The United States

I.  A Brief Description of the US Higher Education System

Higher education in the United States is the responsibility of the states, rather than of the federal government. Thus, with insignificant exceptions (such as the military service academies), public higher education is owned and controlled by the 50 states. Approximately 57 percent of the colleges and universities, enrolling about 23 percent of all students, is private non-profit, which includes much of the most prestigious and academically-selective colleges and universities, but which also includes many of the least selective (essentially “open admissions” institutions). The federal government has two critical functions that apply equally to public and private institutions: the provision of student financial assistance, much of it in the form of federally-guaranteed and slightly subsidized loans, and the provision of much (but not all) of the research funds, particularly in the biomedical and physical sciences.

Higher (or postsecondary) education in the US is large—whether measured in absolute numbers of institutions, enrollments, expenditures, percentage of the Gross Domestic Product consumed, or in the pervasive role it plays in American society and in the “coming of age” of most American youth. For example:

The principal first degree in the US is the baccalaureate, which can be obtained after about four years of full-time study (although more and more US student are taking longer, reflecting the propensity and the ease both of attending part-time, and also of “dropping out” for periods of time, frequently then changing institutions and carrying the credits earned to be applied toward the Baccalaureate at the second institution). The advanced professional programs—especially medicine and the other advanced health professions, law, and management (i.e., the Masters in Business Administration)--in the US are considered “graduate,” or “post-baccalaureate", and are very often taken at a different university than the one at which the baccalaureate was obtained. Higher education in the US is probably the leader in the world in advanced education: that is, at the level of the Ph.D. and the advanced, professional degree. At the same time, undergraduate education (and increasingly certain post-baccalaureate programs such as teacher education and business or management) are probably the most accessible and least selective in the world, with millions of American youth, with very little academic preparedness still having a chance at a higher education degree (and sometimes three or four chances) who would not have such a chance in most countries in the world.

   II. Costs, or Expenditures, in US Higher Education

Current “education and general” operating fund expenditures (that is, excluding hospital, other auxiliary enterprise, and affiliated federal R & D center expenditures) in 1996 were nearly $151.5 billion. This figure includes $57.8 billion for instruction and non-sponsored research, another $17.5 billion for sponsored and “organized” research, $13.2 billion for scholarships and fellowships, $12.3 billion for plant operations and maintenance, and nearly $29 billion for administration and general expense.[4]

Costs (meaning institutional expenditures) vary enormously: by institution, by sector (i.e., whether mainly undergraduate or including graduate and advanced professional as well), by program (e.g. social sciences and humanities, or laboratory science and engineering), and perhaps most of all by access to revenue. That is, US institutions with essentially the same programmatic profile will spend a great deal if they are highly endowed and/or if they can charge a high tuition, but will spend a much more modest amount per-student if they lack a large endowment, or a generous state budget, or the ability to charge high tuitions in the very competitive US higher education marketplace. In fact these revenue determinants go hand in hand: that is, the most heavily endowed institutions (mainly elite private colleges and universities) are also the institutions that can charge the highest tuitions because affluent parents are willing to pay this premium to be able to send their sons and daughters to the most prestigious institutions.

Comparing institutional expenditures is difficult because of heavy expenditures in some institutions on sponsored research, or public service, or hospitals and clinics, or auxiliary enterprises. The US higher education accounting classification educational and general excludes most of these highly variable and somewhat extraneous expenses, and allows a more valid comparison, at least among reasonably similar institutions. Table 1 shows per-student educational and general expenditures by sector (four-year college, or university) and control (public, or private non-profit), and the rate of real increase of these expenditures (that is, in inflation-adjusted terms). The yearly per-student expenditure increases in higher education, as in most "productivity resistant" enterprises, are usually a bit above the average economy-wide increases, thus assuring that higher educational costs will also rise in most years at a rate slightly above the rate of inflation--and likewise for tuition.

III. Costs of Higher Education in the US Borne by Parents and Students

Not only are the underlying per-student costs high (albeit highly variable, as noted above) in most US colleges and universities, but the share borne by parents and students--particularly prior to netting out the effects of grants and other forms of price discounting—are also higher than other countries. This is due principally to four factors: (1) great size (and the considerable prestige) of the largely tuition-dependent private sector, (2) the fact that virtually all public colleges and non-instructional costs (such as lodging and food) are unsubsidized; and (4) the general affluence of the US, combined with a cultural tradition of parental financial responsibility for at least the undergraduate higher education of dependent children.

Table 1
Per-Student Educational and General Expenditures
and Average Annual Rates of Increase by Control and Type, 1977-1995
[Constant (1995-96) Dollars]

Source: NCES Condition of Education 1999, Supplemental Table 40-2 http://nces.ed.gov/pubs99/condition99/SupTables/supp-table-40-2.html

Table 2 shows the average annual real (in constant 1999 dollars) tuition in the public and private sectors and the average increases in each of these sectors for the previous five years. These increases were considerable for the private sector in the last half of the 1980s, averaging nearly 9 percent annually, and in the public sector from the mid 1980s through the mid 1990s, averaging almost 6 percent. However, otherwise in this 25 year period, the average annual increases were mainly in the range of two to three percent, which is about what one would expect in an economic sector in which unit cost and price increases reflect essentially the average increases in total compensation—which in turn approximates the average real increase in total economic output.

