How Penn State Students Are Constrained By

Student Debt

The Pennsylvania State University Economics Association

Print Education Committee

Leah Galamba, Joe Kearns, Cole Lennon,

Ryan Sosnader, Eleanor Tsai

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Abstract

In this paper, we investigate Penn State’s falling state government appropriations and rising tuition, how they relate

to budget problems, and how they contribute to student loan debt. We also make recommendations for how students

should change their behavior to combat tuition hikes and decreases in state education funding. We research

information on trends concerning tuition and appropriations, as well as how Penn State compares to other public

universities in terms of those areas. We include an overview of tuition and appropriations trends, how Penn State

fares relative to other state universities, why appropriation spending has fallen, and Penn State’s future budgetary

outlook. We use tuition and appropriations data from Penn State’s Budget Office, other state-related data from The

New York Times, inflation data from the Bureau of Labor Statistics, and future budget information from the Board of

Trustees. Our resulting analysis shows students are increasingly paying more for an education that should be more

affordable, and not making it more affordable condemns millions of aspiring graduates to economic disaster. To help

eliminate student financial hardship, students must understand why these trends are happening, increase awareness of

student financial hardship to the state government, and help make education a bigger priority for state governments.

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Why Public Higher Education Matters

Access to public higher education is a defining issue for Penn State students and other students nationwide. Public

university students currently comprise two-thirds of all university students in the U.S, making this issue especially

noteworthy (Porter 2014). Public college is still sought despite ballooning student debt, as it generates better

prospects for many students. One reason is that this education increases lifetime earnings (UNFPA). Another reason

this education is so important is that it breaks cycles of poverty for families stuck with lower incomes (United Nations).

Access to higher education is still critical for improving economic prospects of millions of people nationwide.

Public higher education ultimately leads students to careers with higher earnings, and thousands of students pursue

it despite difficulties with student debt. Each year of education increases a student’s earnings by 10%, a worthy

incentive for many graduates (UNFPA). This UNFPA research also mentions this income increase is due to greater

knowledge and employment opportunities that follow. It ultimately makes all debt easier to pay back, showing why

millions of U.S students pursue public higher education.

Another critical incentive to pursue public education is poverty alleviation. Students trapped in poverty often find

education provides more opportunities not just for themselves, but also for their families. Higher education breaks

cycles of poverty for families, as newly educated students likely start families in better economic conditions than their

parents (United Nations Educational, Scientific and Cultural Organization). Access to public higher education helps

families boost their overall earnings and chances at escaping poverty, making access to higher education a priority in

bettering these issues.

Despite the fact that public higher education is valuable and yields many benefits, it is becoming increasingly

difficult to afford. Access to this valuable source of education is ultimately restricted by student willingness to contract

debt, and millions of students are crushed by this burden. The expansion of student debt starts with state governments

failing to grant more appropriations. Public universities like Penn State see appropriations as a necessary source of

funding education. Cutting appropriations must not continue, especially given the importance of accessing public

higher education in the United States.

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State Appropriations to Penn State

For 2008-2013, Penn State secured appropriations under both state and federal bills, but only to a point. It was

ultimately not enough to prevent tuition increases and a rise in burdensome student debt. During the fiscal year 2008,

Pennsylvania House Bill 2313 authorized $318.1 million worth of direct state appropriations towards educational and

general purposes, recruitment, and the Penn College of Technology (Pennsylvania General Assembly 2008).

Meanwhile, the Pennsylvania Department of Public Welfare provided Penn State’s Milton S. Hershey Medical Center

with $13.5 million in assistance via Senate Bill 1389 (Penn State Budget Office 2014). The 2008 grand total for

appropriations was $331.6 million, an insufficient amount given still rising student debt.

Appropriation allocations varied over the next several years. Pennsylvania state government increased them

slightly in 2009 to $347.4 million due to funds received through the American Reform and Recovery Act.

