# Staff Report

**Summary:**

**Hearing on the Rising Price of a Quality Postsecondary Education: Fact
or Fiction?**

**Before the House Committee on**

**Education and the Workforce**

## Advisory Committee on Student Financial Assistance

**October 3, 2002**

### OVERVIEW

On Thursday, October 3, 2002, members of the higher education community
testified before the House Committee on Education and the Workforce at a
hearing entitled "The Rising Price of a Quality Postsecondary Education:
Fact or Fiction". The hearing was held at 9:30am in room 2175 of the
Rayburn House Office Building.

*Witnesses Included:*

Dr. Robert A. Corrigan, President, San Francisco State University, San
Francisco, CA

Dr. C. D. Mote, Jr., President, University of Maryland-College Park,
College Park, MD

Dr. Richard M. Freeland, President, Northeastern University, Boston, MA

Dr. Gordon Winston, Professor of Economics, Williams College,
Williamstown, MA

Members of the panel were asked to address the rising cost of a college
education, and what can be done to help more students attend college. A
summary of the hearing appears below.

### SUMMARY OF PROCEEDINGS

Opening Statement of Congressman John Boehner (R-Ohio), Chairman of the
Committee on Education and the Workforce

Congressman Boehner indicated that the purpose of the hearing was to
examine the effect of college costs on families, and to help determine
what influences increases and what the federal government can do. He
noted that since the early 1980's, tuition had been increasing at two to
three times the rate of inflation, and has outpaced federal efforts to
increase student aid. He suggested that when Congressmen return to their
home districts, one of the things they hear the most from parents is
concerns on how to pay for college, and this is despite the progress
Congress has made in the last few years.

Congressman Boehner noted that since 1998 the Pell Grant had increased
by 33 percent, and the SEOG and College Work Study (CWS) programs were
at record high funding levels. However, he commented that at the same
time, college prices, adjusted for inflation, have doubled since 1981,
while family income only increased 27 percent. He also relayed concerns
that low-income students may not know that assistance is available, and
may be turned off from the idea of going to college by the high prices.
He concluded that he felt cost was one of the biggest hurdles to access,
and was looking forward to hearing from the witnesses.

Opening Statement of Congressman George Miller (D-California), Ranking
Member of the Committee on Education and the Workforce

Congressman Miller thanked Chairman Boehner for holding the hearing, and
said he echoed many of the Chairman's comments. Congressman Miller
stated he thought it was important to keep the pledge to give every
student the opportunity to attend college regardless of any financial
barriers that may confront them.

### TESTIMONY OF WITNESSES

#### Testimony of Dr. Robert A. Corrigan

Dr. Corrigan testified that as President of San Francisco State, he has
worked to help keep the cost of college low, while providing a high
quality education. Noting that "a key element of accessibility is
affordability," he noted the effort that San Francisco State (part of
the California State University System) has made to help keep costs low.
The current rate for tuition and fees at San Francisco State is \$1,826
and the CSU average is only \$1,926. In addition, the CSU has worked to
keep fees low, not increasing tuition in eight years, and decreasing it
twice over that period.

Dr. Corrigan commented that while the price to students was low, the
cost of educating a student had risen, to over \$10,000 a year per
student. In addition, rapid enrollment growth and state budgetary
problems have also put additional pressure on the school. He noted that
the partnership with the state was the most important way student fees
were kept low, and that if the state can no longer provide that support,
tuition increases were a possibility. San Francisco State is taking
steps to help keep costs down though, such as running the school
year-round and partnering with community colleges to share facilities
and programs.

Despite the low cost of attendance, Dr. Corrigan said that financial aid
was still important to his institution, and that financial barriers
still exist. At San Francisco State, about 50 percent of students
receive financial aid, and students there face \$30 million in unmet
need a year once things such as books, transportation, and others are
factored in, forcing students to private loans or large credit card
debts. He noted that San Francisco being the most expensive city in
America makes the situation more acute. He encouraged Congress to
increase financial aid, especially the Pell Grant, SEOG, and College
Work-Study programs. In addition, he noted the early intervention
programs, such as GEAR UP and TRIO, were very helpful in reducing the
need for remediation at the college level, resulting in reduced costs.

