By Richard Ciccarone

In a few months, the class of 2018 will matriculate at colleges and universities around the country.

The four years of classes, football games and extracurricular activities will pass quickly; upon graduation, these students will be faced with perhaps their biggest challenge yet: finding a job that justifies the increasingly high price tag they will have paid for an education compared to what students paid in prior years.

When the state-funding pot runs dry, tuition becomes the final option.

In the past, public institutions provided substantial financial relief to in-state students by offering a relative bargain on tuition compared to private schools thanks to taxpayer subsidies. The in-state advantage is still there, but not by as much as it used to be. For one, government subsidies haven’t been keeping pace. Public universities, especially those with prominent reputations, have increasingly turned to not only pricier in-state tuition, but also to increasingly higher admission rates of much higher paying out-of-state enrollees. Colleges and universities are in an academic war to increase their stature in the quest to drive high quality demand for their product – and that usually means spending a lot of money to showcase their faculty, facilities and reputation. That competition has put a lot of pressure on these institutions to find revenue to fund lofty goals. When the state-funding pot runs dry, tuition becomes the final option.

According to data provided by Merritt Research Services, LLC, a municipal bond research company, public universities have derived a greater percentage of their operating revenues from tuition over the past several years. At the same time, dependence on state appropriations to public universities has steadily decreased, particularly since the financial crisis in 2008, as illustrated in the table below.

Operating Revenue Diversity for Public Universities

2013 2012 2011 2010 2009 2008 2007 2006
Tuition 35.6% 34.7% 32.5% 31.5% 29.4% 28.8% 28.0% 27.1%
State Appropriations 28.0% 28.8% 29.2% 31.0% 33.2% 34.8% 33.3% 32.4%

Source: Merritt Research Services, LLC

From 2006 to 2013, the median percentage of revenues derived from tuition increased by 8.5 percentage points, while the percentage of revenues derived from state appropriations decreased by 4.4 percentage points.

It is not surprising to see a growing reliance on tuition as fiscal constraints on most state governments have limited their ability to keep up with the escalating costs required by colleges and universities to support higher faculty costs as well as brick and mortar programs.

Increased Reliance on Tuition = Higher Tuition Price Tag

As tuition has increased over the years, so has the cost of attending college. For public universities, the median in-state tuition jumped from $4,898 in 2006 to $7,257 in 2013 – a 42.8% increase.

For non-resident (out-of-state and international) students, the median tuition increased from $12,565 in 2006 to $17,228 in 2013 – a 37.1% bump.

(Note: Tuition medians are based on data collected from 134 reporting universities in 2006, and from 177 reporting institutions in 2013.)

Most and Least Expensive Public Universities

The top five public universities with the highest tuition for in-state residents for the 2013-14 school year were:

1.      University of Pittsburgh, Pennsylvania ($17,100)

2.      Pennsylvania State University – University Park ($16,992)

3.      University of New Hampshire ($16,496)

4.      Maine Maritime Academy ($16,490)

5.      Colorado School of Mines ($16,485)

Source: US News & World Report, 10 Most Expensive Public Schools for In-State Students, February 4, 2014

On the other end of the scale, the five public universities with least expensive price tags for in-state residents for the 2013-14 school year were:

1.      University of Wyoming ($4,404)

2.      Elizabeth City State University, North Carolina ($4,428)

3.      Louisiana State University – Alexandria ($4,617)

4.      Sul Ross State University, Texas ($4,764)

5.      Northeastern State University, Oklahoma ($5,054)

Source: US News & World Report, 10 Low-Cost Public Colleges for In-State Students, January 14, 2014

While the lists above illustrate the wide variation among public universities when it comes to the price tag for an education, in-state residents pay significantly lower tuition than their non-resident counterparts at state schools. The deep discount given to in-state students to go a public institution can only be maintained as long as tax dollars are plentiful enough to provide the subsidy.

A recent CNN Money article entitled, “Are In-State Students Getting Squeezed Out at Public Universities? examines this issue, focusing specifically in California state universities. According to the article, “Coveted for the higher tuition they pay, the number of non-resident students enrolled at the University of California’s 10 campuses rose from 23,000 in 2009 to 32,000 in 2012 – an increase of nearly 33%. Meanwhile, the number of in-state students has fallen 1.3% to 197,000.”

The deep discount given to in-state students to go a public institution can only be maintained as long as tax dollars are plentiful enough to provide the subsidy.

In the article, Patrick M. Callan, president of the National Center for Public Policy and Higher Education, a California-based think tank, said, “You’re basically auctioning off spaces for people with more money.”

“In-state students have less of a shot at public universities.”

There is a downside to overplaying fears about the climb in out-of-state students in all of the nation’s public universities. Besides the positive academic influence of a more diverse student body, attracting the brightest minds to a university from the nation at large helps strengthen the reputation of the schools in the eyes of some future employers and often from the standpoint of some of the many polls which rate college institutions.

The Merritt Research data indicates that enrollment in most public universities is still heavily dominated by students from the same state. In 2013, in-state students comprised 87% (median average) of the student body, compared to 88% in 2006. If having a higher percentage of out-of-state students at a state public institution is a problem, then it has more to do with the overall cost of a higher education degree which has become increasingly out of line with reality. Universities can’t keep up with the competition without generating more funds. The easy money associated with the federal student loan program has helped fuel the fire, allowing more students to pay rising tuition levels. Sooner or later, there’s going to be a time of reckoning that will likely force colleges and universities to hold costs down in order to achieve their mission: to best educate a broader share of the next generation.

Richard Ciccarone is the President and CEO of Merritt Research Services, LLC and Co-Publisher of MuniNet Guide.