Appropriations remained fairly constant at $346.9 million in 2010 (Penn State Budget Office 2014). Following the

inauguration of Governor Tom Corbett, appropriations were dramatically cut to $267.5 million in 2011. They

rebounded slightly to $278.9 million in 2012 and amounted to $284.9 million of the 2013 budget. The following table

represents these appropriations as a percentage of each year’s respective nominal operating budget, which is Penn

State’s total budget:

Year 2008 2009 2010 2011 2012 2013

State and Federal Appropriations as Percentage of Operating Budget

9.17 9.22 8.64 6.49 6.49 6.48

Percentage Change from Previous Year .56 -6.34 -24.85 .03 -.27 Figure 1: Appropriations as a percentage of each year’s nominal operating budget. Source: Penn State Budget Office

As shown above, state and federal appropriations as a share of the operating budget have fallen significantly in the

past six years; the largest decrease occurred between 2010 and 2011. Most of these funds go to the general funds

budget that covers educational and service funding, and determines tuition. Penn State has gradually increased tuition

rates to compensate for declining appropriations and inflation.

Penn State also relies on grants and contracts for research and raises more money through self-supporting

enterprises like the Hershey Medical Center (Penn State Budget Office 2014). State and federal appropriations are a

relatively small part of Penn State’s operating budget when compared to other funding sources like philanthropic gifts,

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intra-university services, investments, and clinical payments. Decreases in these appropriations started with public

outrage over increasingly indebted state governments. Persuading others that student debt matters more than

government debt should spur public officials to focus on increasing appropriations. It should be done to aid students

wanting to avoid economic troubles through access to affordable higher education.

Why Penn State Appropriations Spending has fallen

Balancing Pennsylvania’s state budget by cutting Penn State funding did not start with Governor Corbett, but

Corbett’s cuts did reduce funding. State contributions to Penn State began to decrease in both nominal and real terms

during Governor Rendell’s second term before Corbett took office. State funding for Penn State increased by over

10% in real terms under Rendell in the 2009-10 fiscal year (Figure 2, Appendix), but this increase was largely due to

the American Recovery and Reinvestment Act of 2009 (Figure 3, Appendix). Rendell’s administration collected

federal funds to temporarily increase Penn State’s budget from 2009-2011, and Corbett reduced nominal funding after

the stimulus expired in 2011 (Geeting 2012).

As federal stimulus expired, Corbett’s education spending cuts resulted from his refusal to raise taxes to make up

for lost revenue (Penn Live 2010). Corbett’s supporters say comparing education budgets during 2010-11 and 2011-

12 is unfair because Corbett’s administration couldn’t spend federal appropriations once he took office. Mike Barley,

Corbett’s campaign manager, argued, “Gov. Corbett has devoted more state funding to education than any time in our

commonwealth's history” (Murphy 2013). Barley’s argument misleadingly suggests Corbett raised state education

funding above Rendell administration levels (Figure 2). Corbett returned education funding to near-2008 levels

nominally, but education spending was 4.2% less in 2011 in real terms (Geeting 2012). These state spending cuts for

educational institutions like Penn State ultimately resulted from refusing to raise taxes to fund more appropriations.

Since Corbett took office in 2011, state funding has decreased rapidly. In 2011-2012, real state funding for Penn

State decreased by more than 25% (Figure 2), more than the real decrease of 12.32% on general education spending

(Geeting 2012). Unlike primary and secondary schools, universities can seek alternatives to state funding by raising

tuition. Penn State’s tuition raises are an example of this phenomenon (Fitzgerald 2013). Corbett’s appropriations cuts

led to rising tuition, and his focus on budget-balancing made Penn State less affordable (Figure 7). Education must

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now become a bigger budgetary priority, as lacking appropriations continue to make it harder for students to increase

their lifetime earnings by accessing public higher education through Penn State.

Penn State’s Future Budget challenge

Challenges in getting additional appropriations approved from Pennsylvania’s state government are reflected in

Penn State’s 2014-2015 budget. Penn State’s general funds budget will be funded through tuition and $278 million in

state appropriations for fiscal year 2014-2015. This raises questions as to how Penn State will make up the difference

from a requested $299.685 million in appropriations (Governor’s Office 2013, The Pennsylvania State University

Board of Trustees 2013). Requests for more funds are emphasized by the data below, as a Penn State education will be

even less affordable next year as real appropriations decline.

