Changes in universities’ funding mechanisms over the past 20 years have resulted in students across the U.S. paying disproportionately more for higher education than their counterparts in previous decades.

With state-appropriated funds remaining at around the same level since 2000, the cost of higher education has risen faster than inflation, and universities now rely more heavily on tuition dollars for funding. With the increased dependence on tuition–and with it, enrollment–universities must now more carefully consider the financial impact of their strategic goals.

According to data gathered from Iowa State’s fact books, the cost of attendance at Iowa State has jumped 223% in the last 20 years. This is only the continuation of a longer trend of higher education becoming increasingly expensive.

Despite the stark increase in the cost of attendance, Iowa State’s budget has not inflated significantly during the same time. When adjusted for inflation and number of students in attendance, Iowa State’s budget in 2002 is only 0.7% lower than Iowa State’s budget in 2020-21.

The main driver in the rise in the cost of attendance has been the proportional decrease of state funding for the university.

In the fiscal year 2002-03, Iowa State’s $808 million in revenue was comprised of 31% direct state appropriations while it received 20.3% of its revenue from tuition and fees.

In 2020-21, Iowa State had $1,402,994 in revenue, 16.9% of which was state-appropriated funds and 34.9% of which was from tuition. Other significant contributors to revenue are contracts and grants (21.1% in 2021) and auxiliary enterprises (12.8% in 2021), both of which have remained relatively steady over the past 20 years.

Iowa State’s Vice President for Operations and Finance Shawn Norman stated in an email response to the Daily that tuition revenue accounts for 60% of ISU’s general fund operating budget.

“Tuition and state appropriations are the two primary sources of revenue for the operating budget,” Norman stated. “With the changes in state support, the university remains committed to maintaining affordable tuition rates through incremental increases.”

With that, students have been picking up the costs of inflation as well as the proportional difference in the number of dollars awarded by the state government.

Peter Orazem, a university professor in economics, said Iowa’s legislature has been relatively generous to its public institutions, with many surrounding states offering significantly less funding for public colleges and universities.

Iowa State experienced a surge in growth of enrollment between 2010 and 2016, peaking at 36,660 before dropping back down starting in 2017 with 29,969 enrolled in fall 2022.

Norman stated university leaders consider various factors, including enrollment projections, when developing the annual operating budget.

“Enrollment Services provides regular updates throughout the budget planning process, allowing university, college and unit leaders to plan accordingly and adjust as needed,” Norman stated.

John Winters, a professor in economics, said as the university sees changes in enrollment, like in the growth spurt leading up to peak enrollment in 2016, it has to adapt and grow with class sizes.

Periods of growth mean new long and short-term investments in the form of buildings, faculty, and other items. With the growth, Iowa State may have made additional financial commitments which they now have to continue paying for with smaller class sizes and less revenue.

“We’ve lost both in-state and out-of-state students over the past few years, but the fact that out-of-state students pay a much higher price means in some ways that there is some more severe impact on the budget,” Winters said.

Orazem said because of the principle of returns of scale, Iowa State wants to enroll as many students as they have the capacity for in order to maximize income and minimize the cost of offering classes per student.

With tuition set by the Iowa Board of Regents, Iowa State is left with no options but to increase enrollment or cut expenses when enrollment drops.

“It is definitely a challenge that all colleges and universities face to some extent, like how do you grow and then respond to things when you shrink,” Winters said. “But, the challenges associated with that have been more severe in some places than others, and I would say Iowa state has been more severely challenged in the past few years.”

The number of faculty at Iowa State decreased by 200 between 2020 and 2022, yet professional and scientific staff, which can include anyone from academic advisers to administrators, has increased by nearly the same amount at the same time.

Orazem said it is disconcerting that the number of faculty at the university is so closely correlated with the number of students but that the number of professional and scientific staff continually rises despite declining enrollment. He said the rise in professional and scientific staff could raise the question of an unnecessary increase in overhead.

Orazem said with 60% of the rise in income inequality being attributed to the rising relative income of college graduates versus high school graduates in “The Race Between Education and Technology,” factors driving up the cost of higher education, especially those that have less to do with what’s happening inside the classroom, are a cause for concern.

“I know that some [professional and scientific staff] are doing advising [and] some are doing other student services, but I suspect that some of them are not doing anything that directly affects the student in one way, shape or form,” Orazem said.

Winters said public universities in general are reliant on tuition, but Iowa State is also heavily dependent upon out-of-state enrollment. He said there is a lot of competition around attracting out-of-state students as they pay higher tuition. He said the majority of Iowa State students come from neighboring states, each with their own public institutions.