Dr. Corrigan concluded by noting that the rumored relationship of
tuition increases to increases in financial aid did not exist, showing
as proof San Francisco State's reluctance to raise tuition over the past
8 years, and his personal experience at other universities. He invited
the committee to hold a field hearing in the future in San Francisco.

Testimony of Dr. C.D. Mote, Jr.

Dr. Mote relayed apologizes from Dr. William Kirwan, the Chancellor of
the University System of Maryland, who was supposed to testify but could
not due to the rescheduling of the hearing.

Dr. Mote testified about the importance of a college degree, noting that
earnings for someone with a degree were almost double those of someone
with only a high school diploma. He noted that no one wants to see
tuition increase, but recent decreases in state appropriations have
forced that to happen. Dr. Mote emphasized that in many cases state
policies set tuition levels, not institutions. He theorized that higher
education was no longer seen as a public good, so public support for it
was dropping off, which causes increases in tuition because colleges do
not even charge enough to cover their costs. As an example, he said that
in Maryland, he said that if appropriations for next year were held
flat, it would take a 10 percent tuition increase to increase spending 4
percent. If state appropriations were cut by 6 percent, it would take a
10 percent increase in tuition just to keep spending levels the same.
The recent state budget crises have made this situation worse, as he
noted that 31 states had made mid-year cuts to higher education this
year, and that 33 planned to hold flat or cut appropriations next year.

Dr. Mote also noted that most families do not pay the "sticker price"
for college, and that most families overestimate how much they will pay.
He said that in 2001, over 40 percent of full-time undergraduate
students paid less than \$4,000 a year in tuition and fees. Dr. Mote
referenced a new study that said that low-income students were not
getting hurt as much while middle and upper income students were seeing
costs rise.

Dr. Mote concluded by echoing Dr. Corrigan's comments on who makes
tuition decisions, and how they are not tied in to federal financial
aid. In Maryland, he said the governor and General Assembly have to
approve tuition, along with the Board of Regents, making tuition a state
policy that individual campuses can do little about. In conclusion, he
noted that the goals of keeping costs down can be achieved collectively,
and that the shift of aid from grant to work and loans is beginning to
have negative consequences.

#### Testimony of Dr. Richard M. Freeland

Dr. Freeland testified that Northeastern has a history of helping people
who do not have the financial means to attend college. Despite this, it
has become harder and harder to balance the costs of higher education
with the goal of keeping costs to students down. He said that over the
past five years, costs have increased 46 percent, which he attributed to
four factors: personnel costs, investments in technology, construction
and expansion, and increasing institutional financial aid. Dr. Freeland
specifically noted that institutional financial aid at Northeastern had
increased 123 percent over the past five years, which he said showed a
commitment to helping to keep costs low for those who have trouble
affording a college education.

Dr. Freeland also discussed the various cost-saving measures that
Northeastern has taken recently, including reducing full time
enrollments by 25 percent, and eliminating 13 majors and 17 graduate
programs that were weak or outdated. He elaborated more on the "sticker
price" issue, echoing previous comments that most students do not
actually pay full price. While the full price has increased over the
past five years by 30 percent, the discount rate (average tuition
discount a student receives) has increased from 19 to 25 percent, and
there are plans to increase the subsidy further. He concluded by
mentioning that financial burden continues to be a worry though, and the
school is trying through fundraising efforts to increase its ability to
provide scholarships through its endowment. Dr. Freeland said though
that in the long run, given the financial gains to a college graduate,
the cost of a college degree was worth it, despite increasing prices.

#### Testimony of Dr. Gordon Winston

Dr. Winston testified that higher education is a very unusual industry
from an economic perspective, and that it cannot be looked at in the
traditional sense of a firm in an industry. He explained why this was
the case, and the unique implications this has for the cost of an
education. First, he noted that colleges "sell" their product for a
price that is lower than cost. Dr. Winston presented data that showed
that the average cost of educating a student was \$12,400, but the price
was \$4,000, meaning a subsidy of \$8,400. While a normal firm would go
out of business, colleges are able to do it through what Dr. Winston
called "gifts" -- meaning state appropriations as well as charitable
gifts and endowments. He noted the most important implication of this
was that the traditional relationship between cost and price was broken,
so that changes in cost no longer necessarily led to changes in price,
and vice versa. He suggested thinking of colleges and universities as
"part churches and part car dealers."