The charts below show where Penn State gets its funds. The pie chart on the right represents the $1.8 billion

general funds budget, the one that most directly affect education. The pie chart on the left shows Penn State’s $3.9

billion overall operating budget, in which items like federal agriculture spending and the Hershey Medical Center

usually pay for themselves (Penn State Budget Office 2014). Appropriations and tuition fund over 90% of the general

funds budget that funds Penn State education, meaning that students and Pennsylvania state government bear

responsibility for funding it.

Figure 4: Penn State’s sources of funding (2013-14). Source: Penn State Budget Office

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Penn State requested $299.685 million to fund these budgets and received $279 million in state appropriations,

similar to the nominal amounts received in 2011-2013 (Figure 5). Penn State’s 2014 appropriations would be $288.9

million if they kept pace with inflation, so 2013’s $279 million is a real decline in appropriations. Decreases in real

appropriations will cause rises in tuition, a situation that will balloon student debt and crush student economic well-

being without more appropriations.

The goals of having more appropriations and more affordable educations are not without difficulties. The general

funds budget cannot rely on other sources like increased fundraising alone; this is despite an approximate $30 million

nominal increase in fundraising from the 2012 total of $208.7 million (The Pennsylvania State University Board of

Trustees 2013). Tuition hikes and the declining real value of state appropriations also do not make college more

affordable (Figure 7). Declines in appropriations lead to tuition hikes, leading to expanding student debt. More

students need access to Penn State’s higher education to advance their earnings prospects, and Penn State should

receive more appropriations instead of just increasing tuition to solve Penn State’s budgetary issues.

Tuition and Funding Penn State

Recent decreases in appropriations contributed to tuition hikes as a percentage of Penn State’s general funds

budget. Nominal tuition increased by over 5% as a percent of the general funds budget from 2012-2014, while nominal

appropriations stayed the same (Pangborn 2012). For the 2013-14 school year, Penn State received $285 million in

appropriations (Jensen 2013 and Penn State Budget Office 2014). The real value of appropriations also fell, causing

real tuition to increase. The chart below references that phenomenon.

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Figure 5: The relative decline in state funding and increase in tuition. Source: Penn State Budget Office

As shown above, tuition and fees increased by about 10% of the general funds budget since 2008 while

appropriations decreased by nearly 6%. Cuts in appropriations also occurred before tuition hikes, signaling that these

cuts caused these rises in tuition. Tuition is also projected to increase 3.49% for in-state students and 2.99% for out-

of-state students next year, higher than the overall 2.76% increase for the previous fiscal year (Powers 2013). Tuition

hikes force students to borrow more to finance their educations, resulting in more student debt.

Ultimately, paying for university budgets often results in students paying additional tuition. Insufficient

appropriations cause student tuition to rise, thus increasing student borrowing and student loan debt. Penn State and

other universities confront declines in appropriations that ultimately reduce student access to better economic

prospects nationwide as student debt increases.

Comparing Penn State to other State Universities

Penn State was once considered to be more affordable for Pennsylvania state residents, but tuition increases and

declining state appropriations are making Penn State and other state universities more costly. Penn State’s tuition raises

surpass those of all other public schools in the Big Ten, and its in-state tuition rate is among the highest in the nation

(Institute of Education Sciences 2014 and U.S. Department of Education 2014). Penn State’s tuition increases, caused

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by declines in appropriations, are ballooning student borrowing and student debt. This issue continues to impair

economic prospects for students nationwide.

Schools across the country are also raising tuition rates to compensate for declines in appropriations. The

California State School System, the largest four-year college system in the country, saw tuition increase 21% in 2011

(Gordon 2011). Today, the cost of in-state tuition at UCLA is $12,692, which would have been unaffordable in previous

years when in-state students were not charged any tuition. Universities in other states, the University of Georgia and

the University of New Mexico, are still keeping costs down, but they too will experience tuition hikes in the coming

years due to declining appropriations (Baum and Ma 2012).

