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Higher Education Tuition and State Grants

Executive Summary

February 25, 1994


Higher education accounts for 13 percent of Minnesota's budget and involves more than 300,000 students at campuses throughout the state. For every 1,000 residents, Minnesota has more students enrolled in postsecondary schools than in the nation as a whole, and enrollees are much more likely to receive state support in the form of grants.

But in recent years, despite state taxpayers' substantial funding, the cost to attend college has increased so much that many students and their families have difficulty affording higher education. The Legislative Audit Commission directed our office to study tuition and student financial aid, focusing on these questions:

  • How fast has tuition for Minnesota higher education systems grown since the early 1970s, and how do tuition rates and trends for Minnesota institutions compare with national averages?
  • What are the main reasons for tuition increases in Minnesota? To what extent does expenditure growth explain the increases?
  • How is state grant money allocated to individuals in coordination with federal Pell grants, and what are the state's goals for the grant program?
  • Do students face undue barriers in applying for state grants?
  • How much aid do lower-income students receive from the state grant program? Why do middle- and upper-income students also receive grants?

The state's six higher education systems include the University of Minnesota, state universities, community colleges, technical colleges, private four-year colleges, and private vocational schools. To address questions regarding tuition, we examined trends for all six systems between 1971 and 1993 and compared tuition increases with changes in the Consumer Price Index and Minnesota's per capita income. We also compared Minnesota's tuition growth with national trends.

Finally, we looked at the factors that have contributed to tuition growth in Minnesota. A thorough examination of the private vocational schools was not possible because of lack of data. Also, our analysis of tuition at private four-year colleges was limited to the 16 members of the Minnesota Private College Council.

To address questions regarding financial aid, we reviewed statutes and formulas that govern the allocation of state grant money, reviewed application forms, and analyzed data on state grant recipients. The Higher Education Coordinating Board provided detailed financial information from application forms completed by nearly 62,000 individual grant recipients for the 1992-93 academic year, which was the most recent available for our study. The board also provided descriptive data about the recipients from its statewide enrollment data base.

In general, our results show that tuition growth for all six systems of higher education has greatly exceeded inflation since 1981, and tuition in Minnesota is somewhat higher than national averages. The main reason for tuition growth for the four public systems has been state policy, which has caused them to rely more on tuition revenue and less on appropriations. Expenditure growth was the most important explanation for tuition growth at private four-year colleges.

At the same time, we found that the maximum size of state grants has steadily increased because it is directly tied to the increased cost of higher education. Although the application process may be difficult, we concluded that it is appropriate to the state's need for detailed financial information. The law does not require that state grants go only to disadvantaged students, but we found that most of the money has gone to students whose families have less than the median income for Minnesota. Other students also qualify mainly because they demonstrate financial need or face special circumstances.

As is the case across the nation, tuition and fees in Minnesota are generally higher at private institutions than at public institutions. In addition, four-year schools typically charge more than two-year schools. For the current 1993-94 academic year, annual tuition and fees for Minnesota's public systems range from $1,756 at the technical colleges to $3,639 for the Morris campus of the University of Minnesota. The average tuition and fee charge for the community colleges is $1,766, while the average for the state universities is $2,534. In contrast, the average for private vocational schools is $4,443, and the average private college charge is $12,196.

Trends

Tuition has grown significantly in Minnesota since the early 1970s. Between fiscal years 1971 and 1993, tuition and required fees grew more than 500 percent at the University of Minnesota, the state universities, and Minnesota's private colleges, while the Consumer Price Index grew only 259 percent. The relationship between tuition increases and inflation, however, was different in the 1970s than in the period since the early 1980s. In particular:

  • From 1971 to 1981, tuition increased at rates which were generally less than or about equal to the inflation rate, but since 1981, tuition increases have greatly exceeded inflation.

Between 1971 and 1981, tuition growth at the University of Minnesota (117 percent), state universities (92 percent), and community colleges (80 percent) was less than the growth in consumer prices (118 percent). Only tuition increases at private colleges (120 percent) slightly exceeded the inflation rate.

