[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]





THE COLLEGE COST CRISIS REPORT: ARE INSTITUTIONS ACCOUNTABLE ENOUGH TO 
                         STUDENTS AND PARENTS?

=======================================================================

                                HEARING

                               before the

              SUBCOMMITTEE ON 21st CENTURY COMPETITIVENESS

                                 of the

                         COMMITTEE ON EDUCATION
                           AND THE WORKFORCE
                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                           September 23, 2003

                               __________

                           Serial No. 108-33

                               __________

  Printed for the use of the Committee on Education and the Workforce



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                COMMITTEE ON EDUCATION AND THE WORKFORCE

                    JOHN A. BOEHNER, Ohio, Chairman

Thomas E. Petri, Wisconsin, Vice     George Miller, California
    Chairman                         Dale E. Kildee, Michigan
Cass Ballenger, North Carolina       Major R. Owens, New York
Peter Hoekstra, Michigan             Donald M. Payne, New Jersey
Howard P. ``Buck'' McKeon,           Robert E. Andrews, New Jersey
    California                       Lynn C. Woolsey, California
Michael N. Castle, Delaware          Ruben Hinojosa, Texas
Sam Johnson, Texas                   Carolyn McCarthy, New York
James C. Greenwood, Pennsylvania     John F. Tierney, Massachusetts
Charlie Norwood, Georgia             Ron Kind, Wisconsin
Fred Upton, Michigan                 Dennis J. Kucinich, Ohio
Vernon J. Ehlers, Michigan           David Wu, Oregon
Jim DeMint, South Carolina           Rush D. Holt, New Jersey
Johnny Isakson, Georgia              Susan A. Davis, California
Judy Biggert, Illinois               Betty McCollum, Minnesota
Todd Russell Platts, Pennsylvania    Danny K. Davis, Illinois
Patrick J. Tiberi, Ohio              Ed Case, Hawaii
Ric Keller, Florida                  Raul M. Grijalva, Arizona
Tom Osborne, Nebraska                Denise L. Majette, Georgia
Joe Wilson, South Carolina           Chris Van Hollen, Maryland
Tom Cole, Oklahoma                   Tim Ryan, Ohio
Jon C. Porter, Nevada                Timothy H. Bishop, New York
John Kline, Minnesota
John R. Carter, Texas
Marilyn N. Musgrave, Colorado
Marsha Blackburn, Tennessee
Phil Gingrey, Georgia
Max Burns, Georgia

                    Paula Nowakowski, Staff Director
                 John Lawrence, Minority Staff Director
                                 ------                                

              SUBCOMMITTEE ON 21st CENTURY COMPETITIVENESS

            HOWARD P. ``BUCK'' McKEON, California, Chairman

Johnny Isakson, Georgia, Vice        Dale E. Kildee, Michigan
    Chairman                         John F. Tierney, Massachusetts
John A. Boehner, Ohio                Ron Kind, Wisconsin
Thomas E. Petri, Wisconsin           David Wu, Oregon
Michael N. Castle, Delaware          Rush D. Holt, New Jersey
Sam Johnson, Texas                   Betty McCollum, Minnesota
Fred Upton, Michigan                 Carolyn McCarthy, New York
Vernon J. Ehlers, Michigan           Chris Van Hollen, Maryland
Patrick J. Tiberi, Ohio              Tim Ryan, Ohio
Ric Keller, Florida                  Major R. Owens, New York
Tom Osborne, Nebraska                Donald M. Payne, New Jersey
Tom Cole, Oklahoma                   Robert E. Andrews, New Jersey
Jon C. Porter, Nevada                Ruben Hinojosa, Texas
John R. Carter, Texas                George Miller, California, ex 
Phil Gingrey, Georgia                    officio
Max Burns, Georgia


                                 ------                                
                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on September 23, 2003...............................     1

Statement of Members:
    Kildee, Hon. Dale E., a Representative in Congress from the 
      State of Michigan..........................................     6
    McKeon, Hon. Howard P. ``Buck'', a Representative in Congress 
      from the State of California...............................     2
        Prepared statement of....................................     4

Statement of Witnesses:
    Alexander, Dr. F. King, President, Murray State University...    14
        Prepared statement of....................................    17
    Hanson, Jessica, Student, Florida State University...........    28
        Prepared statement of....................................    29
    Lewis, Dr. Valerie F., President, State Higher Education 
      Executive Officers.........................................     9
        Prepared statement of....................................    11
    Merisotis, Jamie P., President, Institute for Higher 
      Education Policy...........................................    22
        Prepared statement of....................................    24


 
THE COLLEGE COST CRISIS REPORT: ARE INSTITUTIONS ACCOUNTABLE ENOUGH TO 
                         STUDENTS AND PARENTS?

                              ----------                              


                      Tuesday, September 23, 2003

                     U.S. House of Representatives

              Subcommittee on 21st Century Competitiveness

                Committee on Education and the Workforce

                             Washington, DC

                              ----------                              

    The Subcommittee met, pursuant to notice, at 2:05 p.m., in 
room 2175, Rayburn House Office Building, Hon. Howard P. 
``Buck'' McKeon [Chairman of the Subcommittee] presiding.
    Present: Representatives McKeon, Petri, Castle, Tiberi, 
Keller, Porter, Gingrey, Burns, Kildee, Tierney, Wu, Holt, 
McCarthy, Van Hollen, Owens, Andrews, and Hinojosa.
    Also present: Representative Bishop of New York.
    Staff present: Kevin Frank, Professional Staff Member; 
Alexa Marrero, Press Secretary; Susan Oglinsky, Coalitions 
Advisor; Alison Ream, Professional Staff Member; Deborah L. 
Samantar, Committee Clerk/Intern Coordinator; Kathleen Smith, 
Professional Staff Member; Liz Wheel, Legislative Assistant; 
Ellynne Bannon, Minority Legislative Associate/Labor; Ricardo 
Martinez, Minority Legislative Associate/Education; Alex Nock, 
Minority Legislative Associate/Education; and Joe Novotny, 
Minority Legislative Assistant/Education.
    Chairman McKeon. A quorum being present, the Subcommittee 
on 21st Century Competitiveness of the Committee on Education 
and the Workforce will come to order.
    We're holding this hearing today to hear testimony on ``The 
College Cost Crisis Report: Are Institutions Accountable Enough 
to Students and Parents?''
    Under Committee Rule 12 (b), opening statements are limited 
to the Chairman and the Ranking Member of the Committee. 
Therefore, if other members have statements, they will be 
included in the hearing record.
    With that, I ask unanimous consent for the hearing record 
to remain open 14 days to allow member statements and other 
extraneous material referenced during the hearing to be 
submitted in the official hearing record.
    Without objection, so ordered.

    STATEMENT OF HON. HOWARD P. ``BUCK'' McKEON, CHAIRMAN, 
          SUBCOMMITTEE ON 21st CENTURY COMPETITIVENESS

    Chairman McKeon. Good afternoon. I want to thank you for 
joining us to discuss this important topic.
    We're here today to continue our efforts to explore the 
issue of affordability in higher education, an issue I've been 
personally concerned with for quite some time.
    A few weeks ago, Chairman Boehner and I released a report 
called The College Cost Crisis, which declared that the 
nation's higher education system is in crisis as a result of 
exploding cost increases that threaten to put college out of 
reach for low-and-middle-income students and families. The 
report concluded that decades of cost increases, in both good 
economic times and bad, have caused America's higher education 
system to reach a crisis point.
    It also concluded that students and parents are losing 
patience with higher education sticker shock and that 
institutions of higher learning are not accountable enough to 
parents, students, and taxpayers--the consumers of higher 
education.
    The report also found that the amount of information 
available to consumers about tuition increases is inadequate, 
inhibiting the ability of consumers to comparison shop and hold 
institutions accountable for tuition hikes, and while 
significant increases are the norm, they are not unavoidable.
    This afternoon, witnesses will testify, perhaps about the 
findings in the report, but more importantly, I'm hoping to 
hear a discussion of the broad issue of affordability in higher 
education, as well as solutions on how to best address the 
problem.
    This is not a new problem. In fact, a decade ago, when 
Congress was considering reauthorization of the Higher 
Education Act, much as we are today, Senator Frank Lautenberg 
of New Jersey expressed concerns about the staggering growth of 
tuition over the past decade, and noted how the increases were 
outpacing the Consumer Price Index by two to three times. It 
sounds familiar, doesn't it?
    My concern over this issue is not new, either, nor are my 
efforts to work toward solutions. That's why, in 1997, we 
created the National Commission on the Cost of Higher Education 
to study the problems of increasing tuition and rising 
administrative costs, and to make policy recommendations on how 
to hold down these increases.
    The following statistic is one I've repeated many times, 
and I will continue to repeat it until we can find a solution 
and interested parties start taking this issue seriously: The 
fact, is, according to the Advisory Committee on Student 
Financial Assistance, cost factors prevent 48 percent of all 
college-qualified low-income high-school graduates from 
attending a 4-year college, and 22 percent from pursuing any 
college at all. The statistics are similarly bleak for moderate 
income families.
    At the rate we're going, by the end of the decade, more 
than 2 million college-qualified students will miss out on the 
opportunity to go to college.
    Over the past year, my colleagues and I have been working 
hard to reauthorize the Higher Education Act. Since 1965, the 
Higher Education Act has made the dream of college a reality 
for millions of students, providing billions of dollars in 
financial assistance for students and families in need.
    We should all be proud of this accomplishment. After all, 
helping students reach their educational goals not only 
encourages success for the students, but it also provides great 
benefits to our society.
    One of the statistics that I've seen indicates that a 
college degree, Bachelor's Degree, will result in about $1.9 
million of income for that student over his productive life.
    That means that he'll also pay about--he or she--$179,000 
in additional taxes to benefit all of society. These are 
important things to remain aware of.
    Yet, over the past few decades, the tens of billions of 
dollars we invest in higher education each year has begun to 
lose its tremendous power for expanding access to higher 
education. The cost of college has gone up rapidly, and our 
investment in Federal student aid simply cannot keep pace.
    That is not to say that we aren't doing our share. In fact, 
we're pumping back billions of dollars into student aid through 
grants, federally backed loans, work-study opportunities, and 
numerous other financial aid programs.
    Over the 10-year period ending in 1992, inflation was about 
30 percent. Yet Federal student aid increased by 161 percent. 
We're dramatically boosting Federal support for higher 
education, yet we still cannot keep pace with tuition 
increases.
    The higher cost of education is daunting to many students 
and their families. Even with grants and scholarships, the 
average student is graduating with about $16,000 in higher 
education debt.
    There are many causes for increases in the cost of higher 
education. I hope the witnesses today will help to explain some 
of those reasons.
    However, the fact is, the consumers of higher education, 
students and parents, are losing patience. Parents are scared 
that they may not be able to send their children to college. 
Students dread the day when their student loans will come due.
    That frustration extends beyond simply the sticker price of 
tuition. As the price of college increases, and their 
pocketbooks squeezed, students are beginning to question how 
those tuition increases are being spent.
    Recently a letter appeared in the student newspaper at the 
University of South Carolina that explained some of this 
frustration. There was a statement in that letter that in 
particular caught my attention, which I would like to share 
with you.
    This student discussed the contrast between numerous new, 
state-of-the-art facilities on campus available, even though 
many students cannot even register for classes. She said this: 
``Attending a university is not about how nice the dining 
facilities are or having as many different chic eating places 
as possible; it is about learning and preparing for our 
careers. It is very disheartening when students' educational 
needs are sacrificed for capitalistic modernity.'' That's a 
nice word.
    I agree that there are likely many causes for the rapid 
increases in the cost of higher education, not the least of 
which over the past few years are the state budgets which have 
led, in some cases, to cuts in higher education funding. 
However, it paints an incomplete picture to blame state budgets 
alone.
    For months, and in fact years, I have been looking for 
answers to the question of why tuition has perpetually 
increased faster than students and families can afford to pay. 
Indeed, I hope witnesses can help us to understand what is 
causing the college cost crisis, so that we may propose 
effective solutions.
    I believe that when a student believes her educational 
opportunities are being hindered by investments in the campus 
facade, and when institutions consider spending money and 
increasing tuition in order to increase their ranking, rather 
than increase opportunities for their students, our higher 
education system is facing a very real problem.
    Earlier this year, I put forth a proposal to closely 
monitor tuition and fee increases by developing a college 
affordability index that will serve as a standard measure for 
institutions of higher education to measure increases in 
tuition and fees.
    This will also provide a tool by which students and 
families can understand those increases in relation to the 
Consumer Price Index.
    The proposal would also create college affordability 
demonstration programs for those colleges and universities that 
want to try new, innovative approaches to improving higher 
education while reining in skyrocketing cost increases.
    While the bill will soon be released, I want to be the 
first to make it clear that this bill is not about price 
controls. I have never supported such a thing and will never do 
so.
    What I do support is empowering the consumers of higher 
education by giving them the information they need to exercise 
freedom in the marketplace.
    Over the past few months, I've sat on the sidelines and 
have let various people degrade this proposal, choosing to wait 
until the bill is actually introduced before talking about the 
specifics, but no more.
    I will not sit idly by and listen to the detractors who 
want to continue the status quo, hoping that this issue will go 
away. We all can do a better job of making college more 
affordable and more accessible.
    We're working hard to revitalize our higher education 
system through the reauthorization of the Higher Education Act 
and ensure that every student who strives for post-secondary 
education has the opportunity to achieve it.
    As we work toward that goal, we will continue to seek 
solutions to the college cost crisis. I hope some of those 
solutions will come to light today.
    The future of our higher education system, and in fact the 
future of our nation, will depend on our ability to address 
this crisis and keep college within reach for students and 
families in America.
    [The prepared statement of Mr. McKeon follows:]

   Statement of Hon. Howard P. ``Buck'' McKeon, a Representative in 
                 Congress from the State of California

    Good afternoon and thank you for joining us to discuss this 
important topic. We're here today to continue our efforts to explore 
the issue of affordability in higher education, an issue I've been 
personally concerned about for quite some time.
    A few weeks ago Chairman Boehner and I released a report called 
``The College Cost Crisis,'' which declared that the nation's higher 
education system is in crisis as a result of exploding cost increases 
that threaten to put college out of reach for low and middle income 
students and families.--The report concluded that decades of cost 
increases, in both good economic times and bad, have caused America's 
higher education system to reach a crisis point. It also concluded that 
students and parents are losing patience with higher education 
``sticker shock'' and that institutions of higher learning are not 
accountable enough to parents, students and taxpayers--the consumers of 
higher education.
    The report also found that the amount of information available to 
consumers about tuition increases is inadequate, inhibiting the ability 
of consumers to ``comparison shop'' and hold institutions accountable 
for tuition hikes and, while significant tuition increases are the 
norm, they are not unavoidable.
    This afternoon witnesses will testify perhaps about the findings in 
the report, but more importantly, I'm hoping to hear a discussion of 
the broad issue of affordability in higher education, as well as 
solutions on how best to address the problem. This is not a new 
problem. In fact, a decade ago when Congress was considering 
reauthorization of the Higher Education Act much as we are today, 
Senator Frank Lautenberg of New Jersey expressed concerns about the 
staggering growth of tuition over the past decade, and noted how the 
increases were outpacing the Consumer Price Index by two to three 
times. It sounds familiar, doesn't it?
    My concern over this issue is not new either, nor are my efforts to 
work toward solutions. That's why, in 1997, I created the ``National 
Commission on the Cost of Higher Education'' to study the problems of 
increasing tuition and rising administrative costs and to make policy 
recommendations on how to hold down these increases.
    The following statistic is one I've repeated many times, and I will 
continue to repeat it until we can find a solution and interested 
parties start taking this issue seriously. The fact is, according to 
the Advisory Committee on Student Financial Assistance, cost factors 
prevent 48 percent of all college-qualified, low-income high-school 
graduates from attending a four-year college and 22 percent from 
pursuing any college at all. The statistics are similarly bleak for 
moderate income families. At the rate we are going, by the end of the 
decade, more than two million college-qualified students will miss out 
on the opportunity to go to college.
    Over the past year, my colleagues and I have been working hard to 
reauthorize the Higher Education Act. Since 1965, the Higher Education 
Act has made the dream of college a reality for millions of students, 
providing billions of dollars in financial assistance for students and 
families in need. We should all be proud of this accomplishment--after 
all, helping students reach their educational goals not only encourages 
success for the students, but it also provides great benefits to our 
society.
    Yet over the past few decades, the tens of billions of dollars we 
invest in higher education each year has begun to lose its tremendous 
power for expanding access to higher education. The cost of college has 
gone up rapidly, and our investment in federal student aid simply 
cannot keep pace. That is not to say that we aren't doing our share--in 
fact, we're pumping billions of dollars into student aid through 
grants, federally-backed loans, work-study opportunities, and numerous 
other financial aid programs. Over the ten year period ending in 2002, 
inflation was about 30 percent, yet federal student aid increased by 
161 percent. We're dramatically boosting federal support for higher 
education, yet we still cannot keep pace with tuition increases.
    The cost of higher education is daunting to many students and their 
families--even with grants and scholarships, the average student is 
graduating with about $16,000 in higher education debt. There are many 
causes for increases in the cost of higher education; I hope the 
witnesses today will help to explain some of those reasons. However, 
the fact is, the consumers of higher education--students and parents--
are losing patience. Parents are scared that they may not be able to 
send their children to college. Students dread the day when their 
student loans will come due. And that frustration extends beyond simply 
the sticker price of tuition.
    As the price of college increases and their pocketbooks are 
squeezed, students are beginning to question how those tuition 
increases are being spent. Recently, a letter appeared in the student 
newspaper at the University of South Carolina that explained some of 
this frustration.
    There was a statement in that letter that particularly caught my 
attention which I would like to share with you. This student discussed 
the contrast between numerous new, state of the art facilities on 
campus available even though many students cannot even register for 
classes. She said this; ``Attending a university is not about how nice 
the dining facilities are or having as many different chic eating 
places as possible; it is about learning and preparing for our careers. 
It is very disheartening when students'' educational needs are 
sacrificed for capitalistic modernity.
    I agree that there are likely many causes for the rapid increases 
in the cost of higher education, not the least of which over the past 
few years are the state budgets which have led in some cases to cuts in 
higher education funding. However, it paints an incomplete picture to 
blame state budgets alone. For months, and in fact years, I have been 
looking for answers to the question of why tuition has perpetually 
increased faster than students and families can afford to pay. Indeed, 
I hope witnesses can help us to understand what is causing the college 
cost crisis so that we may propose effective solutions.
    I believe that when a student believes her educational 
opportunities are being hindered by investments in the campus facade, 
and when institutions consider spending money and increasing tuition in 
order to increase their ranking rather than increase opportunities for 
their students, our higher education system is facing a very real 
problem.
    Earlier this year, I put forth a proposal to closely monitor 
tuition and fee increases by developing a college affordability index 
that will serve as a standard measure for institutions of higher 
education to measure increases in tuition and fees. This will also 
provide a tool by which students and families can understand those 
increases in relation to the Consumer Price Index (CPI). The proposal 
would also create College Affordability Demonstration Programs for 
those colleges and universities that want to try new innovative 
approaches to improving higher education while reining in skyrocketing 
cost increases.
    While the bill will soon be introduced, I want to be the first to 
make it clear that this bill is not about price controls. I have never 
supported such a thing and will never do so. What I do support is 
empowering the consumers of higher education by giving them the 
information they need to exercise freedom in the marketplace.
    Over the last few months, I have sat on the sidelines and have let 
various people degrade this proposal, choosing to wait until the bill 
is actually introduced before talking about the specifics. But no more. 
I will not sit idly by and listen to the detractors who want to 
continue the status quo, hoping that this issue will go away. We all 
can do a better job of making college more affordable and more 
accessible.
    We are working hard to revitalize our higher education system 
through the reauthorization of the Higher Education Act and ensure that 
every student who strives for postsecondary education has the 
opportunity to achieve it. As we work toward that goal, we will 
continue to seek solutions to the college cost crisis. I hope some of 
those solutions will come to light today. The future of our higher 
education system, and in fact the future of our nation, will depend on 
our ability to address this crisis and keep college within reach for 
students and families in America.
    With that, I would yield to my colleague, Mr. Kildee, for any 
opening statement that he might have.
                                 ______
                                 
    Chairman McKeon. With that, I now yield to my college, Mr. 
Kildee, for his opening statement.

