Higher (cost) Education

Around this time of the year, the elation of graduation can be seen all around us: On TV, in newspapers, on social media, and elsewhere. However, for most graduates, the euphoria of their achievement is soon tempered by the reality of the burden that now rests on their finances and their future: Student loan debt. Many new graduates will struggle to manage their debt obligations, and some may even wonder if college was worth it in the end. However, the one question that I have noticed that is not being asked enough is this: Why is higher education so expensive in the first place?

Now, that's not to say that the issue of the expense of education has been muted. In recent years, a lot has been made of the cost of attending college, and at a time when a degree is a virtual requirement for success in today's economy, an increasingly high price tag is a particularly tough pill to swallow. Now, there are a lot of different ways to manage the cost of attending college: 529 savings plans, scholarships, grants, co-ops, and student loans are just a few. However, even when employing a mix of savings, scholarships, and loans to help cover costs, the final price tag is still quite high, even prohibitively so. All of this reinforces my curiosity behind my earlier question. In this post, I'll discuss (and dispel) the most commonly cited explanation behind of expense of higher ed, and provide a theory of my own.

Is declining state investment to blame?

When it comes to assessing responsibility for the sharp increase in college tuition over the last few years, state governments tend to shoulder the majority of the public's blame. The reasoning goes something like this: Since public institutions have two primary revenue streams, state funding and tuition, the most likely cause for the sharp increase in tuition rates over the last few years can only be due to an attempt by schools to maintain their revenue levels in the face of a decrease in state funding. The supposed cause of this decrease in public funding varies from state to state, ranging from shifting budgetary priorities to a decline in general tax revenue due to unfavorable economic conditions, but the idea is still the same: Because states are spending less on education, colleges are being force to make up the difference by charging students more.

Graph showing the level of overall state funding for higher education (red) compared to the average price of tuition (blue) from 2000 to 2015

There's just one problem with this theory; it's incorrect. A study conducted by the Bipartisan Policy Center (available here) concludes that from 2000 to 2015, overall state funding levels for higher education have remained mostly flat, while the average tuition price nearly doubled over the same period. Now, it's worth noting that state funding did experience fluctuations, but never more than a few percentage points in either direction. Thus, the most commonly cited explanation for the increase in tuition prices doesn't stand up to scrutiny.

Is bigger really better?

 

My personal theory is quite simple: Schools have gotten too big. Now, this is not to say that the size of the student bodies that schools serve have grown too much, but rather that schools are exceeding their core mission of providing a quality education. You see, back when our public institutions of higher learning were first established, schools were quite Spartan by today's standards; campuses consisted of a few classroom buildings, maybe a dorm or two, an administration building, and that's about it.

Compare that to today, where schools are sprawling cities unto themselves, covering square miles of land, consisting of dozens of structures (that are constantly being demolished, rebuilt, or expanded), many of which house services that have only a tangential relation to education (think supersized football stadiums, food courts, coffee shops, and more student organizations than you can shake a stick at, just to name a few). Now, I understand all of that "fluff" adds to the college experience (the sports venues were particular favorites of mine), but it comes at a cost... literally. Cut it all out and I guarantee that operating a school wouldn't be nearly as expensive as it is today.

So, now the question becomes this: Why hasn't any school done just that? Leave out all of the "fluff", drastically reduce tuition costs, and attract students that way? Simply put, schools know their audience. Wide-eyed 18 year-olds aren't thinking about their financial futures as much as they are thinking about all of the great times they're going to have immersing themselves in the "college experience". In addition, obtaining credit for the purpose of attending school is relatively easy, so regardless of what schools decide to charge for tuition, students won't likely have difficulty getting their foot in the door.

Add all of this up, and it has created a "race to the top" situation, where schools are spending increasingly large amounts of capital to create ever-more premium experiences to attract students. While this does benefit students in the short run (after all, who doesn't like brand-new dorms with a Starbucks in the lobby?), the benefits themselves are largely superfluous and do not outweigh the additional costs they incur.

What's to be done?

 

That's somewhat of a loaded question. Several solutions are been proposed, including offering incentives to schools to keep tuition costs low, restricting access to credit for students, and even having the government subsidize all tuition fees. Personally, I don't have a silver-bullet answer, but this is something that I'm going to continue researching.

In addition, several alternatives to traditional four-year colleges have started to increase in popularity over the last few years. Technical schools, boot camps, and employer training are all becoming more prominent and are gaining acceptance within the private sector, allowing people to obtain the real-world skills they need to be competitive in today's economy without accruing the heavy debt burden of a traditional education. However, only time will tell if this is going to be a viable path forward or simply a passing fad.

For now, costly tuition is a reality that we're going to have to live with. Prices aren't likely to come down anytime soon, and if recent history is any indication, they're probably not finished rising, either. Only time will tell if market forces or public opposition will eventually compel institutions of higher learning to address this issue.