However, since 1981, tuition growth for all six systems of higher education has greatly exceeded inflation. While consumer prices increased only 64 percent between 1981 and 1993, tuition increased 183 percent at the University of Minnesota, 213 percent at state universities, 165 percent at community colleges, 334 percent at technical colleges, 212 percent at private colleges, and 118 percent at private vocational schools. Technical colleges experienced the highest growth rate because, prior to 1979, they did not charge tuition to Minnesota residents under the age of 21. Tuition increases for all higher education systems except the private vocational schools have exceeded even the growth in medical care prices since 1981.

Compared with trends in Minnesota per capita income:

  • Tuition generally became more affordable during the 1970s, but increasingly less affordable during the 1980s and early 1990s.

From 1971 to 1981, per capita income grew 155 percent compared with tuition increases ranging from 80 to 120 percent. Between 1981 and 1992, however, per capita income grew 87 percent while tuition increases for Minnesota's higher education systems ranged from 113 to 316 percent. Over the entire period 1971 through 1992, tuition generally became less affordable, except at the community colleges where tuition growth (353 percent) was less than per capita income growth (378 percent).

In general, we found that:

  • Tuition increases for Minnesota's colleges and universities tended to reflect nationwide trends.

Tuition at the technical colleges, private colleges, and the University of Minnesota increased faster than national averages for those types of institutions. Tuition growth was slower than average at the community colleges and state universities.

Comparisons

Our study showed that:

  • Tuition and required fees for Minnesota's four public systems and Minnesota's private colleges exceed national averages.

The difference between Minnesota tuition and national averages is particularly noticeable for public two-year colleges. In 1993, tuition rates for Minnesota's community colleges and technical colleges were almost two-thirds higher than the national average for public two-year colleges. Minnesota tuition rates exceeded national averages by 24 percent at the University of Minnesota, 4 percent at the state universities, and 19 percent at private colleges.

Reasons for Tuition Increase

Overall, we found that:

  • The most significant cause of tuition increases at Minnesota's public colleges and universities was increased reliance on tuition (or decreased reliance on state appropriations) to fund instructional spending, but inflation was also an important factor.

Between 1978 and 1992, Minnesota's public systems of higher education came to rely more on tuition revenue, and less on state appropriations, mainly because of state-level policy decisions. Tuition revenue per student grew 251 to 263 percent at three of the public systems and 641 percent at the technical colleges. In contrast, state appropriations per student increased 92 percent at the University of Minnesota and 78 percent at the other three public systems. As a result, the share of instructional expenditures that was financed by tuition revenue increased from 29 to 42 percent at the University, 23 to 38 percent at the state universities, 24 to 39 percent at the community colleges, and 9 to 29 percent at the technical colleges.

Our research showed that increased tuition reliance explained about half of the tuition growth at the University of Minnesota, state universities, and community colleges, while about 40 percent of the growth was due to inflation. At the technical colleges, 75 percent of the tuition growth was due to increased tuition reliance, and 17 percent was due to inflation. Spending increases in excess of inflation were responsible for 9 to 18 percent of the tuition growth in the four public systems. In two of the systems (state universities and community colleges), most of the growth in spending beyond inflation was due to significant increases in employees' fringe benefits.

In contrast to the reasons for public sector tuition increases, we found that:

  • Instructional spending increases in excess of inflation accounted for almost half of the tuition growth at Minnesota's private colleges, while inflation was responsible for about one-third.

From 1980 to 1992, instructional and related overhead spending accounted for 47 percent of the tuition increases at Minnesota's private colleges. Inflation accounted for 36 percent of the growth. The remaining 17 percent of the tuition growth resulted from the net effect of other factors such as increased financial aid, increased public service spending, increased non-tuition revenues, and enrollment changes.

