPREHENSIVE UNIVERSITIES AND COLLEGES: A MODEL

FOR ANALYZING FACTORS THAT AFFECT TUITION

Michael J Roy, Ed.D.

Western Michigan University, 1994

The purpose of this study was to ascertain how enrollment and financial factors affect tuition at public comprehensive universities and colleges, and to determine the relative influences that these factors are likely to have on future tuition levels.

The study methodology included the analysis of 4 years of tuition, enrollment, and financial data for fiscal years 1987 through 1990 of public comprehensive universities and colleges located within the contig­

studied, approximately 300 institutions completed the IPEDS surveys to allow them to be included in the study.

The effects on both the level of undergraduate tuition and tuition revenue were analyzed using a four-factor model as the conceptual framework for this study The four factors included in the model were: enrollment, nontuition revenue, resources invested, and student aid The financial factors, nontuition revenue and resources, are an accumulation

of 14 subfactors The conceptual hypothesis was that a linear relation­ ship existed between tuition and the factors and subfactors.

Descriptive statistics, correlation coefficients, and stepwise multi­ ple regression analysis were used to study the relationships between

tuition and the factors and subfactors The data were analyzed on a national and regional basis.

Based on the correlation coefficients and the multiple regression analysis, there was little or no linear relationship between undergraduate tuition and the factors and subfactors in the study Although the four- factor model had low predictive value for undergraduate tuition, the model was highly predictive of tuition revenue Using stepwise multiple regression the four-factor model predicted over 90% of the variance in each of 4 years studied.

Findings of this study show that there are different patterns of pricing, enrollment, revenue, functional expenditures, and student aid among the four geographical regions of the United States and the United States as a whole These patterns were sufficiently different to warrant future study and inclusion of geographic regions in any national peer study on tuition, enrollment, and financial factors.

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O rd e r N u m b er 9429016

A study o f tu itio n in public com prehensive universities and colleges: A m odel for analyzing factors th a t affect tu itio n

Roy, Michael J., Ed.D.

W estern Michigan University, 1994

U M I

300 N Zeeb Rd

To my mother, Barbara, and my deceased father, Raymond, for their sacrifices to provide me with a good education To Joanne and Amanda for their love and patience, and to Pat for his support and encouragement.

Michael J Roy

When I began this study, I did not realize how long and difficult the road would be Along the way several people provided me assist­ ance and guidance and I would like to acknowledge their contribution to this study.

Dr Patrick M Jenlink, my dissertation chair, who willingly shared his knowledge, and gave me support and guidance when I most needed them;

Dr Lowell G Kafer, who freely gave me whatever time I needed, helped me keep my numbers straight, and always had an encouraging word;

Dr Charles Hodge, who was willing to serve;

Dr Paul B Duby, who was willing to share his knowledge of statistics and to give freely of his time;

Lee Pakko, whose knowledge, skill, and dedication made the last mile of this journey much easier;

Dru Kierzek, she was there from the beginning, keeping things together, keeping me headed in the right direction, always willing to help, her support and encouragement kept me on the path.

