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Testimony: House Committee on Higher Education August 10, 2022

The testimony below was submitted to the Texas House Committee on Higher Education on August 10, 2022, by the Texas Conservative Coalition Research Institute (TCCRI).


Texas Conservative Coalition Research Institute

House Committee on Higher Education

August 10, 2022

Regarding the Committee Interim Charge:

Examine factors that have contributed to the rising costs of higher education, including the effect of statutory tuition and fee waivers and exemptions, the cost of compliance with state and federal mandates, and the increase in the number of non-faculty staff. Make recommendations for controlling these costs and ensuring a sound fiscal approach to managing college affordability for the future.

 

Introduction

Today’s charge is an important one. The Texas Conservative Coalition Research Institute (TCCRI) is grateful for the opportunity to testify. It is no secret that the costs of higher education have risen in a way that few other services and products have. Since 1980, average tuition and fees across the country have increased by approximately 1200%, far outpacing inflation.



The charts shared above, produced by Visual Capitalist, tell the tale well. Average college tuition has been rapidly increasing and shows no signs of changing course.[1] While private institutions remain more expensive, both public and private display the same steady pace of exponential increase. This makes higher education less affordable with each passing year. Over the course of several decades, public policy related to higher education affordability has exacerbated this problem and created ancillary issues, not the least of which is student loan debt.


More than half of all students now leave institutions of higher education with debt to repay.[2] Federal and private student loans nationwide total more than $1.75 trillion.[3] The average borrower owes nearly $30,000.[4]


Relative to the rest of the nation, Texas performs moderately well. Our average price of tuition and fees of $8,600 per year for in-state students at public universities is roughly $750 lower than the national average of $9,350.[5] The price of on-campus housing is also lower than the national average, with on campus room and board at public four-year institutions costing an average of $10,112 per year compared to the national average of $11,686.[6]


Nevertheless, relative price aside, higher education is expensive. Today’s charge is an important opportunity to explore why that is the case, and what can be done from a public policy perspective.


Factors Contributing to Higher Prices in Higher Education


Increase in Demand


A basic tenet of supply and demand is that greater demand for a good or service will increase its price if supply does not increase in proportion to the increase in demand. Between 2000-2010, undergraduate enrollment in degree-granting institutions of higher education increased by an astounding 37%.[7] It is, therefore, no surprise that costs of higher education continued on the steady upward trajectory during that time. Interestingly, however, enrollment decreased by 8% between 2010 and 2018, decreasing from 18.1 million enrolled undergraduates to 16.6 million enrolled undergraduates. In Texas, enrollment declined heading into the COVID-19 pandemic, with enrollment down more than 4% since 2019.[8] Prices during that period continued to rise, indicating that greater factors are in play.


The Government’s Role in Rising Costs


Several years ago, the American Enterprise Institute (AEI) created a visual aid that became

ubiquitous in conservative economics and public policy organizations. The simple chart illustrates how the prices of common consumer goods have changed over time. Some goods have become more expensive over time while others, in contrast, have become more affordable.


The common thread among the more affordable consumer goods on AEI’s chart—cars, cellphones, computers, toys, TVs—is the absence of government intervention. In other words, a true free market has facilitated competition among providers of these goods. Those goods have become better and cheaper over time.


In contrast, the more expensive consumer goods displayed on AEI’s chart—hospital services, medical care, childcare, housing—have the opposite in common. They are heavily regulated and subsidized by government.


Notable at the top of AEI’s chart is college tuition and fees, both the topic of today’s charge and an area in which the government is so entangled that any market forces at work are overpowered by red tape, mandates, programs, and—most of all—subsidies.


As previously mentioned, enrollment in institutions of higher education began to decline in 2010, but prices continued to rise as if nothing had changed. One major government policy did change in 2010, however. Under the Obama Administration, Congress reformed the federal approach to student loans by passing a law that phased out government-backed private lending and replaced it with a near exclusive federal takeover of student loans in the United States.[9] This well-intentioned legislation aimed to make higher education more accessible, which it did, but it eliminated many of the few market forces that still existed, all but ensuring continued increases in tuition prices.


A 2017 report from the Federal Reserve Bank of New York found that for every $1 in subsidized federal student loans, tuition increased by $0.60 cents.[10] Another study compared private colleges that accepted federal aid to those that did not and found that prices were approximately 75 percent higher among the institutions that accepted federal aid.[11]


As federal lending continues to expand, it should be expected that tuition and fees will continue to rise.


Statutory Tuition & Fee Waivers


There are two types of tuition paid by students at Texas public universities. The first—statutory tuition—is set by the legislature, currently at $50 per credit hour.[12] As a result of tuition deregulation in 2003, universities may charge their own tuition—designated tuition—above and beyond the statutory amount set by the legislature.[13] With respect to the element of today’s charge asking what “the effect of statutory tuition” is on the rising prices of education, the answer, quite simply, is very little, if any. The one constant in higher education in Texas is that statutory tuition for 15 resident hours at a public four-year institution of higher education is $750.



