Lawmakers take aim at college costs

— -- Larry Gazdick of Ashburn, Va., doesn't consider himself wealthy. But four years ago, when his stepson, Bryan Ingraham, applied for financial aid for college, he qualified for nothing but federal student loans. Gazdick had been saddled with debt after college, and he didn't want Bryan to endure the same fate. So Gazdick paid the full cost of Bryan's education — about $90,000, or $2,500 a month. To do so, Gazdick worked seven days a week for more than four years.

Bryan graduated this year from West Virginia University with a degree in business and economics. His parents are relieved that he'll start his life debt-free. But Gazdick is still stunned by how much Bryan's college degree cost.

"It was ridiculously expensive," he says.

Critics have complained for years about the galloping cost of college. But now, Democrats and Republicans are pushing measures that would go further than ever before to control college costs. Some proposals would reward schools that control their costs and cast an unflattering spotlight on those that don't. Others would require schools with multibillion endowments to use more of that money to lower tuition.

Behind the push is frustration with the relentless surge in costs. The average in-state tuition and fees at a four-year public university rose 6.6% to $6,185 this academic year, according to the College Board. Average total costs, which include room and board, rose 5.9% to $13,589. In the past five years, the average total cost of attending an in-state public school is up 22%, even after taking inflation into account.

The cost of attending an out-of-state or private school has also soared. Anne and Frank Barretta of Bergen County, N.J., are spending about $27,000 a year to send their daughter, Nicole, to the University of South Carolina. While that's hardly a bargain, Anne says, "It's considerably less than what some other parents might be paying for private schools."

Anne teaches at a local college; Frank is an executive for an Internet procurement company. The Barrettas didn't qualify for any financial aid, other than federal student loans, which they decided against. They've been saving for years, which helps.

Still, "It's a large payment, and it's always on our minds," Anne says. "We're trying to do the best we can."

College Board officials say that most families don't pay the published tuition rates, because most students receive financial aid. But increasingly, that aid is coming in the form of federal loans that must be repaid, with interest. And the average net price — the average cost of tuition, after grants and tax benefits — has been rising faster than inflation and family incomes. Even when you include financial aid, about 40% of American families would have to spend at least a quarter of their income to pay for a traditional college education, according to the Education Department.

'We're losing ground'

The USA spends more on higher education, as a percentage of gross domestic product, than any other industrialized country, according to the Education Department. But its graduation rate for college students, based on the proportion of students who obtain their undergraduate degree in five years or less, has dropped from 12th in 2005 to 16th in 2007.

"We have the highest percentage of students receiving some sort of public subsidy, and we're losing ground," says Sara Martinez Tucker, undersecretary for Education.

Congress' ability to curb college costs is limited. Under the current system, the federal government provides financial aid to eligible students. The students, in turn, use that money to attend the school of their choice. Cutting off financial aid to schools that raise tuition beyond a certain level would limit students' choices, contends Terry Hartle, vice president for the American Council on Education. And many lawmakers in both parties are leery of any proposal that would impose price controls on college tuition.

Instead, Congress is considering incremental steps, including these:

Accountability.

The House Education and Labor Committee approved legislation last week that would place schools that jack up tuition much more than their peers on a "Higher Education Price Increase Watch List." Schools on this list, which would be disclosed on an Education Department website, would have to set up a task force to analyze their operations. The results of the task force's analysis would be available to the public.

The bill would also reward colleges that control costs by increasing the amount of Pell grant aid they receive. Pell grants are the largest source of direct federal aid for low-income college students.

Those provisions were included in legislation to reauthorize the Higher Education Act, which governs most federal student aid programs.

Information on actual costs.

The House and Senate reauthorization bills both aim to help families better understand how much college really costs, after financial aid is awarded. The House bill would require schools to publish the percentage of students who receive state, federal or institutional financial aid. The schools would also have to disclose the average net price per student.

