A Lack of Tuition Strategy

Setting tuition at public colleges and universities is no simple task.

Governors and lawmakers approve different levels of state funding to subsidize higher education from year to year. Those same politicians are frequently unhappy with rising college costs, and they sometimes move to freeze tuition or cap its rate of increase.

But flat tuition, if not accompanied by an increase in appropriations, can result in fewer sections and longer times to graduation, which is expensive for students and families. And because of the way many state aid programs are structured, public tuition rates can directly affect the amount of financial aid students receive.

In other words, setting public tuition is an exceedingly complex process involving numerous power centers. It’s a process with numerous possible unintended consequences for students’ ability to pay for college. Yet it’s a process that’s not even close to being standardized from state to state.

Most states don’t even have a single strategy for addressing affordability, according to a new report out today from the State Higher Education Executive Officers Association. SHEEO found that 68 percent of higher education agencies it surveyed had no unified affordability strategy taking tuition, fees and financial aid into account.

That lack of strategy comes even as four out of five states have put in place attainment goals for increasing the percentage of their residents with postsecondary credentials. As a result, SHEEO is calling for states to bring together governors, lawmakers, higher ed governing boards and college presidents in order to set tuition and fees in ways that line up with attainment goals.

“We have to find mechanisms to provide greater transparency and predictability to students and their families,” said Rob Anderson, SHEEO president. “One way to do this is to set out conversations between all the players that take part in the tuition- and fee-setting process. Instead of looking short term, let’s begin to think long term as far as what this relationship is going to look like between a governor, a Legislature, a higher ed office within a state as well as campus presidents and their administration.”

Although SHEEO is pushing broadly for a balance to be found between the cost students pay and colleges’ revenue needs, it didn’t issue its new report to examine actual tuition costs in depth. Instead, it looked at the different ways states set tuition, fees and student aid by conducting a survey that received responses from 54 higher education agencies in 49 states.

It found wide variations in the philosophies driving tuition setting. Keeping college affordable for students was the most common principle underpinning tuition rates, SHEEO found. But many also factored in budgetary needs and changes in state funding levels.

Philosophy is one thing. The factors actually driving tuition setting are another. The amount of money states budget for higher education is more important than affordability when setting tuition rates, SHEEO found.

States have pursued several different tuition-affordability strategies in recent years. Free community college programs like the Tennessee Promise were the most likely to have been discussed, with three states adopting promise programs, four states putting them in place on a limited or pilot basis, and another nine states not implementing them. But tuition guarantee programs, which have students paying the same rate of tuition over the course of their enrollment, were more broadly implemented. A total of 11 respondents said their states had implemented tuition guarantee programs.

SHEEO also asked respondents whether their states had put in place prepaid tuition plans, tuition rollbacks, pay-it-forward models and debt-free college. Prepaid tuition plans are college savings accounts, like 529 plans. Tuition rollbacks have institutions cutting their rates of tuition in exchange for more public funding. Pay-it-forward programs have students paying no tuition while they are in college but having a portion of their wages garnished after they graduate in order to pay for their education. Debt-free college uses a combination of financial aid mechanisms to help students graduate without any debt.

Of those other strategies, tuition rollbacks were most widely implemented.

The survey went on to ask whether a tuition freeze or other limit had been placed on residential undergraduate students in the last three fiscal years. Twenty-four respondents said neither restriction had been placed on their tuition. Twenty said a tuition freeze had been adopted, six said a tuition limit had been put in place and three said both a freeze and tuition limit had been enacted.

The question of who, exactly, sets tuition is sometimes murky. About three-quarters of states have tuition-setting authority laid out by legislative statute. Another 15 percent codify tuition-setting authority by board rule or policy, and 11 percent do not have the authority formalized at the state level.

Various parties can propose tuition rates before they are formally adopted. The actors setting rates vary significantly from state to state -- and there are often multiple players involved. Governing boards were most frequently primarily responsible for proposing tuition rates in SHEEO’s survey, followed closely by boards of individual institutions. But governors and legislatures often played an informal or consultative role.

A dozen respondents said multiple authorities could arguably be said to have tuition-setting authority in their state. Even outside those states, the process of setting tuition and fees is complex and involves multiple entities with sometimes-competing interests, according to SHEEO.

Restrictions on tuition rates can push colleges or universities that need to raise more revenue to increase fees. Many institutions have also turned to differential tuition in the face of pressure on tuition revenue. A total of 49 respondents told SHEEO they had implemented differential tuition between in-state and out-of-state resident undergraduate students. And 29 said they had implemented differential tuition for certain majors.

Changes to tuition can also put more pressure on financial aid programs. Minnesota, for example, awards the Minnesota State Grant for students from low- or moderate-income families based on the gap between the cost of attending college and a family’s expected contribution -- and the state automatically spends more on financial aid to moderate the effects of tuition rate increases.

Yet only 21 survey respondents said they strongly agreed or agreed with the statement that policy makers should consider the impact on financial aid programs when they considered tuition rates. Another 10 disagreed with the statement, and 18 were neutral.

It’s possible for state aid programs to offer students less money, or to offer fewer students money, if tuition rises at public institutions but state appropriations do not increase in lockstep, said Andy Carlson, SHEEO principal policy analyst.

“If a financial aid program is designed to cover tuition at a median institution in a state, and institutions raise tuition with little control from the Legislature, that’s just going to reduce the number of students who are able to access the grants, unless the appropriation keeps up,” Carlson said.

That’s one of the reasons SHEEO is pushing for the different players in tuition policy to get together to talk strategy. Otherwise, they might be pulling in different directions, minimizing the effects of financial aid programs and otherwise hurting their chances of reaching larger goals.

“If a state or governing board is implementing an affordability strategy and they’re not considering tuition rate policies’ impact on that, the program probably won’t be as effective as it could be,” Carlson said.

Specifically, SHEEO is calling for policy makers to incorporate tuition policy into broader affordability and attainment strategies. Institutional revenue sources like state appropriations, financial aid and tuition should be coordinated, and more transparency should be established around institutional expenditures, the organization says. It also called for a multiyear approach to tuition policy -- one that would not necessarily lock in specific tuition rates over a set number of years but would create a range of allowable increases over three to five years, allowing institutions, students and families to plan better.

There are still skeptics about the effectiveness of those strategies. Andrew Gillen, an independent higher education analyst who has criticized SHEEO’s assumptions in other studies, said increased coordination between policy makers could be worthwhile for some reasons. But he doesn’t think it will lead to a lower cost of delivering education or encourage third parties to shoulder more of the cost.

“The bottom line is that increased coordination doesn’t have much potential to reduce or reallocate costs,” he said via email. “And even if it did, it is unlikely students would see any of the benefit.”

There is also no guarantee that bringing different parties together would result in better coordination. Many players with power would be hesitant to give up the ability to set tuition, said Joseph Rallo, Louisiana’s commissioner of higher education. Different institutions also face vastly different situations.

“I’m not saying you don’t want to be able to come to the table,” he said. “When it comes to tuition and fees, it is really is so variable and singular it would be hard to go beyond conversing.”

Rallo was more optimistic about the idea of coordinating financial aid. Putting together state aid, institutional grants and federal aid could benefit students and provide more clarity for families, he said.