Why California's Tuition Hike Might Be a Good Thing

Students at University of California schools have been protesting the decision of the Board of Regents “to raise undergraduate fees — the equivalent of tuition — 32 percent next fall.” But higher tuition, if it is accompanied with higher financial aid for lower- and middle-income students, improves equity. As Aaron Edlin and I wrote back in 2003:

It might seem … that raising state college tuition is plainly a bad thing. High tuitions mean students will find it harder to finance college — and may not even attend, or may drop out due to costs. And for the students who attend state colleges, many of whom are of modest means, the tuition crunch may be especially painful.

In fact, that is absolutely not the case. The truth is that increasing public college tuitions are not a problem at all. Indeed, the biggest problem in pricing tuition at public universities is not that the poor pay too much, but that the rich pay too little.

Tuition increases are actually a good idea — as long as they are matched with financial aid, including scholarships, for poor students.

The Huge Gap Between Average Public and Private University Tuitions

Consider a comparison: U.C. Berkeley offers more courses taught by more Nobel laureates than Yale. Yet Yale charges $28,400 per year in tuition and fees, while Berkeley charges $5,858.

And this is no anomaly: tuitions at public universities average $4,694 compared with $19,710 at private colleges. In short, public university tuition, on average, costs less than one-quarter of private university tuition. (And that is even in light of this year’s public university tuition increase of 14 percent — the largest in at least a quarter of a century.)

Who benefits from the low public-school tuitions? A disproportionate amount of the benefits go to rich students who attend schools like Berkeley because of the way financial aid operates.

The Problem for Poor Students Is Low Financial Aid, Not High Tuition

What happens, then, when public university tuitions rise, as has occurred recently? Perhaps surprisingly, the situation becomes fairer.

The rich Berkeley student now must pay a tuition much more commensurate with what he or she can afford. And the poorest Berkeley student are typically not much worse off: as tuitions have risen this past year, those from the poorest families saw their financial aid packages rise almost dollar for dollar.

For poor students, then, the important issue isn’t tuition so much as financial aid. [If] students can’t afford the fee increases at UC Berkeley, … the answer isn’t a tuition decrease; it’s a financial aid hike.

Why Public Universities Should Continue to Raise Tuitions Even More

Thus, the member schools of the California system, for example, would be wise to radically increase both their tuitions and their financial aid.

For instance, suppose UC Berkeley raised its tuition by $20,000 per year and gave all but its richest students an extra $20,000 scholarship. With the extra money it got from its richest students, it could balance its budget. And, having done so, it would not need to burden students even from middle-class families.

A side benefit of raising tuition and financial aid is that it would increase UC’s position in U.S. News rankings which turn in part on the amount of financial aid granted:

Would Berkeley deserve this position increase? Absolutely. The bump up in ranking might seem to be the result of sleight of hand or subterfuge; after all, Berkeley’s increased financial aid would be required only because of its own decision to raise tuition.

But in fact, the change would only equalize Berkeley with schools like Yale, which currently get a ranking advantage using the very same “sleight of hand.” That is, Yale chooses to charge a very high tuition, but then effectively waives a great deal of it through financial aid.

Moreover, Berkeley is already, in effect, giving lots of financial aid out — but it goes to the wrong people, and it isn’t counted in U.S. News ranking. Every affluent student who attends Berkeley, not Yale, in effect gets a $20,000 scholarship to do so. The current aid is just given in the hidden form of low tuition.

Financial aid is, at its core, a price-discrimination scheme. Consumers pay different prices (net of financial aid) for the same service. Higher education is the very rare market where the seller says “Tell me in detail about your ability to pay, and I’ll tell you what your (net) price will be.” But instead of maximizing firm revenue, the goal is to enhance equity. By increasing the effective tuition for some of our wealthier students, we might be able to reduce the price for some of the less wealthy.


Sam

What a terrible, misinformed article. Does Ayres even know who's getting the financial aid with this increase? People with family income over $70,000 are not "rich," it's the middle class that gets squeezed, and much of the financial aid available is in the form of loans, which don't reduce costs, just defer paying them off.

After seeing the author's profile, it's likely that his Yale background prejudices him against affordable state schools-- he seems to think it's somehow morally wrong that you can get a top-notch education at Berkeley without having to pay the exorbitant fees people do at Yale and other Ivy leagues.

Li

I studied this phenomenon in my economics class and completely agree with Ian Ayres's commentary. Charging higher tuition with a commensurate increase in need-based grant/scholarship money will indeed make the system more balanced. As a current student at a Cal State school, I'm benefiting tremendously from need-based grant money. Even after the 30% increase in CSU-system tuition, my out-of-pocket costs was about the same as before when factoring the extra financial aid I got.

Aaron Adler

This article suggests at least two concepts that are highly problematic:

(1) all schools should be unaffordable to low and middle income students _except_ with financial aid, and

(2) having a good deal accessible to all income levels is necessarily inequitable.

Should we set the prices of all good and services out of reach of most people and then give them loans and grants to bring their cost down?