These results for Minnesota are similar to the conclusions that researcher Arthur Hauptman reached about national tuition trends from 1970 to the mid-1980s. In his 1990 book, The College Tuition Spiral: An Examination of Why Charges Are Increasing, Hauptman found that the relative decline in state appropriations as a funding source for higher education was the main source of public sector tuition increases. For private colleges and universities, he similarly found that spending increases in excess of inflation were most important.

State Grant Program

According to Minn. Stat. §136A.095, the purpose of the state grant program is to encourage the educational development of economically disadvantaged students at institutions of their choice. However, the law puts no specific limit on recipients' income and provides no definition of disadvantaged. Instead:

Students who receive state grants must meet the technical definition of "financial need," but they do not necessarily come from low-income families.

The state grant program defines financial need as the amount of money a student would need to pay half of the recognized cost to attend a specific Minnesota school after subtracting the family's expected contribution and a federal Pell grant, if any. In other words, the same student could be needy if attending a high-cost school but not a low-cost school.

Allocation of Money

Besides tuition and fees, the cost of higher education includes living and miscellaneous expenses such as books, supplies, and transportation. Although these vary with students' choice of program and living arrangements, the state grant program calculates a "cost of attendance" for each of the 169 participating Minnesota schools. During the 1992-93 academic year, the average cost of attendance was about $5,700 for the community and technical colleges, $6,300 for the state universities, and $7,000 for the University of Minnesota. The average cost of attendance was about $8,000 for private vocational schools and $11,700 for private four-year colleges. In addition, some students at private schools faced additional costs for tuition and fees that exceed limits that are built into the state grant program.

Half of the cost of attendance is students' responsibility and is called the "student share." Every state grant recipient is equally responsible for the student share, regardless of financial status. Students may use savings, earnings, loans, gifts, scholarships, additional grants, and other means to pay their portion of attendance costs. The other half of the cost of attendance, called the "family-government share," may be paid by families and the federal Pell grant program, and if necessary, by the state grant program.

A complex federal formula determines how much students' families are expected to contribute toward the cost of attendance. Generally, as total family income (taxed and untaxed) and net worth increase, the size of the expected family contribution increases. Conversely, as family size, number of children in college, and the age of the older parent increase, the expected family contribution decreases. However, the family is not required to contribute what the formula indicates.

Parents are expected to contribute toward the family-government share of costs if their children are dependent on them for financial support. The situation is different for independent students, defined as those who are at least 24 years old, married, a veteran or a ward of the court, or have dependents of their own. Independent students, and their spouses if applicable, are themselves expected to contribute toward the family-government share and also must take responsibility for the 50 percent student share.

After calculating the expected family contribution, the state grant program subtracts this amount from the family-government share (that is, half of the cost of attendance) along with any federal Pell grant a student may receive, and the state fills any remaining difference. Since the federal program is specifically designed to serve the lowest income students and is awarded first, this means that some very low-income students may not receive state grants. In these cases, the state grant program has determined that the students' financial need as defined by the state grant program will be met by the federal government.

Overall, we estimate that Pell grants supplied as much as $43 million to students who did not receive but might otherwise have been eligible for state grants in fiscal year 1991. The Higher Education Coordinating Board does not maintain data on these students, so their number and characteristics are not known in precise terms, but they are most likely low-income students attending low-cost Minnesota schools.

During the course of our study, we also learned that:

  • From the 1983-84 through 1992-93 academic years, the Higher Education Coordinating Board followed a procedure that, for some students at private schools, resulted in enlarged state grants and increased costs to the program.

Until the 1993-94 academic year, when the practice stopped, staff routinely subtracted the difference between independent students' actual and capped tuition and fees from their expected family contributions. Depending on the results, this could increase the size of the state grant. We estimate that the practice cost the state grant program about $3 million during the 1992-93 academic year alone.

Application Process

To simplify the process for students, the federal government uses the same application form for almost all of its financial aid programs, and Minnesota has adopted this form as well. For the 1992-93 academic year, the form contained more than a hundred questions regarding family size, income, assets, expenses, and more. Now, although the form is somewhat shorter, the application process remains somewhat similar to filing income taxes. However, we concluded that:

The grant application process is necessarily complex because the state grant program must distinguish among families with differing abilities to pay their share of education costs.