STATEMENT OF HON. DALE E. KILDEE, RANKING MEMBER, SUBCOMMITTEE 
                ON 21st CENTURY COMPETITIVENESS

    Mr. Kildee. Thank you, Mr. Chairman.
    I'm pleased to join Chairman McKeon at today's hearing on 
the recently released college cost report. I know that both of 
us are looking forward to the testimony of today's witnesses on 
this very important topic. However, I'm concerned about the 
direction this Subcommittee may be headed on this issue.
    First, let me say that I share Chairman McKeon's concern 
over the rising sticker price of a college education. The cost 
of college is certainly a concern for today's students and 
their families.
    This Subcommittee has heard testimony on the increase in 
college costs over the past decade. The college board has 
reported that tuition has risen by 38 percent over the past 10 
years after accounting for inflation. We certainly do not want 
the cost of college to deny even one student access to a good 
post-secondary education.
    Contrary to the conclusion of the Chairman's report, the 
downturn in the economy and dramatic increases in state 
Medicaid costs have carved out funding for higher education. 
That is certainly true in my state of Michigan, and I know many 
other states, if not all of them.
    While state appropriations for higher education generally 
increase during good economic times--and I used to serve on the 
Appropriations Committee for the Michigan legislature during 
some of those times--recessions bring about sharp decreases of 
legislative support.
    After these sharp decreases in spending, the level of 
spending on higher education typically does not return to its 
previous levels.
    I respectfully must disagree with Chairman McKeon as to the 
proper approach to controlling college costs from the Federal 
level.
    Much attention initially has been given to his proposal to 
place Federal price controls on tuition at our colleges and 
universities, but Mr. McKeon has obviously been very flexible, 
and that seems to be feeding into the sun on that, and I hope 
that's where it will fade.
    This proposal would bar universities who have seen their 
budgets cut due to the sour economy from receiving Federal 
funds to improve teacher quality or provide work-study 
opportunities for needy students.
    Worse yet, historically black colleges and Hispanic-serving 
institutions would be barred from receiving institutional and 
other aid. This loss of aid would hamper the mission of these 
institutions to provide post-secondary education opportunities 
to some of our neediest students.
    This proposal would also have serious unintended 
consequences.
    Colleges that are forced to reduce their tuition increases 
will simply decrease the amount of need-based grant aid. This 
could result in students experiencing lower tuition levels, but 
higher out-of-pocket costs.
    In addition, as labor and health care costs increase, 
institutions will be forced to sacrifice quality. This will be 
done through the hiring of adjunct professors rather than 
maintaining a seasoned, tenured faculty.
    Is this the cost control measures we want our universities 
to implement?
    Rather than creating new problems to solve an existing one, 
this Subcommittee should be considering what is the appropriate 
response to rising tuition. We should provide incentives to 
colleges and universities to hold down costs.
    The current Federal system of higher education financing 
does not incentivize schools to hold down the level of tuition 
increases.
    The Higher Education Act should not punish students or 
institutions through heavy-handed Federal price controls. 
Rather, institutions that hold down tuition costs while 
increasing need-based grant aid should be rewarded.
    In addition, states should be encouraged to maintain their 
level of effort on higher education spending. In years in which 
Congress increases student aid, those increases should benefit 
students, not be gobbled up by the need to balance state 
budgets. We should certainly try to encourage a certain 
maintenance of effort on the part of the states.
    Also, we must remember that increasingly, financial aid 
comes in the form of a loan rather than a grant.
    The answer here is not to simply raise loan limits. 
Instead, we should reverse this trend, increase the buying 
power of Pell Grants and other forms of Federal, state, and 
institutional grant aid.
    In closing, I want to stress again that the focus of this 
Subcommittee on what assistance we can provide to students 
facing rising college costs is a sound emphasis and focus. 
However, we should not be instituting proposals that would 
actually shrink resources and access for our most disadvantaged 
students.
    Mr. McKeon and I have walked through kind of this 
evolution, and we're still evolving, and hopefully, at the end 
of this process, with your expertise, we will reach a point 
where we can find some agreement without having price controls.
    I yield back the balance of my time, Mr. Chairman.
    Chairman McKeon. Thank you.
    I'd like to now introduce our witnesses that we have before 
us here today.
    First will be Dr. Valerie F. Lewis. Dr. Lewis is currently 
the president of the State Higher Education Executive Officers. 
Additionally, she is the Commissioner of the Connecticut State 
Department of Education. In her role as commissioner, Dr. Lewis 
is responsible for implementing the policies and directives of 
the Board of Governors for Higher Education and directing the 
Department of Higher Education.
    Throughout her career, she has served in various public and 
independent college administrative positions, including those 
in admissions and financial aid, academic administration, and 
finance.
    Next will be Dr. King Alexander. Dr. Alexander is currently 
the president of Murray State University in Murray, Kentucky, 
where he has served since 2001. Previously, Dr. Alexander was a 
faculty member and director of the higher education program at 
the University of Illinois at Urbana, Champagne.
    He is also the co-editor of two recent books entitled 
Maximizing Revenues: Universities, Public Policy, and Revenue 
Production and the University: International Expectations.
    Then we'll hear from Mr. Jamie Merisotis. Mr. Merisotis is 
the founding president of the Institute for Higher Education 
Policy. Prior to his current position, he served as executive 
director for the National Commission on Responsibilities for 
Financing Post-Secondary Education, where he authored the 
commission's final report, entitled Making College Affordable 
Again.
    Additionally, he is the author or co-editor of various 
books, as well as a frequent contributor to newspapers, 
scholarly journals, and other publications.
    Mr. Merisotis also serves as a board member and advisor for 
several organizations, including the Consortium for the 
Advancement of Private Higher Education, Scholarship America, 
and the Council for Higher Education Accreditation's 
International Commission.
    Our final witness will be Ms. Jessica Hanson. Ms. Hanson is 
a senior at Florida State University in Tallahassee, Florida, 
where she is pursuing a degree in political science. Throughout 
her college career, she has been involved in student 
government, and is currently serving as the director of 
legislative affairs for the Student Government Association.
    Additionally, Ms. Hanson is the director of community 
affairs for the Florida State University Pan-Hellenic 
Association.
    Upon graduation, she plans to attend law school. That's 
good. We need more attorneys.
    [Laughter.]
    Chairman McKeon. Other than here in Congress.
    Before the witnesses begin your testimony, I'd like to 
explain to you how the light system down there works. You have 
5 minutes to summarize your testimony. Your full written 
testimony is included in the record. When you have 1 minute 
left, the yellow light comes on, and then the red light comes 
on just before you fall through the trap door in the bottom. 
Then, as you conclude, the same lights will work for the 
members as they ask you questions.
    We'll hear first now from Dr. Lewis.

     STATEMENT OF VALERIE F. LEWIS, COMMISSIONER OF HIGHER 
  EDUCATION, STATE OF CONNECTICUT AND PRESIDENT, STATE HIGHER 
                  EDUCATION EXECUTIVE OFFICERS

    Dr. Lewis. Thank you and good afternoon, Mr. Chairman and 
members of the Committee.
    I am Valerie Lewis, and I'm from Connecticut, where I 
shepherd 47 public and private colleges, and all of them are 
known as high-quality institutions and high-cost. Only our 
public community colleges are really considered low-cost.
    So I am here today to say I am glad that you are addressing 
this topic seriously. We need voices raised to look at the long 
issues ahead of us in fashioning policies, state by state and 
across our nation, that will support the students who are ready 
to come to us and profit from their stay in higher education.
    I am currently also serving as the president of SHEEO, as 
you know, and the folks who lead the coordinating and governing 
boards across our country at the moment are focused almost 
every day on what researcher Jane Wellman has called the 
``double whammy'' of the fiscal and demographic crises that are 
simultaneously bombarding the academy at this point.
    In my applause, I want to say, too, that I share your 
growing concern over the price of admission to college, because 
the Nation badly needs to maintain the vision that qualified 
students of all ages and backgrounds who are prepared to 
benefit get to us.
    That takes sufficient resources. Sufficient resources are 
always a contested item, and contested in definition.
    Generally today, however, my state and practically every 
state in the Nation is being told to do more with less.
    Enroll more students; respond to critical workforce needs 
with more expanded programs; partner with industry in research 
and technology transfer; stem the brain drain; build the 
pipeline of students prepared to succeed; make better teachers; 
embrace technology across the curriculum; retain students to 
graduation in greater numbers--all of these are advocated by 
you, by higher education's various publics, and by academe 
itself.
    But the notion of doing all these while simultaneously 
reducing budgets is at best a dream, and at worst a nightmare.
    As a commissioner, mind you, I believe we can do more with 
the resources even now in our hands, but I am aware that there 
are many forces propelling the academy in the direction of 
increased costs, and I do want to outline those for you today, 
as you've asked.
    A recent SHEEO report said there are four factors that are 
hitting in higher education that are of great consequence: the 
relative decline of state support; the growth in competition 
for best students, leading to tuition discounting at both 
public and private; higher education demand and some 
consequence reduction in market restraint on price; and 
institutional spending to enhance quality, add programs and 
services, and keep pace with technology as we take in more and 
more students.
    Each of these trends spawns reassessment of what we come in 
my state, at least, to talk about as the three-legged stool of 
higher education finance.
    Some people only want to talk about two legs: what the 
state pays, what the student pays. I think it's three legs, 
because the third part is what the colleges can do to contain 
costs and to gain in productivity.
    What should students have to pay? What should states have 
to pay? Let's look at state support first.
    Dramatic changes in this area have catapulted the 
discussion of costs to consumer to the crisis stage, as you 
have said. The current economic climate has left many states 
with few choices but to reduce higher education, which is 
always the discretionary object when compared to the 
entitlements and fast-rising pieces of the budget like health 
care costs.
    In my state, it means that, for instance, the proportion of 
spending on higher education has dropped from 6.6 percent 3 
years ago to 4.3 percent at this juncture.
    While I would agree with the point made in the College Cost 
Crisis paper, that the economy is only one of several factors 
in cost growth, it is a major factor, and one unlikely to turn 
around, given these same kinds of pressures I've just talked 
about.
    Actually, in my own state this year, every effort was made 
to maintain funding in higher education because we had 
widespread understanding that we were trying to serve more 
people. Eighty percent of the kids in our high schools want to 
go to college and do go somewhere for post-secondary education, 
and we're terribly glad of that.
    In doing that, however, we came up against the fact that, 
after all that work by all parties concerned, we are still 
looking at a budget that's 2.2 percent down from real 
expenditure last year in general institutional support, and 8.4 
percent down on our financial aid programs, which similarly had 
a reduction last year of 13.9 percent, exactly the wrong 
combination, because obviously, in taking away from 
institutional budgets, there was a recognition that the 
institutions could go out and raise their tuition funds, but 
simultaneously, the state was closing its door in respect to 
financial aid for students.
    We were helped, in fact, in the problems of these 
reductions of budgets, by our own faculties and staff, who have 
taken a 1-year wage freeze in recognition of the problems of 
keeping our classrooms full and keeping instruction going.
    Other states, as you know, are facing double-digit 
decreases in state support, and this fact has resulted in sharp 
tuition increases rather than the rates of the 1990's that 
generally--generally--paralleled rising costs for labor.
    We are extraordinarily intensive labor organizations. 
Seventy to 80 percent of our budgets are in labor, and it's 
white-collar, highly educated labor that we have to employ.
    In fact, they cost us a lot. In Connecticut, we pay the 
highest salaries in the Nation for our faculty, for instance. 
But they are also, that faculty is also the reason for our 
success, and we compete with industry for these folks.
    The residual question, in other words, when one looks at 
these changes in budgets, is what can we expect colleges to do?
    Do we expect them to reflexively increase tuitions in part 
or full to the consumer? Are there other things they can do? 
Yes, but time is against us.
    Budgets traditionally end up in June. This year, my state 
ended up in August, and the kids came back to school in 
September.
    So the thoughtful responses of reallocation, the thoughtful 
responses of program elimination or collaborations with other 
institutions, the notions of trying to look at the ties that 
bind us around collective bargaining, faculty role, and 
definition and tenure issues, time to degree issues for 
students, which are ever lengthening and growing the cost for 
both student and state and nation in that regard, all of these 
take effort.
    Chairman McKeon. Dr. Lewis, are you about wrapping up?
    Dr. Lewis. I'm almost done.
    Chairman McKeon. OK.
    Dr. Lewis. What I'm going to say next is what you can do, 
and there are several things.
    I am pushing you to think about driving accountability back 
to the states, and I would like you to do it with incentives.
    We've never tried that. It would be great to try it, as a 
matter of fact, and the huge work being done in higher 
education in my state is on accountability, performance 
measurement, and empowering students and families with 
information. We need your help.
    We also need you to retain your efforts for multi-faceted 
work in respect to getting students to college, helping us 
prepare students for college, leveraging the financial aid 
dollars.
    I love the LEAP program. We are able to match it with state 
funds in that maintenance effort that you talked about, Mr. 
Kildee.
    Finally, I would say continue to exhort us to stick to the 
public good, that we must, as higher education leaders, hear 
your call to remember what we do and for what it is. It is to 
improve lives.
    And if we cannot do that, you have every right to take 
money away. If we're doing it, then help us do it better.
    [The prepared statement of Dr. Lewis follows:]

                     Statement of Valerie F. Lewis

    Thank you for the invitation to address the issue of college costs 
and, specifically, Rep. Boehner's and McKeon's paper on ``The College 
Costs Crisis''. My name is Valerie F. Lewis and I am commissioner of 
higher education in Connecticut, a state that is known for its high 
quality and high cost postsecondary education. Only our community 
colleges are considered low cost, so access and affordability are 
issues at the forefront of my concerns and those of my citizen board. I 
also am serving this year as president of the State Higher Education 
Executive Officers (SHEEO) whom I represent here today. The jobs of 
SHEEOs nationwide, whether with statewide coordinating or governing 
boards, are focused almost everywhere these days on what researcher 
Jane Wellman has called the ``double whammy'' of the fiscal and 
demographic crises, the latter caused by the waves of new students 
knocking on our doors. So, first, I applaud your intense interest in 
the subject of college costs. It is only when our states and nation 
focus on this subject long enough to recognize its complexity that we 
stand a chance of developing stable policies that will support the 
academy and our students into the long future.
    I share your concern over the growing price of admission to college 
and to the level of education that is fast becoming basic to success in 
the workplace and in life. The nation badly needs to maintain the 
vision that qualified students of all ages and backgrounds should be 
encouraged to reach their maximum potential regardless of ability to 
pay. Students should not, by default, have to attend the cheapest 
institution or to make the choice not to attend college at all. But 
such a vision needs to be grounded in a reality of sufficient resources 
to meet the sharply growing and increasingly diverse set of learners 
who bring to colleges and universities increasingly different 
educational needs, interests and goals.
    The definition of ``sufficient resources'' is always difficult and 
contested. But, generally today, higher education in my state and in 
most others is being told to do more with less. Enroll more students, 
respond to critical workforce needs with new or expanded programs, 
partner with industry in research and technology transfer, stem the 
brain drain, build the pipeline of students prepared to succeed, make 
better teachers, embrace technology across the curriculum, retain 
students to graduation in greater numbers--all of these are advocated 
by higher education's various publics and by academe itself. But the 
notion of doing all these while simultaneously reducing budgets is at 
best a dream and at worst a nightmare. While, as a commissioner, I 
believe that we can do far more with our state resources, I am aware 
that many forces have propelled expansion of both higher education 
services and cost.
    In fact, a recent SHEEO report noted four parallel trends impacting 
higher education simultaneously:
      The relative decline of state support
      The growth in competition for ``best students'' leading 
to tuition discounting
      Higher enrollment demand and some consequent reduction in 
market restraint on price, and
      Institutional spending to enhance quality, add programs 
and services, and keep pace with technology
    Each of these trends spawns reassessments of the proverbial three-
legged stool-questions about resources:
      How much should an institution spend to provide its 
services to students?
      Of that cost, what is a reasonable expectation for state 
and federal support?
            (This question is particularly important when talking about 
            public institutions which are supported primarily through 
            state appropriations and for students whose financial aid 
            comes primarily through federal appropriations.)
      What should we ask students and families to pay?
    Let me talk about state support first, because dramatic changes in 
this area have catapulted the discussion of costs to consumer to the 
crisis stage. The current economic climate has left many states with 
few choices but to reduce support for higher education, even in 
knowledge that state support is proportionately the largest funding 
source for the public college enterprise . While I would agree with the 
point made in ``The College Cost Crisis'' paper that the economy is 
only one of several factors in cost growth, it is a major factor and 
one unlikely to turn around, given the competition for state funds by 
entitlement programs and especially by spiraling health care budgets. 
Actually, in my own state, every effort was made this session to keep 
harm to higher education to a minimum because of widespread 
understanding that our colleges and universities must serve increasing 
numbers of students. But the budgets of our public institutions still 
are down 2.2 percent from expenditures last year, with state financial 
aid programs down more than 8 percent, and we would be deeper in the 
hole if it were not for the fact that our faculty and staff agreed to a 
year's salary freeze. Other states, as you know, are facing double 
digit decreases in state support and it is this fact that has resulted 
in sharp tuition increases rather than the rates of the 90's that 
generally paralleled rising costs for labor. With labor costs our 
biggest budget expense--ranging from 70 to 80 percent--what we pay our 
highly educated workforce is an integral factor in budgets, but also an 
integral factor in our success. In this arena, we parallel the needs of 
business to compete for and to keep talent, so the focus of our 
greatest efforts must be on how to make the most of our workforce's 
time and creativity in making productivity gains.
    The residual question when state budgets for higher education 
decline therefore is: can or should we expect colleges to be able to 
react to these reductions without passing on costs--in part or full--to 
the consumer, especially when consumer demand is high? Budgets 
typically are passed as students are packing their bags to go, or go 
back to college, without enough time devoted to thoughtful reduction 
scenarios like reallocation, program elimination, or collaborations 
that limit institutional responsibility. Nor are there quick and simple 
solutions to untying the binds of collective bargaining, faculty role, 
responsibility and tenure definitions, and student time-to-degree 
processes, all of which have great impact on costs to the consumer, to 
the state and to the nation.
    No one, least of all SHEEOs like me, would suggest that higher 
education does not need to engage in serious work to address cost 
containment and greater productivity. I would be the first to admit 
that there are instances of institutions and systems that are spending 
beyond average, but, in general, boards of trustees are trying hard to 
find balance in the three-legged stool of finance. There is widespread 
worry, however, that states and, perhaps the nation, are moving toward 
a privatization model for higher education without a clear 
understanding or full discussion of the potential consequences of such 
change.
    It is this array of complex issues that have been a focus of my 
state and four others that are this year engaged in a Lumina Foundation 
-supported study of how best to integrate tuition, fee and financial 
aid policies and how to find the appropriate balance of individual 
versus societal responsibility for cost. Connecticut actually is one of 
thirty states that place responsibility for public college tuition and 
fee policy with its coordinating or governing board. Many, like my 
state, have decentralized actual tuition setting to campus or system 
boards, but within a frame of state policy. In Connecticut that means 
that in any year no public college student may have tuition increased 
by more than 15 percent and institutions must set aside 15 percent of 
collected tuitions for need-based financial aid as a means to maintain 
access. While our maximum change factor is certainly higher than 
inflation, we have weighed the fact that affordability without 
availability is an empty promise.
    So what can the federal government do, given its reasonable concern 
for keeping college affordable and simultaneously keeping American 
higher education the most sought after in the world for its quality and 
diversity? To my mind, there is no question that the federal 
government, as a pivotal finance partner, must join with states in 
seeking return on investment by:
      calling for accountability on the investment and 
providing incentives to states to strengthen initiatives that focus on 
improvements in access, quality services, student success, and 
efficient use of resources Such accountability systems at the state 
level should ensure minimal standards of quality, provide data to 
inform all our customers, including you at the federal level, of our 
progress or lack thereof, and measure and improve performance. I argue, 
therefore, for driving accountability back to the states, and through 
them to institutions, using federal incentives.
      assisting all higher education entities in expanding 
college awareness and readiness, through programs like TRIO and Gear 
UP, since inadequate preparation is the most difficult to overcome of 
all barriers to access and success in higher education. Until most 
students are better prepared, postsecondary education will need to 
concentrate resources on instruction to help make up for deficiencies, 
both for the sake of individuals and their goals and in recognition of 
the national need for a high quality workforce.
      ensuring adequate grant support for the neediest 
students, because no matter how low our tuition and fee increases, 
there are students who cannot pay public or private costs. A 
significant second piece of the provision of such aid is to make the 
process for obtaining it simpler, and, in fact, concentrating on making 
all rules, including tax provisions, understandable by those who need 
to use them. It would be counterproductive to sanction institutions or 
states with reductions in student financial aid because it will be 
students who are hurt first and last in such a scenario.
      leveraging state and institutional investment in need-
based aid through programs like LEAP and additional institutional 
incentives to focus their financial aid funds on needy students.
      using its powers of the bully pulpit to encourage and 
exhort higher education leadership to keep its shoulder to the wheel of 
the public interest and needs. Colleges are fierce competitors vying 
for the best students, faculty, facilities and resources--sometimes to 
the peril of both the government and the private patron's pocketbook 
but to the notice of the media and of those families able to pay. 
Precisely because the breadth and nature of the student population is 
much different than ever before in the history of higher education, 
higher education institutions need to design and adopt less costly and 
more focused delivery approaches and stop trying to be all things to 
all people. Niche institutions are likely to be more cost effective in 
the future and collaborative program development will be a necessity as 
we attempt to maintain diverse program choice for our customers.
    As a nation, we need for all of higher education, but particularly 
for our public colleges and universities, to continually recognize that 
they are servants of the public good. As many have said, our mission is 
to improve lives. If we fail at this, there is every reason to reduce 
public investment. Conversely, if we succeed, both the individual and 
our society flourish, so let's emphasize again what can be done: use 
incentives, not regulation, to drive improvement in accountability and 
moderate cost; use a multi-faceted approach to increasing strong 
preparation for college; use financial aid as a tool for expanding 
opportunity; use the bully pulpit to keep all of us in higher education 
on task.
    Thank you very much for the opportunity to speak with you today. I 
would welcome your questions.
                                 ______
                                 
    Chairman McKeon. Thank you very much.
    Dr. King Alexander.