No, we shouldn't. And we should keep public universities within reach without resort to the loan level needed to attend a Yale or similar school.

Mary

A lot of good points made on this complex issue. I guess I should be glad I'm an only child, so my parents could save up enough to fund my education!

What strikes me is that on a blog and in an opinion column, the opinion is expressed with no further commentary. Why is it that you as the author can write something and then ignore all the responses?

A true blog would provide an ongoing conversation about this (and all other topics you write about). That's why social media is so popular - because it's no longer a one-sided conversation. I find this thoroughly disappointing.

Ann

20+ years ago when I went to college, this statement may have made sense. When the tuition went up, my financial aid, which was entirely grants, went up too. But today, most financial aid is in the form of loans. Higher tuition just increases the loan burden on the student after graduation.

The other factor is that for the student, financial aid is a crapshoot. The student applies to the college, and is accepted, *then* applies for and receives financial aid much later, often after deciding where to go to school. Many students from poor families won't even apply to a school with high tuition, because of the potential financial burden. If the "rack rate" tuition is too high, they'll opt out and go to cheaper schools, or they'll opt out of college entirely.

Andres UCR

The U.C. is not in a financial crisis. This was actually a record setting year in revenue for the U.C. system (http://www.democracynow.org/2009/11/20/students). The reasons for the fee hikes comes down to a mismanagement of the U.C. by the administration. The U.C. lost $23 BILLION dollars in investments. The total percent of the budget for actual teaching faculty is 10%. Why isn't the U.C. investing in human capital, by hiring more teaching faculty, admitting more students, offering more classes instead of eliminating whole departments and programs? The administration is treating the U.C. institution as a business endeavor, and they are running it in to the ground.

ObiJan

I am a big fan of you work, but this post is so off base that it looks like legislation written by a lobbyist.

- How can putting people more in debt ever be a good thing?
- Can anybody explain to me why education in the USA is orders of magnitude more expensive than in the rest of the world.

Like health care, this looks like another case of "over priced, under delivered, but don't question it unless you are unpatriotic"

Joanne

The writer could not possibly live in California. Our high cost of living, high unemployment rate and high state income taxes makes a frightening cocktail of financial distress for many many families, especially those "in the middle" whom the writer has egregiously ignored.

A couple of points that rankled me: First of all, the claim that there are more Nobel Laureates who teach at UC Berkeley than at Yale is ludicrous. The more important statistic is the percentage of undergraduate students who have taken, or have access to, those classes and professors. Second, another person commented on this earlier, but UC Berkeley is one of 9 (10 if you count UCSF) campuses and they do not all have Nobel Laureates. Using Berkeley as an example for the entire UC system does not work. Finally, the biggest error in this article is the fact that it only addresses the financial relief available to the truly needy. The fact is, "middle class" Californians, especially those who live in expensive coastal cities, are struggling to make ends meet, and after paying about 9% (the rate for those making between $47,000 and $1,000,000 annually) state income tax, there is little left over. Our tax dollars should be covering MOST of the cost of attendance at one of our public universities. Our state has failed us miserably, and I am insulted that the writer of this article believes that Californians should pay MORE for a public education.

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anon

Wouldn't the tuition increase (at least in California today) simply offset the reduction in state funding? If so, I'm not sure how this plays out. State funding comes from tax revenues. Much of the tax revenues come from very progressive income taxes. So you're swapping out one form of progressive payment (income tax funding) for another (high tuition but with more financial aid for lower income students). Not sure about the net effect of this swap.....

Katie

As an undergrad at UC Santa Barbara, I can tell you that, regardless of whether or not financial aid opportunities will increase as a result of the budget crisis, it is clear that the quality of our education and our university experience will not.

Academic departments are being eliminated all around campus, along with vital student services. Class sizes are increasing and class availability is severely decreasing, making it difficult for seniors such as myself to get all the classes we need in order to graduate in June.

The fee increase and degradation of our services are just a few of the issues we're facing. But the greater issue that we as students are wondering is why we've been chosen as the ones to suffer. The Regents retain their six figure salaries, researchers still have multi-million dollar research budgets, but it's us students who are being forced to pay more for a product that is losing its value by the second.

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Katie

Also, the fee increases are for Winter and Spring quarters at the UCs. Most students' Financial Aid has already been dispersed for the year, based on the fee costs for Fall quarter.

Jamie

To those who think the article is mistaken in saying that Berkeley's tuition is only $5,858, the author is referring to another article written in 2003, when tuition fees were significantly lower. But that does go to show how much tuition has increased for California public universities in the last 5 years, compared to the last 10 years before that.... Public education should be funded by the government, and it shouldn't be up to the schools to function like private ones in raising their own funds.

daniel garcia

I don't live with my parents, and I support myself 100%. But because i'm 22 yrs old, unmarried and don't have kids, FAFSA considers me dependent on my parents. However my parents make too much for me to receive anything from the gov't, and they make too little to support me. This recent tuition hikes at Cal State made me take out a larger loan. My story is a similar story I hear amongst many college students. A rise in tuition may be beneficial to the poor, but it does not benefit the middle class.