Michael J Roy

ii

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TABLE OF CONTENTS

ACKNOWLEDGMENTS ii

LIST OF TABLES vi

CHAPTER I INTRODUCTION 1

Specific Problem 3

Purpose of Study 3

Research Questions 4

Limitations and Key Assumptions 4

Definition of Terms 5

Contributions Made by the Study 12

Overview of Methodology 12

Summary of Chapter 13

Overview of the Study 13

II REVIEW OF LITERATURE 14

Tuition 14

Tuition Policy 15

Historical Trends 18

Tuition Setting Process 18

Enrollment 19

Inflation 21

Nontuition Revenue 23

Resources Invested 25

Productivity 27

Table of Contents-Continued CHAPTER

Quality 27

Products and Services 28

Functional Costs 30

Student A id 34

Other Factors 35

Summary of Chapter 36

Overview of the S tu d y 37

III METHODOLOGY 38

Selection of Population 39

Source of Data 40

Conceptual Framework 40

Modified Four-Factor Model 42

Variables Analyzed 43

Regional Factors 45

Statistical Methods 45

Phase 1 45

Phase 2 46

Phase 3 48

Summary of Chapter 50

Overview of the S tu d y 51

IV ANALYSIS OF THE DATA 52

Overview 52

Phase 1 54

Enrollments 54

iv

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Table of Contents-Continued

CHAPTER

Tuition 59

Nontuition Revenue 62

Resources Invested 67

Student Aid 74

Phase 2 78

Undergraduate Tuition 79

Tuition Revenue 82

Subfactors 83

Phase 3 84

Four-Factor Model 84

Undergraduate Tuition 86

Tuition Revenue 91

Summary of Chapter 99

Overview of the S tu d y 100

V SUMMARY AND DISCUSSION 101

Discussion 103

Summary of Chapter 114

Implications for Future Research 115

APPENDICES 117

A Approval Letter From Human Subjects Institutional Review Board 118

B List of Universities and Colleges Included in Study 120

C Tables of Financial and Enrollment Data 131

BIBLIOGRAPHY 148

LIST OF TABLES

1 An Example of a Shift From State Support to Tuition 24

2 Institutions and Headcount Enrollments by Year and Region 55

3 Mean Full-Time Equated Students by Region for Fiscal Year 1990 and Percent of Change Since Fiscal Year 1987 57

4 Mean Undergraduate Tuition and Tuition Revenue Per Full-Time Equated Student (FTES) and Percent of C hange 60

5 Mean Nontuition Revenue Subfactors and Percent of Nontuition Revenue 63

6 Mean Nontuition Revenue by Region and Percent of Change 65

7 Mean Resources Invested Subfactors and Percent of Resources Invested 68

8 Mean Resources Invested by Region and Percent of Change 72

9 Mean Student Aid by Region and Percent of Change 75

10 Total and Net Tuition Cost per Full-Time Equated Student for Years 1 9 8 7 -1 9 9 0 77

11 Correlation Coefficients for Criterion and Predictor Variables for 1987-1990 80

12 Criterion (CV) and Predictor Variables (PV) for Multiple Regression Analysis M odels 85

13 Model 1 Criterion Variable (CV) Undergraduate Tuition 87

14 Model 2~Criterion Variable (CV) Undergraduate Tuition 90

15 Model 3 Criterion Variable (CV) Tuition Revenue 92

16 Model 4—Criterion Variable (CV) Tuition Revenue 93

vi

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CHAPTER I

INTRODUCTION

Poll results show that almost two-thirds of the American public believe that a college education is very important (Dedmon, 1987) The public also believes that the cost of a college education is too high and that the emphasis is not being placed on instruction (Massy, 1989; Meyerson & Johnson, 1991).

Although inflation has leveled off during the 1980s, tuition has continued an upward trend surpassing the Consumer Price Index (CPI) (Halstead, 1989) The cost of a college education increased more in the 3-year period between 1984 and 1987 than it did in the entire period for

1964 to 1981 (Dedmon, 1987) The tuition spiral of the 1980s raised the question of why the cost of college is growing considerably faster than inflation (Hauptman, 1990) Some federal leaders have attributed the rapid growth of tuition to greed and reckless management (Massy, 1989; O'Keefe, 1987).

The former Secretary of Education William J Bennett (cited in Diffily, 1987) challenged the leaders of higher education to explain the rising costs "Higher education is underaccountable and underproduc­

areas" (p 1) Bennett's jaundiced view of his constituency highlights the gap in understanding between federal leadership and the leadership

of the nation's universities and colleges (Diffily, 1987).

1

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Bennett's attacks on higher education increased the concern among parents, students, and state and federal officials about the costs and productivity of higher education He argued that generous federal student aid fueled the rapid rise in tuition charges and that universities and colleges are grossly inefficient due to an administrative blob and

college leaders responded to Bennett's charges by taking the position that higher education had no choice in raising costs since universities and colleges were weakened by the inflation of the 1970s Costs that were controlled in the 1970s could no longer be kept down (Dedmon, 1987).

On one side of the tuition debate was the position taken by Bennett who aggressively attacked tuition increases as unreasonable gouging of the public On the opposite side were the leaders of higher education claiming that they were innocent and entitled to the revenues raised from tuition (State Higher Education Executive Officers Associa­ tion [SHEEOA], 1988) This debate increased attention on college costs, but did not significantly improve the understanding of the factors in­ fluencing the increases The debate lacked data and was muddied by those that were available (O'Keefe, 1987).