Winters said competition is generally good when it comes to creating environments that are beneficial to customers. Higher education may be a similar story, as the need to attract students requires universities to make themselves more attractive to students.

One way Iowa State has marketed itself in previous years is by being one of the most affordable options around, being featured in the 2021 Washington Monthly’s Best Bang for the Buck list in the Midwest and the 2022 U.S. News and World Report’s Best Value Schools list.

Other means of marketing itself could be indicated by Iowa State’s strategic plan and the jump-start investments announced shortly after its approval in June 2022.

Areas of significance listed in the jumpstart investments include $1 million for first-year and transfer students, $1.5 million to create academic degrees that meet student/employer demand, $1.5 million for retention and $1 million for unique research instrument purchases.

Other areas listed in the document include investing in Iowa State Online, renovating childcare facilities, funding for interdisciplinary faculty research and open educational resources.

Another area in which Iowa State has been investing is the advancement of innovative and entrepreneurial programs, with the university ranking #11 in undergraduate entrepreneurship programs in the Princeton Review.

Norman stated that investments in the strategic plan are intended to support initiatives that align with the university’s priorities but are generally separate from the day-to-day budget.

Winters said while there are efforts to predict what programs or degrees may be in high demand, these things often ebb and flow with the economy to where it is hard to predict what will be in demand in 10 or 20 years.

Winters said like a business introducing new products, some will be successful and others won’t. He said that shouldn’t stop a business from trying to innovate or do new things but that it raises the importance of assessing risks and dealing with them.

Dirk Deam, a teaching professor in political science, said with financial models that rely on students for revenue, the university operates like a business with paying customers. With that he said comes a series of subtle changes which betray the traditional ideals of higher education.

“We could think of you as customers, which then means we’re supposed to keep the customer satisfied, which gives all sorts of cues and hints that we’re supposed to make it easy for you and make it fun for you and all that,” Deam said. “None of that has anything to do with the original idea of academics, which was rigorous.”

Deam said the change has partially simplified the skills and knowledge students are intended to receive during a baccalaureate degree into a product to be sold, which in turn fits in with the larger economic context, just like a business.

“It fits within a larger economy, it’s subject to supply and demand, it deals with recessions and surpluses and people can be hired and fired and all the kinds of stuff that just goes along with an ordinary business,” Deam said. “Much of that is foreign to the original traditions of the academy.”

For Deam, education represents a noble endeavor in which an individual expands their knowledge in order to refine and improve themselves.

He said the goal of higher education has always been increasing human knowledge, which he said is measurable not by the monetary earnings of a graduate but by the progress and advancements in human understanding.

“The fact that [public education] was divorced from dollars was exactly the thing that made it so interestingly noble, so remarkable and intrinsic in its worth, and as we move it more and more toward dollar amounts, then you’ve obviously undercut that and you’ve just turned it into another product,” Deam said.

Deam, who started college at $285 a semester in 1974, said higher education is now more aimed at preparing students for specific career paths than fostering strong individuals who are well suited for the vast possibilities of the outside world.

He said where high schools once did the job of helping students find their place in the world, preparing them for jobs or whatever they take on after commencement, colleges now seem expected to fill that role.

“College education was about something bigger and more majestic,” Deam said. “[It’s the] pursuit of knowledge for its own sake and the making people into free, well-educated souls who are capable of doing innumerable things in the world. You don’t come here to get a job. You come here to enlarge yourself.”

With higher education institutions operating more or less like businesses, department heads are forced to make hard decisions when programs cannot sustain themselves on the number of students enrolled.

Such hard decisions are currently being made at Iowa State as the university embarked on a reimagining of the College of Liberal Arts and Sciences last year in response to a number of new challenges and changes in the dynamic between students and their universities.

The university has set a number of budgetary goals for the college, which it is approaching through attrition by not replacing faculty members who leave the college.

Winters said often the people with the most marketable skills and most career mobility will leave first. Winters said lightening the budgetary load through attrition allows for some factor of luck as some departments may see more faculty leave than others.

“If you just say, we’re going to balance the budget by not hiring replacements, a lot of departments will lose some really, really strong people and not get to replace them,” Winters said.

With a decrease in budgetary wriggle room and downsizing overseen by the cosmic whims of attrition, departments lose highly productive individuals disproportionately and see unequal losses, which are not correlated to actual departmental efficiency or academic value.

“We’re just balancing the books by any means necessary, and when people leave, tough luck,” Winters said. “Again, that’s a terrible way to do things. I just don’t think that anybody has a better answer in the short run.”