Dave

As a parent of two UC students (a senior and a sophomore) I can tell you first hand that it's difficult to plan for a 32% tuition increase. Saving for college hopefully starts when children are young and is based on certain assumptions. All the formulas I used to plan for education took inflation into account. However, 32% at one time in addition to the 10 to 15% annual increases I've experienced during the last 4 years have been a hard adjustment.

As a parent with a decent middle income salary, I've paid higher taxes than most during the last 20 years. Most kids from higher earning families have parents who have paid more into the system during the previous decades.

Nubia Cazares

I see the point this article is trying to make. And like the author said as long as the rise of tuition matches the financial aid then it shouldn't be such a huge burden. But the reality of the issue is that the rise in tuition might not necessairly mean a rise in financial aid and that is what many of these students are afraid of. How can tuition for public universities continue to rise and be considered a good thing? I think that less privelaged students would be discouraged to even apply anymore.
The reason why so many students go to public universities and not private is because they are cheaper and still provide a good education, if tuition continues to rise by more then 30% next semester then there will defnitely be a rise in drop out rates. If public universities rise and privates don't then eventually public schools will be just as expensive as private colleges so what would be the advantage of going to a private school?
I don't think UC's should raise their tuition, low income students need good affordable education and UC;s provide that so why raise the tuition and make things more complicated. As long as financial aid doesn't rise then tuition should not be raised either.

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M

"You know, this article would be a lot more credible if the numbers weren't so flat out wrong."

Claim: Yale charges $28,400 per year for undergraduates.

Fact: Yale charges $36,500 a year.

http://opa.yale.edu/news/article.aspx?id=6468

"rich" aristocrat CU Boulder graduate

Isn't this double dipping? The rich already pay more in taxes in many states due to a progressive tax structure. They now have to get screwed a second time when their children go to enroll in an institution that they have already paid disproportionately more into their entire lives?

Furthermore, the hypothesis that just because one student's parents make more than another student's parents indicates a higher willingness to fund their college education is presumptuous at best. In many cases, the parent's willingness to pay is totally the opposite of ability to pay. No competent middle class couple (the alleged "rich") would, or should, blow their life savings to fuel a pyramid scheme like this. In implementing a system as is proposed by the author of this article, you are effectively saddling a generation of students with the same burden you are trying to relieve poor students of. Creating inequity in the opposite direction does not provide equality. This is increasingly the result of poorly thought-out government policies. Zero sum.

One would think that just occasionally we would come across an issue that presents itself to be one-sided, so much so that no two intelligent individuals could possibly disagree. It would be nice to believe that Mr. Ayres was playing the devil's advocate here, but I sense he is not this clever.

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htb

I attended a small and relatively wealthy private college because their financial aid package was MUCH better than the public schools. My family was definitely blue-collar, and I qualified for a full Pell Grant, another federal grant, work-study, college scholarships, outside scholarships, and some subsidized loans (equal, when I graduated, to less than half of one year's nominal tuition at this school).

My pet peeve about the college "tuition" debate is the parents that balk at paying $10K for the teaching, but swallow a sticker price of twice that for room and board without blinking. Why complain about the smaller cost, while utterly ignoring the big one?

While there's ultimately plenty of financial aid for tuition if you're in the lower income ranges, there's almost nothing for the $800-per-month dorm fees that our local UC students are paying. Pell Grants, and most other scholarships, can only be used for tuition, fees, books, and required class supplies. It's room and board (and pizza, and soft drinks, and school T-shirts, and cell phones, and...) that ends up being paid for by loans (and credit cards). Changing the tuition price doesn't affect the costs of these "luxury" items. Most middle-class students could eliminate their student loans if they were willing to live at home until graduation.

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weinst

Of course the thesis is correct. What we have now is a system in which the taxpayers (who are generally not as wealthy as the families that take advantage of the UC system for their children) pay for the equivalent of scholarships that are awarded without regard to financial need. The best solution is to simply have the UC system become private and take all of the money the state provides and allocate it to need-based financial aid that can be spent at any university in California. The reason this is better is because the "scholarship" is not only not based on need, it is only available if the student chooses to attend a particular college. This constraint on choice almost certainly reduces student utility. Finally, the provision of subsidized public higher education in this way distorts the financial aid decisions that private universities in California must make. This is especially true for professional schools because not only does the present system subsidize undergraduate eduction, it also means that taxpayers are subsidizing the production of yuppie investment bankers and corporate lawyers.

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matt

There already is a way to ensure the rich pay more for university and college education - it's called a progressive income tax! The way it works is the more money you earn, the more you pay in taxes. It is nothing revolutionary. California, and the rest of the United States, has practiced it for decades.

The best, and most efficient way, to ensure that those with more pay more, and those with less pay less, is to eliminate tuition fees and have the whole public post-secondary system paid for by government.