Average tuition for a resident undergraduate student to attend a public 4-year college or university (referred to throughout this report as a “public college”) rose from $804 per year in school year 1980-81 to $2,689 in 1994-95, an increase of 234 percent. During approximately the same period, the median household income rose 82 percent. This was a reversal from the 1970s, when the cumulative percentage increase in the Consumer Price Index (CPI) exceeded that of the percentage increase in college tuition. The rising cost of college continues to be an issue of widespread concern. Studies and polls show fears about being able to afford a college education—and, in particular, about the debt that students and their families must often incur to pay for college. A 1995 survey of college freshmen, for example, found that 71 percent of the students surveyed expressed concern that they might not be able to pay for the schooling required for their intended careers. Research indicates that the reasons for this concern show no sign of abating in the near future. In a 1995 survey, a majority of the heads of state legislative higher education committees said that their states’ current funding level for public colleges was inadequate to meet higher education’s future needs and that legislatures were unlikely to increase funding for higher education in the next 3 to 5 years. Only 9 percent said that increasing state taxes was a likely option for providing more funds for state colleges. Given this, the states’ continuing demands for social services, and limited state revenue, states may shift even more of the college cost burden to students and their parents. Although college students may be paying significantly more for their education than their predecessors did 10 or 15 years ago, the earnings advantage of college graduates over those not getting college degrees has also grown substantially. According to a recent analysis of U.S. Census Bureau data by an economist with the University of Chicago, a graduated college student in 1980 earned about 43 percent more per hour than a person with a high school diploma. By 1994, this earnings advantage had increased to 73 percent. State-supported 4-year colleges and universities are a substantial public enterprise. During the 1993-94 school year, for example, they served about 5.9 million students and had expenditures totaling about $94 billion. Federal student financial aid support that year for all schools totaled about $31.4 billion, including about $12 billion in grants and federally guaranteed loans for students enrolled in public colleges. While private colleges and universities also have a major role in American higher education, public colleges have the lion’s share of students—about two-thirds of the students in 4-year schools. Although tuition and related fees may be the most visible cost of higher education to students, tuition pays for only about one-fourth of educational and general expenditures at public colleges. On average, the nation’s public colleges’ expenditures totaled over $14,000 per student during the 1993-94 school year. Tuition funded about 23 percent of this amount (see fig. 1.1). Almost twice as much, 42 percent, came from state general funds. The remainder came from a variety of other sources, such as endowments, grants, gifts, and contracts. This study, undertaken at the request of 23 Members of Congress, provides information that should be of help in understanding rising tuition levels and the increasing costs of operating public colleges as the Congress begins its deliberations on the reauthorization of the Higher Education Act of 1965, as amended. Although private college tuition has also risen dramatically and some of these schools have tuition exceeding $20,000 per year, we focused our review on public colleges because a majority of students attend these schools. As a result of discussions with requesters’ staffs, we focused our work on these questions: To what extent have tuition levels at public colleges changed over time relative to increases in consumer prices and families’ ability to pay? To what extent have instruction, administration, research, and other expenditures each contributed to the schools’ rising costs? How do tuition levels vary among states, and what factors help explain the differences? What kinds of actions have states and public colleges taken to deal with affordability issues? Our analysis of tuition, college and university expenditures, and states’ efforts to make college more affordable is based on data maintained by the U.S. Department of Education and other sources, contacts with state and school officials, and discussions with representatives of higher education organizations and individuals familiar with higher education issues. Appendix I describes our objectives, scope, and methodology in more detail. We provided the Department of Education a draft copy of this report. The Department had no comments. Our work was conducted from October 1995 to July 1996 in accordance with generally accepted government auditing standards. During the last 15 years, tuition at public colleges has risen almost three times more than household incomes have. This