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THE COST OF HIGHER EDUCATION

THE COST OF
HIGHER EDUCATIONNATIONAL CENTER FOR EDUCATION STATISTICSU.S. Department of Education
Office of Educational Research and ImprovementNCES 95-769Findings fromTHE CONDITION OF EDUCATION 1995NO.6$U.S. DEPARTMENT OFEDUCATIONRichard W. Riley
SecretaryOFFICE OFEDUCATIONALRESEARCH ANDIMPROVEMENTSharon P. Robinson
Assistant SecretaryNATIONALCENTER FOREDUCATIONSTATISTICSJeanne E. Griffith
Acting CommissionerNATIONALCENTER FOREDUCATIONSTATISTICSThe purpose of the Center is to collect and report “. . . statistics and
information showing the condition and progress of education in
the United States and other nations in order to promote and accel-
erate the improvement of American education.”—Section 402(b) of
the National Education Statistics Act of 1994 (20 U.S.C. 9001).March 1996The text in this booklet was written by Nabeel Alsalam of the Data
Development Division of NCES and appears in The Condition of
Education, 1995.Steven G. Klein of MPR Associates, Inc. adapted thecontent to this format, Andrea Livingston edited the text, and Leslie
Retallick and Lynn Sally designed the graphics and layout.1THECOST OFHIGHEREDUCATIONMany important questions about higher education are related to
its cost. Is higher education a good investment for students? Is
higher education affordable to students from middle income
families? Is higher education accessible to students from low
income families? Is higher education a good value? How are
the costs of higher education shared between students, their
families, and government? These questions are interrelated with some highly publicized
issues. For instance, reports of tuition charges of $20,000 or
more have raised fears that college has become unaffordable.
Some believe that federal financial aid policy should help more
people finance their education. Others argue that too much fed-
eral financial aid is provided in the form of loans as opposed to
grants. Further, as governments face increased pressure on their
budgets, public higher education institutions have had to cope
with smaller appropriations and are relying more on tuition as a
source of revenue. Finally, average faculty salaries have recent-
ly been rising faster than inflation, but only after much of their
purchasing power was eroded during the high inflation years of
the 1970s.Some of the statistical evidence concerning these questions and
issues is summarized in this sixth publication in the series of
Findings from The Condition of Education. Outlined below is a
discussion of how changes in higher education revenue and
expenditure are related to institutional enrollments, tuition and
fee charges, and student financial aid, as well as the overall
value of a higher education degree. • Tuition and fees have increased at all types ofhigher education institutions over the last
decade.The cost of higher education to students has a direct impact on
access, so that increases in cost are understandably of great con-
cern to students, parents, and education policymakers. In the
1970s, tuition and fee charges remained relatively stable.
Between 1980 and 1990, tuition charges increased at all types of
higher education institutions. Average undergraduate tuition and fee charges at colleges and universities: 1964 to 1993SOURCE: Institutional Characteristics Survey.Tuition and fees in constant dollars grew at a rate of 3.1 to 5.6
percent per year between 1980 and 1990, depending on the type of
institution. On the other hand, median family income did not keep
pace with inflation. It fell in constant dollars from $42,500 in
1980 to $40,500 in 1993.1Since 1990 the rate of increase at public2Private universitiesOther private 4-year collegesPublic universitiesPublic 2-year colleges02,0004,0008,00010,00012,000$14,000Tuition and fees(in constant 1994 dollars)6,000’93’67’70’73’76’79’82’85’88’91’64Other public 4-year colleges3institutions has been greater than that at private institutions or than
it was previously. For example, at public universities, the annual
rate of increase was 4.3 percent between 1980 and 1990, but 6.2 per-
cent between 1990 and 1993. Average annual rate of increase in tuition and fees (in constant dollars)Academic years beginningType and controlof institution1980–901990–931980–93Public(percent)Universities4.36.24.7Other 4-year colleges4.38.35.22-year colleges3.17.44.1PrivateUniversities5.63.65.1Other 4-year colleges4.83.54.52-year colleges4.11.43.5SOURCE: NCES, IPEDS Institutional Characteristics Survey.When considering the possible effects of rising tuition charges on
student access to higher education, it is important to keep in mind
which types of institutions most students attend. In the fall of
1993, four out of five students in higher education were attending
public institutions, which tend to have much lower tuition than
private institutions. Also, only one in four of the students attend-
ing private institutions were attending universities where charges
tend to be higher than those at other private 4-year colleges.2Although college costs have escalated, in the 1992–93 academic
year, most full-time, full-year undergraduates faced relatively
low tuition and fee charges. Nearly one-half (47 percent) of
undergraduates attending 4-year colleges and universities faced
tuition and fee charges of less than $3,000 per year, and nearly
three-fourths (73 percent) paid less than $8,000 per year.