    STATEMENT OF F. KING ALEXANDER, PRESIDENT, MURRAY STATE 
                  UNIVERSITY, MURRAY, KENTUCKY

    Dr. Alexander. Thank you, Mr. Chairman and members of the 
Committee.
    I am president of Murray State University, which is a 
rurally located public university with an enrollment of about 
10,000 students. We primarily serve a large geographic region 
that includes western Kentucky, and a good percentage of 
southern areas such as Illinois, Tennessee, Indiana, and 
Missouri.
    The majority of families in our service region do, indeed, 
live below the national average in per capita income and 
educational attainment, and have lower levels of educational 
attainment.
    This is one reason why we remain committed to low costs. In 
fact, our average student tuition and fees are about 24 percent 
below the national average.
    Despite these unique characteristics, our university in 
many ways is much like hundreds of public universities 
throughout the United States, serving a significant number of 
students from middle-and-lower-income families.
    My testimony today on the issue of rising college costs 
reflects my concerns from three distinct perspectives:
    One, as a public university president that is challenged 
each year to meet these increasing societal and student demands 
being placed on higher education during poor economic times;
    Two, as a researcher that has spent a significant portion 
of the last decade analyzing national and international trends 
in state funding and institutional tuition strategies, while 
being a part of three public universities;
    And third, as an individual who is still paying back his 
student loan debts--
    [Laughter.]
    Dr. Alexander [continuing]. Who just so happens to be a 
college president.
    In responding to the issue of rising costs, I must say 
that, based on my professional experience and at numerous 
public universities, and research in this field, I'm well aware 
of the great need for a new policy debate in this area, 
particularly at the Federal level, in examining and supporting 
higher education.
    This inquiry is long overdue, in view of the fact that the 
last major policy debate regarding the important role of the 
Federal Government in supporting higher education access and 
affordability occurred over 30 years ago. Many other OECD 
nations have had two and three debates of this nature since 
then.
    From the public perspective on the tuition realities, in 
addressing the issue of college and university tuition and 
expenditure growth, it should also be recognized that the 
problem of higher education costs and tuition does not affect 
all parents, students, and institutions the same.
    This fact is evidenced in numerous congressionally mandated 
studies on college costs and prices, showing drastic variations 
in annual tuition fee growth between public and private 
universities during the last two decades.
    Instead, public perceptions of rising tuition costs are 
shaped by a number of reasons, including geographic location 
and the media, which is indeed heavily influenced by high- cost 
institutions in the northeast region of the U.S.
    More importantly, however, public perceptions and concerns 
are also determined by an overall lack of information in the 
academic marketplace that prevents students and parents from 
really distinguishing costs, actual costs, from sticker prices.
    For example, students and families, as an example of this 
misinformation, students and families pay college tuition in 
dollars, not percentages. Yet the vast majority of public 
discourse from policymakers and media sources on college costs 
increasingly is simply based on percentage growth.
    In fact, if you analyze actual tuition and fee dollar 
increases instead of simply tuition and fee percentage growth, 
you'll quickly discover that many of the public universities 
with the largest percentage increases over the last couple of 
years are the very institutions that are the most affordable 
and accessible throughout the nation.
    A small dollar increase may well be reflected in a 
relatively large percentage increase. Herein lies one of the 
misleading aspects of the key findings listed in the recently 
released report, The College Cost Crisis.
    For example, if one were to use percentages instead of real 
dollars, as the report says in their findings, you would 
discover that public universities in such states as Hawaii, 
Arkansas, Idaho, Texas, Tennessee, Wyoming, North Carolina, 
Montana, Texas, and Kentucky have all had the most significant 
percentage increases in tuition. Yet, these are the states 
where public universities are indeed the lowest- cost in the 
nation.
    These low-cost states remain low-cost in an effort to 
ensure widespread access and affordability. Also, these same 
states are among the lowest-cost states and the lowest in the 
Nation in average student loan debt per graduate.
    This emphasis on percentage tuition growth therefore 
constitutes an inaccurate measure in establishing the proposed 
remedy which Federal policymakers can use to address this 
issue.
    To place a cap on tuition increases that is based on 
percentage ignores the fact that vast disparities in tuition 
rates currently exist among institutions and among states.
    For example, if a fixed cap were indexed as tied to the 
fluctuation in the Consumer Price Index, it would 
disproportionately harm all the states that have universities 
and colleges who have worked diligently to keep their costs 
low, and tuition costs low, and even sticker prices low.
    Public colleges and universities that would be negatively 
impacted disproportionately from such a policy would include 
the lower-cost institutions in the states that they are located 
in, such as Hawaii, Kentucky, Florida, North Carolina, Texas, 
Arkansas, Idaho, Wyoming, and so on.
    An indexed cap that is based on percentage growth in 
tuition also would detrimentally impact private colleges and 
universities that have also maintained low tuition strategies, 
such as Rice and Berea College.
    In addition to the basic problem associated with using 
percentages instead of dollars, I can also recognize that the 
report points out that state governments do not play a 
significant role in college cost increases.
    From my perspective, at ground zero, this is indeed the 
most important issue impacting tuition growth at my university. 
We delayed our tuition-setting policies nearly 8 months for the 
last 2 years.
    We normally set them in September. We set them in June, 
because we didn't know what the state budget was going to be, 
and the state budget crisis persisted much longer than anybody 
would ever recognize in the past.
    This has also coincided with the fact that we have been 
taking part in massive cuts throughout our institution. Our 
university has grown by 25 percent since 1994, nearly 2,500 
students. We've also grown by 10 percent in the last 2 years, 
during budget cuts.
    These cuts and these enrollment increases have 
significantly impacted the quality of what we produce at our 
institution, and I'd like to move on, because it's listed in 
the testimony, but our institution today, when you take 
advantage of the institutional aid, the Federal aid, and the 
direct student aid programs that are available, a student today 
at our university actually is still paying below, on average, 
below what they did in 1996.
    As indicated earlier, the marketplace for education cannot 
function efficiently without adequate information. 
Unfortunately for public and other lower-cost universities, 
misleading information can perversely shape public perceptions 
about college costs. This fact is evidenced when the public 
discussions focus on percentages instead of tuition.
    Sticker prices--there's a danger in using sticker prices.
    Sticker prices distort and create a flow of misinformation 
to consumers and students, and shape Federal policy which we've 
been using for the last three decades in how we allocate direct 
student aid resources.
    If there's any final statement on this, we need to be 
concerned about how Federal policy shapes institutional 
practices.
    Institutions that are working hard to keep sticker prices 
and tuition low are indeed disadvantaged by Federal policies 
that reward institutions for having higher sticker prices.
    We are indeed such an institution, many AASCU institutions 
are indeed such institutions, and the American Association of 
Community Colleges would certainly agree with this statement.
    I appreciate this opportunity to present these views from a 
low-cost public institution that continually strives to provide 
access and affordable educational opportunities despite some of 
the initiatives that have been adopted at the Federal level to 
discourage us from having higher sticker prices.
    Thank you very much.
    [The prepared statement of Dr. Alexander follows:]

    Statement of F. King Alexander, Ph.D, President of Murray State 
  University and Member, American Association for State Colleges and 
                              Universities

    Thank you Mr. Chairman and members of the Committee. I am president 
of Murray State University which is a rural public university with an 
enrollment of approximately 10,000 students. We primarily serve a large 
geographic region that includes much of western Kentucky, and a good 
percentage of students from the neighboring states, including Illinois, 
Tennessee, Indiana, and Missouri. The majority of families in our 
service region live below the national average in per capita income and 
educational attainment. Our university has many attractive attributes 
such as our consistently high national rankings by Kiplinger, Kaplan, 
and US News and World Report for providing high quality educational 
opportunities at affordable costs. In fact, our average annual student 
tuition and fees are 24% less than the national public university 
average. Despite these unique characteristics, our university in many 
ways is very much like hundreds of other public universities in the 
United States serving a significant number of students from middle and 
low-income families.
    My testimony today, on the issue of rising college costs, reflects 
my concerns from three distinct perspectives. First, as a president of 
a public university that is challenged each year to meet the increasing 
societal and student demands placed on public higher education during 
poor economic times. Second, as a researcher that has spent a 
significant portion of the last decade analyzing national and 
international trends in state funding and institutional tuition 
strategies while also working to establish tuition policies at two 
public research universities and one public comprehensive university. 
Third, as an individual that is still paying back his student loan 
debts, who just so happens to be a university president.
    In responding to the issue of rising college costs, I must say that 
based on my professional experiences at numerous public universities 
and by virtue of my own research regarding the trends in university 
costs since the mid-1960s, I am well aware of the great need for new 
policy debate and examination regarding the role of the federal 
government in supporting higher education, particularly its role in 
supporting lower cost colleges and universities. This inquiry is long 
overdue in view of the fact that the last major policy debate regarding 
the important role of the federal government in supporting higher 
education access and affordability occurred over thirty years ago. For 
the purposes of this hearing it is important to briefly review the two 
primary premises of the last great federal government debate on higher 
education which occurred in the 1960s and early 1970s and resulted in 
the development of many of our existing federal policies. The first 
premise was that a significant federal government role was required to 
assist in ensuring widespread postsecondary education access to lower-
income and other disadvantaged student populations. The second premise 
was that a significant federal government role was necessary to address 
increasing concerns from the private college and university sector 
regarding its future financial viability and competitiveness.
    After nearly four decades of federal policy development and 
augmentation, the issue of providing affordable postsecondary education 
access to all socio-economic student populations still remains an 
important question as evidenced by this hearing and the concerns that 
led to the federally commissioned report on the cost of higher 
education five years ago. 1 However, since the last federal 
government policies were implemented, private colleges and universities 
have made significant gains in the higher education marketplace when 
compared to public universities over the last three decades. This fact 
is best evidenced in the recent Brookings Institution working paper by 
Kane and Orszag and other studies in the late 1990s showing that public 
university per student expenditures have declined from 70% of private 
per student expenditures in 1977 to 58% in 1996. 2 Their 
data and conclusions are further confirmed by other studies that have 
compared faculty salary disparities between public and private 
institutions during the same period indicating that the annual salary 
differential of full professors at private research universities over 
public research universities has increased in adjusted dollars from 
$1,300 in 1980 to $22,200 in 2002. 3
---------------------------------------------------------------------------
    \1\ The Report of the National Commission on the Cost of Higher 
Education and the American Council on Education, Straight talk about 
College costs & prices. Phoenix, Arizona: Oryx Press (1998).
    \2\ Thomas J. Kane & Peter R. Orszag, Funding Restrictions at 
Public Universities: Effects and Policy Implication, Brookings 
Institution Working Paper, Washington D.C. (1998).
    \3\ F. King Alexander, The Silent Crisis: The Relative Fiscal 
Capacity of Public Universities to Compete for Faculty, 24 The Journal 
of the Association for the Study of Higher Education 1, 113-129 (2001). 
Also see The Economist, The Gap Widens, April 22, 2000.
---------------------------------------------------------------------------
Public Perception and Tuition Realities
    In addressing the issue of college and university tuition and 
expenditure growth, it should also be recognized that the problem of 
higher education costs and tuition does not affect all parents, 
students and institutions the same. This fact is evidenced in numerous 
congressionally -mandated studies of college costs and prices, showing 
drastic variations in average tuition and fee growth between private 
and public universities during the last two decades. 4 
Instead, public perception of rising tuition costs are shaped by a 
number of reasons including geographic location and the media which is 
heavily influenced by high cost institutions in the northeastern region 
of the U.S. where even lower cost public institutions are significantly 
more expensive than their peers in other regions. More importantly, 
however, public perception and concerns also are determined by an 
overall lack of information in the academic marketplace that prevents 
students and parents from distinguishing real net costs from ``sticker 
prices.'' According to Stiglitz ``asymmetries of information result in 
imperfections and inefficiencies in the marketplace'' (p. XI). 
5 Such asymmetries are readily apparent in higher education. 
For example, students and families pay college tuition in dollars, not 
percentages, yet the vast majority of public discourse by policy-makers 
and media sources on college cost increases is simply based on 
percentage growth. In fact, ``if you analyze actual tuition and fee 
dollar increases, instead of simply tuition and fee percentage growth, 
you will discover that many of the public universities with the largest 
percentage increases over the last couple of years are the very 
institutions that are the most affordable and accessible throughout the 
nation. A small dollar increase may well be reflected in a relatively 
large percentage increase at lower tuition institutions. Herein lies 
one of the misleading aspects of the ``Key Findings'' listed in the 
recently released report ``The College Cost Crisis.'' For example, if 
one were to use percentages instead of real dollars as does the ``The 
College Cost Crisis'' report in their findings, you would discover that 
public universities in such states as Hawaii, Arkansas, Idaho, Texas, 
Tennessee, Wyoming, North Carolina, Montana, and Kentucky have had the 
most significant percentage increases in tuition, yet, these are the 
states where public universities have the lowest tuition costs in the 
nation. These low tuition states remain low cost in an effort to ensure 
widespread access and affordability. Also, these same states are among 
the lowest in the nation in average student loan debt per graduate. To 
further illustrate this point, Murray State University increased 
tuition and fees by 15% last year, which was much higher than previous 
years, however, this increase amounted to only a $398 increase last 
year. At Vanderbilt University, a private institution with which we 
compete for many top students in our region, its tuition and fees 
increased by 6% last year which amounted to an increase in actual 
dollars of approximately $1,753. Obviously, therefore, percentages are 
not only misleading to parents and students, but they are deceptive 
when vast differences in tuition and fees exist by state and 
institution.
---------------------------------------------------------------------------
    \4\ Trends in College Pricing, National Center for Education 
Statistics, U.S. Department of Education (2002).
    \5\ Joseph E. Stiglitz, Globalization and Its Discontents, W.W. 
Norton & Company: New York (2002).
---------------------------------------------------------------------------
    The emphasis on percentage tuition growth, therefore, constitutes 
an inadequate measure in establishing a proposed remedy by which 
federal policy-makers can address rising tuition. To place a cap on 
tuition increases that is based on a given percentage ignores the fact 
that vast disparities in tuition rates currently exist among states and 
types of institutions. For example, a fixed cap or index that is tied 
to fluctuations in the Consumer Price Index would be disproportionately 
harmful to all state colleges and universities that have worked 
diligently to keep their tuition rates and ``sticker prices'' low. 
Public colleges and universities that would be negatively impacted 
disproportionately from such a policy would include the lowest cost 
institutions that are located in the most affordable and accessible in 
states such as Hawaii, Kentucky, Florida, North Carolina, Texas, 
Arkansas, Mississippi, Idaho, Wyoming, Montana, Georgia, Wisconsin, and 
Iowa. An indexed cap that is based on percentage growth in tuition also 
would detrimentally impact many private colleges and universities that 
have also maintained low tuition policies such as Rice University and 
Berea College. A policy based on an indexed percentage tuition growth 
would simply give high tuition, high expenditure, and more inefficient 
colleges and universities a perpetual economic advantage over the 
institutions that have done a better job at controlling student tuition 
costs and per student expenditures.
    As is the case in my own institution, many of the nation's lower 
tuition colleges and universities have had the autonomy to set their 
own tuition rates and remain more affordable and accessible than other 
institutions. In these lower expenditure institutions, there has been a 
conscious effort to keep college costs much lower than many other 
institutions. These public institutions, like Murray State University, 
disproportionately suffer in the face of current federal aid policy 
because lower cost institutions that have kept college tuition and fees 
low are denied a proportionate benefit of federal subsidies that derive 
from federal direct student aid programs. For example, data from the 
National Postsecondary Student Aid Study (NPSAS) in 1996 and 2000 
clearly indicate that when holding constant the income of the student 
aid recipients that students who enroll at higher tuition or higher 
``sticker priced'' colleges and universities receive larger federal 
student aid grants, work-study, and subsidized loan assistance than do 
students enrolling in lower cost institutions. Not only will students 
from similar economic backgrounds receive more funding for enrolling at 
higher ``priced'' institutions, but a larger percentage of students 
enrolling in higher priced institutions receive more federal aid than 
do students enrolling at comparable low tuition institutions. 
Ironically, federal programs in totality give incentive for 
institutions to increase tuition and to set high sticker prices.
    In addition to the basic problem associated with using percentages 
instead of dollars that would generalize for all higher education, the 
``College Cost Crisis'' report significantly underestimates the role of 
state governments in setting tuition policy at public colleges and 
universities. Over the last decade a plethora of higher education 
economic and finance studies have highlighted the instability of state 
appropriations and the effects of such policy on public institutional 
tuition changes. According to Hauptman:
        Regardless of the role of state and institutional officials in 
        setting tuition and fees or the retention of these funds by 
        institutions, in virtually all states there is a direct 
        relationship among the level of public sector tuition and fees, 
        the amount of state funding, and the cost of providing 
        education. The more a state provides, the lower is the tuition 
        for any given level of costs per student. Put another way, 
        state and local taxpayer support allows public institutions to 
        charge tuitions and fees far below the actual cost to educate 
        (p. 68). 6
---------------------------------------------------------------------------
    \6\ Arthur M. Hauptman, Reforming the Ways in Which States Finance 
Higher Education, in D. E. Heller (ed.) The States and Public Higher 
Education Policy, Baltimore: Johns Hopkins University Press (2001).
---------------------------------------------------------------------------
    The conclusion advanced by Hauptman is one of the more commonly 
accepted findings by higher education economists and finance experts 
regarding the influential role of state appropriations on public 
college and university tuition rates. In a recent report by the State 
Higher Education Executive Officers, it was stated that ``[s]tate 
general fund appropriations was by far the most significant factor'' in 
determining public college and university resident tuition rates (p. 
12). 7
---------------------------------------------------------------------------
    \7\ Christopher J. Rasmussen, State Tuition, Fees, and Financial 
Assistance Policies, State Higher Education Executive Officers, (2003).
---------------------------------------------------------------------------
Murray State University: State Appropriations, Expenditures, Fixed 
        Costs & Net Tuition
    In the case of my own institution, Murray State University, 
Kentucky's state general fund appropriations have been and will 
continue to be the most significant factor in influencing resident and 
non-resident tuition rates. During the last two years Murray State 
University has postponed setting tuition and fee rates for the 
following year by nearly 8 months each year in deference to state 
budgeting schedules in establishing levels of appropriations. During 
the last academic year the uncertainty of the potential budget cuts 
that we anticipated, and the extended duration of the legislative 
process, combined to require our Board of Regents to pass tuition and 
fee ranges to compensate for the potential budgetary cuts that had been 
rumored but not acted upon.
    In lower tuition states where institutions like ours charge much 
less than the national average, state appropriations generally account 
for a much higher percentage of educational costs than do student 
tuition and fees. Therefore, in order to offset losses in state 
appropriations, student tuition rates must be raised at much higher 
rates to replace a portion of lost state allocations. The impact of 
this shift from state appropriations to student tuition and fees is 
apparent when reviewing changes in our general fund budgeted revenues 
over last three years. In 2001/02 state appropriations to Murray State 
University accounted for 64.5% while student tuition and fees accounted 
for 29.8% of all general fund budgeted revenues. In 2003-04, state 
appropriations declined to 58.4% of all general fund budgeted revenues 
forcing student tuition and fees to increase to 36%, representing a 6% 
shift from Kentucky's taxpayers to students.
    To more effectively manage and address these state budgetary 
constraints over the past three years, Murray State University, much 
like the majority of public universities throughout the nation, has 
taken many steps to reduce its educational expenditures and to 
implement cost saving measures. We have made these expenditure 
reductions while expanding our student enrollment by approximately 10% 
during the same period. Expenditure reductions and cost saving measures 
that have taken place include:
      Elimination of over 10 budgeted faculty positions.
      Elimination of over 15 administrative, professional, and 
support staff positions.
      Elimination of 29 graduate assistantships.
      Freezing of 15 faculty positions and three librarian 
positions that remain unfilled.
      Cutting of operational budget throughout the University.
      Closure of University-operated television station.
      Reductions in class/course offerings.
      Reductions in distance education course offerings.
      Reductions in professional support and development 
program.
      Halting of heating and cooling equipment upgrades 
connecting the campus system to the central plant heating and cooling 
system.
      Dramatic reductions in professional travel expenses.
      Restricting overtime payments to employees to 
extraordinary events, or priority projects with short timelines.
    Despite these ongoing expenditure reductions and cost saving 
measures that we have undertaken during the last several years, 
externally driven fixed costs have continued to drastically impact our 
overall university budget. First, health insurance and other medical 
related costs continue to consume a much larger share of our 
institutional budget. During the last two years alone we have been 
compelled to expend an additional $1 million to simply maintain our 
institution's commitment to providing our employees with affordable 
health insurance. Currently, Murray State University allocates nearly 
6% or $6 million of its operational budget to subsidize the health 
insurance costs of our employees whose premiums have also increased by 
over 60% during the last three years. Second, energy related costs have 
continually increased negatively impacting the heating and cooling 
costs of every campus facility. Third, campus and federally mandated 
security costs have significantly increased due to national and state 
safety concerns. During the last three years our university has 
increased its security-related expenditures by nearly $500,000. Fourth, 
technology and technology-related costs continue to increase at rates 
that far exceed the consumer price index.
    However, not all of the increases in institutional costs have been 
externally imposed. The primary self-imposed expenditure that has 
required a significant amount of resources has been internal 
institutional student aid. Due to our commitment to maintaining 
affordable and accessible educational opportunities, our institutional 
expenditures in aid to students through scholarships, graduate 
assistantships and fellowships has increased from $1,058 per full-time 
equivalent student in 2001 to $1,391 per full-time equivalent student 
in 2003. This represents a 31% increase in institutional aid to all 
students and resulting in a budgetary impact of 2.6 million in 
additional institutional expenditures since 2001.
    Yet, Murray State University has not allowed the poor economic 
conditions to force it to place enrollment caps on student access. Nor 
have we opted to dramatically shift the educational costs away from the 
state and to the federal government indirectly through the student by 
inflating tuition like many higher cost states and institutions have 
done over the last two decades. Instead, we have remained committed to 
providing affordable and accessible high quality educational 
opportunities as have many other relatively low tuition universities, 
without indirectly transferring the costs to the federal government or 
overburdening our students with student loans.
    Due to widespread public concern about increases in college and 
university tuition rates and the lack of information regarding the 
difference between college ``sticker prices'' and real tuition costs, 
we have implemented a strategy to better inform students, parents, and 
the public at-large about what our students actually pay to attend 
Murray State University and the multiple ways to acquire increasing 
amounts of tuition-based government assistance. Table 1 shows how MSU 
students have been impacted by various federal and state direct student 
aid programs as well as how recently adopted federal tax credits have 
impacted each student. The figures in Table 1 are not based on actual 
awards but instead are averaged throughout the campus by full-time 
equivalent students.
    Each of the categories in Table 1 indicates increases in the amount 
of total funding per FTE student at Murray State University over the 
last eight years. The table shows that despite an overall gross student 
tuition and fee increase per FTE student of $1,861 or 62%, federal 
grant increases per FTE student of $266 or 47%, Kentucky merit and 
need-based grant increases per FTE student of $411 or 354%, and federal 
tax credit increases per FTE student of $926, have all combined to 
negate most of the gross tuition and fee increases during the eight 
year period. In fact, when adjusting for the various forms of tuition-
based assistance programs that have been increased during the eight-
year period, the net tuition and fee increase per FTE student at Murray 
State University was only $258 or 11%. This equates to approximately 
1.6% per year during this period. When increases in room and board 
costs for students are factored into the increases, MSU's costs only 
increased by $585 per FTE student or 2.4% per year during this period.
    Finally, when factoring in institutional aid and scholarship 
increases into the benefits that Murray State students have received 
during the eight-year period, an average MSU student today is still 
paying less than he or she did for tuition, fees, room and board in 
1996. Murray State institutional and scholarship aid increased by $672 
or 93% from 1996-2003 and has played a important role in keeping actual 
``net costs'' low for students.