Dr. Winston's second point was that the charitable donations to schools
are unevenly distributed among various institutions. For the top 10
percent of richest schools, students get yearly subsidies of \$21,000,
but in the bottom 10 percent students only receive \$1,700, making these
schools exist in very different economic worlds. He also touched on the
subject of merit scholarships, noting that these were price discounts
given to increase demand and attract the best students, which made
sense, since "students educate other students." Need based aid was given
in the name of increasing "opportunity" for all students to be able to
afford college.

In conclusion, Dr. Winston urged Congress to look at net prices, which
better represents what people are actually paying. He also noted that at
Williams, a student in the bottom 20 percent of income paid just \$1,700
of a \$33,000 "sticker price." He worried though about those low-income
students who were not going to elite schools, and that the push towards
tax credits, loans, and other programs geared toward the middle and
upper classes were hurting the average low-income student.

### QUESTIONS AND ANSWERS

Dr. Mote had to leave the hearing at this time.

#### Access for low-income students

Q: Chairman Boehner commented that the plethora of financial aid
programs was aimed at increasing access. However, he said the more that
Congress does, the less support comes from other areas such as states,
and that even in the 1990's when state budgets were "plush" there was
little support. He asked the panel if they thought Congress was "losing
the race." With the tremendous increases in aid, Congressman Boehner
said that the lowest income students were still slipping behind. He
asked if those students were better off now or five years ago?

A: Dr. Winston replied that the driving phenomenon in Congressman
Boehner's statement was state cuts, though he noted that two-year
colleges seem to have been spared. He said this was encouraging, as was
the fact that highly qualified students can go to great schools for low
prices, but most students could not get into places like Williams.

Q: Congressman Boehner asked for any comments applying to access that
Congress should consider as they reauthorize the Higher Education Act.

A: Dr. Corrigan replied that 98 percent of our students cannot go to
elite schools, and that the issue was an interface between quality and
access. He felt that there was a danger of providing access only to low
quality education, since the resources were not there. Noting that
Congressman Miller had attended San Francisco State, he said that in his
opinion the quality of an education provided to a student at SF State
now is not as good as the one provided to Congressman Miller. Providing
equal access to a quality education for people of all income levels was
the primary goal to be considered.

Dr. Freeland said that the private sector also has a role in ensuring
access. At Northeastern, he noted that the number of Pell Grant
recipients has stayed the same over the last five years despite tuition
increases. He also said that studies have tracked the relationship of
federal policy and college costs and found that there was no clear
relationship between the two. From his experience, the question of
federal aid has never come up in tuition discussions, and further, it
wouldn't be rational, since Northeastern already gives more
institutional aid then they receive in federal student aid.

Q: Congresswoman Solis (D-California) asked about focusing on minority
and low-income populations that may end up stuck at the two-year college
level, since they cannot get the information necessary to get into
four-year institutions. She asked the panel what could be done about
that situation?

A: Dr. Winston said a deep worry is the shift in state and federal
policy from low-income students to middle income programs like tax
credits and HOPE scholarships. The support is slowly being withdrawn
from low-income students.

Q: Congresswoman Solis said that while merit scholarships have
increased, they do not represent the underrepresented populations.

A: Dr. Freeland replied that the higher education system served students
well at each level, but the seams between each level (HS to college,
two-year to four-year, college to graduate school) were inferior. He
suggested looking at education as a K to 16 system, and work to ease the
transitions between these seams. Dr. Freeland also encouraged early
intervention programs, as well as programs focusing on getting two-year
students into four-year institutions.

Dr. Corrigan said that this could be a state problem more than a federal
issue. At San Francisco State (SFSU), 65 percent of their graduates
started at a community college. In California, he commented the problem
was the population explosion among college-age students. The system has
had to absorb this increase in students without any increase in
campuses. When states do not provide support, it is hard for the
institutions to do anything more. He also echoed the previous comments
that no institution looks at federal aid money when they raise tuition.

