The tuition is too damn high!

I think I know what Jimmy McMillan’s opinion would be concerning college tuition rates. In my previous post, I included an infographic that suggested tuition rates have increased by 500% since the early 1980s. If we start just a little bit farther back, around the late 1970s, the increase is actually more than 1000%, and still almost double the increase that we have seen in health care costs. Both, of course, are well above and beyond the Consumer Price Index.

A very timely story was aired on NPR yesterday morning about the growing burden of college tuition rates. This story offers some excellent information, as well as perspective, on the challenges that many students face when trying to figure out how to pay for college…especially students from low-income families and students who are the first to attend college from their respective families.

In the last 20 years, the average burden for a four-year college graduate in the U.S. has gone from about $9,000 to nearly $30,000 today. The percentage of students carrying debt has shot up from less than half to nearly 70 percent these days.

In response to my last post, the question was asked “Isn’t financial aid in place to allow lower income students to afford college?” This article provides data for Pell Grants, which now cover (at best) about half of the amount that they once covered. This means that the maximum Pell Grant only covers about 15-30% of the average total cost of college.

Take Pell Grants, the largest federal aid program aimed mainly at low-income students. Even after taking into account federal loans and work-study, about 86 percent of Pell recipients had nearly $9,000 in “unmet need” on average per year.

So why is the college tuition rate so damn high? Perhaps a more precise question might be to ask why colleges have felt compelled to raise tuition rates so dramatically over the years? Since my last post, I have been looking for an answer or an explanation. As you might imagine, there is no single reason. Colleges have multiple sources of revenue, so the answer is not easily pinned to just one source. There are also many different types of institutions, and each different type may rely on different sources of funding. There are some definite contributors to the problem, and of course reasons may vary between different types of institutions. There are also a number of theories that seek to assign blame, but most lack solid evidence to support the claim. In short, finding a good answer has been frustrating, but here is what I have found.

1) The most commonly-cited reason for rate increases is the decline in state support for public colleges. At Virginia Tech, for example, the share of revenue coming from state support has dropped steadily declined from 50% back in 1987 to about 25% in 2012. The Chronicle of Higher Education provides an excellent resource for tracking the declining share of revenue that comes from state support for a wide range of institutions and institution types over the last 25 years. As revenue from public sources decreases, institutions must make up the deficit somewhere else, usually by increasing rates paid by students. A consequence of this is that private institutions seeking to compete with public institutions can increase rates as well. We are now at a tipping point where students are surpassing the states in terms of who pays more for public higher education. In 2000, the state paid more than students in 47 out of the 50 states. In 2012, the state paid more in 26 states and students paid more in 24 states. The average amount spent by states in the U.S. in 2012 was $5906, whereas the amount spent by students was $5189. Public education is not so public anymore.

2) The second reason most often cited was increasing salaries. Some point fingers at faculty, but faculty salaries are not really increasing, overall. Salaries for some full professors may be increasing, but that is often related to grant funding. Looking at the trends for different faculty types shows that salaries are barely keeping up with inflation, and certainly not matching the increases in tuition rates. In fact, according to a report that was recently released by the Delta Cost Project (a nonprofit, nonpartisan social-science organization whose researchers analyze college finances), faculty salaries have essentially remained flat between 200 and 2012. The report, entitled “Labor Intensive or Labor Expensive: Changing Staffing and Compensation Patterns in Higher Education“, points to growth in college administration as one of the primary reasons for increasing tuition rates. According to the report, “The overarching trends show that between 2000 and 2012, the public and private nonprofit higher education workforce grew by 28 percent, more than 50 percent faster than the previous decade.” I recommend reading through this report, especially their key findings. The figures on the growth of college administration and the rise of “professional positions” within the institution is startling. The popular term for this trend seems to be “administrative bloat”, and it is prevalent across the country in all institutional types. The chart below represents the changing ratios of the number of faculty and staff positions relative to the number of administrative positions in various institution types since 1990.

3) Directly related to the issue of increasing administrative salaries is the increase in student services. In fact, one of the reasons for increased administration is the overall increase in services and programs provided by institutions that are not directly related to instruction. According to a recent article by the Chronicle for Higher Education, which focuses on the findings of the report by the Delta Cost Project, “The report also makes clear that the expansion in wages and salaries derived not from instruction, institutional support, or academic support, but from student services, which can include athletics, admissions, psychological counseling, and career counseling, among other activities. Nearly every type of college had increases in that area, with little growth, or even declines, in other areas.” Apparently, many schools feel that this is necessary to be competitive with other institutions when it comes to recruiting. It is also important for building a brand, and building loyalty to that brand. The idea of building up strong athletic programs, fostering participation in activities, and providing an unrivaled experience for students is also geared towards the long-term goal of soliciting alumni contributions. The better the experience for the student, the more likely that student will be to donate someday. How these activities relate to the mission of providing students with an education is a subject of some debate these days.

