The Real Reason College Tuition Costs So Much

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BOULDER, Colo. — ONCE upon a time in America, baby boomers paid for college with the money they made from their summer jobs. Then, over the course of the next few decades, public funding for higher education was slashed. These radical cuts forced universities to raise tuition year after year, which in turn forced the millennial generation to take on crushing educational debt loads, and everyone lived unhappily ever after.

This is the story college administrators like to tell when they’re asked to explain why, over the past 35 years, college tuition at public universities has nearly quadrupled, to $9,139 in 2014 dollars. It is a fairy tale in the worst sense, in that it is not merely false, but rather almost the inverse of the truth.

The conventional wisdom was reflected in a recent National Public Radio series on the cost of college. “So it’s not that colleges are spending more money to educate students,” Sandy Baum of the Urban Institute told NPR. “It’s that they have to get that money from someplace to replace their lost state funding — and that’s from tuition and fees from students and families.”

In fact, public investment in higher education in America is vastly larger today, in inflation-adjusted dollars, than it was during the supposed golden age of public funding in the 1960s. Such spending has increased at a much faster rate than government spending in general. For example, the military’s budget is about 1.8 times higher today than it was in 1960, while legislative appropriations to higher education are more than 10 times higher.

In other words, far from being caused by funding cuts, the astonishing rise in college tuition correlates closely with a huge increase in public subsidies for higher education. If over the past three decades car prices had gone up as fast as tuition, the average new car would cost more than $80,000.

Some of this increased spending in education has been driven by a sharp rise in the percentage of Americans who go to college. While the college-age population has not increased since the tail end of the baby boom, the percentage of the population enrolled in college has risen significantly, especially in the last 20 years. Enrollment in undergraduate, graduate and professional programs has increased by almost 50 percent since 1995. As a consequence, while state legislative appropriations for higher education have risen much faster than inflation, total state appropriations per student are somewhat lower than they were at their peak in 1990. (Appropriations per student are much higher now than they were in the 1960s and 1970s, when tuition was a small fraction of what it is today.)

As the baby boomers reached college age, state appropriations to higher education skyrocketed, increasing more than fourfold in today’s dollars, from $11.1 billion in 1960 to $48.2 billion in 1975. By 1980, state funding for higher education had increased a mind-boggling 390 percent in real terms over the previous 20 years. This tsunami of public money did not reduce tuition: quite the contrary.

For example, when I was an undergraduate at the University of Michigan in 1980, my parents were paying more than double the resident tuition that undergraduates had been charged in 1960, again in inflation-adjusted terms. And of course tuition has kept rising far faster than inflation in the years since: Resident tuition at Michigan this year is, in today’s dollars, nearly four times higher than it was in 1980.

State appropriations reached a record inflation-adjusted high of $86.6 billion in 2009. They declined as a consequence of the Great Recession, but have since risen to $81 billion. And these totals do not include the enormous expansion of the federal Pell Grant program, which has grown, in today’s dollars, to $34.3 billion per year from $10.3 billion in 2000.

It is disingenuous to call a large increase in public spending a “cut,” as some university administrators do, because a huge programmatic expansion features somewhat lower per capita subsidies. Suppose that since 1990 the government had doubled the number of military bases, while spending slightly less per base. A claim that funding for military bases was down, even though in fact such funding had nearly doubled, would properly be met with derision.

Interestingly, increased spending has not been going into the pockets of the typical professor. Salaries of full-time faculty members are, on average, barely higher than they were in 1970. Moreover, while 45 years ago 78 percent of college and university professors were full time, today half of postsecondary faculty members are lower-paid part-time employees, meaning that the average salaries of the people who do the teaching in American higher education are actually quite a bit lower than they were in 1970.

By contrast, a major factor driving increasing costs is the constant expansion of university administration. According to the Department of Education data, administrative positions at colleges and universities grew by 60 percent between 1993 and 2009, which Bloomberg reported was 10 times the rate of growth of tenured faculty positions.

Even more strikingly, an analysis by a professor at California Polytechnic University, Pomona, found that, while the total number of full-time faculty members in the C.S.U. system grew from 11,614 to 12,019 between 1975 and 2008, the total number of administrators grew from 3,800 to 12,183 — a 221 percent increase.

The rapid increase in college enrollment can be defended by intellectually respectable arguments. Even the explosion in administrative personnel is, at least in theory, defensible. On the other hand, there are no valid arguments to support the recent trend toward seven-figure salaries for high-ranking university administrators, unless one considers evidence-free assertions about “the market” to be intellectually rigorous.

What cannot be defended, however, is the claim that tuition has risen because public funding for higher education has been cut. Despite its ubiquity, this claim flies directly in the face of the facts.

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More and more money is being spent on higher education. Too little is known about whether it is worth it.

The article compares Europe v USA. There are pros and cons, yet, I feel that we are moving towards ever increasing costs in education (USA) with the pressure being on students to pick the school they think will get them the best job and rising tuition (Europe) with no real explanation or prove, that paying for uni will get students a better job.