The tuition debate has not been limited to the issues raised by Bennett, but includes questions concerning access and choice There are those who advocate raising tuition at public institutions to levels closer to private institutions so that individuals who have the ability to pay, will pay The advocates of higher public tuitions also recognize the

need to increase student aid to needy students to offset the tuition increases (W G Bowen, 1986).

Specific Problem

Weber (1989) noted "that the current trend of tuition increases in the last decade or so, poses a serious concern and even a threat to higher education and its status in this country" (p 6) In order to re­ spond to these growing concerns, higher education administrators, legis­ lators, and other policy makers need a better understanding of what factors are influencing undergraduate tuition (SHEEOA, 1988).

A limitation with most analyses of higher education costs is that expenditures and revenues are examined separately The limitation of a separate analysis is that the analysis does not describe the relationship between the factors affecting tuition and tuition (Frances, 1990) There

is a need for policy makers to better understand the factors affecting tuition changes, how they interact with each other, and how they relate

to the pricing of higher education (Frances, 1990; Halstead, 1989; Hauptman, 1990).

Purpose of Study

The purpose of the study was to ascertain how enrollment and financial factors affect tuition at public comprehensive universities and colleges and to determine the relative influences that these factors are likely to have on future tuition levels This researcher analyzed whether

or not there was a relationship between two dependent variables.

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undergraduate tuition and tuition revenue, and four principal factors: enrollment, nontuition revenue, resources invested, and student aid.

Research Questions

This study addresses the following research questions: Are there enrollment and financial variables that can be used to predict tuition at public comprehensive universities and colleges? What is the relationship between tuition and these enrollment and financial variables? The study

of these questions was facilitated by the testing of a model which in­ cluded the enrollment and financial variables.

Limitations and Key Assumptions

The study was limited to public comprehensive universities and colleges because the mission of these institutions is somewhat homoge­ neous and these institutions represent a large number of the students participating in higher education The diversity of the more than 3 ,0 0 0 universities and colleges in the United States would have made analysis

of all universities and colleges complex and difficult to generalize the results There are approximately 325 public comprehensive universities and colleges enrolling about 30% of all students attending public and

baccalaureate and graduate programs through the master’s level They enroll at least 2,500 full-time students and award more than half of their degrees in two or more occupational or professional disciplines (Research Associates, 1990).

The study period was limited to data for the fiscal years 1986-87 through 1989-90 In the reporting year 1986-87, the National Center for Educational Statistics (NCES) changed their reporting format from Higher Education General Information Survey (HEGIS) to the Integrated Postsecondary Education Data System (IPEDS) The IPEDS survey is an expanded version of the HEGIS survey (Kirshstein, Tikoff, Masten, &

St John, 1990).

Definition of Terms

Academic support includes expenditures for the support services that are an integral part of the institution's primary mission of

Survey, Part B, line 4 (National Center for Educational Statistics [NCES], 1987).

Appropriations includes all amounts received by the institution through acts of a legislative body, except grants and contracts These funds are for meeting current operating expenses, not for specific pro­ jects or programs Sources include federal, state, and local government Reported on IPEDS Finance Survey, Part A, lines 2, 4, and 5 (NCES, 1987).

Auxiliary enterprises are essentially self-supporting operations that exist to furnish a service to students, faculty, or staff, and that charge a fee that is directly related to, although not necessarily equal to, the cost

Finance Survey, Part A, line 12, and Part B, lines 13, 14, and 15 (NCES, 1987).

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Criterion variable is the dependent variable value or score in multi­ ple regression analysis which is estimated on the basis of other predictor variables (Hinkle, Wiersma, & Jurs, 1988).

Current funds are those economic resources expendable for carry­

research, and public service Public universities typically have subgroups

auxiliary activity funds, and expendable restricted funds (National Asso­ ciation of College and University Business Officers [NACUBO], 1990) Educational and general expenditures and transfers is the sum of expenditures and transfers recorded as instruction, research, public service, academic support, student services, institutional support, operations and maintenance of plant, scholarships and fellowships,

Survey, Part B, line 12 (NCES, 1987).

Educational and general revenue includes revenues reported on lines 1 through 11 and line 14 IPEDS Finance Survey, Part A (NCES, 1987).

Endowment income is income from endowment and similar funds

Finance Survey, Part A, line 10 (NCES, 1987).