However, approximately one in five undergraduates did pay
tuition of $10,000 or more.34Distribution of tuition and fee charges to full-time, full-year undergraduate studentsattending 4-year colleges and universities: 1992–93SOURCE: NCES, National Postsecondary Student Aid Survey.• Rising tuition charges appear to have littleimpact on students’ higher education enroll-
ment decisions. Despite increasing tuition charges, college-going rates have con-
tinued to rise. Overall the rates of recent high school graduates
continuing on to higher education immediately following high
school have climbed from 49 percent in 1980 to nearly 62 percent
in 1993. Moreover, there is no evidence that students are switch-
ing to lower cost 2-year colleges. Between 1980 and 1993, the0510152025Less than $1,000$2,000–$2,999$4,000–$4,999$6,000–$6,999$8,000–$8,999$10,000–$10,999$12,000–$12,999$14,000–$14,999$16,000–$16,999$19,000 or morePercentTuition and fees$17,000–$17,999$18,000–$18,999$1,000–$1,999$3,000–$3,999$5,000–$5,999$7,000–$7,999$9,000–$9,999$11,000–$11,999$13,000–$13,999$15,000–$15,9995percentage who enrolled in 2-year colleges did not rise very
much: it climbed from 19 percent in 1980 to 20 percent in 1990 to
22 percent in 1993. Enrollment rates among low income fami-
lies, who may be more affected by rising college tuition, also
increased over the period, rising from 33 percent in 1980
(including both 4-year and 2-year colleges) to 47 percent in 1990,
and 50 percent in 1993. However, only 50 percent of high school
graduates from low income families went directly to college
compared with 79 percent of graduates from high income fami-
lies in 1993.Percentage of high school graduates enrolling in college immediately after high school: 1972 to 1993SOURCE: Bureau of the Census, October Current Population Surveys.’72’74’76’78’80’82’84’86’88’90’9301020304050607080’72’74’76’78’80’82’84’86’88’90’9301020304050607080By family incomeBy type of collegeHighMiddleLowTotal4-year2-yearPercentPercent• Tuition and fee income has increased as asource of revenue in most types of higher
education institutions.With the exception of public 2-year colleges, average revenue
per FTE student (in constant dollars) increased at all types of
higher education institutions between 1980 and 1992. At private
institutions, the increase was particularly dramatic. Over the
period, revenue per FTE student increased from almost $22,000
to $30,500 at private universities, and from $11,000 to $14,200 at
private 4-year colleges. Revenue per full-time-equivalent (FTE) student(in constant 1994 dollars)SOURCE: NCES, HEGIS and IPEDS Finance Surveys.While revenue per FTE student increased or remained stable,
government appropriations per FTE student fell (in constant
dollars and as a percentage of total revenue). For public insti-
tutions, which rely heavily on government appropriations, the6$30,459$21,930$15,081$16,931$11,015$14,230$11,373$11,785$5,790$5,74319801992PublicuniversitiesPrivateuniversitiesOther private4-year collegesOther public4-year collegesPublic 2-yearcollegesHIGHEREDUCATIONREVENUE7decline was particularly large. For example, between 1980 and
1992, government resources fell in public 4-year colleges from
$7,600 to $6,500 per FTE student, and from 67 percent to 55
percent of total revenue. Even with significant declines in
government appropriations per FTE student, increases in
tuition and other revenues meant that total revenue per FTE
student in public institutions increased or remained stable.The result of increasing tuition charges and declining govern-
ment appropriations is that between 1980 and 1992 the share of
revenue from tuition and fees increased at all types of institu-
tions. Tuition and fees at public universities, expressed as a per-
centage of total revenue, increased from 16 percent in 1980 to 22
percent in 1992. At private institutions, which rely more heavily
on tuition revenue, the share of revenue also increased. For
example, at private universities, tuition and fee revenue climbed
from 40 percent of total revenue in 1980 to 45 percent in 1992.4Tuition revenue as a percentage of total revenueSOURCE: NCES, HEGIS and IPEDS Finance Surveys.PublicuniversitiesPrivateuniversitiesOther private4-year collegesOther public4-year collegesPublic 2-yearcolleges1980199240%45%16%15%61%16%22%69%22%22%• Student financial aid, particularly from federalsources, defrays some of the cost to students of
attending college.During the 1992–93 academic year, the average amount of grant
aid given to dependent full-time students attending public 4-
year institutions was 29 percent of the average tuition charged
