Why Does Does College Tuition Outstrip Inflation?

Factual Questions
1

I’m posing this as a factual quesiton. Is basic supply and demand to blame for college tuition costs outstripping inflation?

Remembering back to first-year microeconomics, there are situations where (a) the price elasticity is low, (b) the slope of the supply curve is steep, and © demand is growing faster than supply - a decent recipe for runaway prices.

In the case of the college market, do you think these factors hold true and account for tuition growing by 5-6% per year?

I think (a) holds because students internalize the “need” for a traditional college education during high school, and the government lulls them with subsidized loans and grants, in tandem with private and public scholarships and parents putting themselves in debt as well. Basically demand would be a lot more sensitive to price changes if the students themselves had to pay out of pocket. People I know in their 30’s just now attending college are very sensitive to every single expense. They don’t even pay for books, because it’s all coming out of their bank accounts and GI benefits.

(b) is true because new professors take a decade or more to make, TAs have to be paid, and facilities and capital equipment are expensive to expand.

And of course © holds because of the growing demand for college educated employees, while colleges themselves have limits on how fast they can expand, depending on endowment restrictions, priorities, deliberate selectivity, state funding cutbacks, etc.

I’m sure there are a ton of factors I’ve missed.

2

Mike the Mad Biologist has some interesting thoughts on the matter: link 1, link 2, link 3.

3

There are a lot of factors and it gets into a person’s political view of things as well.

My take, as an ex-college prof for 20+ years, the two biggest are:

  1. Bureaucratic bloat. The number of people working in admin has increased dramatically. Whole departments, like HR, which used to be tiny are now empires unto themselves.

  2. Tech needs. You have to have a lot of computers, networking, all sorts of associated gear, etc. And the people who keep them running are far from cheap.

For many state schools, the percentage thrown in by the state legislature has decreased. For private schools, several started eating into their endowments way back when, hoping to make it back later. Later never came and so their endowments now don’t produce as much income as they used to. These things vary all over the place but are quite frequent.

Some people focus on professor salaries but that is usually misleading. Very, very few profs get paid the “wow” salary the media likes to focus on. I got paid less than a comparable degreed school teacher in the local public schools. (New grads from our department got better paying jobs than we did.) And my school was well off. Most schools aren’t and the faculty got paid amazingly small amounts.

(Schools also contribute to this problem by reporting “average” salaries that are complete fictions. It’s all PR, to keep up with the Joneses to prove they are “competitive” and you have an anti-Lake Woebegone effect. Almost all salaries are below average.)

Also, for the top salary people, the money doesn’t come out of the general budget. Endowed chairs pay for themselves and top researchers get most/all of their salary out of grants. There is virtually no connection between a school’s budget and the most expensive profs.

At my last position, the school kicked in less than $30k for the entire department budget. The rest all came from grants we were constantly hustling to get. And since the school took overhead out of our grants (and provided little in return), we were a net source of income to the school. (We really hated it when a stupid student said “Well, my tuition pays your salary!”. Um, not in the least bozo.)

There are also various stupid things that go on. Donors like to give buildings. But buildings cost a lot of money to maintain. No one likes to donate $20M to help keep buildings with other people’s names on them running. It’s sad to see a new building go up when the area around it is literally falling apart.

The solution to the scary increase in tuition is to make hard decisions on budgets. Really hard decisions. (Like fire at least 2/3 of the HR department. They’re useless.) And for state schools, the legislatures need to appreciate what colleges do for the local economy, rather than the current anti-intellectual mentality that the country is sinking into.

4

In order to answer this question, you need to actually work out what college tuition costs, not simply what students get charged.

For example, in the public university system here in California, the actually cost of providing the college education has not risen greatly over the past decade, yet tuition has gone up considerably over that same period.

The key here is not that that tuition outstrips inflation, per se, but that reduced government funding for public universities means that a larger and larger percentage of the tuition cost is borne by the students themselves, rather than socialized through the taxation system.

The price paid by students for a public university education in California has more than doubled since 2003, but this is not reflected in the actual costs of providing that education. It’s certainly not reflected in faculty salaries, which have actually failed to keep pace with inflation over that same time period.