Enrollment is the number of students enrolled for the fall term of the university or college For purposes of this study enrollment is the total full-time equated students (FTES) enrolled in a public comprehen­

Survey, Part B (NCES, 1987).

Expenditures and transfers are the costs incurred for goods and services used in the conduct of the institution's operations They in­ clude the acquisition cost of capital assets, such as equipment and li­ brary books, to the extent current funds are budgeted for and used by operating departments for such purposes (NCES, 1987).

Full-Time-Eauivalent Students (FTES) is based on full-time fall enrollment plus one-third of the part-time fall enrollment Reported on IPEDS Fall Enrollment Survey, Part B (NCES, 1987; Research Associates, 1990).

Fund is a self-balancing set of accounts Universities and colleges have diverse sources of resources The resources are often designated

accounts to record revenues and/or expenditures received and used for a specific purpose These accounts are classified or grouped into a fund The typical fund groups in higher education are: current funds, loan funds, endowment funds, plant funds, and agency funds (NACUBO, 1990).

Gifts, grants, and contracts includes gifts from private donors for which no legal consideration is involved, grants from private or govern­ mental agencies for specific research or training programs, and contracts from private and governmental organizations for services provided by the

government Reported on IPEDS Finance Survey, Part A, lines 6, 7, 8, and 9 (NCES, 1987).

Graduate students are students who hold a bachelor's or first professional degree or equivalent and are taking courses at the

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postbaccalaureate level Full-time students are enrolled at nine or more semester (or equivalent) credit hours (NCES, 1987).

Hospitals are health care facilities operated by public comprehen­ sive universities and colleges Financial data related to the operations of hospitals are reported on IPEDS Finance Survey, Part A, line 13, and Part

B, lines 16, 17, and 18 (NCES, 1987).

Independent operations are operations independent of or unrelated

to the primary missions of the public comprehensive institutions Finan­ cial data related to independent operations are reported on IPEDS Finance Survey, Part A, line 14, and Part B, lines 19, 20, and 21 (NCES, 1987).

Inflation is an increase in price for the same good or service without a change in either the quality or quantity (Research Associates, 1992).

Institutional support includes expenditures for the day-to-day

Survey, Part B, line 7 (NCES, 1987).

Instruction includes expenditures of the colleges, schools, departments, and other instructional divisions of the institution and expenditures for departmental research and public service that are not separately budgeted Reported on IPEDS Finance Survey, Part B, line 1 (NCES, 1987).

Integrated Postsecondarv Education Data System (IPEDS) is a series of annual surveys on enrollments, faculty salaries, financial salaries, degrees awarded, and other areas sponsored by the U.S Department of Education Data are collected by the National Center for

Educational Statistics from public and private universities and colleges {Kirshstein, Tikoff, Masten, & St John, 1990).

Mandatory transfers are transfers that must be made in order to fulfill a binding legal obligation of the institution Reported on IPEDS Finance Survey, Part B, line 10 (NCES, 1987).

Nonmandatorv transfers are transfers made at the discretion of the governing board to serve a variety of objectives Reported on IPEDS Finance Survey, Part B, line 11 (NCES, 1987).

Nontuition revenue includes all unrestricted and restricted current funds revenue of a university or college except revenue from tuition and fees, auxiliary enterprises, hospitals, and independent operations.

Operation and maintenance includes expenditures for operations established to provide service and maintenance related to grounds and facilities used for educational purposes Also includes expenditures for

Finance Survey, Part B, line 8 (NCES, 1987).

Other income includes revenues not reported on other lines of the IPEDS survey Typically, the category, other income, includes interest income, miscellaneous rentals and sales, and revenues from sales and services of internal service departments to external persons or agencies Reported on IPEDS Finance Survey, Part A, line 14 (NCES, 1987).

Predictor variables are the independent variables in multiple re­ gression analysis on which the value of criterion variables are estimated (Hinkle et al., 1988).

Professional students are students enrolled in any of the following

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osteopathic medicine, pharmacy, podiatry, veterinary medicine, law, and theology (NCES, 1987).

Public service includes expenditures to provide noninstructional

IPEDS Finance Survey, Part B, line 3 (NCES, 1987).

Region is one of four geographical regions of the United States which is used by various governmental and nonprofit agencies to classify states in a geographical area The four regions are: Northeast, Central, Southeast, and West (NCES, 1992).