In general, the state and federal government expect families with higher income to pay for most if not all of their students' expenses. Conversely, since grants are not exclusively for lower-income students, the government needs various income and asset data to determine what if anything families can afford to pay.

At the same time, there is reason to be concerned about the application process because some evidence suggests that fewer low-income students applied in 1993 compared with 1983. There are a number of possible reasons for the apparent decline but no conclusive explanation for it. Our suggestion is that application trends should be monitored, and the Higher Education Coordinating Board should continue its recently targeted information campaign for low-income parents of elementary and secondary students.

Recipients

Nearly 62,000 Minnesota students received state grants totaling $82.7 million during the 1992-93 academic year. Adding federal Pell grants, they received a total of $153.4 million. About two-thirds of the recipients were dependent students, and one-third independent. Because dependent state grant recipients differ significantly from independent recipients, we analyzed their grants separately.

During the 1992-93 academic year, dependent students received a total of $62.6 million from state grants and $97.3 million in combined state and Pell grants. The median state grant for dependent students was $1,218, and their median combined grant was $2,504. Independent students received $20.1 million in state grants and $56.1 million in combined grants. The independent students' median state grant was $477, and their median combined grant was $2,501.

To determine the extent to which the state grant program served lower-income students, we first identified those whose family incomes fell below federal poverty guidelines for their family size. Second, we classified state grant recipients according to the income distribution of Minnesota families from the 1990 U.S. Census. Lower-income students were defined as those with family income of $31,235 or less, which put them at or below the 40th percentile for all Minnesota families.

Overall, state grant recipients' median total income was well below the statewide median of $36,916. Dependent grant recipients had median incomes of $27,870; independent grant recipients had median incomes of $11,544. Also:

  • During the 1992-93 academic year, there was a higher proportion of persons in the state grant program whose family income was below the federal poverty line than in the Minnesota population.

According to the census, 7 percent of Minnesota families had incomes below the federal poverty line. By comparison, 16 percent of dependent state grant recipients had total incomes that low. They received 12 percent of the state grant money and 21 percent of combined state and Pell grant dollars. The proportions were even higher for independent students since their incomes were generally lower. Almost one-half (48 percent) had total incomes below the federal poverty guideline for their family size. They received 35 percent of the state grant funds that went to independent students and 53 percent of the combined state and Pell grant money.

Similarly,

  • Most state grant recipients came from families whose total family income put them among the lowest 40 percent of all Minnesota families, and they received most of the grant money.

According to the 1990 U.S. Census, 40 percent of Minnesota families had incomes of $31,235 or less. However, during the 1992-93 academic year, 59 percent of the dependent state grant recipients had total incomes below $31,236, and these students received 59 percent of the state grant money. When Pell grant money was also considered, 68 percent of the combined state and federal grant money went to lower-income students. Further, 91 percent of the independent state grant recipients had total family incomes below $31,236, and these students received 87 percent of the state grant money and 94 percent of the combined grant money.

Although state grants went mainly to lower-income students, we also found that:

  • Because federal Pell grants are targeted to the poorest students and awarded first, the state grant program paid less to the lowest income students and more to those in the next higher income bracket.

The state grant program provided a median grant of only about $800 to dependent students whose family income was $10,000 or less, but Pell grants provided $2,200 more. At income levels from $25,000 to $35,000 (still below the statewide median), the state grant program provided a median grant of $1,444, while the Pell program provided substantially less, $550. Above the $35,000 income level, the state grant program provided more money (a median grant of $1,219) than the Pell program ($0), while the total amount of money continued to decline. The pattern for independent students was similar, except for a small number of upper-income recipients.

