In response to my request for uncomfortable questions, Lou asks:
As a private college professor and a new parent, I'm sure you are aware that the current rates of tuition growth are unsustainable indefinitely. When do you expect to see the rates drop back to inflation levels, rather than continuing to grow 3-4% above it?
The short answer is "The minute that students and parents start going elsewhere." The setting of tuition rates is a Black Art, but the essential calculation is striking a balance between "What do we need to improve our operation?" and "What will the market bear?" If people stop putting up with big tuition increases, and application numbers drop, then tuition rates will stop increasing quite so rapidly.
The long answer...
... well, it's complicated. The question is really what's driving tuition rates to increase faster than inflation. Contrary to the impression you get from some critics of academia, the tuition money is not going to pay for extravagant gay weddings of liberal professors to help them corrupt the morals of America's youth. Running a college or university is an expensive business, and most of the money that comes in from tuition is spent on operating costs: faculty and staff salaries, benefits, research and residential infrastructure, etc. Those things get more expensive every year.
Something that would help slow the rate of tuition increase is a sensible solution to the rising costs of health care. Health insurance is a huge chunk of the operating costs, because a college needs to not only provide reasonable coverage for their faculty and staff, but they also need to have some insurance to cover the things that can happen when you pack large numbers of 18-22 year olds together. The idiotic and baroque insurance system in this country puts a big burden on all businesses, and also on colleges and universities.
Similarly, a better energy policy would do wonders to hold costs down. Colleges and universities need to provide research and residential space for a large number of faculty and students, which means heat, light, running water, Internet connectivity, and so on. When energy prices spike upwards sharply, the money to pay for those things has to come from somewhere.
Of course, the high-profile and vaguely problematic driver of tuition is a sort of "arms race" between different schools in terms of the amenities they offer. Institutions compete not only on faculty quality, but also on what they offer to students outside the classroom. You can't attract good students without having good living space, good exercise facilities, good food service, and the rest. There are also costs associated with supporting students both inside and outside the classroom-- career offices, counseling centers, academic support services. It costs a lot of money to maintain a standard that students and parents will find acceptable, and get students to come in. That stuff's not free.
You'll find a lot of people (many of them faculty) who complain about those expenditures, as if it's somehow unseemly for an educational institution to offer eating options beyond gruel and hardtack in an unheated barn of a dining hall. Surprisingly few of those complaints come in the form of parents and students opting for austerity, though. You're far more likely to find students and parents demanding more stuff than complaining about how much money is wasted on non-classroom facilities, and to this point, they've been willing to pay for what they want, in the form of increased tuition.
Is the recent historical rate of increase unsustainable? In the long term, absolutely. The uncomfortable fact, though, is that the unsustainable rate of increase has proven to be sustainable for a lot longer than anyone would've thought. We're probably nearing the breaking point, but then, people have been saying that for a decade at least, and there hasn't been any change.
From the parental side, I honestly haven't worried about it that much. SteelyKid's college years are so far in the future that it's really impossible to predict what the educational landscape will look like. We'll set money aside for her college, and when the time comes, we'll find some way to make things work. What that will be, I have no way of knowing, but we'll come up with something.
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As important as healthcare and energy costs are, every other business faces them also. The fact that higher education costs are outpacing inflation means that higher education is suffering from factors above and beyond those facing other industries.
I claim no great insight into what those other factors are. I'm sure that the non-academic amenities are part of it, but I have no idea whether they're a major part or a drop in the bucket.
Something that would help slow the rate of tuition increase is a sensible solution to the rising costs of health care.
Which would also have the benefit of slowing down increases in local tax rates. Here in New Hampshire, that means property taxes, the majority of which go to support the local public schools. The last few public sessions I have gone to, increases in health insurance costs have been one of the biggest drivers of school district budget increases. Where you are the details are probably different but the effect is still the same: health care costs driving up your local taxes.
The uncomfortable fact, though, is that the unsustainable rate of increase has proven to be sustainable for a lot longer than anyone would've thought. We're probably nearing the breaking point, but then, people have been saying that for a decade at least, and there hasn't been any change.
During this period we have been ramping up to the top of a demographic bubble: the absolute number of students graduating from high school has been at record levels. As a result college applications have been on the rise (at least for my undergraduate alma mater), implying that there are still enough people who are willing and able to pay (or borrow) these tuition fees. This bubble is peaking about now, so the available applicant pool will start decreasing for most colleges and universities. This is aside from economic factors which will exacerbate the trend: the popping of the credit bubble will also mean that people will be less willing to borrow tuition money.
