The True Cause of College-Tuition Inflation?

For college students and their parents, the steady spike in tuition prices in recent decades has been not only troubling but mysterious: why on earth is tuition inflation double the general inflation rate? What’s behind these huge tuition bills: Massive legacy costs? Less public funding? The cost of acquiring real estate?

While none of those reasons are necessarily off the table, consider this article by Tamar Lewin in today’s Times:

Over the last two decades, colleges and universities doubled their full-time support staff while enrollment increased only 40 percent, according to a new analysis of government data by the Center for College Affordability and Productivity, a nonprofit research center.

During the same period, the staff of full-time instructors, or equivalent personnel, rose about 50 percent, while the number of managers increased slightly more than 50 percent.

Support staff! And what kind of work are they doing?

The growth in support staff included some jobs that did not exist 20 years ago, like environmental sustainability officers and a broad array of information technology workers. The support staff category includes many different jobs, like residential-life staff, admissions and recruitment officers, fund-raisers, loan counselors, and all the back-office staff positions responsible for complying with the new regulations and reporting requirements colleges face.

This explanation seems satisfying (intellectually, at least, if not emotionally). But it’s probably also important to consider how much money colleges have been putting into student amenities as well. When I visited my undergrad alma mater a few years ago, the chancellor pointed out that three buildings had gone up in the past decade or so that were each larger than any existing building on campus. There was a library, a convocation center (a multipurpose arena), and a huge student gym. The gym, he said, was a top priority because parents and prospective students increasingly think of themselves as customers, shopping for the most amenities for the best price, and the colleges that didn’t come to grips with this would soon see their customers going elsewhere.


Elon Plotkin

Since schools are not going to decrease the number of personnel they have on staff, why not start helping would-be students get funding for higher education? Make the extra staffers actually work for their paycheck!
http://www.campusprogress.org/opinions/3932/a-new-deal-for-young-workers

lark

You forget a huge, huge factor.

The declining support in state budgets for state universities, phased in over several decades by now. It's breaking the system.

Paul Dong

If we treat tuition as the price for Education, both the supply and demand of education service should be considered.

the youths today are more likely to choose college, and there are much more youths than before, the demand is all time high.

Only the supply couldn't keep up. I wonder if it is because of regulation, or the investment of infrastructure simply respond much slowly? if that is the case maybe trying to match the cash flows would be a good start.

Maurits

The article reads: "On average, public colleges have about 8 employees per 100 students, and private colleges about 9, according to the report. ".
So "Crazy incompetence in state government jobs" and similar comments miss the point.

Duane

Extravagance cometh before the fall.
It would be interesting to see a detailed study of spending vs. enrollment per school.

ed

Just like w/ the housing bubble, when you make buying a specific thing artificially cheap (or easy) via Government subsidy, the price goes up. It's essentially price fixing, is it not? ...The people "selling" realize that anybody (and I mean ANYbody) can get an ungodly amount of money loaned to them for college (or, in the past, a home) then they figure "there's more where that came from", and the prices go up. On the "buyer's" end, since the money is essentially "free" and the exact amount if of no real consequence, they just go along for the ride; after all, everything's Government-backed, right?

The Epicurean Dealmaker

In addition to higher levels of staffing--an interesting piece of data I was not aware of--do not forget Baumol's cost disease.

Finally, though, the real answer why higher education costs have risen at an apparently uncontrolled rate is that consumers have not resisted administrators' urge to gild the lily and, when it comes to their children, may have helped encourage it.

http://epicureandealmaker.blogspot.com/2008/11/et-in-arcadia-ego.html

Bill

I read the same article. There is also a pursuit of prestige which is costly. To attract students, universities are building themselves real ivory towers, further driving up costs.

www.moneylaunchmykid.com

ajupresident

The solution to this problem is to engage 21st century marketing techniques and apply them to education. Andrew Jackson University is using a series of network marketing partners that have allowed the University to create the Sponsored Tuition program. Applicants to the University enroll through one of the partner sites and get access to a zero tuition plan. There is mandatory fee structure, but without tuition, the total cost per semester has been driven below $500.

For students who need aid, despite this low cost, AJU is a member school in Sallie Mae's small student loan program.

Andrew Jackson University maintains institutional accreditation through the Distance Education and Training Council. (www.detc.org) The DETC is the only accrediting association approved by the US Department of Education solely for the purpose of accrediting distance institutions. AJU is a Title IV eligible school, but is not participating, which also eliminates another significant cost factor.

And since AJU has an OPEID - students can defer their current student loans by enrolling. Furthermore, eligible students can use the American Opportunity Tax Credit in 2009 and 2010 to offset almost all of their cost of attending.

Read more...

Stephen

Wait... isn't college still UNDERpriced?

The studies I have read (which I admit are fewer) and the studies I have had referenced to me by people I respect in the field (which are more) show that a SINGLE semester in college, followed by then dropping out, still nets total life time earnings that are positive (even discounted at a non-extreme rate). That's for colelge DROPOUTS too, not the amount additionally earned by graduates.

If you can earn an additional 30,000 a year after 4 years of college, shouldn't college costs be upwards of 50,000 a year? And yes, I know some universities (ie: Harvard, Yale) do cost more than 50,000 a year, but I also imagine the "additional amount earned over a crummy retail / food service job" you attain is also higher as well.

Its not a guarantee to make that much, but not going to college is "almost" a guarantee for a lifetime at Walmart, McDonalds, or some telemarketing service (before it gets outsourced). There's risk involved in college, but the "guarantee" of a lifetime of only $25,000 a year (after several years of working your way up) is much scarier.

