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November 19, 2010

College Is Cheaper Than in the Mid-1990s? No Way

By Andrew Gillen and Robert Martin

The annual release of Trends in Student Aid and Trends in College Pricing are big news in the higher education world, and rightly so. Since Department of Education data often take a year or two to become available, these reports provide the earliest and most comprehensive preliminary look at recent developments in tuition charges and financial aid. This year's two reports supposedly show that net tuition was lower in 2009-2010 than it had been in at least 15 years.

Sandy Baum (the main author of the reports) and Michael McPherson are puzzled by the apparent inconsistency between public perception and reality regarding net tuition increases, and ask "Why is it so hard for people to believe the numbers about declining net prices?"

The answer is quite simple. To begin with, as the College Board report points out, students and parents pay not just net tuition and fees, but room and board as well, and most of them find the price goes up each year. Even at the few institutions that guarantee the same tuition as long as students are continuously enrolled and making normal progress towards their degree, institutions manage to increase the net price students pay by increasing fees, room, and/or board.

But a much more important explanation for why it is "so hard for people to believe the numbers about declining net prices?" is that net prices have not been declining over the years for which we have reliable data.

A Center for College Affordability and Productivity (CCAP) analysis as well as data from a variety of sites within the Department of Education's National Center for Education Statistics, suggest that the perception problem is with those who argue real net tuition has been declining. For example, at public four-year colleges, between 1999-2000 and 2003-2004, net tuition and fees increased by 43% according to the Department of Education, but declined by 4% according to the College Board.

Given that federal grants (mostly Pell grants and veterans benefits) increased substantially, it is possible that net tuition has declined over the last two years. However, this has not been the trend for the last couple of decades. The College Board's estimates of net tuition in the past do not reflect this reality, which raises questions about the accuracy of their estimates of current and future net tuition.

What is Net Tuition?

College and university tuition pricing is complicated, more complicated than it should be. While there is a list price, referred to as published tuition, the higher education community argues the relevant cost is the net price paid by students and their families. "Net tuition and fees" refers to tuition and fees less institutional grants (grants given by the college), federal/state/local grants, and the value of tax incentives received by the student or his family. Similarly, the total cost of attendance equals tuition, fees, room, and board; so, "net price of attendance" is total cost of attendance less institutional grants, federal/state/local grants, and the value of tax incentives received by the student or his family.

Problems with the College Board's Calculation of Net Tuition

Figure 7 of the College Board's Trends in College Pricing displays figures for net tuition and fees, and indicates that for four year public institutions this figure has fallen from $2,080 in 2005-2006 to $1,540 in 2010-2011 (see here for the data).

Graphing their data, it appears as though tuition has been remarkably stable across all three sectors, with a slight downward trend over time for public two-year and four-year colleges, and an upward trend in the late 1990's that is canceled out by a downward trend in the mid 2000's for private non-profit four year colleges. In fact, in every sector, net tuition in 2009-2010 was lower than in any other year reported.

A study on trends in net tuition by the Center for College Affordability and Productivity (CCAP) yields quite different results. As is evident in the graphs below, there is quite a difference in reported net tuition between the two reports in both the public four year sector and the private non-profit four-year sector (note that we are only reporting figures for years covered by both reports).

Fig4.jpg
Fig3.jpg

Given the different data sources used and differences in methodology (see pages 3-5 here) minor differences are to be expected. However, the differences in the two reports go beyond margins of error. A clear upward trend is evident from the CCAP figures, but not from the College Board ones.

The standard response when faced with conflicting results is to seek more data. Fortunately such data does exist in the National Postsecondary Student Aid Study (NPSAS), which is probably the most authoritative data on student aid available. NPSAS data was accessed through the infuriating (but invaluable) Data Analysis System (DAS) website.

Comparing the Department of Education (from DAS) figures to those of the College Board again yields quite different results.


Fig61.jpg
Fig51.jpg

In particular, the College Board figures appear to consistently underestimate net tuition at 4 year public universities. The situation is reversed for private not-for-profit 4 year universities, with the College Board overestimating net tuition in 3 out of 4 years. Similar conclusions are reached if Digest of Education Statistics data are used.

Moreover, there does not appear to be enough variability in the College Board's data, which fails to indicate the considerable swings evident in the Department of Education data.

Which one is wrong?

The Department of Education figures come from the National Postsecondary Student Aid Study (NPSAS). Much of the data used by the College Board comes from the Annual Survey of Colleges, a survey conducted by the College Board. Given the above results (and the fact that NPSAS is nationally representative), it appears as though the Annual Survey of Colleges consistently yields flawed data. One reason for this could be if the Annual Survey of Colleges does not contain a representative sample of colleges.

Another possible explanation would be if colleges game the survey data they submit. This has been a persistent problem with the US News and World Report peer survey, where colleges have submitted misleading information to try and make themselves look better. For example, a college may report their preliminary budget for institutional grants rather than the (smaller) amount they actually provide.

Another interesting point is that the figures released by the College Board for 2009-2010 and 2010-2011 are labeled as preliminary and estimated, indicating that they will be updated when the actual data becomes available. However, the College Board does not use the actual data for net tuition when it is available; they use the previous survey data instead, even though it differs substantially from the observed data. Needless to say, this is a peculiar choice.

Whatever the reason, it appears the data from the Annual Survey of Colleges is unreliable, making the net tuition figures reported by the College Board unreliable as well.

What Really Happened with Net Tuition

Figures from the Department of Education, shown below, indicate that while in some sectors net tuition occasionally falls, net tuition clearly exhibits an upward trend in every sector from 1987 to 2008, with the lone exception being public two-year schools.

Fig1.jpg

In other words, the College Board reports there was no upward trend in net tuition from 1995-2011. This conclusion is at odds with both a CCAP report (covering 2000-2001 to 2005-2006) as well as federal data (covering from 1987-2008). Thus, in spite of their titles, the College Board's reports appear to miss a real upward trend in net tuition.

The conclusion many readers may draw from the College Board's studies is that real net tuition is lower now than it was 5, 10 or 15 years ago. It is possible real net tuition fell after the recent increases in Pell grants and veterans' benefits, but the failure of the College Board to document past trends in net tuition accurately should temper any sweeping conclusions that can be drawn from their preliminary and estimated data.

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Robert Martin is emeritus Boles Professor of Economics at Centre College and author of The College Cost Disease: Higher Cost and Lower Quality, Edward Elgar, Ltd, forthcoming. Andrew Gillen is the Research Director at the Center for College Affordability and Productivity.



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