College costs: The glass is half empty—and leaking

By Ed Muir

Tuition at public universities rose more than 10 percent this fall, the second straight year of double-digit tuition increases—the result of a fiscal crunch that led states to dramatically lower support for higher education. Some analysts claim that tuition and the cost of room and board are poor indicators of actual costs because financial aid is on the rise. But let’s see how far that aid goes for working families facing stagnant wages and rising tuition.

In 2000-01, average tuition and fees for a four-year public institution cost $3,510. Average room and board came to $4,960. Total cost was $8,470. By 2003-04, total cost had risen by 26 percent, to $10,630. A back-of-the-envelope calculation of federal assistance through Pell Grants and Hope tax credits for a median income household and one whose income is at the 20th percentile reveals the limits of federal help.

Median U.S. household income in 2003 was $43,318. In 2000 it was $41,990. Although the amount of a family’s Pell Grant depends on factors including number of children and expenses, let’s assume that in each year the family qualified for the minimum award. Pell Grants are targeted to lower-income families, meaning that middle-class families receive smaller grants than poorer ones.

In fact, only 2 percent of those applicants with family income above $50,000 qualified for any Pell money in 2000. The minimum Pell award in 2000 and in 2003 was $400. Let’s also assume our household had enough tax liability each year to make use of the maximum Hope tax credit, which was $1,500 in both 2000 and 2003. So in each year, total federal support was $1,900. Taking this into account, college costs were 15.4 percent of median household income in 2004, up from 11.8 percent in 2000. A recent high school graduate from a median income household receiving the minimum Pell Grant and the maximum Hope tax credit could stay in college only by finding other aid, adding debt or shifting almost 4 percent of income from other needs.

Lower-income households received an increase in Pell Grant funding, but with the same grim result. Households at the 20th percentile of income distribution came in at $17,920 in 2000 and $17,984 in 2003. Let’s assume a freshman from this household qualified for the average Pell Grant in each year, receiving $2,040 in 2000 and $2,457 in 2003. Because poorer families have smaller tax liabilities, we can assume this household would have gotten tax credit of about $850 in 2000 and a smaller amount in 2003, although the effect of other tax cuts evens this out. As a result, we can keep the tax support for higher education at $850.

All told, support rose by $417 and costs rose by $2,160. Because income only rose by $64, this family would have had to find a way to cover additional costs equal to more than 8 percent of its household income.

With another year of double-digit tuition hikes to deal with, Congress should take the reauthorization of the Higher Education Act as an opportunity to help struggling families afford higher education. It’s the right investment for a sound economy and the right investment for putting more Americans on the path toward prosperity.