them.5In effect, students received, on average, a 29 percent dis-count on tuition charges. Because the amount of grant aid is
larger for students from low income families, this percentage
was higher for students from such families (80 percent) than for
students from high income families (10 percent). Average grant aid as a percentage of average tuition chargedfor dependent full-time undergraduates: 1992–93SOURCE: National Postsecondary Student Aid Study: 1992–93.For those attending private 4-year colleges and universities, the
patterns were similar. However, for students from low income
families attending private 4-year institutions, the average8LowLower middleUpper middleHighFamily incomePrivate 4-yearPublic 4-year80%35%18%10%14%38%46%64%STUDENTFINANCIALAID9amount of grant aid received was a smaller percentage of their
average tuition charges than for their counterparts attending
public 4-year institutions (64 percent versus 80 percent).• Most types of higher education institutionshave increased the amounts they spend on
scholarships and fellowships. Institutions may use scholarship and fellowship awards to offset
tuition and fee charges for students who might not attend with-
out a reduction in tuition. Since 1980, private universities and
other private 4-year colleges have at least doubled the amount
of institutional aid awarded to students. While the amounts
awarded at public institutions were lower, institutional support
from public universities increased substantially. Institutional expenditure per FTE student for scholarships and fellowships (in constant 1994 dollars)SOURCE: NCES, HEGIS and IPEDS Finance Surveys.19801992Other public4-year colleges$474$359Publicuniversities$851$520Other private4-year colleges$2,363$1,103Private 4-yearuniversities$3,578$1,783• Expenditures per FTE student increased atmost types of higher education institutions,
but the percentage they increased varies
widely.Expenditures per FTE student increased only moderately
between 1980 and 1992 at public institutions. For example, per
student expenditures increased from about $14,800 to about
$17,200 in constant dollars (about 16 percent) at public universi-
ties. At public 2-year colleges, expenditures rose and fell during
the 1980s, but were at a similar level in 1992 as in 1980—about
$5,700. In contrast, expenditures rose substantially at private
institutions, increasing from $22,500 to $32,200 (about 43 per-
cent) at private universities, and from $11,200 to $15,000 (about
34 percent) at other private 4-year colleges.Expenditures per FTE in higher education(in constant 1994 dollars)Type and controlPercent changeof institution19801992since 1980Private universities$22,529$32,24243Public universities14,82917,24616Other private 4-year colleges11,21315,02934Other public 4-yearcolleges11,002 11,6546Public 2-year colleges5,759 5,686-1SOURCE: NCES, HEGIS and IPEDS Finance Surveys.10EXPENDITURES BYHIGHEREDUCATIONINSTITUTIONS• Expenditures for instruction per FTE studentrose more slowly than total expenditures at
most types of institutions.Instruction is the largest category of expenditure for higher edu-
cation institutions, but only at 2-year colleges does it reach half
of all expenditures. Instructional costs per FTE student rose
more slowly than total expenditures at most types of institu-
tions. The exceptions were private universities and public 2-
year colleges, where instruction was a similar share of total
expenditures in both 1980 and 1992.Instructional spending as a percentage of totalinstitutional expendituresType and controlChange in shareof institution19801992since 1980Private universities37.938.20.3Public universities38.836.0-2.8Other private 4-year colleges36.733.1-3.6Other public 4-year colleges44.943.2-1.7Public 2-year colleges50.350.30SOURCE: NCES, HEGIS and IPEDS Finance Surveys.• Expenditures per FTE student are related tocomplex interactions among demographic,
institutional, and economic factors.As the large baby boom cohorts finished college, the size of high
school graduating classes fell from 3.2 million in 1977 to 2.5 mil-
lion in the early 1990s. While graduating classes were getting
smaller, enrollments at higher education institutions only lev-
eled off during the first half of the 1980s and then continued
increasing. Universities were the exception, where enrollment
grew very little between 1980 and 1992.611Total fall enrollment in institutions of higher education: 1975 to 1992SOURCE: NCES, Fall Enrollment in Colleges and Universities and IPEDS, Fall
Enrollment surveys.Although student enrollment growth slowed during the 1980s,
the number of staff employed in higher education increased.
