The Cost of Higher Education

In the US, one of the (possibly fading) glories of the educational system has been the community college, 2-year system. This is the broad middle part of the pyramid that supports the prestigious institutions at the top. A lot of students get an associate degree, and some of them even transfer to 4-year institutions to get the bachelors.

I’m sure a lot of transformative experiences are happening right now in community college classes around the US.

“But this thought that colleges and universities are like luxury resorts, so of course it costs, is not very comforting to apologists for the cost of higher ed. Four years of resort living does not sound like a model that can, in fact, be available to everyone.”

A couple of points.

1. But it wasn’t always so expensive. In fact in the fairly recent past it wasn’t anywhere near as expensive. So what gives?

1a. Was it that it wasn’t resort like until very very recently? (not a snarky question, anyone graduate from one of the mid tier schools in say the 1960s who can tell us? What was a well respected but public school like Berkley like at that point?)

2. For many of ‘the best’ colleges, isn’t the whole point really that it is exclusive and the cost is part of that? These universities think of themselves as training the leaders of the nation. Every single member of the Supreme Court went to Harvard or Yale (sometimes both). We apparently couldn’t find one person ‘smart enough’ from the West Coast Ivie–Stanford. Or even any other single school in the entire 50 states. As far as I can tell the only Supreme Court Justice member to have graduated from the Berkley Law School (Boalt Hall, one of the premier public law schools in the world, and no I didn’t go there) was Earl Warren and he graduated in 1914. The last President who didn’t go to Harvard or Yale was Reagan. And I’m not strictly sure, but I think the last major Presidential candidate even was Bob Dole. The high sticker price is part of the signal that the education at this or that particular school is ‘valuable’.

3. Which side of the chicken/egg is it? It might be that college is largely about signaling. (See point 2 above). If you add huge government subsidies to customers in a exclusivity/signaling product, what do you get? A bidding war. The subsidy may help the student in year 1, but by year 5 the subsidy is just part of the price that people have to bid past to signal that they have the ‘better’ product. If that subsidy comes in the form of a loan to the customer, secured by the government, what you have effectively done is raised the price so that all future students must pay more for the same signal, requiring more loans. It might be that the price is so high, because the semi-subsidy has bid up the price. This especially makes sense if the customer isn’t very savvy, doesn’t really understand how much money they are talking about or is relatively inexperienced (see all arguments about pay-day loans…).

“Existing institutions don’t compete on bottom line cost to students because cutting costs would undercut prestige and these institutions are competing to be prestigious”

and

“I find it somewhere between depressing and repulsive to think of how the whole thing could be least badly downsized. You could hold classes in all those suburban malls that are having so much trouble! Teach English 101 next door to the struggling nail salon.”

I may be misreading it, but I *think* you’re hinting that there would be something bad about such a model. But think of what that reveals. If the most important part that we were selling was education and learning, the suburban mall model wouldn’t seem viscerally obnoxious, right? So what are we selling with a college education? Interaction with smart people? That could happen in the suburban mall model too. The fact that the suburban mall college smells so bad, suggests that we really want something else. I’m pretty sure it isn’t that we think all college age kids should be able to go to Club Med for 4 years. So what is it?

Every single member of the Supreme Court went to Harvard or Yale
Not true. You are neglecting to distinguish betw college and law school.

The last President who didn’t go to Harvard or Yale was Reagan.
Not true. Obama: Occidental College and Columbia. Clinton: Georgetown. (giving the undergrad alma maters)

@5 I doubt he’s “neglecting” to distinguish between college and law school. Rather, you are distinguishing the two and he isn’t.

Law students, PhDs, &etc all sometimes say things like, “I’m still in college.” “College” is not equivalent to “undergraduate course of study.”

Australian universities look like US state unis but we have managed to keep charges a fair bit lower $4500-$9500, payable out of your taxes after graduation. The biggest single factor is cross-subsidisation from overseas students (one good thing about Oz is that unis are federally funded, so there is no out-of-state tuition charge for Australian residents, wherever they go). Other relevant factors are
* fewer luxuries – most services are covered by a small additional fee, which includes sport & recreation as well as meal services. Sporting teams are (genuinely) amateur
* most students go to their local university, so they can live at home or cheaply with friends
* salaries are generally lower
* class sizes and student-staff ratios are higher, contact hours are a bit lower
* government contribution is a bit larger than in many US states

What you’re suggesting sounds pretty similar to the community colleges garymar mentioned. They may not quite be at the level of being at the mall, but they give a decent basic education for not a lot of money. They also tend to get put first on the budget chopping block because they lack prestige.

I went to one of the UC’s about 15 years ago (Christ, has it been that long?) and even adjusted for inflation $50k comes close to what I paid for all four years, including room and board. Of course the cost of attending the University of California now is around $30k. For California state schools I know why it’s gone up so much, it’s because the direct subsidies from the state keep getting cut so the students have had to take up the slack. That in turn has been due to the crisis the state’s budget has been in for the last five years combined with the fact that education happens to be the largest chunk of the discretionary budget .