[GRAPHIC] [TIFF OMITTED] T0138.001


    As Table 1 clearly indicates, Murray State University students are 
receiving a great deal more tuition-based assistance from a variety of 
sources. The largest contributor to these increases has been the 
government through tuition-based assistance programs. These federal and 
state programs have contributed an average of $1,603 or 230% more in 
federal and state tuition-based assistance for each Murray State 
University student than they did eight years ago. However, despite the 
influx of this important student assistance, more students attending 
higher cost institutions or institutions with higher ``sticker prices'' 
actually receive larger amounts of federal and state direct student aid 
than do our Murray State students.
    By making available this type of actual or net cost information to 
students, parents, and taxpayers, institutions can play an essential 
role in ensuring that the higher education marketplace functions more 
effectively and efficiently. The federal government should seek to 
clarify tuition-based policies to assist students and families in 
making the better decisions about their educational investments.
Concluding Remarks
    As indicated earlier, the marketplace for education cannot function 
efficiently without adequate information. Unfortunately for public and 
other lower cost colleges and universities, misleading information can 
perversely shape public perceptions about college costs. This fact is 
evidenced when the public discussion focuses on percentage increases in 
tuition instead of real dollar increases. The dangers associated with 
the lack of information also are evidenced in the increasing 
institutional and governmental use of ``sticker prices'' instead of 
actual costs to allocate public funds in student aid programs. Sticker 
prices do not reflect actual cost of higher education. Using ``sticker 
prices'' distorts and creates a flow of misinformation to consumers and 
students further confusing the economic realities of college attendance 
and investment. If the federal government is to help improve the 
efficiency of the marketplace of higher education it can contribute 
materially by collecting, calculating, and distributing actual program 
cost information by types of institutions, and, then, use such 
information as a more viable basis for its allocation of federal 
subsidies. Such an initiative would simplify federal policies while not 
penalizing states that continue to commonly finance their higher 
education systems and institutions that have kept actual costs down.
                                 ______
                                 
    Chairman McKeon. Thank you.
    Mr. Merisotis.

   STATEMENT OF JAMIE P. MERISOTIS, PRESIDENT, INSTITUTE FOR 
                    HIGHER EDUCATION POLICY

    Mr. Merisotis. Thank you very much, Mr. Chairman and 
members of the Subcommittee. I appreciate the opportunity to 
appear before you.
    I'm Jamie Merisotis, and as president of the Institute for 
Higher Education Policy for the last decade, I've had the great 
opportunity to devote a considerable amount of time and 
analytic resources to the questions that confront this 
Subcommittee with regard to the rising price of college.
    It's my hope that our independent, nonpartisan perspective 
will be helpful to you as you sort through the thicket of 
issues and perspectives regarding college prices.
    Let me summarize what my written testimony says in three 
brief points.
    First, rising college prices are a legitimate concern for 
students and families. The College Cost Crisis Report, and 
numerous prior studies, point out that rising prices are a 
major worry for students and families, especially those from 
low-income family backgrounds.
    Average 4-year public college tuition is increasing much 
more rapidly as a proportion of income for the poorest quintile 
of families compared to other income groups. This means that 
the lowest-income students and families are confronted with the 
greatest sticker shock compared to those from other income 
levels.
    The congressionally mandated 2001 study of college costs 
and prices, which we authored under subcontract with the 
National Center for Education Statistics, demonstrates that the 
factors contributing to tuition increases are complex and vary 
by type of institution.
    The single most important factor associated with changes in 
tuition at public 4-year institutions is reductions in state 
spending to support institutional operating costs.
    For private institutions at the 4-year level, the equation 
is more complex and includes both internal institutional budget 
constraints, such as higher costs for institutional aid and 
faculty compensation, and external factors, such as the 
availability of institutional aid, the price of attending a 
public institution in the state, and per capita income in the 
state.
    Another important contributor to escalating tuitions is 
that the market allows it. Tuitions have now increased faster 
than the rate of inflation for more than 20 years, even as 
enrollments have continued to ratchet upwards. The students 
keep paying, so tuitions keep rising.
    State and institutional planning and budgeting processes 
don't help. Most institutions build their budgets by using the 
baseline of the prior year and simply adding to it. Few develop 
academic plans with any serious consideration of the likely 
sources and amounts of revenue needed to support those plans.
    The second point that I try to make in my written testimony 
is that while it's important to tackle these root causes head 
on, it's clear that no one-size-fits-all solution will work 
across the nation.
    This is one reason why I'm concerned about the discussion 
that preceded the introduction of the Chairman's bill.
    If the bill simply requires greater transparency of 
information about college pricing and decisionmaking, I have no 
objections, but if the legislation does in fact include 
penalties for institutions to meet a Federal standard, this is, 
in fact, price control, which I believe would be unwise and 
potentially destabilizing.
    In my view, Federal price controls represent an 
unprecedented attempt to control the prices of a competitive 
market. I'm particularly concerned about the discussion to 
uniformly limit the price of college based on inflation for 
reasons similarly outlined by Dr. Alexander.
    The fact that the average tuition increases are above the 
CPI doesn't mean that all institutions are at or above that 
level. In fact, many are below it. So any attempt to link 
prices to the CPI strikes me as an anti-competitive move.
    Moreover, one potential unintended negative effect of this 
is that it could result in a substantial increase in tuitions 
at institutions that are below the average. If the standard is 
set so that Federal law would limit tuition increases to a 
level above the rate of inflation, the effect could, in fact, 
be a significant spike in tuitions at many relatively 
affordable schools.
    It's also clear that the complexity of higher education 
would require a fairly large bureaucratic machinery to regulate 
the pricing behaviors of institutions.
    I don't like the idea of Federal bureaucrats overriding the 
decisionmaking of publicly accountable boards and elected 
officials, and I don't think more Federal bureaucrats are the 
solution to keeping college affordable. I would also note that 
the Federal Government's track record at controlling prices in 
other industries has been poor.
    Now, moving beyond the Federal arena, I also don't think 
that the solution to dramatic tuition increases in public 
colleges and universities lies in what I've called short-term 
marketing gimmicks. The decision in Illinois earlier this year 
that allows public institutions to guarantee a fixed rate of 
tuition over 4 years of college is one example of this.
    While these unique efforts may create a modest market 
advantage for an institution or a system in a short period of 
time, they will do little to slow the troubling long-term trend 
of unpredictable swings in college prices.
    The third and final issue covered in my testimony addresses 
what all of the participants in the financing system--the 
Federal Government, states, and institutions--can and should do 
to collectively tackle the college pricing dilemma.
    Briefly, I believe that we must invest in need-based 
financial aid as the best and most important contribution that 
the Federal Government can make to keeping the dream of a 
college education a reality for all students.
    I believe we need to create incentives for institutional 
innovation in budgeting, cost containment, and new pricing 
structures through the development of a modest competitive 
grant program at the Federal level to support institutional 
innovation.
    I believe that states and institutions need to link 
institutional strategic planning and academic planning with 
financial planning, developing different revenue scenarios 
first and then matching those with the different strategic 
goals for the institution.
    I believe we need to change the way institutional budgets 
are built so that institutions or states set parameters for 
tuition increases first and then determine other revenue needs.
    And I believe we need to make public institution tuition 
increases predictable, within an appropriate range, not at the 
Federal level, for the reasons I've already described, but 
rather, at the state level, since states are in a much better 
position to test efforts at controlling prices.
    So in summary, I believe that all of these players need to 
take a different approach to setting tuitions, one that 
emphasizes predictability for consumers and does not get 
buffeted by the fierce winds of economic boom and bust.
    A more strategic and long-term approach to tuition and 
budgeting policies would go a long way toward improving student 
access to higher education and fulfilling the American dream of 
a college education.
    Thank you very much for this opportunity.
    [The prepared statement of Mr. Merisotis follows:]

   Statement of Jamie P. Merisotis, President, Institute for Higher 
                            Education Policy