The result of the two trends was that the number of FTE staff
per 100 FTE students, which had remained relatively constant
between 1977 to 1983, climbed from 18 to 20 FTE staff members
between 1983 and 1987 before stabilizing between 1987 to 1989.7In 1991, there were approximately six FTE faculty, both
instructional and research, six other professional staff, and
eight other nonprofessional staff for every 100 FTE students in
higher education.8In public elementary and secondaryschools, there were six classroom teachers and another five
staff for every 100 students.9Despite the similar number offaculty per 100 FTE students in higher education and elemen-
tary/secondary schools, many of the classes at colleges and
universities were quite large. For example, in 1992, 30 percent
of the undergraduate lower division classes at research uni-
versities had 50 or more students. At liberal arts institutions,12Universities2-year colleges'75'78'81'84'87'90'9201,0002,0003,0004,0005,0006,0007,0008,000Other 4-year collegesNumberenrolled13however, only 5 percent of such classes were this large.
Between 1987 and 1992, there was little change in the percent-
age of undergraduate classes with more than 50 students.Percentage of classes in 4-year colleges and universities whereclass size is above 50 students: 1987 and 1992LevelResearchDoctoralCompre-Liberalofhensiveartsclass1987 19921987 19921987 19921987 1992UndergraduateLower division3230202191045Upper division1614884521Graduate79492411SOURCE: NCES, National Study of Postsecondary Faculty, 1988 and 1993.A factor that could contribute to rising expenditures in some
sectors of higher education is the rising price of resources used
by institutions of higher education. When resource prices rise
faster than inflation and institutions do not change the quantity
of resources employed per FTE staff, then expenditures per FTE
student rise. For example, if average faculty salaries rise faster
than inflation, but institutions maintain a stable number of fac-
ulty per 100 students, then expenditures per FTE student would
be expected to rise—barring a reduction in the price or utiliza-
tion of some other resource such as equipment, buildings, or
staff benefits. It is worthwhile to focus some attention on facul-
ty salaries, because it is likely that most expenditures at higher
education institutions are for staff, as opposed to buildings and
equipment, and one in three staff are faculty.Although average faculty salaries fell in constant dollars during
the high inflation period of the 1970s, the trend reversed and
average faculty salaries rose significantly during the 1980s.For example, the average salary of full professors at public insti-
tutions fell from $64,200 in 1972 to $49,500 in 1981 (in constant
1993 dollars), and then rose during the 1980s to $58,300 in
1992.10At private institutions, the patterns were similar.However, as noted above, expenditures for instruction, which
include expenditures for all faculty time except the portion paid
for by research grants and contracts, rose more slowly than total
expenditures. This suggests that increased utilization or prices
of other resources, including nonfaculty staff, had a larger effect
on expenditures than increased faculty salaries.Average salaries of full-time faculty in institutions of higher education: 1973 to 1992(in constant 1994 dollars)SOURCE: NCES, HEGIS and IPEDS surveys of faculty salaries, various years.Finally, a possible reason for the rise in the cost of higher educa-
tion over the long term is a lack of increase in productivity in
higher education. Whereas many sectors of the U.S. economy,
particularly manufacturing and agriculture, have used technology
and innovation to either increase the quantity or quality of goods
provided with no corresponding increases in resources used,
higher education is still provided in largely the same way it was
when the nation was founded. When productivity growth in a
particular sector of the economy lags behind that in the rest of the
economy, the cost of providing that good or service increases.1114$65,000’72ProfessorAssociate professorAssistant professor60,00055,00050,00045,00040,00035,00030,00025,0000’73’75 ’76 ’77 ’78 ’79 ’80 ’81 ’82 ’83’85 ’86’88’90 ’91 ’9215• A higher education degree confers a substantial economic advantage to college