Research includes expenditures for activities specifically organized

to produce research outcomes and commissioned by an agency either external to the institution or separately budgeted by an organizational unit within the institution Reported on IPEDS Finance Survey, Part B, line 2 (NCES, 1987).

Resources invested are expenditures and transfers of a university

or college except expenditures for student aid, auxiliary enterprises, hospitals, and independent operations.

Restricted current funds are those funds available for financing operations but which are limited by donors or other external agencies to

posed restrictions are to be contrasted with internal designations im­ posed by the governing board on unrestricted funds (NCES, 1987).

Revenue includes all unrestricted gifts, grants, and other resources

resources to the extent that such funds were expended for current operating purposes (NCES, 1987).

Sales and services are revenues derived from the sales of goods and services that are incidental to the conduct of instruction, research,

or public service Reported on IPEDS Finance Survey, Part A, line 11 (NCES, 1987).

Student aid includes expenditures given in the form of outright grants and trainee stipends to individuals enrolled in formal course work, either for credit or noncredit Reported on IPEDS Finance Survey, Part B, line 9 (NCES, 1987).

Student services includes expenditures for admissions, registrar, and activities whose primary purpose is to contribute to students' emotional and physical well-being and to their intellectual, cultural, and social development outside the context of the formal instructional pro­ gram Reported on IPEDS Finance Survey, Part B, line 6 (NCES, 1987) Transfers are the movement of financial resources, within the

contrast with expenditures in that transfers do not reflect the costs of acquiring goods or services (NACUBO, 1990; NCES, 1987).

Tuition revenue includes all tuition and fee revenue assessed

Survey, Part A, line 1 (NCES, 1987).

Undergraduate students are students who have not obtained a bachelor's degree Full-time students are enrolled in 12 or more semes­ ter (or equivalent) credit hours (NCES, 1987).

Undergraduate tuition is the total dollar amount of tuition and fees for an academic year charged full-time in-state undergraduate students

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Institutional Characteristics Survey, Part D., Section 5, line 5a (NCES, 1987).

Unrestricted current funds are funds received for which no stipula­ tion was made by the donor or other external agency as to the purpose for which they should be expended (NCES, 1987).

Contributions Made by the Study

The student's cost of a college education has grown considerably faster than inflation during the 1980s and early 1990s Several studies have been conducted to identify factors related to these rapid increases

studies have used descriptive statistical techniques to identify individual factors and their relationship to tuition The study was designed to expand the body of knowledge of enrollment and financial factors related

to changes in tuition by (a) expanding existing model on tuition pricing and (b) using descriptive and inferential statistical techniques to analyze longitudinal data to gain knowledge about the relationship between these factors and tuition.

Overview of Methodology

The researcher developed a model which describes the relation­ ship between the certain enrollment and financial factors and tuition Based on this conceptual framework, data obtained from 4 years of IPEDS annual surveys were analyzed using descriptive and inferential statistical analysis techniques The results of the analysis were used to describe the relationship of these factors and tuition.

Summary of Chapter

13

Tuition in higher education has been debated by students, parents,

public institutions should be higher while others argue for lower tuition This chapter presented the problem statement followed by the purpose

of the study and general research questions for the study Given the potential high level of unfamiliarity with the terms related to funding in higher education a comprehensive set of conceptual definitions was presented There is a need for a better understanding of the factors affecting tuition in public comprehensive universities and colleges.

Overview of the Study

In Chapter II of the study, the pertinent literature related to factors influencing tuition charges in higher education is reviewed Major stud­ ies regarding factors influencing tuition are described.

Chapter III is a description of the research methods to be em­ ployed In the chapter the relevant variables, data collection techniques, sampling procedures, and statistical methods to be employed in analyz­ ing the data are described.

In Chapter IV the results of the statistical analysis are discussed The chapter contains results of the analysis including the summary sta­ tistics, data analysis, and statistical methods.

Chapter V includes a summary, discussion, conclusions, and recommendations of the completed research and recommendations for future research.