    Thank you for this opportunity to testify before the Subcommittee 
about the increasing price of college and the possible steps that might 
be taken to make college more affordable for students and families.
    At previous hearings before this Subcommittee, several witnesses--
most prominent among them being Dr. Sandy Baum--have done an excellent 
job of outlining the dilemma of rising college prices and the challenge 
of addressing rising tuitions from a federal perspective. I will not 
repeat those observations, but instead will focus on three central 
issues. First, I will briefly discuss why rising college prices are a 
legitimate concern for students and families, and why college pricing 
is such a complex area of analysis. Second, I will discuss why, despite 
these important concerns, federal price controls like those that have 
been discussed over the last several months are not the solution to the 
rising price of college. And third, I will discuss what all of the 
participants in the financing system--especially the federal 
government, states, and institutions--can and should do to collectively 
tackle the college pricing dilemma.
    I would like to begin with a brief introduction to the Institute 
for Higher Education Policy and our role in the policy process. 
Established in 1993, the Institute is a non-profit, non-partisan 
research and policy organization whose mission is to foster access and 
success in postsecondary education through public policy research and 
other activities that inform and influence the policymaking process. 
The Institute's work addresses an array of issues in higher education, 
ranging from technology-based learning to quality assurance to 
minority-serving institutions. However, the Institute is probably best 
known for its studies and reports concerning higher education financing 
at all levels. Our studies and reports address topics ranging from 
federal and state student financial aid to state funding formulas to 
trends in institutional expenditures and revenues. We even have worked 
on higher education financing issues in the context of other nations, 
especially in southern Africa and Eurasia.
    The Institute's independent voice on these issues is well-known. 
Our primary funding is derived from major foundations that are 
interested in supporting independent higher education research and 
analysis. We also have conducted a fair amount of analytic work at the 
behest of state governing and coordinating boards for higher education, 
and national governments outside the U.S. The Institute is involved in 
very little federally funded research, with one exception. Since 1998 
we have served as a subcontractor under the National Center for 
Education Statistics' Postsecondary Education Descriptive Analysis 
Reports series. I mention that in this context because we were the 
principal author of the 2001 Study of College Costs and Prices: 1988-89 
to 1997-98, which was mandated under the 1998 Higher Education 
Amendments.
    The 2001 Study of College Costs and Prices is but one of a series 
of federally-supported initiatives over the last decade or more 
designed to gain a better understanding of the college affordability 
issue and to inform federal policymaking. As ``The College Cost 
Crisis'' report issued by Chairman Boehner and Chairman McKeon points 
out, a prior study was conducted by the Congressionally authorized 
National Commission on the Cost of Higher Education, which issued a 
report in 1998 called ``Straight Talk About College Costs and Prices.'' 
Earlier in the 1990s, a bipartisan federal commission called the 
National Commission on Responsibilities for Financing Postsecondary 
Education, for which I served as Executive Director, issued a widely-
circulated report called ``Making College Affordable Again.'' Numerous 
other, privately conducted studies also have taken place just in the 
last decade.
    While each of these studies and reports uses various techniques and 
approaches, they all agree on many key issues. Perhaps the most 
important is that the concern about rising prices is a legitimate one 
for students and families, especially those from low income 
backgrounds. Average four-year public college tuition is increasing 
much more rapidly as a proportion of income for the poorest quintile of 
families compared to other income groups. This means that the lowest 
income students and families are confronted with the greatest ``sticker 
shock'' compared to those from other income levels. So I don't think it 
is sufficient to explain away these concerns as simple hand-wringing 
among consumers.
    The factors that contribute to tuition increases are complex and 
vary by type of institution. The single most important factor 
associated with changes in tuition at public four-year institutions is 
reductions in state spending to support institutional operating costs. 
As my colleagues and I at the Institute pointed out in the 2001 Study 
of College Costs and Prices, this trend actually emerged as a critical 
issue earlier in the 1990s, before the double hit of an economic bust 
and reductions in federal support that have had such a draconian impact 
on state budgets.
    For private institutions, the equation is more complex. While there 
is no single overriding factor as strongly related to tuition as state 
appropriations revenue is in the public sector, there are both internal 
institutional budget constraints and external market conditions that 
contribute. The internal factors include higher costs for institutional 
aid and faculty compensation. The external factors include things such 
as the availability of institutional aid, the price of attending a 
public institution in the same state, and per capita income in the 
state.
    Another important contributor to escalating tuitions is that the 
market allows it. Public sector tuitions have now increased faster than 
the rate of inflation for more than 20 years--longer than many 
traditional-aged college students have been alive--even as enrollments 
have continued to ratchet upwards. Simply put, the students keep 
paying, so tuitions keep rising.
    State and institutional planning and budgeting processes don't help 
either. While some institutions have evolved, most still build their 
budgets by using the baseline of the prior year and simply adding to 
it, all in the name of increasing academic quality, improving student 
access, and enhancing overall institutional prestige. Few develop 
academic plans with any serious consideration of the likely sources and 
amounts of revenue needed to support those plans. State planning for 
higher education also tends to be limited in scope, usually linked to a 
state's annual or biennial budget process.
    In short, while it's important to tackle these root causes head-on, 
no one one-size-fits-all solution will work across the nation. This is 
one reason why I believe that a federal foray into controlling the 
prices charged by institutions would be unwise and potentially 
destabilizing. Higher education functions in a very complex and 
competitive marketplace, one where the price charged for the good being 
sold can vary from less than $1,000 to more than $30,000 at the 
undergraduate level. That is an astonishingly diverse pricing system. 
One important reason for this diversity is that there are many 
different actors involved in tuition setting, including state governing 
and coordinating boards, legislatures, independent boards of trustees, 
and institutional leaders. Each brings a different set of priorities 
and perspectives to the tuition setting process.
    In my view, federal price controls therefore would represent an 
enormous federal attempt to control the prices of a competitive market. 
I am particularly concerned about the proposal to uniformly limited the 
price of college based on inflation. As you know, inflation as measured 
by the Consumer Price Index is a reflection of a market basket of goods 
and services. Some are above the CPI, and some are below. The fact that 
the average tuition increases are above the CPI doesn't mean that all 
institutions are at or above that level in fact, many are below it. So 
any attempt to control the price by linking it to the CPI strikes me as 
a severely anti-competitive move on the part of the federal government.
    Moreover, one potential unintended negative effect of federal price 
controls linked to inflation is that it could result in a dramatic 
increase in tuitions at those institutions that are below the average. 
If the standard is set so that federal law would limit tuition 
increases to, say, twice the rate of inflation, the effect could be a 
significant spike in tuitions at many relatively affordable schools.
    Further, the complexity of higher education would require a fairly 
large and complex bureaucratic machinery to regulate the pricing 
behavior of institutions. I don't like the idea of federal bureaucrats 
overriding the decisionmaking of publicly accountable boards and 
elected officials, and I don't think more federal bureaucrats are the 
solution to keeping college affordable.
    I also would urge you to consider the history of the federal 
government's efforts to control prices in other industries. Previous 
federal efforts at cost containment in other policy areas where the 
government has attempted to act on behalf of consumers' interest in the 
face of rising prices have often created more problems than would have 
necessarily occurred if the market had been left alone. For example, in 
1973 the federal government passed the Emergency Petroleum Allocation 
Act in response to the OPEC oil embargo, which disrupted petroleum 
supplies and escalated prices. In passing this legislation, the U.S. 
sought to shield the economy from the effects of the price hikes. 
Instead, the regulation had an adverse effect. It discouraged domestic 
oil exploration because of controls placed on domestic oil. As a 
result, American crude oil production declined, and instead of 
remaining one of the leading exporters of oil, the U.S. became a 
leading importer. Regulation caused the undervaluing of American oil, 
and made it cheaper and more profitable to import crude oil, rather 
than produce it. Prices remained higher than they would have under 
normal market conditions.
    Prior to the 1973 regulation of the oil industry, the government 
was involved in regulating the airline industry. The Civil Aeronautics 
Board established in 1938 exercised regulatory control over almost 
every aspect of the airline industry. In regulating the airline 
industry, the government restricted fares to first class and coach and 
all but eliminated price competition which subsequently caused higher 
airfares than those that would have occurred under free market 
conditions. The regulated ticket prices were 20 to 95 percent higher 
than the unregulated prices. With fares on short routes unprofitable 
and simply too high on long routes, the airlines were unable to attract 
passengers. Deregulation in 1978 provided airlines with greater 
flexibility in setting prices and fare classes, which in turn induced 
more travel and revenues than had been or could be produced if all the 
customers were charged the same.
    Moving beyond the federal arena, I also do not believe that the 
solution to dramatic tuition increases in public colleges and 
universities lies in the recent trend of promoting short-term marketing 
gimmicks. The decision in Illinois earlier this year that allows public 
institutions to guarantee a fixed rate of tuition over four years of 
college is one example of this drive to stand apart. While these unique 
efforts may create a modest market advantage for an institution or 
system in the short-term, they will do little to slow the troubling 
long-term trend of unpredictable swings in college prices.
    So what can be done to address the dilemma of rising prices? Here 
are some simple yet effective ways for these various system actors to 
work together to address the rising price of college:
    Invest in need-based financial aid. While I realize that the 
current budgetary climate is an unfavorable one for new spending, I 
nevertheless continue to believe that investment in need-based 
financial aid is the best and most important contribution that the 
federal government can make to keeping the dream of a college education 
a reality for all Americans. The declining purchasing power of federal 
aid continues to be a critical barrier to access to higher education, 
and must be part of any holistic attempt to tackle the college pricing 
problem.
    Create incentives for institutional innovation in budgeting, cost 
containment, and new pricing structures. One important new federal 
contribution to solving the college pricing dilemma would be to create 
a modest competitive grant program to support institutional innovation. 
A FIPSE-type program funded at $20 or $30 million could be targeted on 
developing, refining, and disseminating new ideas for more effective 
budgeting and cost control, while continuing to support and enhance 
institutional quality. In fact, this program might also include an 
effort to attract corporate and foundation support, extending the 
partnership to other key players in the system.
    Link institutional strategic and academic planning with financial 
planning. While many institutions now conduct sophisticated enrollment 
projections to match overall plans for program development and 
improvement, few take the next step and link such planning to the 
likely financial conditions they will face. It may make more sense for 
a school to develop different revenue scenarios first, and then match 
those with the different strategic goals for the institution. This 
would be particularly useful for states to encourage among public 
institutions.
    Change the way institutional budgets are built. This step requires 
that institutions or states set parameters for tuition increases first, 
and then determine other revenue needs. Clearly some flexibility would 
need to be built in to take into account the fluctuations in state 
budgets and revenue scenarios, but it still would be easier to handle 
if the tuition level was set at an earlier point in the process. It 
also would be useful for institutions to engage in multi-year budgeting 
so that year-to-year spikes can be softened.
    Make public institution tuition increases predictable, within an 
appropriate range. The solution proposed at the federal level for price 
controls might actually make more sense at the state level; that is, 
linking tuition increases to an indicator of overall state economic 
capacity, such as per capita incomes or the state's consumer price 
index. This may be worth piloting in a few states to see if it is 
viable, and to gauge the possible unintended effects of such a 
strategy. However, freezing tuitions for four years or more probably 
goes too far: it limits the flexibility of the institution or state to 
make modest adjustments up or down as economic conditions fluctuate.
    Allow greater price differentiation by level of instruction and 
program of study. In particular, allowing higher tuitions at the 
graduate level, and in some professional programs, would ensure that 
subsidies for undergraduate education are protected.
    These are just some beginning points for discussion about how the 
various actors in the higher education financing system can act to 
address the rising price of college. I believe that all of these 
players need to take a different approach to setting tuitions, one that 
emphasizes predictability for consumers and does not get buffeted by 
the fierce winds of economic boom and bust. A more strategic and long-
term approach to tuition and budgeting policies would go a long way 
toward improving student access to higher education and fulfilling the 
American dream of a college education.
    Thank you again for this opportunity to appear before the 
Subcommittee on this vital issue. I would be pleased to answer any 
questions you may have.
                                 ______
                                 
    Chairman McKeon. Thank you.
    Ms. Hanson.

 STATEMENT OF JESSICA HANSON, STUDENT, FLORIDA STATE UNIVERSITY

    Ms. Hanson. Chairman McKeon and Committee Members, first 
and foremost, I would like to again thank you for giving me the 
opportunity to address this Committee. In such discussions, I 
think it is so essential for a student's voice to be heard, as 
we are the population that is directly affected.
    My name, again, is Jessica Hanson, and I am a senior 
political science major at the Florida State University in 
Tallahassee, Florida.
    In my leadership positions on campus, one of my primary 
roles is to serve as the liaison between the students of FSU 
and the legislature. It is in this capacity that I see, on a 
daily basis, the growing problem in our education system, the 
astronomical tuition increases that college students face every 
single year.
    Therefore, I would like to provide you with a perspective 
directly from the halls of the university today.
    As a high school senior choosing what university to attend, 
I was very fortunate to have a wide array of choices, but when 
making my final decision, I chose to attend college in Florida 
specifically because of the Bright Future Scholarship program.
    In Florida, this is a merit-based scholarship that is 
fueled through lottery dollars, and had it not been for this 
program, I may very well have been saturated with student loan 
debt like so many of the students that I work with and live 
with.
    During Florida's most recent legislative session, the 
Florida legislature called for an 8.5 percent across-the-board 
tuition increase for in-state undergraduate students. The 
legislature also allotted for an additional 6.5 percent 
flexibility for local boards of trustees to set graduate 
tuition as well as non-resident tuition. Most of the local 
boards of trustees invoked the additional 6.5 percent increase, 
thus continuing this tuition increase.
    In its nationwide report on public 4-year post-secondary 
institutions with the largest tuition increases, research noted 
that the top 10 nationwide increases were all set on the local 
level.
    Further, in a report released by the nonprofit College 
Board in 2002, it showed that tuition and fees at 4-year public 
institutions now average over $4,000. This was a rise of 
approximately 9.6 percent.
    Tuition and fees at 4-year private colleges increased an 
average of 5.8 percent, reaching an average cost of over 
$18,000.
    This information directly correlates with the committee's 
College Cost Crisis Report.
    Many people seem to desire to blame the economy for a rise 
in college costs. However, if you were to look at college 
costs, they were increasing even in what would be considered 
better economic times.
    Universities need to be more conservative in how their 
money is spent. No longer will students and parents accept the 
fact that universities are paying some professors more than 
$200,000 per year when professors do not even teach classes at 
the universities.
    I meet with students every day, and many of which have to 
work two jobs in order to pay for their education. Many of 
these students work these jobs on top of any financial aid they 
receive, and when they seek help, the only answer is, ``Do more 
loans.''
    If we continue this trend, we will be sending our students 
into the workforce with unmanageable student loan debt.
    As a student, I also have been very fortunate to have the 
experience to work with several clubs and organizations on my 
campus. Through these opportunities, I have gained some of my 
greatest and most rewarding educational experiences.
    I've learned countless lessons in leadership and 
management, and these are undoubtedly the most important 
lessons I will take with me into the workforce.
    One of the great things about college is that education 
also takes place outside the classroom. However, these are the 
students that I encounter that will not have the opportunity to 
experience this important part of education, those that are 
absolutely indebted.
    These students want to be involved. However, the rising 
cost of overall college cost has caused them to work these two, 
three jobs, and consequently not affording them the time 
necessary to commit to these extracurricular activities.
    As the cost of college steadily increases, we are denying 
more and more students the educational opportunities outside of 
the classroom.
    If you look at the core of these tuition increases, they're 
nothing more than huge tax increases in disguise. These are 
increased taxes on students.
    We must hold our university administrations accountable and 
ensure that they do not engage in wasteful spending. We must 
ensure that it is no longer an option to balance their budgets 
on the back of students.
    As a student at Florida State University, I've received an 
outstanding education both inside and outside the classroom, 
and I sit here today in front of this committee asking you to 
ensure that the future of our country, the students of 
tomorrow, have the same opportunities.
    Thank you.
    [The prepared statement of Ms. Hanson follows:]

     Statement of Jessica Hanson, Student, Florida State University

    Chairman McKeon and Committee members, first and foremost I would 
like to thank you for giving me the opportunity to address this 
committee.
    My name is Jessica Hanson, and I am a senior Political Science 
major at the Florida State University in Tallahassee, Florida. I also 
serve as the Director of Legislative Affairs for the Florida State 
University Student Government Association. In this position, one of my 
primary roles is to serve as the liaison between the students of FSU 
and the legislature. It is in this capacity that I see on a daily basis 
the growing problem in our education system, the astronomical tuition 
increases that college students face every single year.
    As a high school senior choosing what University to attend, I was 
very fortunate to have a wide array of choices. When making my final 
decision, I chose to attend college in Florida specifically because of 
the Bright Futures Scholarship Program. This is a program in Florida 
where the state uses lottery dollars to help pay for college for 
students who achieve high marks in high school. Had it not been for 
this program, I may very well have been saturated with student loan 
debt like so many of the students I work with on a daily basis.
    During Florida's most recent legislative session, the Florida 
Legislature called for an 8.5% across the board tuition increase for in 
state undergraduate students. The Legislature also allotted for an 
additional 6.5% of flexibility for local boards of trustees to set 
graduate tuition as well as non-resident tuition. Most of the Local 
Boards of Trustees invoked the additional 6.5% increase, thus 
continuing the trend of astronomical tuition increases. In its 
nationwide report on public 4-year postsecondary institutions with the 
largest tuition increases, research noted that the top ten nationwide 
increases were all set on the local level albeit a state or local 
board.
    Further in a report released by the nonprofit College Board, 
released in 2002, it showed that tuition and fees at four year public 
institutions now average $4,081. This was a rise of approximately 9.6%. 
Tuition and fees at four year private colleges increased an average of 
5.8% reaching an average cost of $18,273.
    This information directly correlates with the committee's College 
Cost Crisis Report. Many people seem to desire to blame the economy for 
a rise in college cost, however if you were to look at college costs, 
they were increasing even in what would be considered ``better economic 
times.'' Universities need to be more conservative in how their money 
is spent. No longer will students and parents accept the fact that 
Universities are paying some professors more than $200,000 per year, 
when the professor does not teach class at the University.
    I meet with students on a daily basis, many of which have to work 
two jobs in order to pay for their education. Many of these students 
work these jobs on top of any financial aid they receive, and when they 
go ask for help, the only answer they get from the Administration is, 
``well you can take another loan.'' If we continue this trend we will 
be sending our students into the workforce with unmanageable student 
loan debt.
    As a student, I have been fortunate to have the experience to work 
with several clubs and organizations on campus. Through these 
opportunities, I have gained some of my greatest and most rewarding 
educational experiences. I have learned countless lessons in leadership 
and management, and these are undoubtedly lessons I will take with me 
into the workforce. One of the great things about college is that 
education also takes place outside the classroom. However, so many 
students I encounter don't have the opportunity to experience this 
important part of education. These students want to be involved, 
however the rising cost of overall college cost has caused them to have 
to work two and three jobs, and consequently not affording them the 
time necessary to commit to these extracurricular activities. As the 
cost of college steadily increases, we are denying more and more 
students the educational opportunities outside of the classroom.
    If you were to poll the citizens of this country, most would tell 
you that they do not want any new taxes, or even an increase in current 
taxes, a principal that I would agree with, however, if you look to the 
core of these astronomical tuition increases, they are nothing more 
than huge tax increases in disguise. We must hold our university 
administrations accountable and ensure that they do not engage in 
wasteful spending; we must ensure that it is no longer an option to 
balance their budgets on the backs of students. As a student at Florida 
State University, I have received an outstanding education both inside 
and outside the classroom. I sit here today in front of this committee 
asking you to ensure that the future of our country, the students of 
tomorrow have the same opportunities. Thank You.
                                 ______
                                 
