Joseph Marr Cronin and Howard E. Horton describe the extent to which college tuitions appear to have become the next economic bubble:
According to the National Center for Public Policy and Higher Education, over the past 25 years, average college tuition and fees have risen by 440 percent — more than four times the rate of inflation and almost twice the rate of medical care.
…the middle class, which has paid for higher education in the past mainly by taking out loans, may now be precluded from doing so as the private student-loan market has all but dried up. In addition, endowment cushions that allowed colleges to engage in steep tuition discounting are gone. Declines in housing valuations are making it difficult for families to rely on home-equity loans for college financing. Even when the equity is there, parents are reluctant to further leverage themselves into a future where job security is uncertain.
Consumers who have questioned whether it is worth spending $1,000 a square foot for a home are now asking whether it is worth spending $1,000 a week to send their kids to college. There is a growing sense among the public that higher education might be overpriced and under-delivering.
What I have never been able to find, despite having read many books about the crisis of higher education and so on, is how colleges and universities spend their money. To put it another way, how have spending patterns, in relative and absolute terms, changed over the last three decades at private universities?* If anyone has any leads on data that could yield answers (data, not speculation–speculating is my job…), please let me know.
It seems to me that the following, non-mutually exclusive phenomena could be at work:
- Private institutions have decided to increase the staff (faculty and other) to student ratio. Combined with salaries and benefits that have increased faster than inflation (and health insurance inflation?!?), this accounts for the increase in tuition.
- Private institutions, competing for students, have invested heavily in physical infrastructure and amenities. Based on personal anecdote, living conditions seem better than they used to be–dorms are nicer, and so on. Also, infrastructure such as wired (and wireless) dorms and buildings needed to be built. Which leads to…
- Prices go up; they don’t go down. Various infrastructure, facility, and staffing needs have required tuition hikes. Typically, these are not one-time temporary increases: if you jacked up total costs by ten percent, and didn’t see a noticeable decrease in student applications, why lower tuitions?
- Many universities have overinvested in either big-time athletics or academics. One of the traps an institution can fall into is trying to shovel money into areas that will either bring prestige (e.g., a top sports program) or the promise of increased federal funding (a new science center). If these ‘earn back’ the money invested in them, great. But there is the potential for these to be massive money losers, if done poorly. Not everyone can have an exquisitely funded genomics center….
- Colleges charge what the higher income percentiles can afford to maintain their status credentials since ‘selective’ colleges are an inelastic good. Given the perceived (perhaps misperceived) importance of college for having or keeping an upper-middle class income, people will pay very high prices to be credentialed (which is not the same as educated). As long as there are enough families that can afford to pay full freight, prices don’t have to decrease, and can even spiral out of control. Something that always staggers me is when private colleges and universities will boast that sixty percent of their student bodies receive financial aid. Great! Of course, that means that forty percent can pay ~$50,000 per year out of pocket–in a country where the annual median household income is roughly $50,000. And that’s before one considers that many of these families might be paying for two or three students at the same time. In other words, rising tuitions are a result of an inelastic good meeting rising income inequality.
These are my ideas. So what are yours, and does anyone know if data are available to test these ideas?
*To a considerable extent, public universities ‘shadow’ private ones: after all, if Private U costs $50,000 per year, then increases at State U don’t look so bad.