-Andreas Kristinus

President, EduGate LLC

The world is going to university

More and more money is being spent on higher education. Too little is known about whether it is worth it

“AFTER God had carried us safe to New England, and we had builded our houses, provided necessaries for our livelihood, reared convenient places for God’s worship and settled Civil Government, one of the next things we longed for and looked for was to advance learning and perpetuate it to posterity.” So ran the first university fundraising brochure, sent from Harvard College to England in 1643 to drum up cash.

America’s early and lasting enthusiasm for higher education has given it the biggest and best-funded system in the world. Hardly surprising, then, that other countries are emulating its model as they send ever more of their school-leavers to get a university education. But, as our special report argues, just as America’s system is spreading, there are growing concerns about whether it is really worth the vast sums spent on it.

The American way

The modern research university, a marriage of the Oxbridge college and the German research institute, was invented in America, and has become the gold standard for the world. Mass higher education started in America in the 19th century, spread to Europe and East Asia in the 20th and is now happening pretty much everywhere except sub-Saharan Africa. The global tertiary-enrolment ratio—the share of the student-age population at university—went up from 14% to 32% in the two decades to 2012; in that time, the number of countries with a ratio of more than half rose from five to 54. University enrolment is growing faster even than demand for that ultimate consumer good, the car. The hunger for degrees is understandable: these days they are a requirement for a decent job and an entry ticket to the middle class.

There are, broadly, two ways of satisfying this huge demand. One is the continental European approach of state funding and provision, in which most institutions have equal resources and status. The second is the more market-based American model, of mixed private-public funding and provision, with brilliant, well-funded institutions at the top and poorer ones at the bottom.

The world is moving in the American direction. More universities in more countries are charging students tuition fees. And as politicians realise that the “knowledge economy” requires top-flight research, public resources are being focused on a few privileged institutions and the competition to create world-class universities is intensifying.

In some ways, that is excellent. The best universities are responsible for many of the discoveries that have made the world a safer, richer and more interesting place. But costs are rising. OECD countries spend 1.6% of GDP on higher education, compared with 1.3% in 2000. If the American model continues to spread, that share will rise further. America spends 2.7% of its GDP on higher education.

If America were getting its money’s worth from higher education, that would be fine. On the research side, it probably is. In 2014, 19 of the 20 universities in the world that produced the most highly cited research papers were American. But on the educational side, the picture is less clear. American graduates score poorly in international numeracy and literacy rankings, and are slipping. In a recent study of academic achievement, 45% of American students made no gains in their first two years of university. Meanwhile, tuition fees have nearly doubled, in real terms, in 20 years. Student debt, at nearly $1.2 trillion, has surpassed credit-card debt and car loans.

None of this means that going to university is a bad investment for a student. A bachelor’s degree in America still yields, on average, a 15% return. But it is less clear whether the growing investment in tertiary education makes sense for society as a whole. If graduates earn more than non-graduates because their studies have made them more productive, then university education will boost economic growth and society should want more of it. Yet poor student scores suggest otherwise. So, too, does the testimony of employers. A recent study of recruitment by professional-services firms found that they took graduates from the most prestigious universities not because of what the candidates might have learned but because of those institutions’ tough selection procedures. In short, students could be paying vast sums merely to go through a very elaborate sorting mechanism.

If America’s universities are indeed poor value for money, why might that be? The main reason is that the market for higher education, like that for health care, does not work well. The government rewards universities for research, so that is what professors concentrate on. Students are looking for a degree from an institution that will impress employers; employers are interested primarily in the selectivity of the institution a candidate has attended. Since the value of a degree from a selective institution depends on its scarcity, good universities have little incentive to produce more graduates. And, in the absence of a clear measure of educational output, price becomes a proxy for quality. By charging more, good universities gain both revenue and prestige.

What’s it worth?

More information would make the higher-education market work better. Common tests, which students would sit alongside their final exams, could provide a comparable measure of universities’ educational performance. Students would have a better idea of what was taught well where, and employers of how much job candidates had learned. Resources would flow towards universities that were providing value for money and away from those that were not. Institutions would have an incentive to improve teaching and use technology to cut costs. Online courses, which have so far failed to realise their promise of revolutionising higher education, would begin to make a bigger impact. The government would have a better idea of whether society should be investing more or less in higher education.

Sceptics argue that university education is too complex to be measured in this way. Certainly, testing 22-year-olds is harder than testing 12-year-olds. Yet many disciplines contain a core of material that all graduates in that subject should know. More generally, universities should be able to show that they have taught their students to think critically.

Some governments and institutions are trying to shed light on educational outcomes. A few American state-university systems already administer a common test to graduates. Testing is spreading in Latin America. Most important, the OECD, whose PISA assessments of secondary education gave governments a jolt, is also having a go. It wants to test subject-knowledge and reasoning ability, starting with economics and engineering, and marking institutions as well as countries. Asian governments are keen, partly because they believe that a measure of the quality of their universities will help them in the market for international students; rich countries, which have more to lose and less to gain, are not. Without funding and participation from them, the effort will remain grounded.

Governments need to get behind these efforts. America’s market-based system of well-funded, highly differentiated universities can be of huge benefit to society if students learn the right stuff. If not, a great deal of money will be wasted.