    Chairman McKeon. Thank you very much.
    Well, I've appreciated your testimony, and again, each time 
we've talked about this, as I've visited schools around the 
country, I've seen lots of different ideas.
    The thing that has concerned me is, from the time we've 
been talking about this, many institutions have not wanted to 
say anything about what we can do to really address this. They 
just said, ``We're doing a good job, leave us alone, just send 
more money.''
    If you look at what the Federal Government has put up or 
guaranteed in the way of student loans, they're right now 
paying about 33 percent of higher education, and if you add the 
research money, it gets up to about 50 percent, about $90 
billion a year, and I think that's sizable, and we've been 
increasing it at a rapid rate.
    I heard somebody the other day say we had cut Pell Grants.
    In the time that I've been Chairman of this Subcommittee in 
the last 8 years, we have just about doubled the money going 
into Pell Grants, and we've almost doubled the maximum Pell 
Grant, and this year we put another almost $1 billion into Pell 
Grants.
    So I think we have, at the Federal level, been doing a lot.
    At the state, they've been cutting and the schools have 
been increasing their tuition, and we are getting young people 
and not-so-young people that are not able to continue their 
education; so I really appreciate the opportunity to talk about 
these things.
    Dr. Alexander, you talk about the percentage, and we have a 
percentage in our bill, and that's been a big concern of mine. 
I know that's not the answer, but it's a starting point, 
because we need to talk.
    If you have a school that's charging $2,000 and they raise 
their tuition 10 percent--$200. If you talk about a school 
that's charging $40,000 and they raise their tuition 10 
percent, it's $4,000.
    I know we have to work on that, and we have to come up with 
some kind of a way to address that.
    Dr. Lewis, do you think institutions overall are being told 
to do more with less, or are they really being asked simply to 
do a better job with what they have?
    Dr. Lewis. Both. I think the response in my state, at 
least, and from what I hear from other SHEEOs, is that indeed 
there is an expectation in my state that the resources that 
will come to higher education from the state are not likely to 
grow into the future.
    And our legislators are well aware that we have a costly 
enterprise, not only is it complex, in trying to serve many 
different types of students at different points in their 
education, but that we have an expensive proposition because it 
is so labor-intensive, and they are saying, yes, ``Do more with 
less.''
    They are simultaneously, however, saying, ``We want you to 
do better in a whole lot of areas,'' and this is a conundrum 
for institutions, obviously, to try to meet both of these kinds 
of conditions as we go forward.
    The fact is that we have to change the way we do business 
in order to be able to do both, and that's a hard thing for 
higher education. Our whole norms for the way in which we 
provide the delivery of services are very ingrained in our 
culture and traditions of a long past, and these are not easy 
things to change.
    We need to find new ways of delivering programs. We need 
far more cooperation across our institutions, because 
institutions cannot be all things to all people anymore.
    We must begin to develop niche strength programs in 
institutions, we must find a differentiation of mission, 
because there are not infinite resources.
    Chairman McKeon. Exactly. Thank you.
    Dr. Alexander, you made it clear in your testimony that the 
public needs more accurate and clear information as to the 
tuition fees charged by an institution.
    I have a set of books sitting on my desk that's about this 
high that schools have to fill out now.
    Would you support a simpler reporting method, one that 
would be--that we could let parents and students go onto a web 
and be able to compare apples to apples in making their 
choices?
    Dr. Alexander. I would actually more than support it, I 
would welcome it.
    I think right now parents and students know more about the 
cars they buy than the colleges they invest in, and any attempt 
that we could--any information that we can help provide the 
students, we welcome this information, because right now the 
market is being driven by sticker prices.
    Even Federal policy, sticker prices play a major role in 
who actually gets--which institutions get aid, which students 
get aid, and how much they get.
    We're actually encouraged to use misinformation to maximize 
Federal programs, but we choose not to, by inflating sticker 
prices, that we choose not to do.
    We welcome any information, because we want our parents to 
know. We love comparisons, and we welcome this movement to talk 
more about what is the actual cost, because I think that's what 
the Federal Government needs to discuss more, what is indeed 
the actual cost, not rewarding institutions for inflating 
sticker prices or having higher inefficiencies.
    Chairman McKeon. My time is up, but could you just briefly 
define sticker price?
    Dr. Alexander. Sticker price is the price that institutions 
say that they charge--their cost of attendance that they submit 
to the Federal Government, the price that you see on a web 
site, charge of the institution, the institution uses as a 
sticker price, and that's very different than the actual cost, 
or the actual net costs that virtually all students would pay.
    Chairman McKeon. Kind of like if you went on the web to get 
an airline ticket and they said, ``The ticket is $2,000,'' and 
yet when you get on the plane, you find that everybody in there 
is paying a different rate?
    Dr. Alexander. Very much so, with the exception that the 
Federal Government subsidizes the higher rate to institutions 
that say they have the higher rate.
    Chairman McKeon. We'll try to take care of that.
    Mr. Kildee had to leave. He has a bill on the floor, and in 
his place now is Mr. Tierney. I'll turn the time to him now.
    Mr. Tierney. Thank you very much.
    Just let me follow up on that point for a second to all of 
the witnesses.
    I would ask that if you have concrete suggestions as to how 
we might provide parents and students with information on the 
difference between the discounted price and the sticker price, 
that you would submit those to the Committee in time for our 
record, and I think that would be extraordinarily helpful--and 
I am encouraged to hear the Chairman say that that interests 
him also--and then ways, you know, things that we might do to 
amend the Act as we move forward that would discourage 
institutions from maneuvering their sticker price in order to 
benefit from it. That would be of great help.
    Mr. Merisotis, before we had this hearing and before we 
started to get testimony, several people on this Committee had 
been talking about a counterpoint to the approach that the 
Chairman had in good faith put forward in limiting costs, and 
that had been the concept of having the Department of Education 
identify good practices, or identify proven-to-be-successful 
instances of cost containment and cost cutting in institutions 
and in systems, and then, instead of having some system of 
reward for those institutions that did that, and maybe, without 
being overly punitive, not increasing, having future increases 
for those institutions that didn't show any inclination to even 
try.
    But we were looking at what the rewards might be, and in 
the terms of your testimony, it seemed to me that, would it be 
fair to say that a reward might be the increase in student aid 
for that particular institution, or would there be others that 
you could recommend?
    Mr. Merisotis. Congressman Tierney, I don't think that a 
linkage to student aid would be helpful. I would be concerned 
about the potential unintended negative effects of linking it 
to student aid, either in terms of rewards or penalties.
    There are cases where rewards at the student level are 
beneficial. For example, I've been a proponent for a long time 
of giving students a Pell Grant bonus, for example, for 
persisting at a normal rate--that is, for not dropping out or 
stopping out, staying in school--providing some sort of bonus 
in that sense.
    But I'm very concerned about penalties as they relate to 
student aid, for the simple fact that if we apply penalties, we 
are therefore hurting the very students we're trying to help, 
and I don't think that penalties are the solution to this 
issue.
    My proposal actually deals with creating a competitive 
grant program that institutions could compete for to develop 
the kind of innovative ideas that I think the Chairman is 
talking about in terms of cost containment and new pricing 
structures.
    Mr. Tierney. The difficulty I have with that is you're 
giving them money and it may or may not end up that they do 
something about it.
    My thought was more about having an identification of 
institutions that are already successful in those areas, and 
then rewarding them for moving down that path, and having the 
Department of Education disseminate information on existing 
good practices.
    Do you see any fruits in that path?
    Mr. Merisotis. It depends on what the rewards are and--
    Mr. Tierney. Well, that was my question to you. What 
rewards might motivate people?
    Mr. Merisotis. A reward linked to net price, for example, 
as Dr. Alexander has discussed, might be an interesting idea.
    A reward linked to sticker price would not be a good idea, 
because the sticker price is not what's charged to the vast 
majority of students. The vast majority of students pay the 
discounted price.
    And so something that might be linked to the net price and 
a reward basis I think would be helpful, but I re-emphasize 
that penalties would have a significant negative effect.
    Mr. Tierney. I agree with that, and that's why I went to 
the rewards side.
    But now I need to ask you to explain more clearly, when you 
say a reward linked to the actual price, what would the reward, 
in fact, be?
    Mr. Merisotis. For example, a Pell Grant bonus would be an 
excellent way to do that, something on the grant side of the 
equation, which would cost more money, but something on the 
grant side of the equation, I think, would be helpful, and 
could be done at a fairly modest level.
    Mr. Tierney. You think a modest amount would encourage 
institutions to move in that direction?
    Mr. Merisotis. I think it would encourage students to do 
the right thing, and I think that's my point.
    My point is that I want students to take the right steps to 
get through college quickly and efficiently, get out and get 
into the world of work.
    I don't know that those kind of incentives linked to 
institutional performance are going to be the right kinds of 
rewards that would lead to the kinds of behaviors that you're 
talking about, no.
    Mr. Tierney. Well, then, in my remaining time, I don't want 
to be obtuse, but tell me how linking it to the actual price, 
then, relates back to the students and how the reward gets to 
the students on that.
    Mr. Merisotis. The reward gets to the students because if 
there's--if the net price charged is at a certain level, then 
the students at that institution who are eligible for, say, a 
Pell Grant, who are the needy students, and who therefore 
behave in the right ways--in other words, persist to the normal 
degree--they would get that reward.
    So it's a two-step process. The institution would have to 
meet a certain standard, and the students who qualify therefore 
would get the reward.
    Mr. Tierney. OK. Thank you.
    Dr. Lewis. Mr. Tierney, is it possible to add to that? 
Would you be willing?
    Mr. Tierney. At the expense of Ms. Hanson's time, go ahead.
    Dr. Lewis. Oh, my apologies.
    Mr. Tierney. No, go ahead.
    Dr. Lewis. Just briefly to say, many states like mine are 
involved in accountability measures where we are literally 
setting progress goals for institutions across the state--mine, 
for instance, in retention and graduation.
    If we manage to increase the retention of students and 
bring them to graduation in a shorter timeframe and with more 
success, we have saved everybody money in that process, and in 
that sense, if we can validate the kind of work that's going on 
on performance measuring, on the accountability for outcomes in 
institutions at the state level, you hit all of the public 
institutions and in my case, we invite our private partners to 
the table to do the same.
    You have the possibility there to incite a system to change 
as well as institutions, and on parameters that they set 
themselves with us for progress.
    Mr. Tierney. Thank you.
    Chairman McKeon. Mr. Gingrey.
    Mr. Gingrey. Thank you, Mr. Chairman.
    I want to make one comment in regard to, I think Dr. Lewis 
talked about the three-legged stool of cost, and certainly one 
of those legs is what the states are able to give to the 
institution of higher education.
    In my state of Georgia and probably 49 other states, these 
are tough economic times, and there's a lot of red ink, and of 
course there have been mandates, if you will, to the different 
departments of state government--``You're going to cut your 
budget. You're going to cut your budget 2.5 percent this year, 
you're going to cut your budget 5 percent next year, whatever 
it is to balance that budget.''
    These departments really have no choice. They don't have 
any other source of revenue, other than what is allocated to 
them out of the general fund from the state.
    They really have no choice, whereas the colleges and 
universities have another source of revenue, and that indeed is 
the tuition that they charge the students, so while they may 
sustain a fairly significant cut in their revenue that they 
receive from the state, they can offset that by raising the 
tuition, and we really have no control over that.
    So I want to ask, and I think I'll address this question to 
Mr. Merisotis, you provide one of the solutions to address the 
cost problem should be increasing need-based financial aid.
    Congress, as the Chairman pointed out, has more than 
doubled funding for Pell Grants in the last 7 years and 
increased the maximum award by 73 percent. Other aid programs 
have seen increases or steady authorization, as well.
    How long do we continue to add funding without institutions 
stepping up to the plate and instead of simply saying, ``There 
isn't enough aid,'' join the solution on the cost side of the 
equation?
    Mr. Merisotis. Thank you for your question.
    First of all, I do think institutions do need to step up to 
the plate, and I think that states and their coordinating and 
governing boards, the institutions themselves, independent 
boards of trustees all have a responsibility here.
    The question is whether or not the Federal Government 
should attempt to regulate the price side of the equation, and 
for the reasons I articulated in my testimony, I think that 
would be very, very troubling.
    The question of whether or not we are investing enough in 
need-based financial aid maybe requires some perspective.
    It is true, and we appreciate the fact that spending on 
financial aid has increased substantially in the last few 
years.
    However, from a historical perspective, the purchasing 
power of need-based financial aid from the Federal Government 
is far from what it was, say, in the early 1980's.
    The maximum Pell Grant pays for about half of what it paid 
for in a public 4-year institution compared to today; so the 
lost purchasing power of the Pell Grant is something that I 
think is important.
    Spending more money on Pell Grants isn't necessarily the 
solution. It's getting the maximum Pell Grant up and targeting 
it at the students that have the greatest need that's 
important.
    One of the reasons we're spending more money on Pell Grants 
is that more students are eligible for those grants because we 
have more and more poor students. In addition, one of the 
reasons that that spending has increased is that more students 
are going to college overall.
    So those factors have combined to, in effect, capture some 
of the increased spending that's gone into the Pell Grant 
program, and that's why we need more investment in the Pell 
Grant.
    Mr. Gingrey. Well, with all due respect, my father once 
told me that when you ask a very wealthy rich man how much more 
money it would take to make him happy, the answer is, ``Well, 
just a little bit more.''
    Let me ask the student, Ms. Hanson, what do you think about 
that question?
    Ms. Hanson. I think my initial response, as with every 
student, probably, across the nation, is that it's really scary 
that the option of raising tuition is such a natural answer 
when we're faced with such issues.
    I believe, as well as all students believe, that it should 
be one of the last options considered, because when you start 
raising tuition and fees, it has a potential to force students 
to leave school, or it will prolong students' graduation, and 
this really presents a multi-faceted problem, then, past just 
the budget issues, because then you have the amount of debt is 
increased through, you know, the initial raises of tuition, and 
then they are so much as doubled, tripled, when students are 
faced with the prospect of paying for extra terms because 
they're having to go ahead and accommodate for that extra debt 
that they're putting on their table.
    So it's really--again, coming from the student 
perspective--it is a very, very scary, scary issue when the 
thought of raising tuition is just a natural response, and that 
is given so much precedence over all of the other options that 
we're faced with.
    I mean, students would rather have tuition dealt with, and 
they would not like tuition raised, as opposed to building a 
new facility on campus.
    You know, that is going to be their primary focus, is 
tuition, because that is what affects them directly every 
single day of their lives, starting from when they start 
university to when they graduate and for the rest of their 
lives.
    Mr. Gingrey. Thank you. Thank you, Mr. Chairman.
    Chairman McKeon. Thank you. Mr. Andrews.
    Mr. Andrews. Thank you, Mr. Chairman.
    One of the things I hear about most frequently from the 
people I represent is their worry about it costing so much to 
get a higher education, and they're particularly worried about 
how much money they have to borrow, or their sons or daughters 
or spouses have to borrow; so I think the Committee's focus on 
the rising cost of an education is entirely appropriate.
    I support greater transparency in the fiscal affairs of 
colleges and universities, public and private. I think it will 
help people vote with their feet, and I think that's a good 
thing.
    I categorically object, though, to the approach that the 
Chairman is taking, with all due respect, on this matter, 
because I think it identifies a very real problem but comes up 
with an ineffective, and indeed harmful solution to that 
problem.
    Dr. Alexander, I want to ask you a couple of questions that 
I think relate to that.
    In your testimony, you indicate that tuition at your 
institution went up about 15 percent this year. How much did it 
go up the year before that, percentagewise?
    Dr. Alexander. It went up about 9 percent.
    Mr. Andrews. So it's 24 percent in 2 years?
    Dr. Alexander. Mm-hmm.
    Mr. Andrews. What does it cost to educate a student at 
Murray State, not what the tuition is, but what does it cost to 
educate a student at Murray State?
    Dr. Alexander. Cost, our per-student expenditure is about 
roughly about $12,000 per student. Our tuition is 3.
    Mr. Andrews. So tuition has gone up by something on the 
order of magnitude of $750 in the aggregate, in 2 years.
    It's my understanding that state support from the Kentucky 
State Legislature has dropped by about 6 percent, from 64 
percent of your budget to 58.
    Dr. Alexander. Mm-hmm.
    Mr. Andrews. You just told me that the cost of educating a 
student is $12,000, give or take?
    Dr. Alexander. Correct.
    Mr. Andrews. If my math is correct--and I did not score 
well on the SAT math portion--6 percent of $12,000 is about 
$720, so I think what you just told us is that the tuition is 
$750 higher per student over 2 years, but the state support is 
about $720 lower over 2 years, which would seem to me that your 
tuition increase paid by the student is actually lower than the 
rate of inflation.
    Is that a fair conclusion?
    Dr. Alexander. It is, and this doesn't certainly take into 
account that we've had to put $1 million into health insurance 
over those last, just in the last 2 years alone, and while 
premiums have also increased for everybody on campus by 60 
percent, in addition to technology costs, technology costs pay 
no attention to Consumer Price Index growth.
    Mr. Andrews. As I think we all know, I know the rejoinder 
to that would be, ``Well, that's public institutions.'' What 
about private institutions that are not at least directly 
subsidized by state governments?
    I think the record would show this, that--well, let me ask 
you this question.
    When the leader of an institution is faced with rising 
costs and decreasing grant aid from government, and wants to 
minimize what students have to borrow to go to school, what 
does he or she do?
    Any of you that are--Dr. Lewis, what would the leader of an 
institution do under those circumstances?
    Dr. Lewis. Do that one more time?
    Mr. Andrews. If you're faced with rising costs to meet your 
budget, and diminishing scholarship aid from public sources, 
and you want to minimize what your students have to borrow to 
go to school, what's your other option? What do you do?
    Dr. Lewis. You have to consider what you can cut, 
obviously, at that juncture.
    Mr. Andrews. And after you've done that, what do you do?
    Dr. Lewis. After you've done that, you begin to think about 
how many students you can educate--
    Mr. Andrews. Well, don't you also raise institutional aid? 
Don't you, in effect--
    Dr. Lewis. Well, of course. In fact--
    Mr. Andrews. --take from some students and--
    Dr. Lewis. --that's the largest change factor--
    Mr. Andrews. I think what the record will show at non-
public institutions is that the share of institutional aid over 
a 10-year period went up by 52 percent, that in 1985, compared 
to 1995, there was a 52 percent increase in money that 
institutions were taking and shifting over to institutional aid 
at the same time there was an increase of 38 percent in 
tuition.
    Now, I'm not suggesting that the entire tuition increase is 
explainable by increases in institutional aid, but I think that 
a significant portion of it is explainable by that.
    If the Federal Pell Grant program were funded at the same 
level of purchasing power that it was 10 years ago, would that 
increase in institutional aid be necessary?
    Dr. Lewis. Not to that level at all.
    Mr. Andrews. I don't think that it would be, either.
    So I really believe that the data here show that the 
driving force in this is a lack of state budget support in the 
public institutions and a diminution in value of the Pell Grant 
and other scholarship resources at the Federal level, which is 
driving up institutional financial aid in that way.
    If anybody disagrees with that, I'd welcome their comments.
    Dr. Lewis. I don't disagree.
    I would say that one of the things the Federal Government 
can continue to do incentive-wise, as Jamie Merisotis said 
earlier, is to emphasize the necessity to meet need-based aid 
first in respect to the utilization of aid, and that's where 
the Federal Government can put on pressure to insist that, as 
aid is matched as institutions move on the aid issues, that 
they hit the need-based issues first.
    Chairman McKeon. Mr. Castle.
    Mr. Castle. Thank you, Mr. Chairman.
    This is a problem we visited about six or 7 years ago, and 
frankly, we didn't do a lot about it in Congress, and I think 
that was wrong then and I think it's wrong now, to be very 
candid.
    My sense is that Jessica Hanson is the one who's got it 
right in this room, based on what I've heard, and that is 
tuition increases should be last, not first, not ever if they 
can be avoided, based on what young people in this country are 
going through with their loans and other costs of college at 
this point.
    There's been a lot of discussion about college prices. I'd 
like to focus on the costs of the college. The price will 
follow thereafter.
    As I look at these charts, and I think you all have this in 
front of you, but you look at the chart that shows the 
inflation, you will see that inflation is rampant, it's 
tremendous in our colleges.
    If you look at Page 11 of those charts, and I know the 
audience probably doesn't have it, if you look at Page 11, 
you'll see some of the increases in costs for 1 year for the 
colleges, and the per capita income in the states, which is in 
almost every case less than the costs of the two or 4-year 
institution, and the change in state appropriation, which I 
counted, 32 are increased and four are unchanged, which puts 
the lie a little bit to the whole business of reduction as far 
as colleges are concerned.
    If you turn to the next page, you see some of that over 10 
years, and you'll see what's happening to the costs of college, 
and we can't afford it.
    I happen to Chair another Subcommittee that deals with 
kindergarten through 12th grade, and we are trying our very 
best, particularly in No Child Left Behind, to make sure that a 
lot of our lower-income and minority students in this country 
have an equal opportunity.
    That, to me, includes equal opportunity to be able to go to 
college, and to be able to go to college means being able to 
afford to go to college, perhaps Murray State, but there's got 
to be a lot of other colleges which these kids can go to; and 
frankly, I think the time has come for us to start looking at 
these colleges.
    I don't believe in price controls. I do have a problem with 
that. I just think it's too complicated and would be very hard 
to enforce.
    On the other hand, I don't think the Federal Government can 
bail out every college increase that presidents and boards want 
to put in with Pell Grants. I don't think that's the proper 
solution, either.
    I think the time has absolutely come in America for us to 
look at the costs of college and what we are doing, and when 
you ask people that, about 87 percent say they're wasting 
money.
