Lots of fields have “outstripped inflation” because they aren’t very amenable to advances in technology that make other people richer. Being a teacher was a shitty job in 1912, it’s still mostly a shitty job in 2012, but the country as a whole is much richer and smart people can get much better jobs as web developers and whatnot, so in order to get someone to be a teacher you have to pay them more. It’s similar, to various extents, for maids, or elderly care nurses, or policemen. You’ll note that these professions pay a lot less in poorer countries, because in those places the opportunity cost is lower. So are universities today much more efficient than in the past? I doubt it.
A “good” university education is largely a prestige good. Good universities attract rich, smart people, and become better universities because other people want to be where rich, smart people are. These places are going to charge (in one way or another) the highest price that rich people are willing to pay, which is a lot. In this respect I really don’t think focusing on the quality of education or even accommodations and facilities are very relevant, because those have nothing really to do with what people are willing to pay to be in the “right” university.
Community colleges have a different mission than a four-year residential (or even a commuter) college. Community colleges tend to have more part-time students who pay cash and who don’t use those facilities they pay for. In Pennsylvania, where I live, they’re also partly funded by local school districts, whose residents are then entitled to a cheaper tuition.
That said, all colleges have to attract students and attractive dorms and dining facilities are part of that. For example, my alma mater is demolishing old dorms and building new ones, and they’ve completely overhauled their dining facilities and menus so they’re less institutional and more like a mall food court. You may argue that a mall food court isn’t exactly the height of fine dining, but there are more and healthier choices that are freshly prepared to order, as opposed to food that has been sitting in a steam table for who knows how long. (This new construction is funded by the state, so the university isn’t paying for it.)
These are things that prospective students look for. If facilities are spartan and the food isn’t appealing and the classrooms haven’t been updated with smart classroom technology and the paint is peeling here and there and the computer lab is still using Windows 95… they’re going elsewhere. It’s just like any other customer-provider relationship. The provider has to have what the customer wants, and that’s all there is to it.
The edit window expired, so I’m going to continue here.
Furthermore, community colleges have multiple income streams that some four-year colleges don’t have. For example, they offer non-credit extension-type courses that aren’t eligible for financial aid. They’re not research institutions, so that’s a bureaucracy that doesn’t exist. Many community college instructors are part-time adjuncts who are paid by the course and who don’t teach more than a course or two at a time, so they don’t get benefits.
From the other side, however colleges must provide value or they won’t stay in business. Years ago, a college degree was something that paved your world with riches. Today, many of the degree programs offered are only slightly better than having no degree at all.
I’m not privy to all of the costs in running a college, but they have to be reasonable to the value provided or eventually people will wise-up and refuse to pay that much.
I’m in law school now and it’s a perfect example. The average student will graduate with over $100k in student loan debt. Some as much as $200k. The law market is saturated. Most will graduate with a JD, and will be lucky to find a job as a glorified paralegal at $40 to $50k per year on graduation. If you crunch the numbers for money and time, that would be a terrible investment.
It will only be good for the top ten percent of the class who get a nice offer at a nice firm (and thankfully that’s me).
At some point in time, parents, teachers, guidance counselors, and others will catch on to this almost Ponzi-like scheme, and fewer students will go to law school. Then, as all bureaucracies do, they will further raise tuition to make up for the shortfall causing even fewer students to enroll.
The whole system will collapse unless these schools start providing value for the services they provide.
I doubt it. Your complaint was a familiar one when I was in college 40 years ago.
The real problem is that a college degree takes years to complete, and the perceived market when a person enters a degree program and the actual market when that person completes it are usually far apart. (The longer the program, the more of an issue this becomes.) This is made worse that when people see a deficit in a field they rush into programs for it - thereby guaranteeing a glut down the road when they graduate. Law in particular is plagued by these cycles. When I graduated people told me not to go into law because the market was saturated. I didn’t, but it would actually have been a good time to go because the market was back three years later. Maybe too many people listened.
Rising costs are real and a problem. But supply and demand for a profession isn’t the issue. That will be true at any cost.
The more you should stay away from law school because your LSAT is so low you lack the prerequisites for success, like reading comprehension and basic analytic ability, the more eager you are to attend.
