Are College Costs Out of Line?

By Michael Fumento

Investor’s Business Daily, November 12, 1991
Copyright 1991 Investor’s Business Daily

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At the University of Colorado at Boulder in September, William Roberts, a student leader, pushed a wheelbarrow filled with rolls of quarters into the bursar’s office.

The coins equaled the 7.1% tuition increase for students at the largest campus in Colorado.

Across the state, other students loaded coins into wheelbarrows and rolled them off to administrators’ offices in similar protests.

Mere youthful rebelliousness? Perhaps. But for the past decade, college tuition costs for both public and private institutions have outstripped inflation. In a nation that has long prided itself on the availability of higher education to anyone with ability who wants it, this is becoming a major worry.

College costs are skyrocketing.

Indeed, two years ago the Illinois State Scholarship Commission predicted that, based on trends to date, the family of a student graduating in 2004 from the state’s largest public school, the University of Illinois, will pay more than $87,000 for tuition, fees, room and board for four years. It estimated that at a private school like Northwestern University, the cost will exceed $250,000.

Already, between 1980 and 1987, the average tuition at public four-year institutions increased from 3.8% to 4.8% of median family income. Tuition at private four-year institutions went up from 16.6% of that income to 22.1%.

According to Fidelity Investments, the amount parents will have to set aside to pay for their child’s college education is not small change.

Using the average private college tuition of $14,023 a year and current inflation trends, Fidelity figures that the average college tuition in 18 years will jump to $44,452 a year.

To meet that hefty cost, a parent would have to sock away an average of $324.95 a month for 18 years, even assuming a healthy 10% pretax return on investment. The amount is out of reach for many middle-income parents, now facing higher taxes and slow-growing incomes.

One reason schools often give for the rapid rise in tuition costs is that they are still making up for the years in which tuition fell behind the consumer price index, which went into double digits in 1980. But there was only one year, 1979, in which private institutions’ tuition increases fell behind inflation, and three years, 1978-80, in which tuition at public schools did. By 1983, even the public institutions had more than made up for the shortfall.

In contrast, from 1964, when the federal government began keeping tuition statistics, until 1975, tuition increases on average matched the CPI rise almost exactly.

Others argue that tuition increases are necessary to make up for state and federal funding shortfalls. Yet, from 1979 to 1987, the last year for which figures are available, state and federal funding to public and private colleges and universities went up 91%, while the CPI went up only 56%.

Administrators eagerly point out that student aid has been going up even as tuitions have. True enough, but the increase in student aid has not matched he tuition increases.

In 1990, post-secondary students were awarded $27 billion in federal, state and institutional aid, according to "Trends in Student Aid: 1980-1990," published by the College Entrance Examination Board. This represented a 10% increase from a decade earlier. But during that time, costs went up more than 50%.

Further, more and more this student aid has come not from grants and scholarships, but from loans. In 1976, more than 75% of the aid students received was in a form that did not have to be paid back. Now that figure is less than 50%.

The result is that students are increasingly finding themselves saddled with a heavy debt load upon graduation.

’Most Legitimate Reasons’

A study of New England graduates released this year found that about half of those queried considered their student loan debt a great hardship and that a fourth said it had influenced their choice of a career.

Professions considered honorable but lower-paying such as teaching, social work and public-interest law, were specifically eschewed by those worried about their ability to pay off their loans.

Academics cite a variety of reasons for the tuition increases.

Edwin J. Delattre, interim dean at Boston University School of Education, cites increasing costs for health care for staffs, deferred maintenance on facilities, overbuilding for student populations that failed to increase as quickly as expected, and simple mismanagement. But, he said, "The best and most legitimate reasons have to do with providing the best education opportunities you can."

Indeed, it is commonly believed, and at least one recent study has confirmed, that higher tuitions generally reflect a higher quality of education.

On the other hand, a mediocre institution that doubles its tuition hardly transforms itself into a top school. Nevertheless, there seems to be a belief at some colleges and universities that if they increase their tuitions, they will have the appearance of being better schools.

Charles Sykes, author of Profscam and the National Review College Guide, calls this "the financial snob factor." Said Sykes: "The real irony is that tuition is rising so fast even while students get less and less for their money. The money is not going to enhanced teaching.

"The Stanford scandal showed a rather creative way universities have of spending money," Sykes said, referring to the recent revelation that Stanford University President Donald Kennedy had used government research money to pay for, among other things, daily fresh flowers at the presidential mansion and a presidential yacht.

"Universities have fast become empires of unaccountable spending," he added.

Skeptical Administrator

Robert V. Iosue, newly retired president of York College in Pennsylvania, believes that most explanations given for rising tuition costs are little more than flimsy excuses. Among them are that purchases of high-powered computers have driven up overall costs as universities automate.