graduates.College graduates hold a relative advantage over high school
graduates in the labor market. For example, unemployment
rates for 25- to 29-year-olds in 1994 were lower for college grad-
uates and those with some college than for individuals holding
a high school diploma or less. Percentage of the population aged 25 to 29 years old who are unemployed: 1994SOURCE: Bureau of the Census, March Current Population Survey, 1994.• The earnings advantage of completing collegeincreased between 1970 and 1993 for both
male and female graduates.LABORMARKETOUTCOMESGrades9–11HighschooldiplomaSomecollegeBachelor’sdegree20%17%9%9%6%6%3%3%FemalesMalesHighest educationcompleted16While tuition rose substantially between 1980 and 1993, so did col-
lege enrollment rates. Perhaps these seemingly paradoxical trends
are due to the increasing premium for completing college. Since
1970, the earnings advantage for 25- to 34-year-olds with a college
degree has been consistently higher than for individuals complet-
ing some college (13–15 years of school), a high school degree, or
less than a high school degree. Furthermore, the earnings premi-
um for graduating from college was also rising, and may have out-
weighed any negative effect of rising tuition on enrollment rates. Ratio of median annual earnings of 25- to 34-year-old workers to those with 12 years of schooling: 1970 to 1993SOURCE: Bureau of the Census, March Current Population Surveys.‘78‘84‘86‘88‘90‘93‘70‘72‘74‘76‘80‘82Male1.001.251.501.750.752.000.50Ratio9–11 years of school16 or more years of school13–15 years of school0.751.001.251.501.752.000.50‘78‘84‘86‘88‘90‘93‘70‘72‘74‘76‘80‘829–11 years of school16 or more years of school13–15 years of schoolRatioFemale1.001.251.501.750.752.000.500.751.001.251.501.752.000.5017Among male workers, the earnings premium for completing
college increased from 19 to 57 percent between 1980 and 1993;
for female workers, it increased from 52 to 99 percent.
However, these increases were largely due to a decrease in the
average earnings of high school graduates, rather than an
increase in the average earnings of college graduates. For
example, the average earnings of male college graduates were
about $33,000 in both 1980 and 1993; however, the average
earnings of male high school graduates fell from about $28,000
to $21,000 over the same period. Thus, young people today may
need to acquire a college education as protection from a deterio-
rating labor market for workers who have only a high school
education.Note that females have generally realized a greater earnings
advantage than males for completing college; that is, the per-
centage difference between the earnings of females with a col-
lege degree and the earnings of female high school graduates
was greater than the corresponding percentage difference for
males. Despite the large increase in average tuition charges, higher
education costs to students remain well below their total expen-
ditures per student. At public institutions, average tuition
charges are lower than expenditures for instruction per FTE
student, i.e., excluding expenditures for administration, opera-
tion/maintenance of plant, libraries, and student services. At
private universities, average tuition charges are similar to
instructional expenditures per FTE student ($13,700 versus
$12,300); however, at other private 4-year institutions, average
tuition charges are higher than instructional expenditures perSUMMARYFTE student ($9,800 versus $5,000), but less than total expendi-
tures per FTE student ($15,000). In most sectors of higher edu-
cation, students are charged less on average than institutions
spend for instruction, and some research suggests that students
prefer to attend high spending institutions, particularly those
where the difference between expenditures and tuition is the
greatest.12The cost of college for students includes more than the expendi-
tures for tuition; it also includes forgone earnings. The earnings
and experience given up to continue education are significant,
possibly greater than the tuition that must be paid.13Even if theearnings of high school graduates between the ages of 18 and 23
are relatively low, they are nevertheless high when compared to
average tuition charges, particularly those at public institutions.
