Coupling Incentives to Tuition Caps: A new path toward affordability?

Postsecondary & Workforce

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The sun is shining; the birds are chirping – it’s the season for high school graduation. Congratulations to the class of 2017! As students move their mortarboard tassel from right to left, they’re likely looking toward the future – a college degree. But with that prospect comes the rising cost of postsecondary attendance. When the class of 2017 was born 18 years ago, the average tuition and fees at a public four-year institution were $4,788 (in 2016 dollars). For the 2016 – 2017 year, that number soared to $9,648. This 102 percent increase in tuition and fees outpaces the growth of every other industry, even  healthcare. 

Why are tuition costs rising so rapidly? Some disagreement exists about the causes of tuition increases and the reasons vary from state to state and from institution to institution. Findings from a 2016 NBER study by Grey Gordon and Aaron Hedlund suggest that expanded student loan borrowing limits are the largest driving force for the increase in tuition between 1987 and 2010. A 2014 report from Education Commission of the States explains that tuition discounting – the practice of institutions lowering the price for certain students but not for others – in public colleges and universities is also a driving force behind rising sticker prices. The National Conference of State Legislatures attributes rising tuition and fees to changes in an institution’s cost structure – the instruction, research, administration, student services, public service, and plant operation and maintenance. Regardless, tuition and fees continue to rise across the country. To combat this trend, many states have and continue to implement policies to limit tuition growth.

One such strategy is a tuition cap. Tuition caps can slow the growth in tuition by limiting the amount by which an institution can increase tuition from year to year. These caps can either be a flat dollar amount or a percentage increase over time. One important caveat on tuition caps is that they limit only the tuition and mandatory fees. Most policies do not limit the growth in other fees, room and board, books, supplies, etc., which creates a backdoor for tuition hikes through other revenue sources. In the current legislative session, Minnesota and Virginia are considering limiting tuition growth through a tuition cap.

Minnesota’s HF 2594 is a tuition freeze in exchange for additional funding for state grants and student tuition relief. If this bill passes, undergraduate tuition rates at colleges and universities cannot exceed the 2016-2017 academic year rates for the next two academic years. The bill was introduced in April and referred to the House Committee on Higher Education and Career Readiness Policy and Finance.

Additionally, Virginia’s SB 1565 limits the percentage increase for in-state tuition and fees for undergraduate students at Virginia’s public institutions to the mandated salary percentage increase for state employees. By tagging the allowable increase in tuition and fees to that of public employees’ salaries, the sponsors aim to curb tuition growth. This bill has been heard in the Senate Finance Committee and the Senate Committee on Education and Health and passed out of both committees.

Both Minnesota and Virginia’s proposed tuition limits couple a tuition cap with an incentive – in Minnesota, it is coupled with funding increases for state aid and in Virginia, the cap is coupled with salary increases for state employees. While flat tuition caps can be arbitrary, coupling tuition caps with increased state support can provide tuition predictability for students and families. Lower sticker prices and expected tuition increases can provide predictability and consistency, which is a crucial step toward ensuring that students have a clear, affordable path to quality postsecondary credentials.  

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