Let's Not Lose Our Advantage in Higher Education.

• Author: Griffith, Amanda L.

"College is so expensive these days!" This statement or something like it has become a common refrain over the last few decades. Public and nonprofit private four-year institutions have seen tuition and fees rise by 13 to 18 percent in constant dollars over the decade starting in 2010 (NCES 2022). Of course, many institutions offer some form of financial aid, but even when we consider this price discounting, the average cost of attendance has increased significantly. These large increases in cost mean that financing a four-year degree is a substantial investment for many students.

Policy discussions have been acknowledging these increasing costs for years, with some politicians voicing a concern that college costs have risen so much that college is no longer affordable for many. In recent presidential elections, most candidates for president had a policy statement addressing college costs, with many proposing some type of "free college" plan. Although these plans got a lot of attention, there has been little movement on this issue at the federal level. At the state level, we have seen multiple "free-college" plans emerge over the past decade or more with varying levels of success. (1) More recently, national attention has turned to student loan debt forgiveness.

This policy proposal may assist students who have already begun amassing student debt but will do little to reduce costs going forward. With the multitude of policy proposals aimed at reducing college costs either at the start with "free college" or at the end with debt forgiveness, it is clear that this topic must be at the forefront of any debate about the future of the higher education market.

Most importantly, these debates often fail to fully discuss the most essential question: why are costs rising? One answer to this question is that higher education has traditionally been dependent on high-skilled labor, and labor costs continue to rise. But importantly, we have also seen a trend in recent decades of escalating demand for quality. Students and their parents, the customers in the market, are demanding a higher quality education and more expensive experiences from their colleges and universities. Schools are caught in a spiral of increasing their offerings to students to compete with their peers for the best students (Jacob, McCall, and Stange 2018). Some of these changes enhance educational quality; others enhance the consumption value of the good. All of them increase the cost of educating each student, which ultimately leads to an increase in sticker prices.

As we look to the future of higher education, a driving force of change in the higher education market will be how institutions choose to balance cost-cutting measures with maintaining quality. How institutions respond to this challenge will likely depend on two things: public or private control and selectivity. I discuss one sector at a time, because the challenges and opportunities that lie ahead may differ for these types of institutions.

Public Colleges and Universities--Challenges and Opportunities

A primary challenge that public universities face is declining public support in many states, both monetarily and for their academic missions. Typically, public funding for higher education falls during recessions, which we saw occur in both the recession of the early 2000s and during the Great Recession. Despite average state funding per full-time equivalent student rebounding somewhat since the Great Recession, real per-pupil funding levels are still 10. (2) percent below 2001 levels (SHEF 2022). If cost per student remains the same or increases to keep up with peer private institutions, public universities must increase tuition and fees. Only the most selective public universities have substantial endowments and generous alumni to rely on to bridge the gap, so we should expect that in the absence of cost-cutting measures or further public investments, we will see large increases in sticker prices at our less selective institutions, as well as moderate increases at the more selective public institutions.

However, as these institutions are meant to be an access-point to a four-year degree, it is unlikely that these large increases in sticker prices are sustainable. In addition to public pressure to provide access to lower-income students, without an increase in quality we will see demand for these institutions fall. It is far more likely that public institutions that do not have large endowments to fall back on will institute stringent cost-cutting measures. Amenities not...