Oh, and while I can’t say what the conditions were like at UC Berkeley in 1968, I can tell you what it cost to attend: $320 a year, or $2,127 in 2012 dollars.

I had a begging letter from my old (Cambridge) college a while back, talking about how hard up they are. The idea of a Cambridge college asking me for money has a certain intuitive implausibility, and I didn’t give them any money. But I was struck by the breakdown of incomes and outgoings showing that they genuinely aren’t breaking even at the moment, even if you factor in all the sources of income which are pretty much unique to Cambridge colleges (e.g. vast landholdings).

This makes me think that a big part of this equation is being missed: one reason why higher education is more expensive to users is that more of the cost is being passed on to them, because less of it is being met elsewhere. And the fundamental reason for that is The Economy, Stupid. In a growing economy institutions get good returns on their investments (including, but definitely not limited to, all those Oxbridge landholdings). In a growing economy companies make big profits and executives squeeze big rents out of them, so both companies and individuals have spare cash to donate. In a growing economy more tax gets paid, so the government has more money to put into higher education. Virtuous circle innit. We’re currently in a vicious ditto – in the UK at least – so the Can We Really Afford handwringing starts. I’m in the Yes we can corner – at least if ‘we’ don’t crash the economy for the sake of shrinking the state (although that’s another argument).

Japan definitely has three tiers of university, and everyone here knows it. The public ones all cost the same but have different admission requirements, and if you go to a lower tier uni you don’t get as good a job (in theory) afterwards. The high-quality ones (Tokyo, Kyoto, Keio, etc.) compete on reputation and quality of research and teaching, but cost the same as the lower tier ones; I think the difference from a student point of view is that you know a lower tier uni is easier to get into, but you won’t get as good an education.

Maybe that’s a model that works? It depends on most universities being seen as a certificate to a job, rather than education, however …

You can get rid of a lot of the frills without having people doing all online classes (I question the value of that just when it comes to education – it’s like telling people not to buy the rolls royce but instead to get a bicycle… for a cross country trip with the whole family and luggage).

The US spends 3.1% of gdp on higher education; the oecd average is 1.5%. No, students in other countries aren’t taking freshman comp in run-down malls. They just got rid of the frills that don’t matter – plush dorms, athletics, exorbitant administration salaries, funding through government spending instead of a rube-goldberg system of loans and grants designed to subsidize banks – and focused on the ones that do.

Also, comparing the college experience of today to that of 1970 and saying “No wonder it’s so expensive!” is glib. My college costs 20K/year more than it did when I went there… 7 years ago. Perhaps they provide a $20,000 better experience now than they did in the ancient 2002-2005 era, but I doubt it.

My home country – Germany – used to have only Volkswagen universities. Decent education for everyone who was allowed to go to uni*, zero elite universities. The problem is, too many people think that what the USA do is always better, empirical evidence to the contrary be damned. So what they are trying to do now is to have ca. ten Rolls Royce and everything else can slowly degrade to junker. Hooray.

But they don’t even do that well. The idea of the “excellence initiative” is basically to introduce more exams without hiring more lecturers, to rename the “Diplom” degree into “Master”, to run a competition that gives the universities with the best ideas a couple millions bucks extra but only for a few years, and to allow the winners of said competition to attach a fancy sign reading “official elite university” to their door. It would be hilarious if it wasn’t so sad.

The American elite universities are of course elite because they have considerably more money than Germany would ever be willing to invest, and they don’t need to win a sham competition because they win international rankings. On the other hand, I’d rather keep the old system. While no German university is as good as Harvard, all of them are better than some of the underfunded third rate colleges, rip-off law schools or even diploma mills that also exist in America. Less spread has some advantages even if it is not so charismatic.

*) And that is, of course, where the big inequality and stratification issue is hidden in German education, our completely bizarre three tier secondary education system. But that is another topic.

Not entirely sure that online is a bad thing. We are after all in the middle of something of a technological revolution. And as Brad Delong likes to point out, universities are still based on the pre-Gutenberg technology of everyone having to gather in one room to hear someone speak.

You can do most London University degrees online for about £4,500. For the degree, not per year. LSE for economics, Birbeck (I think?) for philosophy etc.

_And as Brad Delong likes to point out, universities are still based on the pre-Gutenberg technology of everyone having to gather in one room to hear someone speak._

And as we’ve pointed out in numerous threads here at Crooked Timber, if your teaching consists of reading a text aloud for an hour to a passive audience, then you’re doing it wrong.

You have to realize that, compared e.g. to their European equivalents, salaries for profs in the US are batshit insane.

To be fair, I think that’s only true for top people at elite institutions.

Obviously, different countries have different arrangements for funding universities. However, none are free in a meaningful sense. Either they are paid for through general taxation or some form of fee from the individual student. They may have got more expensive, but that is a different point to saying that they have become more expensive for individual students.