I find your take very interesting. Is your research published so that I may read it?
So is your point essentially that a university sees higher average unit costs, assuming each graduate is a unit of production, due to a slowdown or reversal in subsidy growth, and that this represents a contraction of supply? Correct me if I misunderstood. And also, the rankings criteria distort the university’s sense of marginal benefit per student relative to what the students themselves experience from additional expenditures?
The current biggest flap in my field is the elimination of the UofFl CS department. From an article about it: “Actually, the real villains here are the Florida state legislators, who have cut the budget for their flagship university by 30% over the past 6 years.”
(I know some of the people affected by this. There’s a lot more going on than the standard news blurbs say. The ghosts of bad decisions past are getting their payback.)
The anti-college mentality in state legislatures is pretty clear.
Anyway …
Several people have mentioned how much cheaper “tech” (I guess they mean PCs) have gotten lately.
This means nothing. It’s not the box that costs money. It’s the software the box needs to be useful. The people that keep it running. The space it takes up, and on and on. Plus even if the cost/box is down, the number of boxes needed goes way up. The rate of increase in this area is amazing.
Plus, there’s other tech around. The new interactive whiteboards. Large digital classroom displays. The new networked lab gear. It’s not just desktop PCs. All of which require a more expensive support infrastructure to maintain them.
I’ve always considered the hardware cost of a PC to be an insignificant portion of its actual cost.
Hah! The University of Florida is a legislative darling, because about two thirds of our state senators went there. Think 30% in six years is bad? USF and UCF are facing cuts of 58% and 35% in one year. UF and FSU are facing far smaller cuts than the other competitive state universities.
To the OP’s original question…why are prices going up.
Prices rise due to either a push or a pull effect.
Push–meaning bottom up rise in costs raises prices.
Pull–meaning constrained supply with increasing demand raises prices.
I would say that for top 10 (ok, pick a number–top…50?) there is definitely a pull affect–IOW they are charging more because they CAN–because whatever they charge, there is enough money available to pay the prices charged.
For the remainder I think it is due to both, but it also appears that the middle and lowest tiers are being pulled by the highest tier to increase prices.
Lastly, because there are no real for-profit market forces at work for most universities, there are no incentives for efficiency, therefore they yield to “you are only as powerful as your org chart” effect seen in the private sector without the controlling profitability question extant in private sector organizations.
This is, to put it mildly, a ridiculous assertion.
Non-profit institutions are still subject to market forces, and still have plenty of incentives for efficiency. They don’t want to lose money; they want to use their money in ways that increase the profile and the status and the quality of the university; they want to do this without compromising the quality that made their name in the first place.
Sure, the market forces manifest themselves in different ways in a non-profit environment, especially one where the cost of the product is spread very unevenly across the customer base. As others have already noted in this thread, for example, wealthy people who pay the full cost of tuition at expensive private schools often help to subsidize the cost of educating students who are academically qualified but who can’t afford the tuition.
Saying that there are no market forces involved may be ridiculous but it seems to me that the non-market forces are pretty strong relative to the market forces.
What businesses can sit on a pile of money (endowments), pretend they can’t spend it and then go to other non-market sources for major subsidies? (I’m sure somebody would argue that profitable corporations get tax breaks all the time…still that’s nothing compared to the “business-model” of universities.)
Administrator bloat is not a cause of college inflation but a symptom. As was pointed out in the OP demand has been rising, loans and subsidies are easy to get, and competition is restrained. As a result prices have gone up dramatically as they would for any business with similar circumstances. Unlike other businesses colleges do not have shareholders they have to disperse the profits to. Thus college administrators are sitting on huge sums of money, and there is a limit to how much they can pay themselves because this is public information. So they expand the number of administrators so each one has to do less work and those at the top have more subordinates and are therefore more powerful.
Since U.S. businesses right this instant are sitting on a combined $1-2 trillion the answer is all of them.
Yes, universities do have a different business model. But that’s a so what. Of course they do. That does not necessarily imply they have a different mind-set. In many top universities, the business school provides the financial advice for both the endowments and the budgetary process. B-schools and the corporate world share, indeed promulgate, the same worldviews - especially those influenced by the Chicago School of thought, which is bunches. If universities have evolved to a similar model they’ve done so for the same reasons that public corporations have evolved to similar models.