Statutory tuition, in its current incarnation, is of very little importance to the price of higher education in Texas. It is merely the first building block—a baseline—in what schools ultimately charge.


Fee waivers and exemptions, in mild contrast, do have some measure of impact on the price of higher education, most notably for the populations that they target. “Exemptions” allow designated groups—both resident and non-resident—to enroll with reduced tuition and/or fees. “Waivers” apply only to non-residents and allow them to enroll and pay the Texas resident tuition or fee rate. In all, Texas offers more than 70 different waivers and exemptions, depending on how they are counted (Hazlewood exemptions, for example, are categorized as seven different exemptions).


To the extent that these exemptions and waivers affect the rising price of tuition, they are but a drop in a very large bucket. Say, for example, that a public junior college provides an “ad valorem” exemption Under Education Code Section 130.0032. In that case a public junior college may allow a non-resident who owns property within the school’s taxing district to pay tuition and fees at the resident rate. The district collects the ad valorem tax either way, but the student pays lower tuition. That is not something the school accounts for, but, rather, is simply a lower level of tuition brought in. It is further complicated by the fact that the student might attend somewhere else if charged non-resident tuition, so the school takes in more tuition revenue with the exemption than it otherwise would. How that impacts the “rising costs of higher education,” as today’s charge asks, is difficult if not impossible to quantify. Most of the exemptions offered, while different in focus and scope, are similarly complicated. While they may to some degree impact the rising price of tuition, they are hardly the driving factor.


Recommendations for Controlling Costs


The rising price of higher education is an area of public policy in which state-level lawmakers can, unfortunately, do very little to address the main underlying issues. The primary driver of prices in higher education appears to be massive subsidy in the form of free-flowing federal student loans to the extent that prices continue to rise despite declining enrollment.


When the customer base of a business shrinks, that business is forced to contract or downsize accordingly. Institutions of higher education, in the current system, are simply unable or unwilling to make similar adjustments. They expand when they can, but they rarely, if ever, contract. And why would they when their funding is rarely in question. Public four-year institutions of higher education are funded directly by state appropriations and tuition and fees. Tuition and fees are largely paid for by free-flowing government loans. These funds have very few strings attached to them. Public two-year institutions of higher education are largely the same, save for the ability to raise funds through ad valorem taxation. Thus, in addition to funds from government (appropriations) and through government (student loans), they literally are entities of government with their own taxing power.


The committee’s charge today highlights what a difficult area of public policy it is for state lawmakers to make higher education affordable. Respectfully, statutory tuition and exemptions and waivers have very little to do with rising prices. At the margins, however, there are several things that state lawmakers should consider.


Recommendation 1: Eliminate Tuition Set-Asides


Tuition set-asides require that a portion of each Texas resident student’s tuition be “set aside” in order to help fund state financial aid programs for other students—typically economically disadvantaged students. Specifically, Section 56.011 of the Education Code requires at least 15 percent of undergraduate tuition in excess of $46 be “set aside” for financial assistance to other students. The amount is the same for graduate students.[14] These set-asides fund tuition assistance programs, including the Texas Public Education Grant program,[15] which provides grants to students who can demonstrate financial need, and each institution is authorized to implement its own criteria for making that determination.[16]


Institutions required to set aside a portion of tuition are required to provide students with a notice informing them that a portion of their tuition is being set aside in order to provide financial assistance to other students.[17] Such a notice must include the specific amount being set-aside.[18] For example, the following is a copy of a set-aside notification received by a full-time student in UT-Austin’s College of Natural Sciences at the beginning of the spring 2016 semester:


Dear Student,

The University is required by State law (Sec. 56.014, Education Code) to

send this informational notice each semester. A portion of each student’s

tuition must be set aside for need-based financial assistance to qualifying

students. $314 of your Spring 2016 tuition was set aside for this

purpose.


This message is for informational purposes only. No action or response

is required.


Student Accounts Receivable

The University of Texas at Austin

fbic@austin.utexas.edu[19]


Designated tuition at UT-Austin was $2,784 in 2016. In 2020, that increased to $3,462 for an increase of 24%, meaning that the set aside in 2020 was closer to $390.


Tuition set-asides do affect the price of tuition to some degree. As a commentary in a Fiscal Notes publication from the Comptroller explained, “there are multiple potential explanations for the steep rise in the cost of higher education; the use of tuition set asides is hardly the only reason.”[20] But it is one reason. The commentary further explains that “universities get only 85 percent of the ‘benefit’ of a tuition increase, due to the set-aside. Thus, a university seeking an additional $100 in tuition per student to meet its costs must increase tuition by nearly $118.”[21] Lt. Governor Patrick and others have referred to this tuition cost-driver as a “hidden tax” on college students.[22]


The main objection to set-asides is one of cost-shifting. It is an objection to making tuition more expensive for everyone so that a focused number of students may receive the benefit. Clearly, recipients of Texas GRANT funds benefit from state aid, but they do so at the expense of other students’ higher prices. And a fund like the Texas GRANT Program receives ample state appropriations. Indeed, the 2022-23 state budget appropriated more than $850 million for the program, dwarfing anything collected out of set-asides.[23] State appropriations could fully fund the Texas GRANT Program without the need for set-asides.


