Why Public Universities Are Now a Bad Bargain for the Middle Class

Here's a higher education shocker: Thanks to tuition hikes at California's state universities on the one hand, and the generous financial aid policies of Harvard on the other, attending the Ivy League university is actually a better deal for middle-class students from the Golden State, the San Jose Mercury News reports.

The numbers are clear: Between 1997 and 2007, tuition in the U.S. rose by 94% at public four-year colleges, but only by 22% at private nonprofit four-year colleges. College enrollment also rose 38% over that period, and as with any commodity, increasing demand drives up prices.

As the head of the Cornell Higher Education Research Institute, Ronald G. Ehrenberg, notes in the Winter 2012 issue of the Journal of Economic Perspectives, undergraduate tuition has outpaced the rate of inflation by an average of 3.5 percentage points a year.

Public universities, with their shrinking support from state governments, still provide significant tuition breaks to the poor. But they can only do so much. Top private universities, by contrast, have massive endowments to support their educational mission and the wherewithal to spend that money on students who are higher up on the economic ladder.

The result: Prestigious schools long perceived as catering to those with elite pedigrees and family wealth are becoming a better economic bet for middle-class families than the public universities that were founded to serve them.

The Big Squeeze

No longer are public higher education institutions the beacon of egalitarian learning: They can't afford to be.

Whereas private institutions have raised their base tuitions but increased expenditures per student, public higher education institutions have increased tuition mostly as a compensatory mechanism to make up for drops in state support.

Cuts in state funding for education have put an increasing strain on students and their families. According to Ehrenberg, tuition increases have barely compensated for that decline in support for public universities. In constant dollars, state appropriations per student dropped 19% from an average of $7,993 in 1987 to $6,454 in the 2010 fiscal year. The rise in actual tuition income for the schools has mostly picked up the slack.

But it has become a vicious circle: As a result of higher unemployment, state residents have less income, which leaves a diminished tax base pouring less money into state coffers -- at the same time as families trying to send children to college face an increasing need to tap a shrinking pool of financial aid. Add the inflationary trend of tuition to the mix, and a college education becomes less and less attainable.

Richard Vedder, economics professor emeritus at Ohio University and author of Going Broke By Degrees: Why College Costs Too Much, sees the middle class as the true losers in the equation.

"There is no question that, for the typical middle-class applicant, Harvard is far cheaper than many state schools," Vedder said. "But it is even worse: the typical Harvard student graduates in four years, while the typical student at a state university takes five years (and sometimes six) -- if she graduates at all."

(Don't blame those state university students; it's not that they're slacking off, notes the Mercury News:At California's public universities, "cuts have made it difficult to get all required classes in four years," slowing down the graduation rate.)

"The rub, of course, is that most kids cannot get into the elite private schools," Vedder said.

"Nonetheless, increasingly I am seeing role reversal: The private schools are in some respects really more 'public' than the so-called 'public' or 'state' universities," he said. "Moreover, schools like Harvard, Yale, Princeton and Williams are able to offer lower tuition fees because of their vast wealth, which, in turn, was largely accumulated as a result of tax exempt privileges granted by the federal government. Who is more 'public': Harvard or Cal State East Bay? It is a debatable proposition."

The Necessity of Education

High cost or not, a college education still seems like a must for those looking get a significant leg up economically.

"The college graduate vs. high school graduate earning difference has not diminished in recent years, so college still is a great long run investment, although people graduating in the worst economic period since the depression certainly won't feel that way in the short-run," Ehrenberg said.

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A recent Brookings Institution study placed the return on investment at 15% -- comparing the income premium accruing to those with a degree against the price tag of a college education.

Still, that plum ROI does not completely offset the financial challenges middle class families will continue to face.

The cost of bringing up children has become exorbitant -- even before factoring in the price of educating them for the modern workforce. The Department of Agriculture, which has a calculator for estimating the expenses of raising kids, predicts that a Midwestern family with an annual household income in the $57,400 to $99,390 range, and a 3-year-old and a 1-year-old, will spend $578,050 on both by the time the first one is college-age.

It Only Likely to Get Worse

Though a top-tier university may be a money-saver, it's not an attainable goal for most: 75% of America's college students are educated in public institutions, which means their increasing tuitions will continue to put a strain on middle class families.

"Absent adequate support, tuition keeps rising and we run the risk of rationing students out of public higher education because they can no longer afford it or because, as the California system is doing, enrollments are being restricted," Ehrenberg said.