The increase is almost completely attributable to a changing model, whereby the state has become less and less willing to subsidize public education with tax revenue, and as a result the cost needs to be met by charging students more to attend college. Many other states face a similar situation.

Tuition rates at private colleges are, of course, a somewhat different issue, but even then we need to look at more than the nominal tuition rate.

Firstly, tuition at many of the nation’s most prestigious private universities has been rising considerably more slowly than tuition at public universities over the past decade, precisely because these private schools are not beholden to the government for direct funding in the same way that state schools are. A bigger concern for private schools is the state of their endowments, and the income derived therefrom.

Also, many of the most prestigious private institutions have a policy whereby no student is rejected due to an inability to pay. If you get accepted to Harvard or Princeton or Yale, and you’re from a poor family, they’ll make sure you get tuition assistance. For many students at these institutions, then, the official tuition rate is something that they never really have to worry about. Recent studies show that graduates of these top private schools graduate owing far less in student loans, on average, than graduates of state schools.

5

Yes to all this.

My wife and i teach in the California State University system, and over the past few years there have been constant debates between the university’s administration and the faculty union over issues of funding, salaries, etc.

One of the points made most forcefully by the faculty union has been precisely that the CSU system has become administratively top-heavy, with more and more people in highly-paid admin roles that have only a peripheral relationship to the actual mission of the university.

High-salary deans and provosts and budget analysts and media relations directors and human resources coordinators consume an ever-larger percentage of the university’s budget, while faculty continue to work without pay raises that are now years overdue, and full-time faculty who retire or leave are replaced by cheaper, less-secure, adjunct labor.

6

Much of it depends on the availability of funds for students.

If it’s relatively easy for students to acquire money for college (via loans or whatever), then there is little incentive for colleges to cut costs and operate efficiently.

7

This chart shows the rise in federally subsidized loans and tuition at private and public institutions.

http://www.intellectualtakeout.org/library/chart-graph/tuition-and-federal-loan-aid

I know that data supports this going back even further as I studied the case in business school in '94. Undoubtedly there are other factors at work as well, but it also appears that tuition will rise to absorb available funding.

8

I’m skeptical about the claim that state university tuition has risen in large part due to cuts in state aid.

The issue was discussed in another thread, and here’s what I said:

Anyway, since you brought up North Carolina, I decided to find some actual figures to see if your claim stands up to scrutiny.

First, historical tuition at NCSU:

http://www2.acs.ncsu.edu/upa/otherda...itionhist.html

Between 1981-1982 and 2011-2012, in-state tuition and fees went from $583 to $7018. In inflation-adjusted dollars, that’s approximately a 5-fold increase.

During the same time period, North Carolina state aid for higher education went from approximately 821 million to slightly under 4 billion. In inflation adjusted dollars, that’s approximately a doubling.

http://www.osbm.state.nc.us/new_cont...udget_data.pdf

Perhaps I am missing something, but it seems difficult to me to attribute a five-fold increase in tuition to a decrease in state aid given that state aid actually increased substantially during the same time period.

9

I will go along with the idea that cancerous growth in university administration. When I cam to McGill in 1968, there was a principal (i.e. president) and five vice-principals, one of whom was also grad dean. During my first year, the faculty of A & S split into two, doubling the size of the their administrations instantly. Now there are nine vice-principals, several of whom have assistant vice-principals. All these people have large office staffs.

When I came to the department there was a department secretary and two typists. By the mid 80s, there was a chair’s secretary, an administrative assistant and maybe 4 typists. Then as people started doing their own typists, the number of department typists has declined (to one, I think), but almost all of the administrative things used to be done by the faculty office have been downloaded to departments (while the faculty offices have also grown). I am sure we could get rid of 3/4 of the administration with no loss of efficiency. They have taken away many of our perqs while failing to do the administration they were hired for. Originally, I imagine the professors did much of their own administration. They–including me–were lazy and we hired professional administrators. They started as our servants and ended up as our masters.