(P.S. It looks like you forgot to close an anchor tag above the fold.)
your link tags are broken
(as this comment has no other point, please nuke it)
As important as healthcare and energy costs are, every other business faces them also. The fact that higher education costs are outpacing inflation means that higher education is suffering from factors above and beyond those facing other industries.
Or that colleges and universities have a greater freedom to increase their prices than many other businesses. In lots of under industries, there are greater pressures to keep the price to the consumer low, so as health care increases due to inflation, their profits get squeezed until the point that they have to cut benefits to their employees.
Academia has, so far at least, been relatively unaffected by increasing tuition, so schools have been able to increase tuition to match increases in health and liability insurance rates (which is a separate but similar issue, and also a large expense for academic institutions).
What about the character of the student body? I'm hearing reports from a SLAC of interest that the gradual financial pressures of the past couple of years has reduced the middle class segment of the student body. Profs are pissed at the increase in proportion of spoiled entitled rich brats. I shudder to think what it will look like for them next year...
I guess I'll add my obligatory rant about the fact that, at least since the early 80's, the size of university administration has grown 3-4 times faster than the size of either the faculty or student body.
Surely that must be a non-trivial factor in rising costs.
I guess I'll add my obligatory rant about the fact that, at least since the early 80's, the size of university administration has grown 3-4 times faster than the size of either the faculty or student body.
Very likely.
A lot of that growth wasn't really optional. A good deal of the increase in the size of administrative bureaucracy comes from the need to comply with various legal obligations-- support for students with disabilities, compliance with various federal education laws, etc. Another chunk is not mandatory, but just a good idea: increases in residential life staff and so on to make sure that students have a good experience, and something to do other than drink themselves into a stupor.
Finally, a big chunk of the increase in administrative staff comes from technology-- in the early 80's, I'm guessing that not too many colleges had a professional IT staff. These days, most colleges literally could not function without computer support services. Those people are frequently categorized as "administration" for budgeting purposes, which makes the growth look much more dramatic.
One really important point here that is generally overlooked is that tuition doesn't cover 100% of the cost of educating students. This is especially true at state universities. Here's a simple example to show why this is important.
Suppose that tuition covers 50% of the cost of educating each student. (For concreteness, let's say tuition is $10k and the cost per student is $20k.) Let's say that inflation is 5% and that non-tuition funding is flat. One year later it will cost $21k to educate that student. To balance the budget, tuition will have to go up 10%, to $11k.
This dynamic doesn't apply at all universities, but it does apply at a lot of them. Comparing tuition increases to inflation doesn't make sense unless you also factor in the rate of change of other funding sources, and what percentage of the cost of education those cover.
Tuition cost keep rising because parents have a belief that education is sacrosanct, a must-have for their child to be successful. Therefore, it becomes an inelastic good.
Microeconomics tells us that prices for inelastic goods can rise much faster than goods in the rest of the economy; people will pay because they are convinced there is no other option.
When people re-prioritize the value of education, we'll see a change in the price structure. The downside is that this re-prioritization is likely to further abet the Dumbing of America.
"Contrary to the impression you get from some critics of academia, the tuition money is not going to pay for extravagant gay weddings of liberal professors to help them corrupt the morals of America's youth."
Wait, it doesn't? I demand a refund!
I would be interested to see the average amount actually paid per year by students, and how that has changed. That is Tuition + books + fees - grants - loans - aid.
You might have to add living expenses in there, especially for students in school residences. That would also impact the school budget if they have to run those.
The loan thing is problematic. I think it has allowed the tuition increases to continue longer that otherwise.
Chad-
Yes, higher ed may be better able to pass on those costs to customers than other industries, but that suggests that the real problem is that higher ed hasn't adapted to rising energy and healthcare costs, not the costs themselves.
As to administrators, in addition to the mandatory things (resource or compliance office for this or that) and the good ideas (certain student life things, although not all student life staff positions are created equal) there are gray area positions: Some sort of assessment activity may be mandatory, but not every school must do it the same way. Hiring a coordinator giving him/her a staff and budget is a way to show that money is being thrown at the problem. Creating a resource office for a group of students deemed at risk may or may not improve retention, grades, and graduation rates, but it will demonstrate to all concerned onlookers that money is being thrown at the problem. And failure to throw money at these things may not be strictly mandatory, but it averts a lot of problems.
