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How did the price tag for a college education get so high? You can blame a combination of factors:
Capital spending.
The nation's top schools have been competing to provide the best facilities, faculty, and even sports teams (to keep wealthy alumni donors happy). Cornell economist Ronald G. Ehrenberg, in his book Tuition Rising, describes this as a kind of “arms race” that helps explain expanding budgets.
The competition goes beyond well-endowed Ivy League schools. Other universities hope to boost their rankings with college-rating programs by spending on high-speed Internet access, new gyms, concert halls, and better student housing.
Faculty.
Half to two-thirds of the typical college's budget pays instructional salaries. The median salary for a tenured professor is $76,200, according to the American Association of University Professors.
Blaming high tuition prices solely on professor salaries doesn't really make sense because most schools keep a lid on costs by using nontenured staff, including graduate students, instructors, and lecturers. Today 60% or less of the typical college's staff is tenured or tenure-track.
Productivity.
Inflation in the nonacademic world is often tamed by increases in worker productivity. Better technology, improved equipment, and greater experience help workers work faster and better, which allows businesses to create more products for the same cost.
Colleges aren't in the business of making widgets. If you try to improve professorial productivity by increasing class sizes or class loads, the best instructors leave, and the college's reputation suffers with the all-important ranking services.
If anything, there's pressure to be less productive. Many colleges are trying to shrink class sizes and reduce class loads so professors can do more research and that way bring more glory to the college.
Financial aid.
Most people don't pay the full sticker price for college. Financial aid lessens the out-of-pocket costs for the majority. (Loans just delay the pain, but most students and their parents don't factor in a loan's ultimate cost when deciding where to attend.)
When people don't feel the real cost of what they're buying, they tend to spend more than if every dollar increase came directly out of their wallet. That's why we spend more when we use plastic, and it's one of the reasons why the costs of our health-care system are spiraling out of control.
Here's how it might work. Top-Flight University announces a 10% increase in tuition. If TFU's old tuition was already busting your budget, and you were paying your own way, you might decide to transfer to High-Ranked State to finish your schooling. If enough others made the same decision, that would put pressure on TFU to reverse its decision or at least slow the rate of its increases.
In the real world, though, TFU just needs to boost its financial aid packages by 8% or so. The impact is muted, and the price increase stands.
The government has helped create this situation, too. Popular tax breaks like the Hope Credit and the Lifetime Learning Credit, student loan interest deductions, and tax-advantaged savings plans like Coverdells and 529 college savings plans help many parents soften the impact of rising prices.
I'm not advocating cutbacks to financial aid or tax breaks. But since higher prices don't result in a decrease in demand, there's nothing to put a brake on tuition hikes.
More applicants.
Demographics explain a lot. They always do.
The number of college-age people actually declined for the two decades ending in 1997. But the proportion of this shrinking group that attended college shot up from 47% of high school graduates in 1973 to 65% in 1996. That meant the number of people attending college in the 1990s remained pretty stable.
Now the under-25 set is again on the rise. The number of college-age people is expected to grow from 17.5 million in 1997 to 21.2 million by 2010. The proportion attending college is expected to increase even more because of the trends I noted at the beginning of this chapter. Everybody knows that fewer and fewer good jobs are available to those with just a high school education.
The most selective schools haven't expanded anywhere near enough to meet the soaring demand. That's why the SAT scores that would have gotten you into the Ivy League in the 1980s might not get you accepted at a competitive state university today.
Other schools are trying to grow, but they often are hampered by inadequate legislative appropriations (if they're state schools) or lagging endowments (if they're private). So good colleges continue to have far more qualified applicants than they have slots available to educate them.
With that kind of demand, colleges and universities can continue to boost prices almost at will. | 