The Rising Cost of College Education

Posted by Tina

Americans agree, the cost of a college education today is impossibly high. One source puts the an inflation rate of over 1000%:

Over the last 30 years, tuition has increased 1,120 percent; by comparison, even the “skyrocketing” cost of health care only rose 600 percent, and housing costs have gone up a paltry 375 percent.

Although economists and politicians site several factors that contribute to this condition, the cause most often cited is simple supply and demand:

Professor Daniel Lin explains that tuition prices are rising so quickly because of supply and demand. As demand for college increases, universities can respond by increasing either enrollment or tuition costs. Since most universities are limited in the number of students they can enroll, they have largely responded to higher demand by increasing tuition.

High demand means fierce competition. Colleges compete for the best students in this highly competitive market by investing in attractive amenities that add nothing in terms of education. The cost for these fringe benefits also factor in to higher tuition.

Technologies that have made other markets more productive haven’t yet had the same impact on education. This may change dramatically in coming years as online schools and classes enter the picture.

The problem of rising tuition has gotten worse in the last ten to fifteen years. A 2016 article in Forbes addresses the problem at public institutions:

“Typical” public institutions, which enroll 75% of all degree seekers, are raising tuition to offset money they no longer receive from their state’s legislature. Over 40 states have taken action in the past year to reduce support for their institutions of higher education. There need not be any increase in the cost of delivering instruction for students to feel the impact of this political shell game.

Additionally, public and private schools alike have seen tremendous increases in their operating costs because of state and federal regulations. The American Council on Education estimates that, since 2008, some 150 new federal regulations have been issued. Little wonder that the rate of administrative hiring has far surpassed that of enrollment-driven academic recruitment. Lawyers, government relations specialists, risk managers, compliance officers, regulation analysts and procurement specialists now compete for the same budget dollars along with instructors and teaching assistants.

Two regulations alone may soon “contribute” an additional $2 billion to college operating costs. The State Authorization regulation that went in effect in July of 2011 has already cost online education providers, nonprofit as well as for-profit, an estimated $900 million in compliance costs. Recently, Senator Patty Murray (D-WA) moved legislation through the Senate Veterans Affairs Committee, which she chairs, that will add another $900 million in costs, if passed. Intended as a consumer protection bill for veterans going to college under the Post-9/11 GI Bill, provisions may duplicate regulations and protections already in place.

Leave it to politicians to try to solve problems with smoke, mirrors, and more expensive, complex regulation!

In 2013 the Wall Street Journal consulted with three economists with disparate views about the causes of high tuition and, “How to Get College Tuition Under Control.”

Dr. Fichtenbaum didn’t waste words in highlighting this problem:

What is driving costs is the metastasizing army of administrators with bloated salaries, and our university presidents who are now paid as though they were CEOs running a business—and not a very successful one at that.

After pointing to the decline in state support, which might be attributable to the budget problems in states, Dr. Vedder finds faculty expenses that don’t contribute at all to educating students:

DR. VEDDER: …At many schools, tenured faculty have acquired low teaching loads to pursue trivial research published in journals no one reads, forcing administrators to hire cheap adjuncts who often do a fine job teaching at much lower cost.

The role of sluggish state appropriation growth is somewhat exaggerated. When appropriations rise, universities have used a large portion of the money to fund the unproductive bureaucracy. Moreover, the good professor (Fichtenbaum) ignores the 50-fold growth in federal student financial assistance programs since 1970. Former Education Secretary Bill Bennett was mostly right when he said federal aid programs enabled colleges to raise tuition fees, helping to fuel the academic arms race.

Dr Lyall make two salient observations about the “administrative bloat”:

(1) The single largest engine of this was the embrace of IT by universities. In the beginning, faculty (a few) dealt with their colleagues’ computer problems. But the burgeoning demand for campuswide IT services soon swamped what faculty were willing/able to do—and raised the cry to hire IT staff. Of course, IT then exploded in size and complexity. So, when faculty bemoan “administrative bloat,” the first question should be whether they’re willing to go back to the days when they (faculty) handled all that.

(2) Another way to reduce “administrative bloat” would be to merge, eliminate, and restructure higher-education organizations, simplifying the large number of individual departments, centers and institutes into fewer administrative units. Anyone who has tried this knows how jealously faculty guard these little fiefs.

Further discussion highlights the following: 1) The federal government now spends $35 to $45 billion on Pell Grants, and 2) IT growth has been large, but in most of American life this has brought productivity advance and lower costs. The opposite is true in higher education. 3) all of the money pumped into education has not necessarily resulted in graduates who “know more or think more critically than when they entered.

The professors offered solutions to the problem. Prof. Fichtenbaum believes in more regulation, “The federal government and accrediting bodies could develop “regulations that force institutions to spend a certain percentage of resources on instruction and [by] writing regulations that would reduce competition over luxury items.” Dr Vedder disagrees vociferously, ” The last thing higher education needs is more regulation from the federal government and accrediting agencies—who themselves are anti-innovative and have huge conflicts of interest in their dealings. … Significantly reducing the federal presence in financial aid would serve two desirable goals: reducing enrollments somewhat (improving the imbalance between the availability of good jobs and the number of graduates), and by reducing the demand for higher education, lowering the ability of colleges to raise prices. It would lower college revenues and force schools to take steps to economize: reduce administrative bloat, force professors to teach more, stem the collegiate edifice complex that raises capital costs, etc.”

The professor offers “cost cutting ideas: 1) Three-year bachelor degrees and greater use of testing to demonstrate workplace competency, 2) Greater reliance on electronic forms of learning, 3) State governments should give subsidy payments to students, not institutions, as a way to refocus emphasis on instruction and enhance competition.

DR. Lyall wrapped it all up nicely:

We need to start from a recognition that we have crossed a key line from “higher education as subsidized public good” to “higher education as a competitive market good.” (I regret this, but it is nonetheless the case.)

This means we need a new and more honest business model for public universities, one that ceases to treat them as state agencies and treats them as valuable market-driven entities.

This means reducing regulation to health and safety issues, releasing universities from state government operating requirements (such as mandatory participation in state health insurance and pension programs), permitting universities to manage their own capital bonding and building projects, and enabling universities to manage their own human resources (hiring and pay) policies outside state civil-service rules. It also means letting some institutions fail when they cannot compete in the marketplace.

Federal subsidies and regulatory control is largely responsible for the rise in demand that’s forcing skyrocketing prices for higher education. Liberal calls to make education “free” will just shift the burden to working Americans who will never personally benefit, who work as machinists, pipe fitters, hairdressers and nail techs. A better solution was proffered by Nobel Laureate Milton Friedman 40 years ago:”Human capital contracts would allow students to pledge a portion of future earnings in return for assistance in paying their tuition.” He who benefits pays…when he can afford it! Full disclosure would require institutions to advise students of future earning potential based on the degree. This might discourage students from naively racking up debt for a useless degree.

Americans know that a college degree is valuable. We also know that not every student is suited for college. High schools could help decrease demand by encouraging students with different skill sets to investigate trade schools and by touting the value and importance of these skills. College isn’t the better choice in every persons life.

(All emphasis mine)