rise reflects two main trends: public college expenditures have generally risen more than inflation, and states have paid a lower portion of expenditures with appropriated funds. During this same period, growth in grant aid to students has not matched the increase in tuition. As a result of these factors, many students and their families have borrowed more to finance the cost of college. From school year 1980-81 through 1994-95, increases in tuition at public colleges considerably outpaced increases in both median household income and inflation. From school year 1980-81 through 1994-95, the average tuition for full-time, in-state students increased from $804 per year to $2,689, or 234 percent. During approximately the same period, median household income rose 82 percent, from $17,710 to $32,264, and the cost of living—as measured by CPI—rose 74 percent. Computed on an annualized basis, the rates of increase were about 9.0 percent for tuition, 4.4 percent for median household income, and 4.0 percent for CPI. Figure 2.1 compares the cumulative percentage increase in tuition, median household income, and consumer prices over the 15-year period beginning with school year 1980-81. As figure 2.1 shows, the cumulative percentage increase in tuition was almost 3 times more than the percentage increases in household income and consumer prices. The rate of increase has been especially pronounced since 1990. As a result of these increases, paying for tuition now takes about twice the proportion of household income as it did in 1980. As a proportion of median household income, average tuition cost has grown from 4.5 percent in school year 1980-81 to 8.3 percent in 1994-95. The two factors most responsible for the 234-percent increase in tuition from school year 1980-81 to 1993-94 were (1) an increase of 121 percent in schools’ expenditures and (2) an increase from 16 percent to 23 percent in the portion of schools’ funding provided by tuition. School expenditures have significantly outpaced inflation. In school year 1980-81, the nation’s public colleges spent an average of $6,540 per full-time-equivalent (FTE) student. By 1993-94 (the last school year for which comparative data were available), FTE expenditures had grown to $14,483, an increase of 121 percent. During the same period, CPI rose 69 percent. Possible reasons, other than inflation, for this rise in schools’ expenditures are many and varied. Chapter 3 further discusses schools’ expenditures, and chapter 4 discusses the correlation between states’ average costs and state tuition levels. From school year 1980-81 through 1993-94, tuition funded a progressively larger portion and state appropriations funded a diminishing portion of public colleges’ revenues. Even though state appropriations increased 96 percent during the period, schools’ revenues from tuition and other sources rose more rapidly. Figure 2.2 shows how funding sources were split among tuition, state appropriations, and other sources of fundingduring 4 school years: 1980-81, 1985-86, 1990-91, and 1993-94. As a proportion of schools’ revenues, state appropriations fell from 56 percent in school year 1980-81 to 42 percent in 1993-94. During this same period, the portion of school revenue provided by tuition rose from 16 percent to 23 percent, and the portion provided by other funding sources rose from 28 percent to 35 percent. Had the portion of schools’ revenue provided by each funding source remained at 1980-81 levels, tuition levels would have been 30 percent lower than they actually were at the end of the period because tuition would have provided 30 percent less of school revenues (that is, 16 percent instead of 23 percent). One factor researchers say affects the level of state support is the competition for state funds from other state programs, most notably elementary and secondary education, health care, prisons, and welfare. Spending on these four areas is largely mandated by federal and state laws, court orders, and voter initiatives. Higher education funding is considered discretionary spending and is, therefore, more vulnerable to funding reductions than spending for these items. This vulnerability has been particularly evident when economic downturns have put stress on state finances. Tuition increases since school year 1980-81 have generally been the greatest when national economic conditions were poor and the states were more limited in their ability to generate tax revenues. For example, following the 1981-82 and 1990-91 recessions, tuition at public colleges increased annually by 8 percentage points more than consumer prices, as measured by CPI. In contrast, in better economic times, such as the mid- and late-1980s, states increased their financial support for higher education, and annual tuition increases tended to exceed consumer price increases by 2.4 to 5 percentage points. Grant aid available to students and their families has not kept pace with tuition increases. One of the largest sources of this aid is federal Pell grants, which are awarded to students who meet certain tests of financial need. In school year 1994-95, the average Pell grant per FTE student was $409, an increase of 72 percent over 1980-81.