What This Means for Private College Students and Their Families

Every private college and university president I know empathizes with the concerns of students and their families about affording higher education. They know that the budget challenges facing institutions, and the influx of low-income students and students who are the first in their family to attend college will make it increasingly difficult to maintain the delicate balance between affordability, quality education, and access to students from all backgrounds.

Students who are considering or attending private colleges and universities should keep in mind two things about the price and value of these institutions. First, it is net tuition, not sticker price, that matters to family pocketbooks. Increases in institutionally provided aid outpaced the rate of growth in tuition by 9 percent to 6 percent in the past year, and by more than double the rate over the last 10 years.

Furthermore, the benefits—and value—of a private college education are second to none. On average, students are twice as likely to graduate in four years if they attend a private institution. Close interaction with professors in and outside of the classroom, countless opportunities to engage in campus life, and academic training that fosters leadership, creativity, and critical thinking and communication skills give students at private colleges the foundation for a better life and successful career.

Revenue and Cost Trends

Private colleges and universities, unlike their state counterparts, are heavily tuition-dependent. This revenue helps to provide institutional financial aid for low-income and working families, the continued quality of classroom instruction, opportunities for leadership and intellectual development outside of the classroom, and modern learning and living facilities for all students.

Despite the budget difficulties of recent years, private colleges and universities have kept this year's tuition increase consistent with the average over the past 10 years. Major cost drivers—insurance premiums, energy, periodicals and other educational resources, and information technology—are all increasing faster than college sticker price. College endowments and fund-raising levels have been flat in recent years, as the stock market and potential donors recover from the recession.

• The average college endowment earned just 3 percent in the last fiscal year, according to the National Association of College and University Business Officers, following losses of 3.6 percent and 6 percent in the two previous years. Despite the small increase, an inflation rate of 2.2 percent and an average endowment payout rate of 5.4 percent meant that most institutions experienced a decline in the overall value of their endowments.
   
• Philanthropic support of education has faltered in recent years. Gifts to higher education dropped 3 percent from 2002 to 2003, according to the most recently available data from the Giving USA Foundation. This was the second straight year of decreased giving to institutions.
   
• Health care costs rose 12.3 percent in 2004, according to Hewitt Associates. This marks the fourth consecutive year of double-digit increases. United Educators Insurance reports that most types of insurance, such as general liability, worker’s compensation, and property, are expected to rise between 10 and 20 percent in 2004.
   
• Periodicals and other library materials routinely increase by double-digit rates each year. In a recent report, EDUCAUSE states that the price of scholarly journals grew 257 percent from 1986 to 2002.
   
• The cost of keeping up with innovations in information technology at private colleges and universities increased 23 percent in 2004, according to Market Data Retrieval.

Controlling Operating Costs, and Initiatives to Maintain Affordability

The idea that private colleges and universities are impervious to market forces and have little incentive to operate more efficiently is an urban legend. Private colleges and universities are using innovative cost-cutting and affordability initiatives to keep the impact of tuition increases on student out-of-pocket costs as low as possible, without cutting into academic quality.

There is no one-size-fits-all approach to cost control and affordability, because of differences in mission, student population, and fiscal resources, but that hasn’t stopped private colleges from taking innovative steps.

• At least four private colleges and universities reduced tuition this year. The 2004-05 academic year marks the first time that private higher education has seen new institutional tuition cuts in three consecutive years.
   
• Others have locked in the tuition rate for a student’s four- or five-year enrollment. This means that tuition remains the same each year for a student.
   
• Several have lowered expected family contributions and replaced loans with more grants.
   
• Others offer three-year bachelor’s degree programs, or four-year graduation and employment guarantees.
   
• More than 240 private institutions participate in a national prepaid tuition plan (the Independent 529 Plan).

To control operating expenses, more institutions are:

• Entering into consortial arrangements to reduce administrative and academic redundancies, and leverage their purchasing power to obtain lower costs for energy, insurance, information technology, and other services;
• Outsourcing campus services, such as grounds and facilities maintenance, alumni relations operations, residence hall management, billing and other “back office” functions, and bookstores; and
• Turning to environmentally friendly systems to lower energy consumption; streamlining staff; and consolidating offices and programs to enhance efficiency.

Examples of affordability, cost-saving, and consortial initiatives are posted on the NAICU web site at www.naicu.edu/news/campusinnovations.asp.