There is one other thing. Faculty salaries have kept up with inflation (barely, no faculty member could possibly buy my house on one salary, as I did). But productivity has not
increased the way it has in many industries. I don’t know how important that is.

10

Well, firstly, you pretty much got your ass handed to you in that thread, so i’m not completely confident about your assertions.

Second, your numbers (at least as you have presented them so far) are problematic because all they are is aggregate numbers, and take no account of a whole raft of issues that are central to the question of public funding for education.

For example, university budgets are often not simply one big pie, where the administration can grab money from one area and move it to another one. Many funding sources are restricted to very specific uses within the system.

More importantly, nothing in your figures tells us the most important number: the per-student contribution of the state. Dealing in aggregate numbers is very problematic when the number of students does not remain the same, because in a system where the state subsidizes education, every extra student actually constitutes a net loss, in financial terms.

When the California State University system had its state budget reduced by $500 million last year, one of its first steps, in addition to raising tuition, was to reduce enrollment by 10,000 students across the system. This is because, despite the fee increases, every extra student costs the system money, so reducing the number of students actually saves money.

I’m still looking for figures for per-student funding in the CSU system over time, but according to the University of California Budget Office:

As i said, i don’t have CSU figures yet, but the trend has been the same for the CSU system, so i wouldn’t be surprised if the twenty-year change is, in percentage terms, pretty similar.

If the gross level of state support for a public institution stays the same, or even increases over time, this can still mean an effective decrease in per-student funding if the number of students within the system continues to climb. That’s why i’d need to see far more complete figures than you have so far provided in order to be convinced about your argument for North Carolina.

It could be that North Carolina’s situation is very different from California’s. I don’t know. I’m not familiar enough with the NC public education system to make that evaluation. But i don’t think that the numbers you’ve provided, by themselves, refute the arguments made above.

11

It’s not professor salaries. One of my longtime professors in political science also happened to be the head of the department. He was fond of noting that some professors (particularly those teaching particle physics and the like- the school has a well-known laser research program) made five times as much as he did. He would then explain why it didn’t bother him in the slightest, because they could go to the private sector and double their salaries, while if he went to the private sector he’d be lucky to be employed.

12

That’s incorrect – I pretty much won that debate – but this is not the place to rehash it. Besides which, I linked to specific, credible numbers so ad homenims are unnecessary. It’s not like I simply made an unsupported assertion about public school funding in North Carolina and expected people to simply accept it.

That’s true, but at the same time it’s hard to believe that per-student contributions dropped dramatically enough over the time period in question to require a 5-fold increase in tuition in real dollars.

13

:wink:

14

I do a lot of research on this professionally.

My understanding is that it is a few things:

Decreased state funding means that schools are relying more and more on tuition to cover expenses. Of course, not everyone can pay that tuition, so many universities offer plenty of grants and scholarships to help those who really need it- at many universities very few undergrads pay full tuition. This means that they are going to need to get every penny they can out of the handful of well-off students who will basically pay anything to be there.

Globalization is a big deal. The US still has the best higher education system in the world, and the growing population of well-off people around the world (especially in China and India) are willing to pay dearly to access it. The education in their own countries is not to the point where they can provide a quality education to everyone who needs it. Again, there is a lot of motivation to get as much tuition as possible from these lucrative full-fee students to make up for the rapid decline in state funding.

Incidentally, these two factors also is making college admissions much, much more competitive than they were a decade or so ago.

I’d take it a step further and say we are seeing the effects of the polarization of wealth and the erosion of the middle class. Universities are chasing the small population of super-wealthy students who will pay any given price for prestige, and giving the leftovers to the rest of us.

I’d argue that it’s true that universities are not as responsive to quality as they could be, but i don’t think that is because of student loans. It is because of university rankings, which are widely acknowledged to be a cancer on the industry. They make universities desirable or second-rate based on selectivity, which doesn’t really tell you anything about their actual outcomes.

15

Cost disease.

16

Administrative bloat is at least part of it.

