What is the Evidence on High-Tuition High-Aid Models?

Sunday, April 26, 2009
Inquiring minds want to know... and those of us optimistic about the future of education in this country, and the future of our children, are here to provide that service.

Given declining state support to higher education, it's not at all surprising that even the most "public" state flagship universities are considering high-tuition high-aid models-- ones that jack up tuition on all or a subset of students in order to provide more aid to students from lower-income backgrounds. Sounds good, right? Those who can will pay more, and those who can't will get more aid.

As with any policy, especially one so appealing on the face of it, it's worth turning to any available empirical evidence to assess whether it should be enacted. So let's do it.

1. University of Michigan- Ann Arbor began using this model back in 1997. UM is known as the most truly affordable college in the Big 10 by virtue of its gobs and gobs of financial aid. So, is it working? "In 2008, UM reported that tuition has increased 27 percent for incoming freshmen in the College of Literature, Science and the Arts since fall 2004. Tuition cost $10,447... University officials said they've increased financial aid by a greater percentage than the annual tuition increases." But since 1997, the number of low-income UM students has decreased by 10%, while the number of wealthy students has increased by 8%. What's going on? According to the financial aid director at UM “Our cost scares people away… it’s hard for [prospective students] to reconcile that, yes, we may be more expensive, but we give more financial aid."

2. Miami University of Ohio. With a president who understood that unfortunately "high tuition makes people think a school has a lot to offer" this institution raised in-state rates to match out-of-state ones, but also offered automatic grants up to nearly $13,000 to in-staters to offset the cost. The prez promised that net costs for Ohioans wouldn't go up-- that for them costs would remain the same. A year later, applications and enrollment immediately went up. Sounds great, right!? Except over the course of that same year there was an 8 percent decrease in applications from students with high amounts of financial need, and in-state enrollment dropped 13%.

These problems are recognized by the student body at the University of Washington, where a similar model is being considered. See here for an example.

3. Two important facts from financial aid research:

A. Low SES students are particularly price sensitive and have difficulty identifying the amount of aid they can expect to receive (hey, with a FAFSA like that who's surprised?). (See the work of Don Heller). We've never found a successful way to get low-income families accurate info on net cost, so as to influence their choices, early on, before they count themselves out of higher ed.

B. "A $1,000 increase in tuition decreases the attendance rate of low income youth by an estimated 5.2 percentage points more than middle- and high-income youth." (Thomas Kane) If the aid did not match the increases in tuition dollar-for-dollar, not only in theory but in reality, what follows is pretty clear.

Moreover, many of the biggest names in financial aid research and leaders of great public institutions tend to agree. Here are the voices of a few:

Edward St. John (U. Michigan): "The reality of high‐tuition/high‐aid [does] not match the vision advocated by progressives. Institutions leverage student aid to generate tuition revenue, replace tax dollars but adding to inequalities created by the shift in public finance. While rising tuition is a fact of life in public universities, student aid remains ambiguous and uncertain."

University of California System: In 2006, UC declined to go high-tuition/high-aid to protect access for low-income and minority students. UC reviewed the relevant research in advance, and its report declared: "Practically speaking, return-to-aid does not always compensate for the effect of tuition increases. In spite of efforts to increase financial aid in keeping with increase in tuition, high-tuition universities generally do not have student bodies as diverse as their less expensive public cousins....Thus in spite of the University’s excellent intentions and unusual efforts to offset the negative effects of fee hikes, the Compact moves the University toward a high tuition-high aid model that may not be able to prevent reduced access."

Brian Levin-Stankevich, President of Eastern-Washington University: He declined to go high-tuition, high-aid, noting that "the sticker price alone can be a deterrent to even considering college." But, he found an alternative, raising class size and using more technology. (Point of fact: there is no good evidence that smaller undergraduate classes are cost-effective, producing better outcomes worth the price. That said, they are politically popular!)

Patrick Callan: The Miami model, according to Callan, was a “poor execution of a poor idea.” “Everyone thought that high tuition, high aid programs worked well until we heard from privates about their issues with access for low-income students,” said Callan. “It would be a serious mistake for schools to look at the Miami situation and conclude that this is the best way to help low-income students.”

Bruce Johnstone notes that actually translating high tuition into high aid is operationally complex and hard to implement. It would also be hard to know if a university wasn't actually spending the money in that way. Other research, by Griswold and Marine supports this -- tuition pricing and aid allocations are often poorly coordinated.

And just for balance here are the voices of advocates of high-tuition/high-aid models...

James Garland, Miami University of Ohio. “Imagine if there were, in its place, a food subsidy program by which the government paid that $27 billion directly to supermarkets. Under such a program needy families would benefit little, because most of the savings would be passed on to customers who didn't need help. That would be an inefficient use of public money. But this is precisely what happens in public higher education. When states pay their universities to hold down tuition charges, they are indirectly subsidizing wealthy and poor students alike."

Ron Ehrenberg of Cornell University. A recent article about the Madison Initiative quoted Ehrenberg as saying "it’s to be expected that flagship institutions will have to borrow from the private model to maintain quality in an environment of diminishing resources. That said, there are potential pitfalls. “This [increase] is actually going to hit a relatively large fraction of the students, and the downside risk is that there may turn out to be a lot of political opposition to it,” said Ehrenberg, a professor of economics. “There’s always sort of the fear that if you raise tuition you’re going to lose public support, and that’s going to make state appropriations go away even faster,” he added."

Research by Jim Hearn and others has shown that time and again this model becomes popular under conditions of financial stress. But stressful times are times to get creative, to think harder about efficiencies, and to take unpopular stands. They are not the time to leave the poorest citizens among us out in the cold, while we "save" our own children, and our own behinds.

Postscript: I give tons of credit to the Economic Opportunity Institute for a very good brief on the topic.