Unexpectedly Intriguing!
September 17, 2007

Cap and Diploma The average U.S. college student in 2007 can expect their cost of a college education to go up by 6.23% compared to what they paid in 2006.

We determined this figure using data collected by the U.S. Bureau of Labor Statistics. The seasonally-adjusted rate at which college tuition and fees increased from July 2006 to July 2007 was 6.23%, while the seasonally adjusted rate of inflation for all items in the Consumer Price Index over the same period increased by 2.38%.

That means that the average rate at which college tuitions and fees increased for all cities in the United States was 2.62 times the rate of general inflation in the U.S. economy. Over the past 20 years, the cost of college tuition has generally increased at a rate of twice that of inflation, with increases typically ranging between 6-7% per year.

Previously, we established that the key driving factor behind the skyrocketing rate of college tuition in the U.S. is the financial aid provided by the government in the form of grants and student loans that are intended to reduce the cost of college education, especially for poor students. Rather than reducing costs however, these government-sponsored financial aid subsidies instead underwrite the massive growth in the prices U.S. colleges and universities charge for tuition.

Another downside to these programs is that they also make it difficult for students to establish just how much they'll have to pay for their college education. Since the amount of needs-based financial aid a student receives varies from student to student and year to year, the subsidy programs add a significant element of uncertainty for many economically disadvantaged students.

But, what if this weren't the case? What would happen if U.S. colleges and universities instead did away with these government-sponsored needs-based education subsidy programs and just lowered their tuitions to accommodate poor students instead?

We now know the answer. In 2004, Eureka College, a small liberal arts university in northwestern Illinois, announced that it would eliminate its needs-based financial aid programs and instead would dramatically reduce its tuition by just over 30%. Called "The Eureka Idea", Eureka College's administrators described what they hoped would be the benefits:

Eureka administrators said they hope to increase the size of the college's applicant pool by offering a tuition price significantly less than other private four-year universities.

Ellen Rigsby, Eureka's director of financial aid, said the new system is more user-friendly, offering applicants a standard tuition fee free of the number crunching that need-based tuition adds to the financial aid package.

"It's more straightforward," Rigsby said. "Instead of getting more (need-based) aid, you'll know exactly what you'll be paying."

The easiest way to measure the success of the program is to examine the school's level of enrollment. The following table extracts data from the Illinois Board of Higher Education's enrollment profile for Eureka College for 2002 through 2006. We've highlighted the years since the program took effect in the 2005-06 school year and calculated the percentage changes in enrollment from each previous year:

Eureka College Enrollment 2002 through 2006
Academic Year Enrollment Percentage Change
2002-03 555 N/A
2003-04 490 -11.7%
2004-05 520 + 6.1%
2005-06 537 + 3.3%
2006-07 575 + 7.1%

Remarkably, in rising to an enrollment level of 575 students in 2005, the school broke its previous enrollment record set in 1971 of 566 students.

But that's not all.

On September 7, 2007, the Peoria Journal Star reported that the college broke its enrollment level again, increasing 17% over its record 2006 enrollment. The PJStar's Clare Jellick describes the school's reaction:

Eureka College is basking in its second year of record enrollment. The newest enrollment numbers show the student body increased by about 17 percent.

That is the equivalent of about 100 additional students. Assistant Dean Scott Wignall said this is the biggest increase from one year to the next in recent memory.

He said the news shocked faculty members who asked him about enrollment at the start of the school year.

"Their jaws kind of dropped. They couldn't quite believe it. Six hundred (students) was this unachievable goal, this mythological number. . . . To cross it and then some was just great news for everybody here," Wignall said.

By replacing student needs-based financial aid subsidies with lower and more transparent tuition costs, Eureka College is succeeding in boosting its enrollment, with a rate of growth significantly outpacing other higher-education institutions in central Illinois:

Eureka College is the only area school contacted that saw an increase in fall enrollment over last year. Other colleges and universities in central Illinois either stayed about the same or had decreases in enrollment of between 1 and 2 percent.

It would seem that the combination of cost transparency and low tuition rates is a winning formula for students and schools in the world of higher education.


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