    Well, they don't know really what the answer is. Some of 
you might know what the answer is. I just jotted down some 
things.
    I just heard this morning a high official in the Department 
of Education talking about full professors, reminding me of 
something.
    When is the last time you saw a full professor teach a 
freshman class of 50 kids versus a seminar of four, or take a 
full caseload in terms of what they are teaching?
    How about the athletic programs that we have in the various 
colleges across this country, particularly the major 4-year 
colleges in this country? What are they paying for the costs of 
all of that?
    What are we paying in terms of salaries today? I don't see 
a lot about that.
    College presidents, anybody, all you way from the 
professors down to the administration--what about 
administration in general? Everyone tells me there's a lot more 
administration than there used to be.
    What about the mission of these colleges? There are 
incredible numbers of courses that are being taught out there.
    Can we really afford to teach all those courses? Should 
there be a more focused and limited mission as far as maybe 
even some of our major universities are concerned?
    What about overseas?
    For example, I heard today that in public institutions, 
that only 30 percent are graduating in 4 years. Is there an 
economic reason for that? I assume it's true.
    Is there an economic reason for that? Is it that you keep 
kids in college longer, therefore you can make more money from 
them over a longer period of time?
    The whole business of the sticker prices, which Dr. 
Alexander talked about, concerns me.
    By God, if we're seeing false prices here at the Federal 
Government in order to get more money somewhere or another, I 
have a problem with that. That's up there with the mutual fund 
industry and some of the other problems that I see out there in 
this country right now.
    I'm not at all sure, and I went to college a long time 
ago--a lot longer ago than Jessica, say--but it seems to me 
that we went to college for a longer period of time than they 
do now.
    I read recently that students are all upset about having to 
go to class on Friday. Now, that really bothers me.
    I mean, I didn't like going to class on Saturday a whole 
heck of a lot, and I cut a few of them, as matter of fact, but 
I didn't even think about Friday off, and now these students 
are talking about not going to, or not wanting to go to class 
on Fridays. I'm sure in a lot of cases, they still go to class 
on Friday.
    But my sense is that colleges are, frankly, not in session 
as long as they were before.
    The responsibility we have as a country is to remain, which 
I think we still are, the best educational entity in the world, 
and we stay in that capacity, but if we don't let our low-
income kids do this, if indeed we start to price out our Ivy 
League schools and our top private and public schools so the 
kids, the best students can't afford to go there and they have 
to make lesser choices because of costs, frankly, that's 
hurting America. That's hurting our economy, our way of life, 
just a whole lot of things, and I think we need to address it.
    I feel very strongly about that. Obviously, I feel very 
strongly about it.
    So I don't really have a lot of questions, in fact, there's 
not a lot of time left, except if you have anything to add 
about addressing costs, I'd like to hear it. I don't want to 
hear any excuses or whatever. How can we address cost and drive 
it down?
    I'm sorry. The red light is on. I'll let the Chairman rule 
on this one.
    Dr. Alexander. One way, certainly, is to pay closer 
attention to actual costs, the net costs of institutions.
    If you're going to reward institutions, reward institutions 
that have done a good job at keeping costs low and having high 
efficiencies. Currently, we do almost the opposite at the 
Federal level.
    The more we encourage institutions to be efficient, the 
more we encourage institutions to have moderately increased 
just net costs instead of much higher expenditure rates--all 
you have to do is follow per-student expenditures over the last 
20 years.
    That will tell you by sector, that will tell you which 
institutions have actually increased their per-student 
expenditures by exorbitant rates.
    Follow per-student expenditures. They'll tell you a good 
story about who is being efficient, who is charging little, who 
is doing a good job at remaining affordable and accessible 
based on the type of economies of scale that they are committed 
to.
    Dr. Lewis. Mr. Castle, I love your passion, and that 
passion is something we all should feel about finding a future 
for higher education. in my state, I need help. I need help on 
the issues of pushing performance measures, or pushing 
accountability, of pushing the possibilities that individuals 
and families and policymakers everywhere will have the 
information they need to make decisions.
    The reason why we are working on these issues is the same 
as yours. We want to make the best use of every dollar we get 
and we want all the kids in Connecticut, all the adults in 
Connecticut who need more lifelong learning to be able to come 
in our doors.
    That is going to require tremendous effort. It is going to 
require our colleges to do business differently. And at the 
state level, we need help from the Federal Government to keep 
these issues on the table and to reward us as we make progress 
in these regards.
    The truthful response to your question of what to do is to 
do a lot.
    We have many opportunities to engage the issue of cost and 
many opportunities to engage the issue of greater 
participation, particularly in regard to setting state policy 
and to set state performance measures. We need them, just as 
you decided you needed them, for K-12, and there is a great 
deal of work going on in the states in these regards. You could 
help us.
    Chairman McKeon. Thank you.
    Mrs. McCarthy.
    Mrs. McCarthy. Thank you, Mr. Chairman, and I thank you all 
for the testimony.
    As I sat here listening to the questions, and certainly the 
answers, many things started going through my mind, and I was 
thinking about when I sent my son to college, and I'm going, 
``My God, it's a lot of money.''
    But I also said, ``How come you're home so much?'' You 
know, ``What do you mean you had one class?'' And I'm saying, 
``What do you mean, 17 credits and you only have to go to 
school 8 hours a week?''
    That part I never understood, but being that everybody told 
me he'd never go to college, I was thrilled he was in, and I'm 
glad that he graduated.
    But on the other side of it, too, when you first mentioned 
about health care costs, I mean, I'm looking at those costs, 
too, because it's still a business any way you want to look at 
it, and I'm also looking at what students want out of their 
colleges.
    The days of just having a dorm, now they want more into the 
dorms. The days of, OK, let's face it, the food was always 
terrible in the cafeteria. Now, they have gourmet meals.
    So somebody has to make sacrifices, too. You're there for a 
good education and you should get a good education, but the 
colleges, because they're competing now for the students, and 
for the adult students, they are throwing in a lot of-- like 
hospitals, valet parking at a hospital. Hello? You know, we 
don't need it. So there are other issues in there.
    But the bottom line is, I'm working on a program in my 
district, I have a 23 percent minority district, and we have 
started a program called Gear Up, which means we're working 
with children from kindergarten all the way through high school 
and we're getting the financial private sector to make sure 
that these kids can go to college when they want.
    This will be a $6,000 scholarship. We have 80 kids that are 
starting this year in that program.
    What I'm nervous about is that's the only money they have. 
These are the poorest of the poor. Their parents work. And are 
they going to be able to go to college somewhere for $6,000 if 
the Pell Grants don't go to the right person?
    Now, my problem is, I'm from New York, and what it costs to 
go to school anywhere in New York, whether it's Nassau 
Community College, which is a great college, they have to pay 
higher salaries to the professors and to the teachers, 
hopefully not 200,000.
    I would love to know what that college, whoever it's paying 
200,000. I tend to think it's probably a research grant of some 
sort, but I don't know.
    But I mean, in all fairness, most of the costs, whether 
it's heating, electricity, the physical plant, you know, they 
have to be taken in account, too.
    I don't think the board of trustees actually sits down 
every single year like, ``How are we going to raise costs?'' 
They're not in it for the money. They're usually putting it 
into the plant, you know, the physical plant, of making that a 
better college.
    I don't have the answers, and it's curious, because as 
we're trying to keep the costs down, we certainly have to be 
able to see the transparency of where the money is being spent, 
but I haven't heard any solid answers except the ones I 
certainly like, on making sure that we have more scholarship 
money for those students that need it the most.
    And again, I'll come back to it, because New York, if the 
average income is 50,000, a lot of people might not be 
qualified for that Pell Grant, but if you live on Long Island, 
50,000, believe me--most people would say that's a damn good 
salary--you're not getting by, and you're really not.
    So it's going to be curious as we go. I don't like price 
controls, and I'm curious that we're even bringing them up 
here, because we were trying to do it with the pharmaceutical 
industry, and we knocked that one out, so I don't know whether 
we should be doing it with the colleges, either.
    But I would like your response, if you have any other clear 
points on where we can cut down costs, even with Ms. Hanson. 
I'd love to know who gets $200,000 for a professorship.
    Ms. Hanson. Maybe we can talk about that after this, but it 
is a real--that is a real issue.
    And again, we talk about it, and unfortunately, when we 
look at universities, a lot of the time we do see the building 
on campus, and we see the gourmet food services and so on that 
universities and students are trying to push for when the money 
is there.
    But when it comes down to it, and when the universities are 
strapped, in situations like this, the No. 1 issue for students 
is going to be tuition.
    I mean, just as you said, no matter what, regardless, if 
they can't afford to go to university, they're not going to 
university, and so when it comes down to it, again, the biggest 
issue for students is affordability.
    Mrs. McCarthy. Thank you.
    Dr. Lewis. You asked for an example. Let me give you one.
    In Connecticut, we are buying on-line library materials 
together, in volume discounts, for both our public and private 
institutions.
    We're actually doing this with a statewide grant, and 
that's an unusual way to approach the notion of moving to on-
line libraries, but in fact, those separate costs, if borne by 
institutions and therefore by students, would be $30 million 
more than what we are paying in concert.
    We need to explore all of these kinds of options. We are, 
for instance, looking at the fact that we run 3,400 programs 
across our 47 institutions, largely because of demand, because 
students, employers, customers want very specialized kinds of 
education, and that's very expensive. Meanwhile, our language 
programs are dying.
    So we are looking again at the potentials of collaboration 
for providing language programs so that we will not lose the 
one program, for instance, we have in Portuguese, because of 
too few students and too little money to support it.
    It is this kind of work that is very consequential to the 
issue of price, and it is not the frivolity that we think of, 
you know, when we think about that new track out there. It is 
how can we keep instructional services of a level of quality 
and simultaneously reduce cost?
    Chairman McKeon. Thank you.
    Mrs. McCarthy. Thank you.
    Chairman McKeon. Mr. Burns.
    Mr. Burns. Thank you, Mr. Chairman.
    I appreciate the panel's input and their candid responses 
to the questions.
    I'd like to first respond to Mr. Castle. I was one of those 
professors who taught 250 students in a freshman-level course, 
and no, I did not make 200,000, so we're clear on that.
    I think the challenge is cost containment, and cost 
awareness, and I think the first question I have is, at what 
level in the administration is this issue addressed, and is it 
addressed consistently and with vigor?
    Dr. Alexander. Back to ground zero.
    I can tell you that we meet virtually at least every other 
day on budget, and since I've been in this presidency, I've had 
nothing but a budget crisis.
    Mr. Burns. Budget has two sides, revenues and expenditures.
    Dr. Alexander. Exactly. But the bulk of my time is spent on 
the expenditure side, and the real challenge is, this bad 
economy is different from the last bad economy for this reason 
alone, that the demands are universal, and that we're the only 
OECD country in the world looking at expanding high school 
graduation rates in the next 10 years, and we're feeling these 
students come into the institution.
    How do you provide expanded access, not just stable access, 
and utilize that through cuts that you're making on faculty 
positions, cuts in staff positions?
    We're doing a lot of shifting, a lot of shifting to 
provide--for instance, we've cut out a lot of graduate program 
courses to handle a massive influx of freshmen, the biggest 
freshman class we've had in our history, this year--shifting, 
reallocating resources to lower-level courses because the 
demands are indeed so great right now.
    Mr. Burns. Dr. Lewis? Dr. Lewis, do you have a response as 
far as Connecticut is concerned, as far as your level of focus 
on cost management, cost containment?
    Is there a disconnect? I think the real issue is, do we 
have a disconnect between those who provide the service, those 
who receive the service, and then the collection of bodies that 
indeed pay for the service.
    Dr. Lewis. I think we have a disconnect in terms of 
expectations, in all honesty.
    I think we have allowed students to expect a great deal 
from our institutions, and we have responded to a lot of 
requests for service over time, as I've said. Just look at the 
fact that we're delivering 3,400 different kinds of programs in 
Connecticut. Ten years ago, that number--
    Mr. Burns. Is that appropriate?
    Dr. Lewis. --would have been half of that.
    Mr. Burns. Is that appropriate?
    Dr. Lewis. That's a good question. It's a public policy 
question, and indeed, as we look at college costs, it is all 
those kinds of embedded questions that together we have to 
answer, at the Federal level, at the state level, at the 
institutional level.
    What is desirable? What do we need to provide to ensure 
that we are educating our populace to the level of their 
success in our society and in the workplace?
    That's a deep and difficult question that's not going to be 
answered overnight, but it needs to stay center stage.
    Mr. Burns. Is there a certain prestige with a high sticker 
price? Do some institutions have a price point that says, ``I'm 
better, so it's going to cost you more''? Is there a certain 
level of prestige associated with sticker shock?
    Mr. Merisotis. There is some evidence that--it's been 
called in the past the Chivas Regal effect, and that is that--
    Mr. Burns. That will go a long way.
    Mr. Merisotis [continuing]. People pay more for the higher- 
priced good because it's perceived as having a higher value.
    However, I'm not certain that that is as true today as it's 
been in the past, in part because one of the things that we've 
seen is a diminishment in the relative price of 4-year 
education between public and private institutions.
    That is, public institutions are actually increasing 
faster, prices are increasing faster than the prices of private 
institutions, and so some of the bloom has come off the rose of 
the Chivas Regal effect, because in a lot of cases, the price 
seems high to students and families.
    Mr. Burns. Is it true that, in a 4-year curriculum, if it 
takes a student 5 years or more to complete their education, 
the cost goes up, so that as we are unable to meet expected 
graduation rates, our overall costs to the Federal Government, 
to the state government, to the institution, and to the student 
continue to rise, but the student pays only a fraction, I think 
you said about what, Dr. Alexander, about a fourth, 25 percent?
    Dr. Alexander. Exactly.
    Mr. Burns. I want to give you a quick scenario. I inherited 
a young man not too many years ago who came to me as an 
advisee, are you ready? Accounting 2. F, F, F, F, B. B? What 
happened to C or D?
    The answer is, that man took that course five times, sat in 
five seats, got five levels of support from my state and from 
my Federal Government, and finally got serious.
    Now, we can't continue to offer a course to a student five 
times, because frankly, I can't afford it, and neither can you, 
and neither can the American taxpayer.
    Dr. Alexander. Students are a lot smarter than people 
think, and in fact, many students are staying in college today 
because they understand the nature of this bad economy.
    Four years ago, they wanted to get out and hit it, and they 
had a lot of job opportunities. Today, you'll see them going 
onto graduate school, you'll see them stretching out their 
senior years.
    And one impact of state budget cuts that nobody seems to 
take into account is that these budget cuts, when they hit 
institutions such as ours, they cause us to either drastically 
increase the class sizes at the lower level or cut class sizes, 
which we've had to do both.
    When you cut class sizes, you slow the pipeline down. You 
cut class options, you indeed slow the pipeline down, so you 
actually, in many ways, these state budgets have a bad effect 
on the type of economy of scale that you're trying to reach, 
but also on graduation rates, because students will stay 
longer, because they don't happen to have the same courses when 
they want to take them, offered as frequently as they're used 
to.
    Mr. Burns. Thank you, Mr. Chairman.
    Chairman McKeon. If you have a class with 35 chairs in it 
and 30 students in it, and you put five more students in there, 
how does that increase your costs?
    Dr. Alexander. Well, we really don't know the difference, 
but I will say that I can honestly say that a history class at 
Harvard doesn't cost any more than a history class with the 
same amount of students at Murray State.
    Harvard just chooses to spend a heck of a lot more on what 
they do, and the question is, what role does the Federal 
Government have in subsidizing the institutions that choose to 
expend more?
    Chairman McKeon. Thank you.
    Mr. Kildee.
    Mr. Kildee. Thank you, Mr. Chairman. Excuse me for 
absenting myself. I had to go over to the House to defend a 
bill on the floor of the House.
    Dr. Lewis, if we were to put Federal price controls on 
tuition, could institutions reduce the aid they provide their 
students rather than raise tuition prices, and what would the 
effect of that be?
    Dr. Lewis. First, let's recognize what happens when Federal 
price controls go on.
    Institutions are going to make some choices about, then, 
who they will serve. My land grant university, for instance, 
has a high selectivity rate.
    It could choose to take students who can pay, which is what 
some institutions do.
    It can choose to bring the money into its coffers, but it 
will not fulfill its public mission if it does so.
    So you need to understand that this is a very complex array 
of dominoes. Where one goes down a lot of others go down at the 
same time, and it's those unintended consequences that Jamie 
talked about earlier today.
    So I think when you think about price controls, you have to 
understand that the behavior of institutions will not all be 
the same. It will be quite different across the spectrum and 
types of institutions, and the results may not be what you're 
after.
    Mr. Kildee. You might not have the universe of people that 
you would like to have at a university.
    Dr. Lewis. Absolutely, or that we need to be educated in 
our society.
    Mr. Kildee. Right now, you try to have kind of a cross-
section economically, fiscally in various ways, but you might 
reduce that universe if you just took those who could afford 
it.
    Dr. Lewis. We're already at the point in some states where 
institutions are setting caps on enrollment, and that will 
allow them to operate with their resources in hand, those 
sufficient resources, as we said before, but whether it serves 
the state and the Nation in terms of bringing to the workplace 
people with the right education and the right possibilities for 
their future, another question entirely, when indeed, there's 
more capacity in the institution--again, another balance point 
in terms of policy.
    Mr. Kildee. That's why I think, you know, Congress cannot 
be the governing board of these institutions.
    We certainly assist students a great deal, but when we 
enter into the governance of institutions, that something we 
should be very, very, very careful about.
    Dr. Alexander, your testimony points out that the decline 
in state appropriations in Kentucky has affected Murray State.
    To what degree have those decreases in state appropriations 
led to increases in your tuition? How big of a role does that 
play?
    Dr. Alexander. It plays--it is the major role. It is the 
No. 1 role.
    In fact, that's why we do postpone setting tuition rates to 
almost the summer, because we didn't know what--we didn't have 
a state budget for 16 months.
    And what concerns me is, we're staring this in the face 
this coming January, as well, and I've heard many--I've heard a 
number of state legislatures simply tell me, ``Why should we 
support you, even though you're increasing your enrollments, 
when you can go to tuition?''
    That is what we're looking at right now, because many state 
legislatures are opting to handle their own political climate 
by turning the bill on the students through tuition and turning 
to institutions to actually handle this complicated challenge 
that we face in our economies.
    Tuition is our last resort, is indeed our last resort, 
after cuts have been made, but the state appropriation cuts 
that we have been dealing with are indeed the No. 1 issue in 
how we set our next year's tuition rate.
    Mr. Kildee. So if the appropriations from the state 
legislature, where I used to serve, for 12 years, is the No. 1 
factor, then the economy, in effect, is the No. 1 factor in the 
tuition rates?
    Dr. Alexander. Yes, sir, without a doubt, the economy, and 
also, a bad economy also drives more students to universities.
    Mr. Kildee. So any report that downplays the role of the 
economy has a certain deficiency in it?
    Dr. Alexander. It's the only report that I've ever seen, in 
studying higher education research, that actually has stated 
that the state appropriations have very little impact.
    I think that throughout the country, and you'll look at 
report after report, you'll find that indeed it is perhaps the 
No. 1, or in some cases the No. 2 issue in setting public 
university tuition policy.
    Mr. Kildee. Thank you very much. Thank you.
    Chairman McKeon. Mr. Hinojosa.
    Mr. Hinojosa. Thank you, Mr. Chairman.
    I'd like to direct my first question to Mr. Merisotis.
    Hispanic-serving institutions and historically black 
colleges, tribally controlled colleges and universities, are 
typically lower cost institutions. They maintain these lower 
costs despite the fact that most of their students need 
significant financial assistance to attend college.
    Could you please discuss the effects the Federal efforts to 
control college costs would have on these institutions, and 
would you please discuss how your recommendations, particularly 
with respect to increasing need-based aid, would benefit 
minority serving institutions?
    Mr. Merisotis. Thank you very much for your question.
    First, by way of background, I've had the honor of 
facilitating dialog among those three communities that you've 
just mentioned over the 4 years as part of a collaborative 
entity called the Alliance for Equity in Higher Education, 
which brings together the Hispanic Association of Colleges and 
Universities, the National Association for Equal Opportunity in 
Higher Education, and the American Indian Higher Education 
Consortium, so I've spent a lot of time getting to understand 
the issues in each of those communities individually and 
collectively.
    The kinds of price control discussions that have preceded 
this hearing I think would be very damaging in all three 
communities for the simple fact that the only major device this 
Congress would have for controlling prices would be Federal 
student aid, and if you were to go in that direction, you would 
clearly be disproportionately harming students at those 
institutions, because students at those institutions have a 
higher average need level, are lower income than students in 
other institutions.
    So that's a significant concern that I would have with the 
kind of discussion that preceded this hearing.
    Now, my proposal to increase need-based student aid as part 
of a package of ideas at the Federal Government, states, and 
institutions I think would have a major impact on those 
institutions, again in a disproportionate sense, because of the 
communities that are served by those institutions.
    But I want to make a point here, and it's a brief 
historical point, about the decision that the Congress of the 
United States made in the early 1970's.
    In the early 1970's, Congress decided to invest in need-
based financial aid as the primary device for ensuring 
opportunity, making college possible for students in this 
country, and it's been a success.
    It's been an enormous success. More students go to college 
than ever before at all levels, and that's something that the 
Congress of the United States should be very proud of.
    Unfortunately, since we've made that decision, if we are 
then going to try to control prices through devices in Federal 
student aid, we are going to harm those populations.
    Now, if the Congress decides to get out of need-based 