Unfortunately, state governments look toward universities when cutting costs (Malcolm and McMinn 2013). State

governments that cut appropriations make it harder to afford college, as tuition increases result and students

increasingly take on debt just to attend college. The two figures below show how much tuition has increased across

the country.

Figure 6: Percent Increase in Public Four-Year Tuition and Fees. Source: The New York Times

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Figure 7: State college revenue per student. Source: The New York Times

A reason Penn State is more susceptible to higher tuition raises is that it is a “state-related” public university,

meaning it was not meant to receive annual state funding (Pennsylvania State University – History and Traditions

2014). Penn State does receive annual appropriations, but only being “state-related” makes it a lesser priority compared

to other public universities in Pennsylvania. Cutting appropriations for public universities across the country causes

larger tuition increases nationwide, and national student debt continues to grow as a result. This expanding debt makes

it harder to advance their economic well-being. Reversing the trend of increasing student debt requires many steps,

and both students and public officials play key roles in resolving this issue.

Conclusion and Recommendations

Our findings suggest students must take action in order to improve their ability to access affordable public higher

education and improve their economic prospects. The issues facing students worsen due to lack of information and

lack of willpower. Progress is made by adjusting student outlook of this trend on the following: informing other

students, spreading awareness to state government, and making higher education a bigger priority.

We recommend that students consider both tuition hikes and decreases in state appropriations as obstacles for

affording a Penn State education. Students aware of these trends should inform their peers. Students must remain

aware of challenges posed by tuition hikes and securing adequate state funding. Generating discussion on these

developments and spreading awareness is an important first step in helping alleviate student financial hardship.

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We also recommend that students inform relevant public representatives of this information. Some public

officials may not be attuned to the student financial hardship caused by decreases in appropriations. Informing public

representatives about student awareness of this trend signals that students understand the potential and necessity for

more education spending. Conveying that message to public officials is important for students hoping for increases in

state appropriations.

A final recommendation involves making education funding a voting issue and a real priority. State

appropriations help alleviate tuition increases, as they act as tuition subsidies that minimize tuition increases. These

appropriations have declined in real terms since 2008, and casting votes on candidates that aim to increase real

appropriations should be a new priority. Along with student and public official awareness, voting on it remains an

important way to improve the affordability of students hoping to attend public universities everywhere.

For student financial hardship to decrease, students must spread awareness of increases in tuition, decreases in

state appropriations, and the resulting increase in student debt. Students must also let public officials know of their

mindfulness on this issue before representatives can act. Voting for candidates who aim to improve this situation is

another important development in bettering this situation. The student debt crisis associated with attending public

universities must not continue, especially because more educated students nationwide need better economic prospects

through affordable higher education.

Acknowledgements

The Pennsylvania State University Economics Association thanks those who conducted research on this project,

along with others who contributed extensive edits to this publication.

Appendix: Figures

Figure 1: Appropriations as a percentage of each year’s nominal operating budget. Source: Penn State Budget Office

Year 2008 2009 2010 2011 2012 2013

State and Federal Appropriations as Percentage of Operating Budget

9.17 9.22 8.64 6.49 6.49 6.48

Percentage Change from Previous Year .56 -6.34 -24.85 .03 -.27

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Figure 2: Appropriations. Source: Penn State Budget Office

Figure 3: Summary of State Appropriations. Source: Penn State Budget Office

Year Nominal Spending Real Spending (Base Year 2013) % Change in Real Spending

2008-09 331,600,000 $358,789,900 -8.42%

2009-10 364,400,000 $395,687,130 10.28%

2010-11 347,000,000 $370,712,470 -6.31%

2011-12 267,600,000 $277,138,660 -25.24%

2012-13 279,000,000 $283,086,680 2.15%

2013-14 285,000,000 $285,000,000 0.68%

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Figure 4: Penn State’s sources of funding (2013-14). Source: Penn State Budget Office

Figure 5: The relative decline in state funding and increase in tuition. Source: Penn State Budget Office

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Figure 6: Percent Increase in Public Four-Year Tuition and Fees. Source: The New York Times

Figure 7: State college revenue per student. Source: The New York Times

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