An Incentive to Stop Tuition Increases

At some point, the value of getting certain degrees will be outweighed by the impacts of elevated tuition and huge student loan debts. To date, Americans shoulder $1.2 trillion in student loan debt, and about eight million of them are in default.

Being that America is a free market capitalist society, where competition affects quality and pricing, an incentive that provides a competitive advantage may be part of the answer to the tuition crisis.

The Problem

It’s well known that tuition increases have outpaced inflation for the last few decades. Many predict a higher education meltdown similar to the recent housing boom and bust in 2008.

From just 2013-2014, tuition increases have averaged 3-11%, depending on what sector an institution falls into. Nonprofit institutions have seen tuition increases from 8-11%, while profit institutions have raised tuition 3-6%. Those ranges can be broken down further into public or private and two or four year schools.

Inflation has averaged 2.8% per year over the last 30 years and just 2.0% over the last ten years.

An Example

When I went to the University of Missouri-Columbia in 1985, median income was $25,000. Today, it’s $50,000. That’s a 100% increase or a compound annual growth rate of 2% over those 30 years.

But I was paying about $5,000 per year in tuition back in 1985. Today it would cost me about $25,000 per year at the same institution. That’s a 400% increase, which equates to a 5% compound annual growth rate over those 30 years.

So, there’s a huge disconnect between tuition increases and inflation. And that’s just one institution.

The Causes

Various causes for tuition increases have been offered, including decreased state funding, bloated administrations, capital improvements to accommodate increased enrollments and the willingness of students to assume huge loans.

Dylan Matthews provides a comprehensive overview of the crisis in his ten part series of articles published in the Washington Post entitled “The Tuition is Too Damn High”. We’ve included links to the articles below, but you may need a subscription to the Washington Post to read all of them. Suffice it to say that the causes are deep, complex, political, economical and vary by school. This makes it all the more difficult to develop one solution to the problem.

The Solutions

In his last piece, The Tuition is Too Damn High, Part X: So How Do We Fix It?, Dylan offers some very creative and feasible solutions. They include federal subsidies, shared revenue programs, market-oriented options, human capital contracts, free tuition at community colleges, capping school revenue growth and requiring schools to disclose employment outcomes.

We don’t particularly like further federal subsidies or throwing money at the problem, because this only enables schools to continue irresponsible tuition increases. A shared revenue program, where states are guaranteed a piece of the federal tax pie as a way to stabilize their funding streams, is a good idea. Human capital contracts, where students and investors sign agreements for the former to pay a percentage of income back to the latter, who in turn provides tuition money upfront, are an interesting, free market capitalist idea. Free tuition at community colleges would be another enabling tactic that would increase our taxes and would not be fair to the four-year universities.

Like I said, there are a lot of good ideas presented in this article. But some of them don’t actually solve the problem, they only mask it and provide a way to make it less painful.

Finding a way to stabilize tuition is really the institutions’ responsibility. Consumers shouldn’t have to find a way to pay for irresponsible tuition increases. Those institutions that do stabilize their tuition should be recognized and rewarded with increased and sustained enrollments. But there needs to be a way for consumers to immediately recognize that an institution is demonstrating tuition increase control.

The Incentive

This is where Tuition Heroes comes into the picture. We are the tuition increase watchdog that provides a competitive advantage to institutions that play by the rules.

We calculate and track the compound annual tuition growth rate over a rolling four year period for all US higher education institutions and reward those that exhibit tuition growth control.

We grant the Tuition Hero designation to institutions that meet at least one of two criteria:

  1. Their tuition has a compound annual growth rate (CAGR) of 2.5% or less over four years.
  2. They have a fixed rate tuition policy option.

Tuition Heroes are given an option to get a Tuition Hero badge to display on their websites and social media channels.

The badges serve as a way for potential students to immediately recognize that an institution is in control of their tuition. It gives the institution a competitive advantage over other institutions who can’t make the same claim.

In 2015, 39% of all institutions in America were Tuition Heroes. 29% of those were from the public sector and 71% were from the private sector. You can get more information from our Tuition Heroes Overview Interactive Infographic.

The smart institutions have already begun to get control of their tuition. They have their eyes on the horizon and see the bubble bursting. Some offer fixed-rate tuition policies similar to fixed-rate mortgages. Others are simply keeping their increases in line with normal inflation rates.

Tuition Heroes exists to reward performance of higher education institutions for their tuition control. We want to be part of the solution to the problem of rising tuition rates in America.