One of the other factors that's less apparent is that most of the rest of the economy has enjoyed a huge increase in productivity over the last few decades. It takes fewer people less time to crank out, distribute, and sell most widgets and services, and this helps keep prices down.
Over in the education world, we're still looking at one instructor teaching a room of students, and one of the areas where higher ed competes is trying to keep the student/faculty ratio low. In the classroom, we're no more productive than we were a century ago. Whatever productivity gains we've made in Financial Aid and the bookstore aren't going to be big enough to get us down to the inflation rate without paying the faculty minimum wage or radically changing how we deliver an education.
I don't know about Chad, but I'm not keen on the minimum wage idea.
EDIT to last sentence:
And failure to throw throwing money at these things may not be strictly mandatory, but it averts a lot of problems.
The rules don't always say that you must hire an administrator with a particular title, and the squeaky wheels may not always demand the hiring of a particular person. They may just say that you must "do something." Hiring a person is just a convenient way to show that "something" is being "done." Or at the very least the administration has just made it somebody else's problem. "Here's a salary and an office. Make the demands go away."
1) States keep slashing funding for their educational institutions. I live in Michigan and attended the University of Michigan and every year Lansing reduced the allocation for the University, despite the fact that businesses growing out of the Michigan Research Corridor (University of Michigan, Michigan State University, Wayne State University) are the state's last hope for an economy. With the University getting less state funding and the endowment only generating fixed returns, money had to be found somewhere so we got a couple of mid-term tuition hikes. I'll be paying those off for the next 25 years...
2) Colleges do things expensively. For example, the newest science research building on campus (unless you count the Pfizer campus that is being purchased as is) is the Biomedical Research Science Building (needs a better name, like Lucy or Dwonk). It is a beautiful, tasteful postmodern building and the MCDB and Neuroscience departments and some others all moved in, leaving the older buildings to the other, now jealous (they have windows!), departments. It has a 5 story atrium with skylights and pedestrian bridges across it and bamboo growing out of the floor and conference rooms and a cafe and a shiny wavy window wall with a Pringle stack auditorium (with comfortable seats no less!). The same amount of research space could have been built in an unimaginative block for much less money (like the Life Sciences Institute built just before it). And in other buildings they have dark wood paneling and plush chairs and gigantic flat screen TVs droning CNN and each year the computing centers get the newest generation of iMacs etc etc etc. It's like extravagance is built into academic building design such that things wind up costing much more than they otherwise would have to.
Efficiency and technology are two biggies, as mentioned.
Businesses buy technology to improve efficiency. If buying a bunch of computers lets you hire fewer people, you have a net gain.
Colleges buy technology to improve their "product" - the education. You get a better product, but a more expensive one
Oversimplification, of course, because some technology in colleges is used for efficiency and some technology in businesses is used for improving product. However, I think the basic idea - that technology tends to increase expenses for colleges but decrease it for businesses, holds.
Relatedly, there's the point that David Owen-Cruise made, which relates back to Chad's point about insurance. The easiest way to decrease health insurance costs is to decrease the number of people covered. David points out one reason this is difficult for colleges.
That rather depends on what you include in "the cost of educating each student." There's a reason why outfits like the University of Phoenix [1] manage to make hairy profits while expanding like algal blooms and still managing to pay their faculty rates comparable to local universities: they don't include research and related expenses in their "cost of tuition."
Sit down some time and calculate what the per-semester-hour income is from a room full of undergraduates. Subtract the usual industrial figure of double direct labor for offices, benefits, etc. Subtract commercial floorspace rates for classrooms. Be realistic about the time required outside of class for grading, lesson preparation, etc. to get a reasonable full-time class load per instructor.
Now divide to get the resulting ceiling for a faculty salary.
It's an eye-opener.
[1] Not that the UoP is anything more than a diploma mill; however, the economics are still valid.
#12: Yes, higher ed may be better able to pass on those costs to customers than other industries, but that suggests that the real problem is that higher ed hasn't adapted to rising energy and healthcare costs, not the costs themselves.
That depends on what you take as your goal.
From a purely short-term business view, it's true that academia's passing on of costs is in some sense less efficient than it might be.
If you look at the situation from a longer-term point of view, asking whether the choices being made are consistent with having a stable society with a decent standard of living, the "efficient" business model of slashing benefits rather than raising prices is no more sustainable than the academic model of endlessly increasing tuition. Rising health care costs are a problem, and something needs to be done about them sooner or later.