Adding a range of student "living" and “other” expenses together with “modeled,” or “reasonable estimates” of high and low tuitions in both the public and the private sectors yields the range of possible total expenses for an undergraduate academic year in the US in the year2000-2001 shown in Table 3. This table suggests the great variability of the expenses that may be faced by parents and students in the United States. In fact, expenses may be a good deal lower or higher than are shown in Table 3 depending, on the “low side,” on what "room and board" expenses are appropriately estimated for the students living at home with parents, and on the “high side,” depending on what actual expenses may be incurred, for example, with automobile ownership or with room and board and other living costs for older, non-traditional students living independently with a spouse or partner.

Table 3
Total Costs/Expenses Borne by Students and Families,
US Colleges and Universities, 2000-2001.

These expenses are deemed a family, or parental, financial responsibility, at least for the traditional-age, "dependent," student through the baccalaureate degree—but only to the limit of what the parents are deemed able to pay by a calculated Expected Family Contribution (EFC). This EFC is established by the Congress, and is the basis for awarding the federal need-based, or means-tested Pell Grants, as well as for calculating eligibility for federally guaranteed and partially subsidized student loans. Although a number of factor besides annual income go into the calculation of the Expected Family Contribution, typical EFCs are shown in Table 4. The EFC, calculated either by the federal methodology (as in Table 4), or through similar (but somewhat more financially demanding) private needs analysis systems such as the College Board's College Scholarship Service (CSS), is then subtracted from the estimated total expenses to yield an institution- and family-specific financial need. This remaining financial need, then, must be filled by some combination of:

  IV. Student Financial Assistance in the US

The US financial assistance system may be more accurately described as a non-system, albeit somehow implicitly coordinated. This system, or non-system, consists of independent sources of grant, loan, and work study assistance from the federal government, the fifty state governments, most colleges and universities (through their endowments and associated foundations), hundreds of corporate and local philanthropic funds that have financial aid as one of their programs areas, and a wide range of guaranteed and partially subsidized student loans. The role of the federal government in the "system" has been described by Johnstone as follows.[7]:

Financial aid to students from the Federal government is mainly in one of both of two forms:

Federal financial assistance--either Pell Grants or student loans or both--in 1995-96 reached 37 percent of all US undergraduates. This percentage ranged from 63 percent of dependent undergraduates from families with incomes under $20,000, to 14 percent (all in loans, both with and without subsidy) to those from families with incomes above $100,000. Among students enrolled full-time for the full year, 30 percent of all US undergraduates received a federal Pell grant, averaging in 1995-96 some $1776. Twenty-two percent of all US undergraduates received a subsidized (i.e., means-tested) Federal guaranteed loan, and 10 percent received an unsubsidized (but still federally-guaranteed) student loan.[9]

In addition to this federal financial aid, 43 percent of undergraduates enrolled in four-year private (non-profit) colleges and universities received some form of institutional aid (sometimes referred to as “price discounting”), averaging more than $5000.

At the Federal level, loan aid, estimated in 2000-2001 at nearly $43 billion, has been displacing grant aid, and by 2001-02 makes up 58 percent of all federal student assistance, compared to 41 percent in 1981-82.[10]

All forms of student assistance (other than ‘tax credit expenditures, described below) for academic year 2000-01 were estimated by the College Board to be some $74.4 billion, as shown in Table 5.

Table 5
Estimated Student Aid by Source, 2000-01

Another major trend in US student financial assistance has been the great and sudden growth in various forms of non need-based assistance from federal, state, and institutional sources. Some of this is in the form of merit-based grants. However, most non need-based assistance takes the form of tax benefits, either from the deductibility of tuition payments or from the tax deductibility of earnings from tuition savings plans. This trend is highly controversial, deeply worrying to most higher education policy analysts and others whose priority is more likely to be expanding higher educational accessibility to children from low-income families, who remain so underrepresented. Their claim is that most non need-based grants simply make no difference to the student’s decision to enroll, or even in which institution to enroll, but are simply a politically popular form of tax reduction. Politicians, however, are responding to a high level of tuition anxiety, especially among middle and upper-middle income constituents, who are far more politically powerful than the poor or anyone for whom additional aid might make a difference between enrolling or not. While estimates of the effective cost of these benefits is difficult and controversial, the “lost tax” cost of the Hope Scholarship and the Lifetime Learning tax credits has been estimated by the College Board to be $12-15 billion by the time the provisions are fully phased in after 2002.[12]

The US public and US politicians at both the federal and state levels have in recent years been fixated on tuitions, rather than the rest of the quite considerable expenses of college attendance, and also by the rate of increase in tuitions rather than on the actual tuition rate, or on the underlying costs of instruction (which would seem to be a far more logical target for interest and possible criticism). The recent high rate of increase in tuitions in most US public colleges and universities, for example, is a function not in most states of underlying costs increases, but of a withdrawal of state tax revenue and a shift of expenses mainly to the student through larger loans and the necessity of more earnings.

Tuition, tuition increases, and financial aid will continue to be politically controversial. In the meantime, it is well to remember that the US continues to successfully maximize contributions from both of the major non-governmental sources in the cost-sharing paradigm: parents and students, and to have the most accessible higher education system (or non-system) in the world.

DBJ

3/20/02