Concerning the upper-income grant recipients, we found that 16 percent of dependent state grant recipients and 2 percent of independent recipients had family incomes over $42,889, which would put them at or above the 61st percentile of all Minnesota families. Together, these students received about 12 percent of state grant funds and 7 percent of combined state and Pell grants, for a total of about $11 million. However:

  • Three main reasons explain why some state grant recipients come from upper-income brackets: (1) they attend high-cost schools, (2) their families are larger than average, and (3) more than one family member attends college.

Most of the money (about $7 million) went to students attending private four-year colleges where the cost of attendance is high. Also, in all systems of higher education, we found that the upper-income grant recipients' families were larger than recipients' in general by an average of about one person, and they were more likely to include not one but two college students.

In addition, we found that some upper-income students received state grants because they experienced high expenses such as medical costs, often in combination with few assets. In such cases, the state grant program offsets the family's total income since it is not readily available for students' education. In other cases, the state grants were based on estimated present income instead of past, actual income. This was because unforeseen events such as loss of employment or a parent's death or divorce had altered a family or student's ability to pay for school. When special conditions like these arise, students file amended applications, and campus financial aid officers redetermine eligibility for state grants. In addition, some upper-income independent students received state grants because the program until this year forgave them and some others from contributing a portion of the money they would otherwise have been expected to pay for attending private schools with tuition that was above the state's limit.

Recommendations

Besides knowing how the state grant program, in combination with the Pell grant program, distributes money, it would be helpful also to know how students pay for their share of the cost of attendance. The student's share is not covered by the state or Pell grant programs, but other state, federal, private, and institutional financial aid programs are available to help.

The Higher Education Coordinating Board conducted a study of state grant recipients' various funding sources or "packages" during the 1986-87 academic year. Thus, we recommend that:

  • The Higher Education Coordinating Board should periodically collect data on financial aid packages, focusing on assistance at varying levels of income and the effect of that assistance on the student share of the cost of attendance, as determined by the state grant program.

Although another study recently cataloged all sources of funding for Minnesota baccalaureate students, it left out students in community colleges, technical colleges, and private vocational schools, and defined the cost of attendance to include whatever expenses that students or their parents incurred. Also, the study combined all grants and scholarships into one category and did not collect specific information about the state grant program.

Preferably, the Higher Education Coordinating Board could collect data on students' total package of financial aid before policy makers redesign the state grant program. However, a legislative task force is actively discussing proposals that would target more state grant money to lower-income students. In the absence of information about the amount of assistance that these students already receive from all sources, we are concerned that the result could be to displace some private or institutional assistance with state funds.

At the same time, we found numerous problems with the board's existing data concerning state grant recipients. Most notably, data are sometimes missing for large percentages of state grant recipients, and the board maintains data on students who receive a Pell grant only if they also happen to receive a state grant. We recommend that:

  • The Higher Education Coordinating Board should collect and maintain more complete, accurate data on state and Pell grant recipients in the future.

Data on students who receive a Pell grant but not a state grant could come from the board's periodic studies of student financial aid packages, which we recommended above. To improve the general quality of information on state grant recipients, we suggest that the board require complete data from all schools and maintain a consistent data base for all state grant recipients. Staff at the Higher Education Coordinating Board have already told us that they will review their procedures and, starting in the 1994-95 academic year, collect complete data on all state grant recipients. We think that better data collection and maintenance on the part of the board are critically important for state policy makers.

More Information

The Program Evaluation Division was directed by the Legislative Audit Commission to conduct this evaluation in June 1993.

For a copy of the full report, entitled "Higher Education Tuition and State Grants," (94-04), 143 pp., published on February 25, 1994, you may use our order form (request report #94-04). Alternatively, please call 651/296-4708, e-mail our office at Legislative.Auditor@state.mn.us, or write to Office of the Legislative Auditor, 658 Cedar St., St. Paul, MN 55155.

Staff who worked on this project were Marilyn Jackson (project manager), Scott Leitz, Jo Vos, and John Yunker.

 

 

Office of the Legislative Auditor ♦ Room 140, 658 Cedar St., St. Paul, MN 55155