#13: Over in the education world, we're still looking at one instructor teaching a room of students, and one of the areas where higher ed competes is trying to keep the student/faculty ratio low. In the classroom, we're no more productive than we were a century ago. Whatever productivity gains we've made in Financial Aid and the bookstore aren't going to be big enough to get us down to the inflation rate without paying the faculty minimum wage or radically changing how we deliver an education.
This is true. I wouldn't say that total productivity has remained flat, though-- I think modern faculty are more productive than faculty in the past. It's just that the increased productivity is in the form of research, rather than increased classroom throughput.
Which brings us to:
#17: There's a reason why outfits like the University of Phoenix [1] manage to make hairy profits while expanding like algal blooms and still managing to pay their faculty rates comparable to local universities: they don't include research and related expenses in their "cost of tuition."
Sure.
But that's about as useful as saying that Microsoft has much larger profits than Ford. They're in a completely different business.
It's true that you could imagine a system where the research and education functions of a modern college or university are performed by separate institutions, in much the same way that you could imagine a set of professional sports leagues that would take the place of the athletic departments at major universities. It might even be an effective system of providing the things that a modern college or university provides now (though there are significant benefits from combining research and education).
What it wouldn't be is a college or university system as we know it. The modern definition of a college or university includes scholarly research as part of the activities of the institution. The "University of Phoenix" is a different beast altogether, no matter what they call themselves.
Indeed -- but at some point the well runs dry. When individual students are paying more per year than the faculty receives in pay and benefits, someone is going to start asking whether they're getting their money's worth.
That day isn't all that far off.
outfits like the University of Phoenix ... don't include research and related expenses in their "cost of tuition."
But these institutions, which D. C. refers to as "diploma mill[s]", have a different purpose than traditional colleges/universities. Traditional institutions have included research in their mission, explicitly in the case of those that grant Ph.D. or equivalent degrees. Even the SLACs in this group consider it an attraction that students can get involved in research.
But observationally there are students who have neither interest nor aptitude for research. The likes of UoP exist to serve these students, many of whom are (due to budget cuts--the scenario Toaster outlines is hardly unique to Michigan) unable to get into the programs they want at their state university, or graduate in a timely fashion due to course unavailability. While going after this market segment makes no sense for a Research I or II university, or a top-tier SLAC, this segment exists, and outfits like UoP will chase this market niche.
D. C. did leave out one important component in his calculation: the campus library. Books are expensive, as can be verified in a quick visit to your campus bookstore. Thus the library must exist to hold books that professors consider useful but not required for their courses; e.g., if your intro physics sequence uses Sears and Zemansky then the library should have the corresponding Ohanian textbook, among others. IME textbooks have their strengths and weaknesses, and some students may learn things from Ohanian that aren't clear to them in Sears and Zemansky, or vice versa.
There is probably some extra money spent on journal subscriptions (although the journal publishers bear much of the blame for the high cost of journal subscriptions), and it's probably reasonable for a minor university not to subscribe to the Journal of Subfield Physics if none of their faculty are in that subfield. But an institution that offers a bachelor's degree in physics and does not subscribe to PRL is almost certainly shortchanging its students.
Education "consumers" can't go else where as there is very little real competition. Most of us have to stay in state to get a more affordable rate. There are often only 1 or 2 public universities that offer the major we are interested in. Usually there is very little if any difference in tuition among the choices. While there are private institutions, I know of no one in the traditional middle class that afford them.
Why are people still becoming students? Because so far scholarships and student loans have kept up the the tuition increases. In fact almost every increase in these is quickly followed by an increase in tuition.
My Daughter will owe more in student loans then our house cost 15 years ago. She will be a decade or more in paying it off.
Here in Lincolnland tuition is rising faster than the cost of living because the state has had a long standing policy to shift the cost of higher education to the user (something I posted about just a month or so ago: http://phytophactor.blogspot.com/2008/12/very-clever-political-ploy.html
And of course the worst or best part depending upon your perspective is that universities get the blame.
I attended a SLAC from 2002-2006 (graduated 2006) in the Pacific Northwest. Every year the tuition went up at least 3%, one year it increased 7%. The most frustrating reason given for the increase- to attract more incoming students. Apparently, if tuition was just "incredibly high" and not "outrageously high" competitive high school seniors don't think the school is good enough.