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CHAPTER II

REVIEW OF LITERATURE

The purpose of this study was to ascertain how enrollment and financial factors affect tuition at public comprehensive universities and colleges, and to determine the relative influences that these factors are likely to have on future tuition levels Presented in this chapter are the results of the literature review related to factors influencing tuition The review includes a description of the concept of tuition, a discussion on the costs of higher education, trends in tuition pricing over the last two decades, policy issues related to the establishment of a tuition rate, a description of the factors that have been identified in previous studies, and a summary of observations drawn from the review.

Tuition

Tuition is any required fee providing direct or indirect support for the operation of an institution (Curry, 1988) Tuition at public institu­ tions is only a fraction of the program costs and is not an indicator of quality A mixture of factors have resulted in or led to tuition in public higher education in the United States One factor is the mixed system

of higher education in which there is a large private sector (Curry,

education in the United States of which 1,992 were private (Chronicle of Higher Education, 1992) The amount of tuition charged in the public

sector depends primarily on the level of state subsidy (Halstead, 1989) Therefore, tuition, unlike the price of other consumer products, is affect­

ed not only by cost but also by the share the consumer pays This sharing of costs makes the simple comparison between the Consumer Price Index and the rate of increase in tuition misleading (Frances, 1990).

Tuition Policy

Higher education is one of the most important qualitative services

in the United States How higher education is financed is important to individuals and the nation as a whole (Carnegie Commission on Higher Education [Carnegie], 1973).

The economic view of higher education is that a college education has economic value This view is based on the concept of human capi­ tal The human capital theory is that the personal decision to spend scarce, private resources on education is an investment decision Indi­ viduals who choose to pursue a college education are choosing among alternative investments They select education when they believe the resulting return in lifetime earnings will exceed the anticipated educa­ tional costs From a societal view, college graduates earn more money and pay more taxes, they are better citizens, and they contribute to the knowledge base and the application of knowledge All of these benefits can be measured, with varying degrees of accuracy, as having economic value for society (Leslie & Brinkman, 1988).

Based on the concept of human capital both the individual and society gain economically because of higher education This view of

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higher education raises the policy issue of who should pay for the bene­ fits and to what extent? In private higher education, tuition represents the major source of revenue and is closely associated with the cost In public higher education state support typically exceeds the portion of costs paid by tuition revenues (Halstead, 1989).

Tuition is the published price for education, but the actual cost to the individual will vary because of subsidies given to the individual in the form of student aid The sources of aid are federal and state govern­

financial aid policies are linked to tuition policy in that the amount of aid

an individual receives determines the actual price he or she will pay (Carnegie, 1973; Curry, 1988; Massachusetts State Board of Regents of Higher Education [MSBRHE], 1988).

The level of direct state subsidies to public universities and colleg­

es has been an issue for years There are those who argue for high state subsidies to keep tuition low or to charge no tuition at all They argue that low tuition increases access (American Association of State Colleges and Universities [AASCU], 1988) On the other side of the argument there are those who believe state subsidies should be kept to a minimum because low tuition provides a substantial benefit to everyone who attends a public college or university, regardless of their ability to pay Those who argue for higher tuition want to address the issue of access through student aid (Bloustein, 1989; Carnegie, 1973; Mitchell & Dars, 1988).

Another policy issue related to high or low tuition is the gap

expensive private colleges is Bennington College in Vermont with an undergraduate tuition for 1991 of $17,790 One of the most expensive public universities is the University of Vermont with an undergraduate

between private and public education in Vermont is sizable, over

$13,000 There are those who fear that the gap threatens private insti­ tutions because as the price differential becomes greater the customer will become more cost conscious and students will turn to the public sector (Halstead, 1989).

At the federal, state, and institutional level, there are several major policy issues related to tuition They include access to higher education, students' ability to choose among types of institutions, the quality of programs to be offered, the efficiency of the institutions in using resources, and how financial aid assists in meeting access and choice objectives (Curry, 1988).

The level of state support can have a direct impact on tuition at public institutions Tuition can also be influenced by state government through direct means like establishing guidelines or limits on tuition, or indirectly through institutional governance by regents representing the public (Halstead, 1989) In the majority of public universities or colleges the institutional or system governing board sets tuition However, there are four states in which the legislature plays a direct role in setting tui­ tion (SHEEOA, 1988) Differing state policies result in differences in tuition at public institutions from state to state Halstead (1989) noted that geography plays an important role in what a student pays for a public college education These differences, in large part, reflect how

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the states have chosen to finance higher education (Kirshstein, Sherman, Tikoff, Masten, & Fairweather, 1990).