4) Another common argument is that inflation is to blame. Unfortunately, the increasing rate of college tuition has outstripped the inflation rate since the 1970s. While one could always argue that inflation is a factor, it is hardly a significant factor in propelling the outrageous increase in tuition and fees relative to all other sectors of our economy.

5) An argument I have read about in several forms is based on the idea that increases in tuition rates are linked to increases in the availability of federal student aid. This is known as the “Bennett Hypothesis”, which was essentially coined in 1987 by then U.S. Secretary of Education William Bennett, who wrote a piece in The New York Times entitled “Our Greedy Colleges.” The theory behind Bennett’s assertion was this: “The availability of federal loans—particularly subsidized loans offering a below-market interest rate and payment of interest as long as the student is enrolled in school—provides “cover” for colleges to raise their prices, because students can offset a price increase, or at least a portion of that increase, with federal loans.A comprehensive review of this theory, written by Donald E. Heller, Dean of the College of Education at Michigan State University, disputes this idea. Heller states that “While the Bennett Hypothesis may be intriguing, there is little compelling evidence that it holds true with respect to the price-setting behavior of colleges and universities in the United States.

6) Another interesting theory describes a “higher education bubble” in the United States right now, making comparisons between the housing market collapse and the exorbitant tuition rates for higher education. Prior to the housing market bubble bursting, we saw an excess of new home construction, dramatic increases in home prices, and people taking on mortgages that were financially unrealistic. The comparison describes colleges and universities that have over-expanded, college tuition rates that are dramatically climbing, and students who take on an increasing burden of debt to earn a degree. Meanwhile, there is a growing perception that the rate of return on the investment in education is growing smaller, just as people began to perceive that the rate of return on investing in a home was growing smaller. If true, a significant reason that rates are increasing is because there is essentially a “speculative boom” in higher education. This remains a theory, however, and there are experts and economists who support this theory, and others who oppose it altogether. While it may be an interesting theory, it is difficult to actually prove or disprove such a claim until after the bubble has burst (or not burst).

7) Last on the list of interesting theories about the rapidly growing rate of college tuition rates is the idea of consumer protection. I have not found a lot of references on this subject, so I am going to directly quote Wikipedia on this one: “the recent change in federal law removing all standard consumer protections (truth in lending, bankruptcy proceedings, statutes of limits, the right to refinance, adherence to usury laws, and Fair Debt & Collection practices, etc.) strips students of the ability to declare bankruptcy, and, in response, the lenders and colleges know that students, defenseless to declare bankruptcy, are on the hook for any amount that they borrow -including late fees and interest (which can be capitalized and increase the principal loan amount), thus removing the incentive to provide the student with a reasonable loan that he/she can pay back.” This seems to relate to the previous theory regarding the “higher education bubble”, as well as the “Bennett Hypothesis.” If true, this would suggest not only predatory lending habits on the part of the federal government and other lending agencies, but also that colleges and universities are complicit in this by continually raising tuition rates in response to the greater availability of loans. As tempting as conspiracy theories can be at times, this seems rather unlikely to me.

That summarizes the majority of the proposed explanations that I have found for the extraordinary increase in college tuition rates that we have seen in recent decades. In general, the two most important factors contributing to increased tuition rates seem to be: 1) the reduction in public funding that colleges have been seeing over the years, and 2) the steady increase in “academic bloat” at most institutions. As states cut funding to public institutions, those institutions are forced to act more and more like private entities. These institutions must find ways to make up the difference in revenue, and so that difference is ultimately passed on to the students. As a result, public schools become more comparable in price to private institutions, which do not receive public funding and have historically been more expensive than public schools. Public and private institutions alike seek out alternate sources of revenue such as ticket sales for athletic events. Athletics become a part of the university “brand”, and of course this leads to merchandising. Building a strong brand and loyalty among students is also key to soliciting alumni donations. Schools attempt to draw in greater amounts of research funding, and develop administrative infrastructure to help facilitate this goal. All of these steps require more administrators, which translates to mean more bureaucracy. This is the “academic bloat” that was described earlier. Ultimately, this seems to reinforce the need to continue increasing college tuition rates. One of my favorite quotes, which is often attributed to Oscar Wilde (though I can find no definitive proof of this), seems very appropriate here: “The bureaucracy is expanding to meet the needs of the expanding bureaucracy.

While I suspect there may be other factors at play that I have not been able to identify, I find it very likely that these two factors play a significant role in raising college tuition rates. This trend has been allowed to continue unchecked because, for now, people tend to place considerable value on higher education. The consensus still seems to be that higher education is worth the trouble, the time, the increasing burden of debt, and the delayed start to career, family, etc. If we continue at our current pace, however, I will not be surprised if this perspective begins to change. Sharp declines in enrollment could very well lead to the bursting of the proposed “higher education bubble”. I fear that would only lead to a widening of the socioeconomic gap that exists in our country. So what should we do about the increasing cost of higher education? Is it even possible to change our current system to make it more affordable? These are the questions on my mind now.

Thanks for reading!

Category(s): Education

Comments are closed.