student aid and votes to support institutions, which I would 
not agree with, then you've got a device for encouraging cost 
control, but absent that, cost control through the financial 
aid programs would, unfortunately, negatively impact the 
communities that you're talking about.
    Mr. Hinojosa. If the GI Bill helped a lot of men-- 
particularly men, very few women--go to college after World War 
II, what could we do to try to revive that type of program, 
since we have so many men and women today, young people who are 
serving our country, and be able to utilize something 
comparable to the GI Bill?
    Mr. Merisotis. You know, a GI Bill, a bill of rights for 
college access and opportunity, I'm sure Ms. Hanson would 
agree, would be an enormous opportunity for millions of college 
students in this country.
    It would be expensive. The GI Bill was, in effect, an 
entitlement for those who were served by the program over the 
years. That's difficult in this budget climate, and I 
understand that, but that's the kind of goal, that's the kind 
of bar I think we need to set.
    I'm of the belief that a college education is the key not 
only to individual benefit, to individual success, but also to 
societal success.
    Mr. Hinojosa. If we don't invest in it, as expensive as you 
say it is, or will be, how come we don't complain about the 
cost of building additional prisons?
    We in our state probably have more people in prisons than 
any other state, and we have a hell of a problem, and the 
demand for space to go to college, a community college or 4-
year university, is tremendous, and we see it today.
    Mr. Merisotis. There's an old line, Congressman, ``It's a 
lot more expensive to go to the state pen than it is to go to 
Penn State.'' And that's certainly true.
    Mr. Hinojosa. My time has run out, Mr. Chairman. I yield 
back.
    Chairman McKeon. I guess we could eliminate prisons if we 
could get people to obey the law.
    Mr. Van Hollen.
    Mr. Van Hollen. Thank you, Mr. Chairman.
    I want to thank all the witnesses here today, as well.
    You know, listening to my colleagues, it's clear that I 
think everyone in the room probably shares the goal that every 
student in the United States who works hard, does their best, 
and wants to go on to get college and university degrees should 
have that opportunity.
    It's both the right thing to do, it's the thing we need to 
do to make sure our economy continues to prosper, and the one 
main barrier to that, of course, is the cost of tuition is the 
barrier, and we need to find a way through that.
    I agree entirely with the comments of Ms. Hanson that when 
state legislatures, and in my view, when state legislatures 
choose to dramatically cut back on public higher education, the 
effect is really transferring a tax increase to students, and 
I've made that point many times.
    I'm a new Member of Congress. I came from the Maryland 
State Legislature, and in the early 1990's, when times got 
tough, state legislatures, Maryland like others, looked to 
higher education, and more recently, they've done the same 
thing.
    We have seen, in Maryland, as a result of the economic 
downturn, cost containment and cutbacks by the public 
universities. They have cut costs, but they can't accommodate 
the entire reduction through cost, and they have turned to 
tuition increases.
    We've seen as high as 21 percent tuition increases in some 
of the University of Maryland entities, and that does mean that 
many students cannot get the college education, especially when 
you combine it with the fact that many of you cited, that we've 
got more students wanting to go on to college and more students 
from lower income families, which is overall a good thing, that 
we've got more the more people wanting to go.
    It explains why, although the total amount of Pell Grant 
money is increasing, it's not able to really keep up with the 
costs, either. I mean, we need more just to stand still in 
terms of the purchasing power at our universities.
    But my question is, when you're a state legislature, you're 
facing all these demands on your budget, and you've got, for 
example, the Medicaid program.
    Under the Medicaid program, it's an entitlement, it should 
be an entitlement. It's a cost-sharing program. States have to 
come up with those funds.
    At the end of the day, a lot of the Federal incentives mean 
that the one area that there is no strong Federal incentive for 
legislatures not to cut tuition is in the higher education.
    Do you have any ideas on how we can provide positive 
incentives--I don't want to have some penalty that has, you 
know, unintended consequences--something we can do that has 
some kind of positive incentives for states not to cut higher 
education, or not to cut it disproportionately, during bad 
economic times?
    You know, it's a hard question, because as you point out, 
we have Pell Grants, financially. We don't have direct aid to 
colleges.
    I will say that when Congress provided a $20 billion block 
grant to the states recently as part of the relief package, it 
actually had an impact on somewhat reducing, softening the 
problem, but that's sort of a lump sum way of approaching it.
    Do you have any more direct way that we, as the Federal 
Government, can provide incentives to state legislatures not to 
cut disproportionately in the area of higher education?
    Dr. Alexander. I think you're asking the perfect question, 
because right now, the incentives do the opposite. They reward 
states for moving away from their responsibility to fund.
    For instance, states that have high tax effort in support 
of higher education and keep low costs are disproportionately 
treated less than states that have higher tuition, through 
Federal aid programs.
    The question, the states that are disproportionately 
treated in the current policies with the current programs are 
the states that are low-income states, they're primarily in the 
south and in the west. Those are the states that it primarily 
impacts.
    I think the question is how can the Federal Government help 
stabilize, stabilize state appropriations so you don't get 
these drastic fluctuations, and currently, the opposite is at 
work.
    Dr. Lewis. I might go back to just the issue of student 
financial aid, because in fact you have one program, the LEAP 
program, that requires maintenance of effort. Mr. Kildee spoke 
of this earlier.
    The issue of the state having to hold to its investment in 
order to get the monies from the Federal Government is a very 
important issue.
    When I go to talk to my legislature, I can say, ``If you 
take this money away, you're going to triple that amount of 
money as it leaves our student financial aid system,'' and it's 
a very persuasive way in which to keep my state on course in 
respect to its commitment to that particular financial aid 
program, which has not suffered reduction in these years of 
state reduction.
    Mr. Van Hollen. If you have any further ideas, we would 
welcome them.
    Chairman McKeon. Just to follow up on that, if you said 
Work-Study, Pope program, TRIO, if you made all of those 
programs have a maintenance of effort, you would support that?
    Dr. Lewis. All of them at once might be a little difficult 
for my state to take, but on the other hand, I think that the 
notion of a matched investment is one that has great appeal in 
respect to the state leveraging its dollar and simultaneously 
requiring commitment from the state that receives it.
    We have a Gear-Up grant, for instance, and we have battled 
to get the scholarship that we need to match the state funds in 
that regard, and it's been a very good education process for 
our legislature to know what we can do with those financial aid 
dollars and with outreach efforts to students and families when 
they're in seventh and eighth grade.
    There's a lot of education that goes with this process as 
we begin to put new rules on the equation, and that's very 
beneficial.
    Chairman McKeon. Thank you.
    Mr. Wu.
    Mr. Wu. Thank you, Mr. Chairman.
    I was going through the briefing materials, and I have to 
say that you can't believe everything that you read. I hit this 
one paragraph that said that there was not much cost increase 
in the 1970's, and that's when I went to college, and I seem to 
recall that my tuition went up 13.5 percent--not that I was 
counting--in my freshman year, between freshman and sophomore 
years.
    But anecdotally, also, very briefly, two points.
    There's been some discussion about dressing up health care, 
dressing up college education, and some goldplating. I don't 
know where that is, because based on my experience, I mean, we 
used to eat stuff called Imperial Chicken, and it certainly was 
not imperial, and I'm not sure that it was chicken, and I'm not 
sure that food has gotten better at the places where I went to 
school since then.
    I realize that the states have been under tremendous 
pressure, and that it's the public sector which has had more 
cost increases in recent years than the overall average of 
public and independent colleges.
    But looking at inflation adjustments for costs, and also 
for the benefit of a college education--and I think we do a 
better job of sending more students to college than any other 
country in the world.
    When I travel in China, my recollection is that fewer than 
1 percent, maybe .5 percent of students who graduate from high 
school get a chance to go to college, and we do roughly 100 
times better than that, but we need to increase access.
    I want to follow up on my colleague from Maryland's 
question. It was such a good question, I'm basically going to 
re-ask it.
    However, anecdotally, I was looking at the charts, I was 
looking at some charts.
    It looks like there has been a 38 percent adjusted increase 
in the cost of college, but it looks to me like, off of those 
charts, that the benefits of going to college have increased 
even more than that 38 percent. That was a visual.
    Is that correct?
    And after that answer, I'd like to follow up on my 
colleague's question.
    Dr. Alexander. The benefits of not going to college but 
graduating from college, and this is something we spent as long 
a time talking about as access.
    If you go to a college, not a college graduate, someone who 
attends college and then drops out in one to 3 years, their 
earning power for a lifetime is much closer to that of the high 
school graduate. It's only about a $4,000 difference for a 
lifetime.
    But that of the graduate, there's something magical about a 
piece of paper, whether you've learned anything or not. There's 
something magical in the marketplace about a piece of paper.
    That piece of paper is going to entitle you to significant 
differences in earning power for the rest of your life.
    So access, we focused on in the 1970's, but completion is 
indeed the economic issue of today.
    Mr. Wu. I'd like to just share with you that I was telling 
my 6-year-old son last night that it's worth $1 million over 
his lifetime to go to college. I'll change that to ``complete 
college.''
    And he said, ``When do they give you the $1 million?''
    [Laughter.]
    Mr. Wu. I will have to get better at the precise 
description.
    But I think Mr. Van Hollen's question was so good, that I'd 
basically like to re-ask it and give you all a chance to take 
another stab at it, which is, with all due respect to the 
Chairman, I do have concerns about certain aspects of a cost 
control approach to cost containment. We are always concerned 
about cost and about access.
    But if you could go further, to describe positive 
incentive-based systems that might work--I mean, it's a 
bedeviling question, many different tiers, problems with state 
legislatures and so on--I just wanted to give you a chance, in 
the time remaining, to readdress that issue.
    Mr. Merisotis. One of the things that I addressed in my 
testimony was creating incentives, creating a sort of 
competitive grant program, not only for cost control, but for 
some reform in terms of how budgeting works in colleges and 
universities.
    This is a pretty arcane process, but one of the problems 
with the institutional budgeting process is that they sort of 
start with what they spent last year, and then they try to 
figure what they're going to spend next year based on that.
    There's something fundamentally wrong with that, in an 
environment where resources are declining.
    It's difficult to get out of that mode, and I think 
creating some incentives for developing, refining, and 
disseminating those kinds of ideas might be useful.
    That would be something that the Federal Government could 
contribute positively, as an incentive to institutions, a small 
amount of money on a competitive basis, and then, to then 
disseminate those ideas so that institutions start adopting 
some of those better strategies. There's got to be a way out of 
this box.
    Dr. Alexander. I would say that, and I know it would be 
somewhat revolutionary, but you need to reward the institutions 
that are indeed keeping costs low, and not pour money into 
programs and systems that do the opposite. I think you'll find 
a lot more institutions interested in keeping costs low.
    Dr. Lewis. I understand what Dr. Alexander is saying, and 
yet I know my land grant university would say though its cost 
is high, it is meeting the need of every low-income student who 
qualifies for admission. That's another paradigm, another way 
to go at the issue of cost.
    But having said all that, and back to your question 
originally, I believe again that there are a couple of very 
large issues that we need to address in higher education.
    One is how we use time, how we use time for students and 
how we use time for our faculty, because costs in higher 
education will go up every time we have to pay someone more 
money to teach or to work in our institutions, because that's 
our biggest expenditure everywhere.
    So we need productivity gains, and again, to identify best 
practices, to hold institutions to progress, goals they set for 
themselves in a very public setting is a way to go at it.
    For example, remediation is a major cost for our 
institutions. It will continue to be, especially as we work 
with adult students. We hope that it will lessen for the 
students coming as traditional students.
    But there are good ways to do remediation. There are good 
outcomes. There are ways to evaluate outcomes, and we all need 
to know the best ways to do it and how to save money in the 
process.
    I believe every one of my presidents would like to do that.
    Mr. Wu. Thank you for your indulgence, Mr. Chairman. I 
appreciate the extra time.
    Chairman McKeon. Mr. Bishop.
    Mr. Bishop. Thank you, Mr. Chairman.
    I should start by the story that Mr. Burns told about the 
individual who failed accounting four times and then finally 
passed.
    It reminds me of the old joke of a kid who came home, and 
after his first semester he had four Fs and a D. He was very 
upset, and his father said: ``Don't worry about it, I know 
exactly what you did wrong. You spent too much time on one 
subject.''
    [Laughter.]
    Mr. Bishop. I was a college administrator for 29 years 
before I came to the Congress, and I spent 17 of those years as 
the chief executive of the college I was at, and I spent every 
day just as you did, dealing with the budget.
    One of the issues that I'm concerned about is that we're 
dealing with the issue of pricing and college costs as if 
colleges were monolithic, as if we were all the same, as if we 
were all dealing with the same set of circumstances, and we're 
not.
    The college that I was at, 60 percent of its expenses were 
salary and fringe, 20 percent were in unfunded student aid, 5 
percent were in maintenance and operation of plant absent 
personnel, and 5 percent were in debt service. Those are tough 
to deal with without affecting either quality or access.
    So I'm concerned about dealing with this issue from sort of 
a macro point of view for all colleges, although I absolutely 
agree that the issue of confronting rising costs as it relates 
to access and affordability is precisely what we should be 
doing.
    We didn't have any gourmet meals, we didn't have any 
$200,000-a-year professors. In fact, our highest-paid professor 
was, after 37 years on the job, was making about $95,000, so 
one would be hard-pressed to find areas of waste or fat in our 
budget.
    So I'll just put that out there as a caution, that we can't 
look at us as all being the same.
    A couple of--
    Chairman McKeon. Will the gentleman yield?
    Mr. Bishop. Certainly.
    Chairman McKeon. You're an expert witness on this, so I 
just have to ask you, what were your tuition increases?
    Mr. Bishop. Our tuition increases were on the order of 4 to 
5 percent a year.
    Chairman McKeon. In the bill that I've talked about, the 
schools that we would be looking at would be raising theirs 
more than that.
    And what was your tuition?
    Mr. Bishop. I'm a little rusty now. I think the tuition 
right now is about $19,000 a year. That's just tuition. This is 
a private institution.
    Chairman McKeon. OK.
    Mr. Bishop. Total student cost is around 27 or 28,000 when 
you add in room and board and books and supplies and so on.
    Chairman McKeon. I apologize for using your time. I'll give 
you extra time.
    Mr. Bishop. I also will say, but thank you, not once did we 
view--and I participated in making decisions with respect to 
raising tuition for about 25 years--not once did we start with 
the notion that we would raise tuition. We started with the 
notion of what our fixed costs were, how they were going to 
increase, and how we needed to maintain quality.
    Nor did we once allow availability or lack thereof of 
Federal or state financial aid to enter into our discussions 
about how to raise tuition.
    A couple of questions. Clearly, what we're interested in 
here, all of us, is access and affordability. A specific 
example. U-Mass this year reduced the size of its entering 
class by 1,000 students in response to a reduction in the state 
appropriation.
    I think it's fair to suggest that that may be happening 
more frequently if we have a dynamic in which state 
appropriations are declining and we are capping tuition.
    My question is, how likely is it that we're going to see 
more institutions cap the size of their freshman class and thus 
reduce access, which would be the opposite effect of what it is 
we're trying to achieve?
    So I'll put that to any member of the panel.
    Ms. Hanson. Mr. Chairman, Mr. Bishop, I would like to first 
clarify my statement in regards to professors making $200,000.
    This was an example of a point that I was trying to make 
about a situation we have in the state of Florida where, in 
this past legislative session, we just in fact had to pass a 
bill to cap Presidential salaries that were continuing to rise 
and rise and rise, and I just wanted to clarify that.
    Please go on.
    Mr. Bishop. Thank you.
    Dr. Alexander. I'm trying to clarify the question.
    I guess the point is, how damaging would it be?
    Mr. Bishop. Yeah, how damaging to access?
    Dr. Alexander. Well, if we stay on percentages, it will 
substantially hurt access and it will penalize all the 
institutions that have been the most accessible and the most 
affordable, if you keep this on a percentage, because we're the 
ones that will have higher percentages but small dollar 
increases, and that damages everybody in every institution, 
particularly community colleges, AASCU institutions, and other 
private institutions that have fought so hard to keep costs 
low.
    We would put not only enrollment caps on, but we would have 
to do all kinds--it would put us in a perpetual spiral 
downward, compared with other institutions in other states, for 
simply the reason that we have done a good job, I think, in 
keeping our tuition lower than most other peers.
    Mr. Bishop. Let me ask a related question.
    For independent or private institutions, most of the costs 
that they deal with are either fixed or semi-fixed.
    To what extent do you think a mandate to cap tuition 
increases will have the effect of reducing unfunded student 
aid?
    Mr. Merisotis. I think it would have a substantial impact.
    We know in the last decade or more that it's been one of 
the fastest-growing areas of investment on the part of 
independent institutions, so creating a cap, I think, would 
naturally reduce that investment. That is, a significant 
portion of the increase in tuitions in fact is going back into 
institutional aid to support needy students.
    So I think that would have a negative effect.
    Mr. Bishop. So again, we would have the counter--I mean, 
instead of increasing access, we would be in fact perhaps 
reducing access?
    Mr. Merisotis. That would be my concern.
    Mr. Bishop. I have one more question, Mr. Chairman.
    This is for Ms. Hanson.
    You said that you've had a first-rate experience at FSU, 
and I commend you for saying that and I'm sure the president is 
delighted to hear that.
    You also said that you think that there are examples of 
wasteful spending at FSU. Leaving aside the lucky professor who 
makes $200,000, can you cite any examples of what you would 
consider to be wasteful spending that, if they were reduced or 
eliminated, that would not impact on the quality of the 
experience that you've had?
    Ms. Hanson. Kind of what I had mentioned earlier, 
previously, is that when we say that, for students, tuition is 
our No. 1 concern, we really mean it, and as I said before, a 
new building, renovating a building on campus, is going to be a 
lot less important to a student than a 2, 5 percent increase in 
tuition, to whereas they might not be--they might have to take 
two, three more semesters to graduate, taking on another 
course.
    So really and truly, I can think of a long list of examples 
of university spending that is not going to affect a student's 
productivity as much as issues of tuition.
    I also think it's important to mention the Pell Grant 
issue. We talk about that a lot. We talk about that as a way to 
maybe try to solve the problems that we've having with students 
and with rising tuition.
    But as Dr. Alexander had said a couple questions ago, you 
know, he had used the word ``stability,'' and I think that that 
really is such a strong point, and that we're looking for a 
stable answer, and unfortunately, when students are faced with 
such high tuition increases, throwing more Pell Grants out 
there is kind of like throwing money into the wind, because if 
we can't control the tuition, the grants are going to prove to 
be ineffective.
    Mr. Bishop. OK. Thank you, Mr. Chairman, and thank you to 
the panel.
    Chairman McKeon. Thank you.
    Well, this has been an interesting year so far. We talked 
about, early this year, coming up with a way to control college 
costs, because this is the second time I've gone through this 
reauthorization.
    I've studied it, and as has Senator Lautenberg, and before 
him we had Pat Schroeder, who used to be on this Committee, and 
I think 20 years ago that she was concerned about the same 
issue.
    We can come together and we can talk and we can talk and we 
can talk, and I have found, the last time we set up a 
commission to look at college costs, and, you know, they did a 
lot of good work, came up with a nice book--tuition keeps going 
up.
    I think that the time has not come that we quit talking. I 
think this hearing has been good, because a lot of good things 
have come from it, and I know that the bill that we're going to 
issue will undergo some change, and before anything is finally 
passed, there will be more change.
    I know that out of the 6,000 university schools across this 
country that are participating in Federal financial aid 
programs, some of them are doing a fantastic job, and are 
really carrying out their mission. They're keeping their costs, 
they're affordable. But I know that some of them can do a 
better job.
    We've talked about incentives. Well, that's more money, and 
as I said earlier, the Federal contribution is already $90 
billion, which is about half of the cost, and I know a lot of 
institutions are really concerned and they don't want Federal 
involvement, but they sure want the Federal money, and I think 
that some way we need to come together and sit down and talk 
about this.
    Just sitting out in some building and lobbing bombs at it 
is not going to work. We need to come together to address this 
issue.
    Now, we're going to introduce this bill in the next week or 
two, and we've already made changes from it.
    At first, we were talking about including all financial 
aid. We have excluded now Pell Grants and student loans from 
many sanctions, and we've changed--you know, we need to change 
the interest part, because I know that's not adequate and I 
know there will be other changes.
    And just sitting here, talking to Mr. Tierney and earlier 
with Mr. Kildee, there are lots of good ideas, but we need to 
come together and we need to work on this.
    Early on, I said, this is a national problem. The stage 
governments, the Federal Government, the students, the parents, 
the schools, the lenders, we all have to come together, because 
if we go through all this process and say, well, gee, it's too 
hard to make change, we're going to just have to tinker around 
the edges and maybe hope that everybody just does a better job, 
and we retire, and 5 years later somebody reauthorizes this 
again, and they'll say, gee, cost is a problem. Yeah. Well, 
let's talk about it. Let's set up a commission. Five years 
later, let's reauthorize this. Let's talk about it. It's a real 
problem.
    And instead of 22 percent of our young people not being 
able to go to any college, and those are high school graduates 
in college preparatory courses, that number is up to 30 or up 
to 40 or up to 50, and we have a split society, and what does 
that do to our country?
    We really need to sit down. And I appreciate you witnesses 
being here today. I appreciate the members of the Committee 
that came, and their questions, and their adding to the debate. 
We really need to come together on this.
    Thank you for it. I hope you'll stick with us and work with 
us as we go through this process and we need to come to you for 
questions and answers. I appreciate it.
    If there's no further business for this Committee now, this 
Committee stands adjourned.
    [Whereupon, at 4:31 p.m., the Subcommittee was adjourned.]

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