Thus, falling labor market opportunities for high school gradu-
ates may have reduced the cost of enrolling in higher education
as much as rising tuition has increased it.On the benefit side, large economic benefits, including lower
rates of unemployment, higher earnings, better working con-
ditions, and more generous fringe benefits appear to accrue to
those who participate in higher education. In addition, at
least one of these benefits—earnings—not only has been
increasing in recent years but also appears to grow larger with
age. In short, higher education still appears to be a good
investment for students.181U.S. Bureau of the Census, Current Population Reports, Series P-60.2Digest of Education Statistics, 1995, table 168.3NCES, National Postsecondary Student Aid Study: 1993.4NCES, Higher Education General Information Survey (HEGIS),Financial Statistics of Institutions of Higher Education, and Integrated
Postsecondary Education Data System (IPEDS), Finance Survey.5NCES, National Postsecondary Student Aid Study: 1993.6Digest of Education Statistics, 1994, table 170.7The Condition of Education, 1992, tables 54-2 and 54-3, and Fall Staff inPostsecondary Institutions, 1991.8Digest of Education Statistics, 1994, tables 216 and 196.9Digest of Education Statistics, 1994, table 82, or The Condition of Education,1992, Indicator 53.10The Condition of Education, 1994, table 57-1.11This phenomenon is widely known in the economics profession as“Baumol’s disease.” See William J. Baumol, “Macroeconomics of
Unbalanced Growth: The Anatomy of Urban Crisis.” American Economic
Review, 57 (June 1967), and W. J. Baumol and W. G. Bowen, Performing
Arts: The Economic Dilemma, 1967. The “disease” is the inevitable rise as
the economy grows and incomes increase in the cost of some goods or
services that meet three criteria: 1) slower productivity growth than in
the rest of the economy, 2) increasing (relative) demand as incomes
grow, and 3) lack of good alternatives to the good or service. (Higher
education may be in this category, but there are also plausible argu-
ments for why it may not be included.) If these three criteria hold for
higher education, then its cost is likely to increase over time without a
commensurate increase in quality or quantity.12Ralph M. Bradburn, Duncan P. Mann, Michael S. McPherson, andMorton Owen Shapiro. “Understanding the ‘Quality’ Issue in U.S.
Higher Education.” Washington, D.C.: Pelavin Associates, Inc. (paper
prepared for Office of Planning, Budget, and Evaluation, U.S.
Department of Education), October 1991. 13Most analysis of the rate of return to education by economists buildson this fact. See, for example, Jacob Mincer. Schooling, Experience, and
Earnings. Washington, D.C.: National Bureau for Economic Research,
1974.19REFERENCESFor more information, see the following NCES publications:The Condition of Education, 1994. Washington, D.C.: 1994.
The Condition of Education, 1995. Washington, D.C.: 1995.
Digest of Education Statistics, 1994. Washington, D.C.: 1994.
Digest of Education Statistics, 1995. Washington, D.C.: 1995.Other Findings from The Condition of Education:No.1: High School Students Ten Years After A Nation At RiskNo.2: The Educational Progress of Black StudentsNo.3: America’s Teachers Ten Years After A Nation At RiskNo.4: The Educational Progress of Hispanic StudentsNo.5: The Educational Progress of Women20NCES constituents with access to the Internet can tap a rich collec-
tion of education-related information at the U.S. Department of
Education’s (ED) public Gopher/FTP/World Wide Web site,
including:• announcements of new publications and data sets• descriptions of NCES and ED programs• statistical tables, charts, and data sets• press releases• general information about the Department• searchable ED staff directory• funding opportunities• event calendars• directories of effective programs• directory of education-related information centers• research findings and syntheses• full-text publications for teachers, parents, and researchers• pointers to public Internet resources at R&D Centers,Regional Laboratories, ERIC Clearinghouses, and other
ED-funded institutions.They can access the information by using:A Gopher client, gopher.ed.gov or select North America-->U.S.
Department of Education. From the main Gopher menu, NCESproduced information is available under Educational Research,
Improvement and Statistics (OERI & NCES)/National Center for
Education Statistics (NCES)/.An FTP client, ftp to ftp.ed.gov, log-on anonymous.21ELECTRONICACCESS TONCES ANDOTHERED INFORMATIONA World Wide Web clientsuch as NCSA Mosaic or Lynx point toURL = http://www.ed.gov/ or http://www.ed.gov/NCESDial-inusers can access much of the same information through theOERI Toll-Free Electronic Bulletin Board, which provides on-lineaccess to statistical data, research findings, information about
Department of Education programs, and, in some cases, full texts of
departmental documents. Computer users can retrieve this infor-
mation at any hour using a modem (at speeds up to 14,400 baud)
and calling (800) 222-4922. Local direct, call (202) 219-1511.22

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