Historical Trends

From 1970 to 1980 the average annual tuition increase at public institutions was 6.1% The growth in tuition during this period lagged behind inflation During the period of 1980-87, tuition increased at an average annual rate of 9.0%; that rate was roughly twice the rate of inflation This rapid growth in tuition rates following a decade in which tuition lagged behind inflation raised concern among students, parents, and policy makers (Hauptman, 1990) In the 15 years between 1973 and 1988 per capita disposable income and tuition increased at approx­ imately the same rate The growth over the 15-year period, however, was not even In each of the years from 1973 through 1981, the per capita disposable income grew at a faster rate than tuition Between

1982 and 1988 the trend reversed and tuition increases surpassed the growth in disposable income in each year (Wittstruck & Bragg, 1988).

Tuition Setting Process

There is no single tuition setting process in higher education; however, the process typically appears to be an interactive process between the institution's expenditure and nontuition revenue budget and tuition (Hauptman, 1990) The process in public institutions is focused

on the availability of state appropriation dollars The availability of state support will drive the budget choices made by administration The more difficult or unacceptable the choice the more likely tuition will be used to

offset the budget shortfall (Hauptman, 1990).

As the pressure for additional tuition revenue increases, the demand for education becomes a factor in the tuition setting process After a period of decline in the 1970s, the economic benefits of a col­ lege education increased sharply in the 1980s This added value in­ creased demand for higher education (Kirshstein, Sherman, Tikoff, Masten, & Fairweather, 1990).

In a climate of high demand, some highly selective private institu­ tions have set tuition based on peer pricing (Halstead,-1989) Tuition was set equal to or greater than the peer This pricing strategy is de­

costs, the more the product or service must be worth (Werth, 1988) Pricing tuition strictly on peer prices seems to be limited to a few private institutions (Halstead, 1989).

Enrollment

In the early 1980s the traditional age group of college students

decrease another 10% by the mid 1990s The decline in the number of 18-24 year old college students was predicted in the 1970s along with predictions of widespread closings of universities and colleges because

of falling enrollments (Hauptman, 1990).

The predicted decline in higher education did not materialize

reasons for stable enrollment are a higher percentage of high school graduates attending some form of postsecondary education and an

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increase in the number of students over 25 years old attending (Hauptman, 1990).

Has enrollment stability and the change in mix contributed to cost pressures? Hauptman (1990) identified three reasons why fewer tradi­ tional students placed upward pressure on costs First, universities and colleges have been unable to make productivity gains through increasing economies of scale Since the mid 1970s, the difference in the increase between aggregate and per student spending have moved closer together In other words, the gains through economies of scale have diminished.

Second, the increased competition for a dwindling pool of poten­ tial students meant institutions have spent more for recruitment and retention Increased recruitment efforts has resulted in more investment

in marketing Universities and colleges have invested in marketing staff, more admissions counselors, and improved printed materials Once the student was recruited, retention became important with a smaller pool of

student support service costs In addition to the added cost to retain the traditional student, nontraditional students who entered in recent decades have typically required more support services to complete their education than the traditional full-time students (Frances, 1990; Hauptman, 1990) The composition of enrollments have changed rather

older students increased as a percentage of total enrollments between

1970 and 1985 (Kirshstein, Tikoff, Masten, & St John, 1990).

Third, with fewer college graduates of traditional age entering the

labor market during this period, the economic value of a college education increased as the number of jobs requiring a college education grew As the economic prospects of college graduates improve, the demand for a college education increases (Hauptman, 1990).

In addition to the above three reasons for increased cost pressures, another enrollment related factor has been a shift in enroll­

education courses to business and computer science, universities and colleges must compete with business and industry to attract and keep professors Enrollment demand for science and engineering programs require the investment in new and more equipment and laboratories (Frances, 1990; Prince, 1990).

New or expanded programs can be more expensive and older less

programs are not easily reduced or eliminated, which contributes to cost pressures (Frances, 1990).

Inflation

Since the fall of 1981, tuition at universities and colleges throughout the United States has grown at a rate which is above the change in the Consumer Price Index (CPI) This above CPI growth has fueled the debate on tuition (Halstead, 1989).