Q: Congresswoman Solis concluded her time by noting that while Congress
and schools have done a good job with tuition, other costs for
incidentals such as books and housing were still increasing.

#### Role of Community Colleges

Q: Congressman McKeon asked Dr. Corrigan about two new California State
campuses, Monterey Bay and San Marcos, and whether these would help to
ease pressures from the changing demographics.

A: Dr. Corrigan replied that while those were two new campuses, the
system could still use four more. He noted that Monterey Bay had
contracted with local community colleges to offer a single admission
agreement, which eases the transition between two-year and four-year
institutions by guaranteeing students at the two-year school admission
to Monterey Bay if they satisfactorily complete their two years at the
community college. SFSU is trying to do the same thing, as well as
working to allow people to take classes at various locations, in an
attempt to help increase capacity.

Q: Congressman McKeon commented that he had seen that too, where you
stay at the community college after two years, but are actually enrolled
at the four-year institution. He mentioned he was concerned that a
university degree used to take four years, but now takes longer, often
because students can't get the classes they need. This becomes a
problem, because five years of college costs more than four. He asked
the panel to comment.

A: Dr. Winston replied that it was simply economic, that if the level of
support per student was decreased, an institution could cut costs by
cutting classes and by using teaching assistants and adjuncts instead of
professors. He noted this was a big problem at UCLA in the early 1990's,
and that it is an additional pressure institutions and students must
face.

Q: Congressman McKeon said that schools are cutting core courses while
keeping electives, and that should be addressed. On another issue, he
asked if loan limits for students should be increased.

A: Dr. Freeland replied that many students in private education end up
in alternative and commercial loan programs with higher interest rates.
He recommended that Congress consider increasing the limits.

#### Explaining tuition increases

Q: Congressman McKeon asked Dr. Freeland how he explained tuition
increases to his community?

A: Dr. Freeland replied that the rate of inflation is based on a
different set of costs, not the costs associated with higher education,
so it is often an unfair benchmark to use. He tells people that salary
costs alone have gone up 50 percent in 5 years, and that even with those
increases, they have trouble recruiting faculty members.

Q: Congressman McKeon asked if Northeastern used part-time faculty.

A: Dr. Freeland said they have two types of part-time faculty. The first
is non-tenure track faculty, who teach a full load, but do not have
research responsibilities or requirements. The other is using part-time
adjuncts. He noted that this increased reliance on part-time teachers is
one of the compromises between quality and cost, and that you can't move
too much in one direction. He also said that technology costs were very
high at his institution.

##### Dr. Corrigan had to leave the hearing at this time. 

#### Role of federal Title IV programs

Q: Congressman Scott (D-Virginia) asked the panel to comment on
pre-college programs such as TRIO and GEAR UP -- have they been helpful?

A: Dr. Freeland replied that Northeastern has had great experiences with
GEAR UP and Upward Bound. He commented that there were so many people
who do not grow up with college as an option, and it is a very alien
world to them. Institutions therefore need to reach out to them;
otherwise they'll never consider college.

Q: Congressman Scott asked Dr. Freeland what a \$400 reduction in the
maximum Pell Grant would do.

A: Dr. Freeland said that Northeastern would have to increase
institutional aid to make up for the decrease.

#### Effects of student employment

Q: Congressman Scott asked how many hours a week the average student at
Northeastern was working.

A: Dr. Freeland replied that Northeastern was unique in that many
students spent 50 percent of their time in co-op programs, but that in
addition to that, many students work 20 to 30 hours a week.

Q: Congressman Scott asked if there was a limit or threshold where work
became detrimental to students.

A: Dr. Freeland said he felt that working more than 20 hours a week
began to erode the full educational experience.

Q: Congressman Scott asked about rising salaries for professors. Why
were they increasing so much?

A: Dr. Freeland replied that the salaries in the sciences were
increasing, because people who teach could be working elsewhere at a
much higher salary, so professors' salaries had to increase to be
competitive. He said that even with the increases, competition for
talent remains fierce.

#### How institutions advertise prices

Q: Congressman Tierney (D-Massachusetts) asked how the way prices were
presented could be changed so sticker prices were more accurate?