Recommendation 2: Consider Expand $10,000 Degree Offerings


Governor Perry launched an initiative in 2011 asking Texas’s public four-year institutions of higher education to offer “$10,000 degrees.” Progress has been slow. Texas A&M Commerce and South Texas College created such offerings in 2013.[24] What became the “Texas Affordable Baccalaureate Program” expanded in 2017 to Texas A&M University-Corpus Christi and Tarleton State University.[25]

The programs combine online study and competency-based progression to help students earn credit at a lower price and time commitment.


The page for the program on the Texas Higher Education Coordinating Board’s website indicates that there are “no new funding opportunities” for the program at this time. The legislature should further explore codifying a $10,000 degree option at every public four-year institution of higher education.


Recommendation 3: Encourage Cost-Savings Through Available Means


Despite the expense of higher education, the Legislature over several legislative sessions has taken steps to ensure that means are available for students who seek to control the costs of a degree in higher education. House Bill 1992 (84R, Zerwas) created a universal framework for college credit through AP courses. Senate Bill 1227 (87R, Taylor) created a similar framework for the College-Level Examination Program (CLEP).


The 42 semester hour core curriculum is transferable between public institutions. Students may earn those hours at a two-year institution to save money and transfer to a larger institution when they are ready to advance.


A substantial number of dual credit opportunities exist for students in high school to earn college credit. The framework for this was laid out in House Bill 1638 (85R, Guillen).


These are the types of reforms where state legislators can be most effective. The goal of controlling the prices of higher education in general is not realistic under the current framework, but tools that empower students who desire a more affordable path to utilize the resources at their disposal to the best of their ability are where legislators can make a difference in a more direct way.




[1] Visual Capitalist, https://www.visualcapitalist.com/ (Last visited 8.8.22) [2] Alicia Hahn & Jordan Tarver, “2022 Student Loan Debt Statistics: Average Student Loan Debt,” Forbes (Jun. 9, 2022), https://www.forbes.com/advisor/student-loans/average-student-loan-statistics/ [3] Ibid. [4] Ibid. [5] Alison Plaut, “How Much Does it Cost to Study and Live in Texas?” Best Colleges (May 16, 2022), https://www.bestcolleges.com/united-states/texas/studying-living-cost/ [6] Ibid. [7] “Undergraduate Enrollment,” The Condition of Education 2020, https://nces.ed.gov/programs/coe/pdf/coe_cha.pdf. [8] Lori Fey, “Fall 2021 Preliminary Headcount,” Texas Higher Education Coordinating Board (Oct. 20, 2021), https://reportcenter.highered.texas.gov/meeting/committee-supporting-documents/v-a-60x30tx-data-insight-preliminary-headcount-for-fall-2021/. [9] See, e.g., David M. Herszenhorn & Tamar Lewin, Student Loan Overhaul Approved by Congress, The New York Times (Mar. 25, 2010), https://www.nytimes.com/2010/03/26/us/politics/26loans.html. [10] David O. Lucca, et al., “Credit Supply and the Rise in College Tuition: Evidence from the Expansion in Federal Student Aid Programs,” Federal Reserve Bank of New York (Feb. 2017), https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr733.pdf. [11] Stephanie Riegg Cellini & Claudia Goldin, “Does Federal Student Aid Raise Tuition? New Evidence on For-Profit Colleges,” National Bureau of Economic Research (Feb. 2012). Available at http://www.nber.org/papers/w17827.pdf. [12] Tex. Educ. Code § 54.051(c). [13] Tex. Educ. Code § 54.0513. [14] Tex. Educ. Code § 56.012 [15] See Tex. Educ. Code § 56.031-33. [16] http://www.collegeforalltexans.com/apps/financialaid/tofa2.cfm?ID=406 [17] Tex. Educ. Code § 56.014. [18] Id. [19] Rose Cahalan, “TXEXplainer: Tuition Set-Asides,” Alcalde (Jun. 13, 2016) (emphasis added). Available at https://alcalde.texasexes.org/2016/06/txexplainer-tuition-set-asides/. [20] Maria Garnett, “’Setting Aside’ Money for College,” Fiscal Notes (Nov. 2015). Available at http://comptroller.texas.gov/fiscalnotes/nov2015/fn.pdf. [21] Ibid. [Emphasis added] [22] Matthew Watkins, “Lt. Gov. Patrick Slams Universities for Tuition Increases,” Texas Tribune (Apr. 26, 2016). Available at https://www.texastribune.org/2016/04/26/lt-gov-patrick-excoriates-universities-tuition-inc/. [23] https://www.lbb.texas.gov/Documents/GAA/General_Appropriations_Act_2022_2023.pdf [24] http://www.thecb.state.tx.us/DocID/PDF/9291.PDF [25] Ibid.