How Shrinking State Budgets Drive College Tuition Hikes

Kyle Stokes / StateImpact Indiana

The Campus Center at IUPUI's downtown Indianapolis campus.

Public college tuition has jumped 33 percent nationwide since 2000, and an analysis from the New York Federal Reserve suggests state governments’ shrinking higher ed budgets are to blame:

Our analysis suggests that public schools are increasing tuition as a way to make up for decreasing state and local appropriations for higher education, and that deeper cuts in public funding may be associated with correspondingly greater tuition hikes…

This finding is troubling, since public universities and colleges may face even greater financial strain in the years to come as ARRA federal funding shrinks. For the college student, this means shouldering more of the financial burden, including the possibility of taking out ever larger student loans. 

Well, whodathunkit?

It may seem like an obvious connection — more state budget cuts equal more students shouldering the burden in the form of tuition — but the statement is part of a much more complicated debate about what’s causing the cost of college to soar.

We’ve written in the past about a related, but different hypothesis: Making government financial aid available to more students essentially enables universities to raise tuition over the long run. That’s because, the argument goes, colleges know students will always be able to take out a federally-backed loan to shoulder the cost.

Officials at Indiana’s public colleges say they’ve had to deal with declining state appropriations. But some state lawmakers argue that decline is a matter of “perspective.”

“If [universities] are always going to raise tuition at two or three times the rate of inflation, and we [the state] are just funding at the rate of inflation, we’ll always be what appears to be a smaller piece of the pie,” State Sen. Luke Kenley, R-Noblesville, told StateImpact last year.

Which theory do you buy?