I’ve worked at several universities over the years, and the proliferation of secretarys is bizarre. Every minor sub-dept and research group seems to get at least one, and sometimes several secretaries. A department will have a secretary for facilities, one for the grad-school, one for the Chair, one for undergrads, one for HR, one for managing grants, and then each of the larger groups within the dept will also get atleast one secretary. Then of course above all of them are the secretaries associated with the college, and above them those associated with the University.

And all this is happening at a time when better and cheaper IT resources should be making administrative functions more streamlined. But for whatever reason, Universities seem to have an infinite hunger for ever more administrative personnel.

17

People haven’t discussed this point, but I think it’s an important one.

Right after WWII, until the GI Bill really started kicking in, about 5% of the U.S. population had college degrees. Today it’s around 30%. More important, about twice that percent have attended college in some way. College is now expected as a basic bottom-level qualifier the way a high school degree used to be. Scaling up is difficult. Colleges are often accused of being factories, and using underpaid labor - grad students, instructors, contract teachers - and that’s undoubtedly true. But unlike factories, the capital costs of serving that increase - labs, classrooms, dorms, offices, libraries - don’t get as much in economies of scale. And every aspect of them costs proportionally far more. A library needs to buy not just books, but computers, expensive databases, learning labs, and 100 times as many journals. The needs of professors for science labs are probably 1000 times as expensive as they used to be.

And the expectations of what students get have also risen precipitously. Every student gets a computer in some school. Dorms and dining halls are palaces compared to what they used to be. Student centers are like malls compared to neighborhood grocery stores. Athletic and social facilities are wildly more elaborate. Virtually no student used to have a car. Today colleges are vast parking lots. It’s no different from the increased expectations of what home life is. In the 1950s a house was 1200 sq. ft. and families may have had one car. We expect far more and far more expensive things as a matter of course.

I’m not saying that the other factors talked about here aren’t important. They certainly are. But you can’t simply compare college costs today with college costs in the past. The product you are paying for has changed drastically and I seldom if ever see that mentioned in these discussions.

18

A lot of this is true (although the colleges that actually give every student a computer are a very small minority), but i don’t think it really explains the rising costs of tuition, at least not at state schools here in California.

The California State University Budget counts things like car parking, athletic facilities, and residential dorms in a separate part of the budget from the basic areas of tuition, educational expenses, and administration. These separate areas are known as Auxiliary Enterprises, and are expected to pay for themselves through user fees. They are not a factor in the balance between state support and tuition fees.

As the California budget website says:

Parking on my campus costs students over $300 per semester.

Of course, the fact that this fee is paid separately from tuition doesn’t make the fee any less real for the people who have to pay it. The students still need to find an extra 300 bucks per semester if they want to park on campus. But it does mean that the expansion of auxiliary services like parking and dorms is not the reason for rising tuition fees in the CSU system.

19

A lot has to do with student expectations when they arrive on campus. It used to be that campus life was almost a like a military boot camp experience. Dorms with bunks, linoleum floor, overcrowded and bad food. A lot of that has changed. Dorms these days are almost luxurious, the food is vastly improve and overall conditions are much better. There are fitness centers, vastly improved laboratories, data centers and a lot of improved percs that students 20 or 30 years ago wouldn’t have dreamed of. All of that costs money and requires a lot of staff. Admissions offices used to consist of a couple of administrators, now they are departments. Compliance issues are also a factor. And, of course, we can’t forget athletics which, for most colleges and universities, are a drain on resources while they pursue excellence on the athletic field.

Nothing is free. The money has to come from somewhere and the state funding for the state universities has been cut back. The private colleges are relentless in trying to increase their endowment. State universities that never used to rely on endowments are not in the game just to control costs. Running these institutions in the way that the students and alumni expect is very expensive.

20

The barracks and food thing is irrelevant, though, since we are talking about tuition, and not room and board. The tech centers are more important, but I point out that my local community college keeps a pretty sizable tech center with tuition at around $60 an hour. Computers just aren’t that expensive anymore. My community college also has a fitness center. And according to my invoice at the state university only a $160 fee went towards sports, though probably about the same in my community college, oddly enough.

I really don’t see how this stuff can lead to inflation when community colleges handle it so much more cheaply with fewer students paying into the pot.