The proper answer to phxjcc is to look at the real world financials of non-profits. I’ve worked for them and I’ll bet an endowment that phxjcc hasn’t. Non-profits are far more concerned about efficiency, leanness, doing more with less, and finding their next dollar than private sector businesses (which I’ve also worked for). They have to be. Successful universities have less of this pressure, just as successful private businesses do, but they have many more constraints than the private world.
This is not in any way claiming that universities are economically perfect. Obviously they aren’t. But their failings are not the failings of the private sector and their successes cannot be made by aping the private sector. That’s the wrong model.
MOST things get productivity gains to offset inflation. You still get inflation, but improvements in process, better mechanization, etc. result in more widgets made with the same or less labor. R&D costs get paid for early in product life and then stripped out of the product. Innovation drives a new product cycle and the MP3 player becomes a phone as well, but the prices are held in check by the other products available. Innovation also drives costs down as we figure out how to extrude chicken nuggets from spare parts, keeping the nugget cost down.
Education (and health care) don’t follow this model well at all. Most services don’t. You don’t become more productive cutting hair, so you can’t offset the pay of a hairdresser with productivity gains. Same with a college professor (health care has more moving parts, innovation tends to be a cost driver with health care). Your haircut has probably gone up more than a lot of other things in your life as well, but as stylists aren’t in demand by business and industry like well educated college professors may be.
What your words actually said was that non-profits have no right to have the business model that they do: only for-profits are allowed to have a business model that involves holding on to assets. You may not have meant that, but that is the only interpretation possible from what you wrote.
I disagree with that as a premise. So do all the learned business schools of this country.
Endowments aren’t just something the colleges are “pretending they can’t spend” in most cases. The bookkeeping for a nonprofit generally lists net assets in three categories:
Unrestricted Net Assets: Can be spent any time for (almost) any purpose
Temporarily Restricted Net Assets: These may be grants that can’t be spent until earned (perhaps by completing some action first, or based on time requirements.) For example, if I give $1 million and stipulate that it be used $100,000 per year for scholarships, this is temporarily restricted.
Permanently Restricted Net Assets: Endowments and scholarships often fit into this category; you cannot ever spend these funds, though you can usually spend the earnings on them. For example, if I give $1 million and stipulate that only the interest can be used for scholarships, this is permanently restricted.
Wow, I guess I started a sh!+storm about non-profits.
The OP’s question was about Universities, as was my response. You expanded the scope of my statements to include all non-profits, I did not explicitly state that my statements applied to all non-profits, nor can anything I said lead one to imply that the statements I made were meant to apply to all non-profits.
I was CFO of a 403(c) non-profit.
Please tell me when I can expect the endowment check.
School increases tuition, enrollment doesn’t go down. Hmmm. Increase it again. Enrollment still doesn’t go down. Oh! We can increase tuition as much as we want and nothing bad happens to our enrollment. Time for pay raises for all the admins and let’s hire a bunch more bean counters while we’re at it.
This, of course, requires that students still keep paying for college, but with loans taking on a larger part of the funding. Obviously this pattern can’t go on forever. We might have in fact hit the limit already. More and more students are finally wising up to not taking on huge loan debt to pay for college.
Look at their competition: Those quasi-accredited diploma mills. Note that their business model consists entirely of high tuition that is paid by student loans. Never mind actually teaching anything, whether the students get a degree and certainly don’t mind the students failing to pay back loans.
These places are astonishingly successful. (I have no idea why.) So real colleges only have to be slightly better than those places. Which is really easy.
(We recently tried to persuade a family member from throwing money away at one of these places. The fact that the local community college offered the same program, at a better quality, at a lower cost and with much better job prospects was completely ignored. These places know how to sell.)
And as to endowments: Public schools do have endowments. Some are quite large. One place I was at got 1/3 of its income from tuition. The rest from the endowment. It’s the little local state schools that are a few decades old that usually don’t have squat in terms of endowment. These places cut costs by hiring the cheapest part time faculty available. Which is not good.