Read more...

paulwesterberg

I think laying the entire increase in the cost of education at the feet of support staff is a little short sighted. Network engineer, database admin or computer specialist may be new "support" positions, but the work they do likely brings greater efficiency to the school to provide services more effectively.

The real reason why the cost of tuition has skyrocketed is because a college education used to seen as a valuable asset that helped individuals become productive members of society. The cost of schooling used to be be heavily subsidized by taxpayer money.

Years and years of republican tough love - zero increases in grants, cutbacks on direct funding of colleges and deregulation of student loan lenders has led to a situation where colleges are forced to raise tuition and students are forced into indentured servitude in order to pay it off.

I was a poor kid from a lower middle class family, I went to a cheap state college and got a modest loan burden and a decent education, now I have a good job and have paid back the government subsidy for my schooling many times with the taxes I pay.

Read more...

Cory

I was a consultant working at colleges for two years, visiting about 85 universities. I've said for a long time that the increase in tuition is a direct result of (a) new amenities, such as the new gym and recreation facility at pretty much every school I visited, and (b) an increase demand for all sorts of services/programming students - and even moreso, parents - now expect schools to provide.

If colleges only had to build classrooms and hire professors, you would save a ton of money, but wouldn't get any students.

anon

Bankruptcy Lawyer, I wholly agree with your suggestion re: making the student loand dischargeable in bankruptcy. Just wanted to let you know that you picked a bad example of unemployable major. A philosophy major with a quality education is someone who can think, analyze, develop an argument and write it out well. Those were exactly the skills that McKinsey was looking for when it hired my friend who majored in philosophy.

I'd be much more worried about those who got a sub-par education, more on a trade school level, because they went for an "employable" major. Like an engineering student who has no hope of ever getting through PE exams. Or an accounting major who keeps failing CPA exams.

R.C. Rose

I think Octavian post is on the mark. I've often puzzled through this as well, and come to the conclusion that the upper tier schools (pick the bracket) have benefited from a demographic bubble with the children of baby-boomers and a relatively price inelastic demand curve. Now the that the demographic trends will be slowing, and the recent decline in wealth I think and hope there will be a reckoning. There is a likely a leadership bias in growth for growth's sake, with expanding physical plants and growth in staff (academic or support). I also have a hunch that support organizations and staff have collective bargaining agreements, or similar structured relationships put in place to avoid collective bargaining, so costs will expand ratably, will little organizational leverage and related savings.

I've believed for some time that the gap between the general inflation index, and the educational index reflects a profound and damaging lack of leadership in college administrations, and with their boards of trustees.

Read more...

Benji Smith

Like a few other posters, I'm skeptical about the "support staff and amenities" explanation. Just like the "regulation" explanation, I don't think there's enough of a difference between universities and other private enterprises to justify the difference.

I think people are focusing too much on the increase in costs from back in the "good old days" of the distant past. Compared to the 1960s, the current state of administrative staffing, amenities, and regulations might look bloated.

But I graduated from college just ten years ago (in 1999), and since then, the cost of tuition at the private university I attended has more than doubled, increasing at an annualized 7.28% rate. Over the same time period, the Consumer Price Index rose at an annualized 2.57% rate.

I could be wrong, but I severely doubt that student amenities have grown so rich and indulgent over the last ten years, or that the administrative staff has ballooned so quickly.

Read more...

doc

There are a few more variables at work here.
1. Hardly anyone pays retail. My daughter's 7 of 7 acceptances came with non-need-based tuition grants ranging from 30% to 50% (2 of the 7). Of course, she'll go to prestige U. which offered nothing since we have "too much money" and they have too much prestige..

2. Schools with meaningful endowments (the ones every kid wants to attend) have been increasingly tight with endowment subsidies of students in recent years. So much so that they are now reversing course as a result of some Federal jawboning.

3. Faculty salaries in some areas have far outstripped inflation. As a Finance professor at a prestige school I made about $50,000 in the early 1980s. My former colleagues now routinely pull down $180,000 to $250,000.
Business school Deans make $200 to $500k as well. The growth in the "support staff" also includes lots of high-paying senior administrative positions. Michelle Obama's $300k+ as a Diversity Officer for instance. Finally, the dirty little secret is that faculty get put into these positions for purposes of permanently bumping their salaries and pensions after they retreat to their teaching positions in 2 or 3 years.

Read more...

tim

This is far more simple than most of you are making it.

Enrollment is up 40%. Private universities generally are less able to grow and thus can be more selective, and tuition rates are one way of enforcing this selectivity. The rest, then, attend public schools which have seen a significant drop in state funding commensurate with the nationwide increase in prison funding.

The administrative, etc increases are part of it as well, but the nature of education means there are little to no marginal benefits to volume, so a 40% increase in enrollment coupled with a decrease in state funding means a significantly increased tuition.

Michael St. Paul

The price has gone up because the universities know price increases still increase revenue. That is, the demand curve is still inelastic. The demand curve for college education is inelastic because of labor market inefficiencies perpetuated by the growing number of hiring decisions made by "human resource professionals" and computers.

aaron

These things are financed because people with more money than they know what to do with buy college degrees like they were oil futures.

akatsuki

I'd also imagine that lab and research costs have gone up... There definitely seems to be a lot more research faculty and support nowadays as well, I would love to see numbers.

When people shop for lifestyle over an education, then they get exactly what they deserve.