A: Dr. Winston replied that he was not sure that we would want to do
that in terms of access, since we don't want students to pay the entire
costs of their education.

Q: Congressman Tierney said the current system was very confusing. Why
could we not make it clearer to them?

A: Dr. Winston replied that is wasn't as simple as it sounds. For
example, at Williams, the cost to educate a student was \$75,000 a year,
while the sticker price was \$33,000 and the average price paid was
\$24,000. However, for those in the bottom 10 percent of income ranges,
the price was only \$1,000. The key was to get the public to see the
fact that expensive colleges are cheap to kids who can qualify. He added
he did not think that schools were doing that. He also criticized the
press, saying they often look at the Harvard sticker price, and then
compare it to the median income, leaving out the point that those making
the median income will not pay the sticker price.

Dr. Freeland said that the public does not understand this and it sets
up barriers. He encouraged the committee to look at partnering with
higher education associations to do some sort of national campaign to
increase awareness of this. He also noted that institutions that want to
maintain access do a cross-subsidy, where higher income students are
helping to subsidize lower-income students. The more federal support for
low-income students, the less the cross-subsidy has to be, which could
bring down prices.

Q: Congresswoman Rivers (D-Michigan) said that the issue of costs comes
up often. She perceived anti-intellectualism in Congress that pushed the
idea that schools were gouging students and that people at colleges are
slackers. She asked what could be done to stop that impression? What
could be done to help make decision makers understand?

A: Dr. Winston replied that he felt this was a critically important
point. He said that ten years ago, higher education did not know the
answer to this either, studies that show how much it costs to produce
education were not done until recently. He said that the national
commission on college costs was helpful, and that its results could be
publicized.

Dr. Freeland said that the commission looked at public perception and
found that the cost of college was far below what people though it was,
but that there were no broad public information programs to educate
people.

Q: Congresswoman Rivers asked if this was a sensitive issue for
universities as well. She noted that many who live off of public grants
are not willing to take the time to explain to the public what it is
they do. She said that colleges needed to work to help dispel the myths
too.

A: Dr. Freedman said that schools try through public information
programs and their admission efforts to do this, but admitted they could
do a better job. He noted that the perception was a lot like medical
care, when people think what their doctor does is ok, but the system is
flawed.

Dr. Winston replied that economic intuition misleads people, and that
colleges need to wake up to the fact that they do not operate under a
standard economic model. The process is moving, but slowly.

Q: Congressman McKeon commented the situation was like getting on an
airplane, and finding that everyone in your row paid a different price
for their ticket.

#### Encouraging Community College students to transfer to four-year institutions

Q: Congresswoman Woolsey (D-California) asked about community colleges
-- they were a much less expensive way to do the first two years of
college. She asked the panel if they recommended doing it, or if there
was a stigma attached to it that made it harder for them to transfer to
a four-year college.

A: Dr. Freeland replied that he would encourage the community college
route, especially because it allows people who may not have the
traditional student profile to get used to college. He said it was not
good public policy to have four-year schools spend money on remediation.
However, he noted many resisted the community college route, because the
transfer is not always easy. While some schools have articulation
agreements built in, there is in many cases still a bias against
community college students.

Q: Congresswoman Woolsey asked if it made a difference which community
college one went to.

A: Dr. Freeland said of course it did, just like admissions people look
at the high school a student attended; they would look at the community
college they attended.

Q: Congresswoman Woolsey speculated that additional support for
community colleges was necessary so they could fill the gaps in the
system.

A: Dr. Winston commented that California ensures broad levels of access,
and that in many ways it was a model system.

Q: Congressman Woolsey said that colleges in her district had improved,
that there was a community college that had a reputation for being just
a "Frisbee throwing place" and was now a well-respected institution.

A: Dr. Freeland replied that institutions are compelled to fit the need
of their communities, and it was one of the strengths of the competitive
system we have.

### CLOSING STATEMENT

#### Closing Statement of Congressman Howard "Buck" McKeon

Acting Chair McKeon thanked the panel and said as the reauthorization
moved forward, costs would be an important subject that would likely be
revisited.