International Higher Education, Spring 2004

Variable Fees: Who Really Benefits?

Jamie P. Merisotis
Jamie P. Merisotis is president of the Institute for Higher Education Policy, an independent education research organization in Washington, D.C. Address: IHEP, 1320 19th NW, Washington DC 20036, USA. E-mail: jamie@IHEP.CO.

The recent debate in the United Kingdom over the establishment of student top-up fees is part of a broader set of discussions in many countries about the massification of higher education and the capacity for cost-sharing among those who benefit from higher education. These policy-level dialogues in many ways mirror the ongoing American debate over paying for higher education and the public and private benefits of such investment. The antagonists in these debates might use the U.S. experience as a guide in avoiding the pitfalls of variable fees and striking an equitable balance regarding who should pay for higher education.

Allowing different universities to charge variable fees has long been a part of the American higher education landscape and a key strategy to encourage universities to compete for student enrollments. Higher education functions in a complex and competitive marketplace where the price charged can vary from less than U.S.$1,000 to more than U.S.$30,000 per year. American public institutions charge different prices for students who live in-state and those who are from out-of-state, and some charge different tuitions depending on the academic programs.

Under this remarkably diverse pricing system, students are able to make tuition levels a key part of their decision about where to attend university. Variable fees also can lead to efficiency improvements among institutions competing for similar types of students, by ensuring that price increases are not spent on frivolous activities.

But one of the challenges in the U.S. system is that price competition can drive the overall averages higher, making access to higher education for low-income and minority students increasingly difficult. Public-sector tuition rates have now increased faster than the rate of inflation for more than 20 years. Yet enrollments have continued to ratchet upwards. Average tuition rates at four-year public universities are increasing much more rapidly as a proportion of income for the poorest quintile of families compared to other income groups. This means that the lowest-income students and families are confronted with the greatest “sticker shock,” compared to those from other income levels.

The steady drumbeat of rising tuition is a key driver of a proposal now working its way through the U.S. House of Representatives to deny federal aid to institutions--and therefore students--that fail to keep their advertised tuition prices below a federally determined level set at two times the rate of inflation. The Affordability in Higher Education Act, sponsored by Congressman Howard “Buck” McKeon (R-CA), would impose a series of reporting and other requirements on noncompliant colleges and universities. The ultimate penalty would be to deny eligibility to institutions for certain federal student aid programs. This means that efforts to penalize institutions would instead have a negative effect on the very students whom the federal aid programs are designed to help.

Part of the reason for such a topsy-turvy debate is that those who believe that higher education provides great public benefits have failed in their arguments over the last decade. Much research exists showing that increasing educational opportunities results in significant public, private, social, and economic benefits--from improved health to lower rates of welfare dependency and greater contributions to the tax base. Unfortunately, public pronouncements about why higher education matters, including those from university presidents, tend to focus on the fact that going to college enhances one’s personal economic status. The rich combination of societal and individual benefits of higher education is largely overwhelmed by the reality that university degree holders make an average of U.S.$1 million more over their lifetimes than non–degree holders.

This obsession with private economic benefits has been a factor in the rapid rise in tuition rates, with a growing share of the financing burden shifted to students. As a result, concerns over student access have grown. While overall enrollments have increased substantially over the last 30 years, the gap between the lowest and highest income groups, and between minorities and others, has remained virtually unchanged. Those enrolled are now required to pay an ever-increasing share of the total cost of a university degree, especially through student loans. American students are indebted at levels unthinkable on an international level: more than U.S.$50 billion per year is borrowed by students to pay for college.

The most critical issue for higher education financing therefore lies not in whether fees can vary across institutions but rather whether sufficient investment is being made in need-based student grants. If the student share of financing continues to rise for disadvantaged groups, the net result will be a less-educated citizenry and a failure of the government’s efforts to equalize educational opportunity.

A lesson from the U.S. experience, then, is that variable fees are neither a great salvation for higher education’s ills nor a great evil that will destroy the basic fabric of the academy. Instead, the real focus must lie on ensuring that access to higher education remains one of the top priorities of government as fees are increased. Failing to make such access a priority will surely result in a diminution of any nation’s public, private, social, and economic stability and prosperity.

This article is adapted from an article that appeared in the December 19, 2003 edition of the Times Higher Education Supplement. THES website: www.thes.co.uk.