But, Iosue counters, purchases of new equipment are hardly a recent development. "Keep in mind," he said, "that when the price of oil skyrocketed, colleges blamed that for tuition hikes, and yet when the price of energy came down the cost of tuition went up and went up even faster."

One issue hit upon by Iosue and several critics is the growth of administration — the education bureaucracy — at colleges and universities.

Data from the U.S. Equal Employment Opportunity Commission (EEOC) show that the number of professionals employed to perform "academic support" functions rose by more than 60%, or about 100,000 people, between 1975 and 1985 and by an additional 29%, or about 77,000 people, between 1985 and 1989, the last year for which data are available.

That category, which EEOC calls "other professionals," includes financial aid counselors, coaches, auditors, systems analysts and other such jobs.

By contrast, the number of full-time faculty members rose only 6% from 1975 to 1985 and 8.7% from 1985 to 1989.

The category of executive, administrative and managerial employees has also been growing rapidly — almost 15% between 1975 and 1985 and another 14% between 1985 and 1989.

Will this woman be paying off her tuition for life?

Higher education officials blame much of the administrative increase on recently enacted federal laws and regulations. Title IX regulations governing equal access to sports for women, for example, necessitate the hiring of more coaches.

But, said Steven Balch, president of the National Association of Scholars in Princeton, N.J.: "Universities are also more driven today by standards of an internal body than of the students they’re supposed to serve. There’s not a sense of mission to keep that in check.

"The faculty and the administration tend to take over and spread their own interests," he said.

Playing Other Functions

Dr. Chester E. Finn, assistant secretary of education in the Reagan administration and now director of the Educational Excellence Network in Washington, D.C., concurs.

"They’ve begun to play a lot of other functions besides teaching, including myriad forms of counseling and guidance," he said. "They’ve tried to become full-service institutions to their students and in some cases to the communities and their own faculty and staff."

The increase in administration varies widely from school to school. As one way of keeping track of administrative increases, the National Association of Scholars is conducting a study comparing administrative positions in college catalogs of 1964 with those of the present.

Balch notes, for example, that while such positions listed by the College of William and Mary went up from 24 to 40, and those at Northwestern increased from 21 to 38, at Vassar College they increased from 64 to 390 and at Wesleyan University they went up from 14 to 116.

Balch points out, however, that positions that one school lists in its catalog may vary from those that other schools list and that there may also be differences in listing criteria in the same school between 1964 and the present.

Apologists for tuition increases, relying on studies that show that over the course of a lifetime a college graduate will earn far more than a non-college graduate, point out that higher education remains a good bargain.

But, said Finn, "Remember that most people who start college never get a degree."

According to one study of students who drop out of college, half say that concern over borrowing to pay tuition and other costs contributed to their decision.

Preventive Factor

There is also evidence that a reluctance to borrow keeps some people from ever going to college. Ruth Eksgrom, senior research scientist at the Educational Testing Service in Princeton, N.J., conducted a survey of high-school seniors asking whether they were willing to borrow to go to school, then tracked them to see whether they did. She found that those who feared loans were more likely to delay college, choose lower-priced schools, or not go at all.

This illustrates that the law of supply and demand is already influencing would-be college applicants, though as yet it appears that young people have not been abandoning college plans in great numbers due to higher tuitions.

On a per-college basis, in fact, said Iosue: "Tuition increases seem to attract more applications. A study has shown no disadvantage of high tuition and that there’s a disadvantage for setting tuition too low."

As costs rise, assessments of the quality of college education drop.

This reflects the "snob factor" of which Sykes spoke.

But in this case, the market has been distorted because of subsidies from the federal government, states and other contributors. "In any area where you have demand that’s heavily subsidized," said Balch, "costs tend to go up."

By jacking up tuitions, he explains, colleges more or less automatically increase government and private subsidies to the student and, ultimately, to the institution.

So long as the subsidies keep pace with tuition, the institution gains and the student is no worse for it. Only the subsidy provider loses.

"These colleges," said Iosue, "know that aid to students is based on the cost of colleges, so there’s hardly any incentive to keep costs down."

Squeeze On Students

But as the subsidy providers have become less willing to pay, students have become increasingly squeezed. More and more, students have gone from funneling the wealth provided by others to providing it themselves.

Said Iosue, "They (colleges and institutions) are bemoaning the fact that (those providing aid) haven’t been increasing aid to students at the same outrageous rate that they’ve been increasing their own tuitions."

In order to allow students to continue to be able to pay tuition, Congress is now considering expanding the Stafford Loan program to allow students to borrow considerably more than formerly.

But lines of credit are one thing, and a willingness to saddle oneself with perhaps tens of thousands of dollars of debt to satisfy burgeoning college appetites, is another.

Said Iosue, "I’m going to predict that market forces will come to bear on colleges today simply because families are now putting finances into the equation rather than just the reputation of the college."


Read Michael Fumento’s additional work on education and on economics.