What role has inflation played in the rise in tuition? The answer is complicated by a divergence of opinion over what price index should be used to measure inflation A price index measures the effects of price changes in a fixed group of items Changes in a price index documents

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change in the cost of the status quo or in other words the index mea­ sures inflation The CPI is designed to measure a fixed group of items purchased by families of city wage earners and salaried clerical workers Because of this, the CPI is not a good measure of price change for the fixed group of items normally purchased by a college or university The majority of the purchases for higher education are for personnel and a set of commodities different than those measured by the CPI; therefore, the Higher Education Price Index (HEPI) was developed to measure price changes in universities and colleges (Research Associates, 1992).

The issue of what price index to use to measure inflation centers around the fixed group of items in the HEPI A major element of the index is salaries and benefits for faculty and staff Some have argued that since compensation increases are normally decided internally by an institution they should not be included in an index intended to measure externally generated price pressures (Hauptman, 1990).

Frances (1990) noted that there is an indirect link between the CPI, the HEPI, and tuition The CPI is a factor in establishing faculty and staff salary increases Since personnel compensation is more than three- quarters of the HEPI base, both indexes measure changes in higher education cost, which play a role in tuition increases.

From 1981 through 1988, the difference between the HEPI and the CPI averaged 2.2% per year This difference reflects the rapid in­ crease in the cost of products and services purchased by higher educa­ tion Faculty compensation and the cost of library materials were par­ ticularly high during the latter half of the 1980s (Halstead, 1989; Kirsh­ stein, Tikoff, Masten, & St John, 1990).

Nontuition Revenue

23

For public four-year universities and colleges, the single most important factor affecting tuition is state support State policies govern­ ing tuition have placed a greater emphasis on tuition as a means of supporting public higher education Related to state policy has been the

meant the student has assumed a larger share of the cost of their educa­ tion (Curry, 1988; Frances, 1990; Halstead, 1989; Hauptman, 1990; Kirshstein, Sherman, Tikoff, Masten, & Fairweather, 1990).

Historically, tuition and fees in the public sector have tended to be much lower and increased more slowly on a percentage basis than pri­ vate institutions In the 1980s there has been a rapid increase in public sector tuition and fees, they have increased at about the same rate as private institutions (Hauptman, 1990).

As state appropriations increase with costs, tuition tends to be lower When state appropriations decrease, while costs are increasing, tuition tends to increase rapidly This inverse relationship between tui­ tion and state support suggests that public tuition patterns are affected

by the general economic conditions The inverse relationship between tuition and general economic conditions places a greater burden on students and parents at a time when they can least afford to pay more

of the cost of higher education (Hauptman, 1990).

When state support fails to keep pace with institutional costs, universities and colleges tend to fill the short fall with increases in tui­

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student forces tuition to increase at a faster rate than tuition would otherwise increase The following example of this shift will help explain the magnitude of this problem Assume a four-year public college or university has a current funds budget of $30 million The state provides

$20 million and tuition revenues make up the remaining $10 million.

In Table 1, the college's costs increased by 5% from Year 1 to

between the 5% cost increase and the 3% appropriation increase would require a 9% tuition increase to offset the shortfall (Frances, 1990).

Table 1

An Example of a Shift from State Support to Tuition

Year 1 (millions)

Year 2 (millions)

% increase

When students, parents, legislators, and the media compare cost increases of products and services to a tuition increase of 9% , they question why tuition has increased faster, nearly double, than the costs

of the products and services purchased by the institution (Frances, 1990; Halstead, 1989) The change in the ratio between tuition revenue and state appropriations is an important factor in driving up student tuition (Frances, 1990; Halstead, 1989).

Between 1976 and 1986, endowment income, which is not a major revenue source for the public sector, does not appear to have had any positive or negative affect on tuition changes (Hauptman, 1990) The drop in short-term interest rates in the early 1990s has placed addi­ tional pressures on budgets Although investment income is typically a small portion of total revenues in the public sector, any drop in nontui­ tion revenue will place pressure on tuition.

During the 1980s, many public institutions have established or

nontraditional sources by the public sector for revenues concerns admin­

competitions for private support will make their own fund-raising efforts more difficult and expensive (Hauptman, 1990).

Resources Invested

Costs or expenditures are not the same as inflation While infla­ tion is an increase in price of the same good or service, cost is the price times quantity Unlike inflation, expenditures are voluntary to the extent

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