Many parents say the financial aid process is a frustrating mystery. When Said Lounis' son, Sebastian, was accepted at Stanford four years ago, Lounis was confident the family would receive financial aid. Sebastian was an outstanding student in high school. And Lounis, who owns a business that provides lift systems for theaters and other venues, didn't think he earned enough to afford Stanford's sticker price, which exceeded $40,000 a year. But when he called Stanford's financial aid office, he was told his son was ineligible for aid.

Sebastian ended up attending the University of Michigan and graduated this year with a dual degree in physics and philosophy. Lounis, of Sterling Heights, Mich., says he believes his son received an excellent education at Michigan, at a much lower cost. But he's still baffled by Stanford's refusal to provide any financial aid.

"I felt that my income at the time was nowhere near what it should be to afford paying $40,000 a year for my son to go to college," Lounis says. "But I was flatly turned down."

Rep. Howard "Buck" McKeon of California, the ranking Republican on the House Education and Labor Committee, says, in a sense, paying for college is akin to buying an airline ticket: "You might be paying $2,000; the person across the aisle may be paying $250. You never know."

College officials say such disparities reflect their efforts to direct aid to the neediest students. But the confusion about who qualifies for financial aid has left some parents skeptical about the process, says Robert Shireman, director of the Project on Student Debt.

Paying for college "is like buying a used car," he says. "You worry and wonder if you're the one being tricked."

Mandatory payouts from endowments.

The nation's most selective universities are awash in endowments, prompting some lawmakers and policy experts to question why they don't use more of that money to lower tuition. Sen. Chuck Grassley of Iowa, the ranking Republican on the Senate Finance Committee, has proposed requiring colleges and universities with endowments that exceed $500 million to pay out at least 5% of their endowments each year. Private foundations must meet that standard to maintain their tax-favored status.

But the rule doesn't cover colleges. Last year, colleges with endowments of $1 billion or more spent an average of 4.6% of that money, according to the National Association of College and University Business Officers.

No one has yet introduced legislation to extend the 5% requirement to colleges. But the huge size of some elite schools' endowments has made them inviting targets. Harvard has nearly $35 billion in its endowment fund and earned an eye-popping 23% on its investments last year, vs. 13.6% for the Standard & Poor's 500 index. Yale has $22.5 billion and earned 28% on its investments for the fiscal year that ended June 30.

Harvard, Yale and other elite schools can get away with jacking up tuition every year because of ferocious demand for their limited slots, says James Boyle, president of College Parents of America. If those schools used some of their endowment money to freeze tuition, Boyle argues, it would encourage other schools to follow suit.

But forcing universities to use endowment money to lower tuition would prevent them from targeting students who need the most help, says Kevin Casey, director of federal relations for Harvard University. Now, any student who is admitted to Harvard and has a family income of $60,000 or less goes to school for free, Casey notes.

College officials say the proposals also overlook the nature of endowments. Many donors impose restrictions on how their gifts are used, which prevents schools from using much of the money to lower tuition, Hartle notes.

Princeton University is battling a lawsuit filed by the heirs of two donors who gave the university $35 million more than 40 years ago. The lawsuit, which has cost Princeton millions in legal fees, alleges that the university hasn't scrupulously followed the terms of the gift.

College endowments have also caught the attention of Democratic presidential candidate Hillary Rodham Clinton. In an education policy proposal, Clinton challenges the top schools to use a greater percentage of their endowments to recruit low-income and minority students. Her plan, though, stops short of requiring schools to pay out a specific percentage of their endowments.

Clinton's proposal would also require colleges to set multiyear tuition rates, which she says would make it easier for families to figure out how much college will cost over several years.

More scrutiny coming

Meanwhile, Rep. George Miller, D-Calif., chairman of the House Education and Labor Committee, warns that lawmakers will continue to scrutinize college costs and consider tougher measures if the situation doesn't improve.

"I think this is an issue that's burning across the entire Congress," Miller says. "This issue is not going away when this (Higher Education Act reauthorization) bill is signed into law. This is only the beginning."