What I wanted to contribute here is something about the new funding arrangements in English academia. We are starting to see the effects of the move from part-personal/part-state funding of unversity degrees to a personal system of funding (STEM subjects partially excepted).

First, this new arrangment may well translate to a better experience for students, and I am slightly optimistic here against my instincts (working at Bristol University). In my brief experience of this new arrangement, students do not seem to have become rabid consumers: they are interested in quality and being treated with respect. And perhaps academics did not treat them with sufficient respect if they assumed that they would become rabid consumers. However, on this general point, I’ll reserve judgment.

My second point is that elite Universties, however, are in an enviable but unfair position: they can charge full fees, build new stuff, pay for the ‘right’ staff (with a massive premium for ‘public intellectuals’ it seems to me). Furthermore, they are sitting on (in some cases) hundreds of years of investment which provides the buildings and reputations upon which they rely upon to justify the charging of such fees. Under the new arrangments elite English universities will probably be able to pull further away from others, and the others are structually incapable of competing. I’m suggesting that the ‘market’, such as it is, is rigged in favour of, basically, old universities. These universities will do better under this new system, not because they are necessarily better, but simply because they are older. Good but newer universities could struggle, and we are already starting to see this occurring.

I would be interested in other contributors’ experiences on these points.

About the online education issue, what Chris Bertram said covers it for the humanities. For the natural sciences, how would you even start? Ever tried to run a botanical field course or a lab practical in physical chemistry online only?

I think this idea consists of 50% internet-enthusiast pipe dream and 50% hope of some pencil pushers that they can fob the rubes off with cheap low quality pseudo-education if they only sell it in a fashionable package.

@31 “And as we’ve pointed out in numerous threads here at Crooked Timber, if your teaching consists of reading a text aloud for an hour to a passive audience, then you’re doing it wrong.”

Pretty much what a lecture is (although obviously not a class). At the better universities it will be the person who wrote the textbook running through what has been written down in it, at the lesser someone at very best cribbing from it.

I think it is worth considering ‘how we got here.’ After all, for a very long time (several hundred years), colleges/universities didn’t look too much like they do today. For a long time, they were associated with churches – basically seminaries, effectively professional schools in that they included law (canon) education. When they included medical schools, those were outgrowths of the professional guild (not in the technical sense, but good enough). Collections of professors taught, sometimes in informal spaces. Students lived in garrets and boarding houses.
Because these were particular entry points into particular professions, people in those professions wanted to bring talented people into their profession (or, conversely, thought that deserving folks should enjoy the benefits of the profession). Scholarships were created and awarded. The guilds competed in prestige; and as wealthy scions attended the schools, the wealthy parents provided for the schools. Similarly, as the church fragmented, each denomination wanted its own school. Thus schools became well-endowed, to a degree; and further, scholarship was established as a type of charity.
The land grant universities and technical/military schools (MIT, Cooper Union, USMA, etc) were distinctly American and in a different mold; the Germans, and later Johns Hopkins, imported the technical school model into the medical schools. These were supposed to be no-frills, for the education of honest labor in basically ‘educated trades’ – white collar industry, a new invention at the time. This at a time when the ‘professions’ (church, medicine, law – and politics) were effectively dominated by the upper class, with exceptions for the ‘scholarship’ students – and college was an entry either into the professional schools, teaching, or the class of more or less ‘gentle’ landowners.
It’s here that things start to get complicated, in my mind. The land grant schools started competing with the religious and other charitable educational institutions in prestige. This meant a requirement for grand (expensive, impractical) facilities and expensive faculty. However, they still charged the low tuitions they were meant to charge… or rather, they charged the populace, via taxation. The other schools started earning research funds hand over fist from the government as well – starting with Stanford during WWII, soon MIT, then Harvard and so on.
In addition, the genteel classes had been in full collapse since WWI (in part because of cheap corn from the midwest starting in the 1880s). Colleges were producing more of the white collar classes. The best colleges were the old ‘resorts’ of the wealthy, increasingly plush. The state started usurping the role of charity in providing ‘scholarship’ in the form of student loans, grants and such.

This is a very different story than the one about prices skyrocketing on a commodity item. Where we want to go from here, it isn’t necessarily clear, but yes, we should forget the silly idea that everybody needs four years in a resort to become an entry level white collar worker.

This is a nice article on how we got there: http://www.dissentmagazine.org/article/from-master-plan-to-no-plan-the-slow-death-of-public-higher-education

I think another question is: A top quality university education was virtually free 50 years ago. We weren’t a richer country then. So what happened? It has to be more complicated than ‘taxes were cut, anything public in the sense of beneficial was gutted’ (private university costs also went up) but that’s a significant part of the story.

It kills me to think about how there were the best universities in the world. Why squander that?

BenK is right.

However, I’d like to argue that the technical/military school was not typically American institution. It was an outgrowth of the French and German style of military and technical higher education. (In fact, early engineering education was essentially military education, as the French Ecolé Polytechnique still is. The fortifications and artillery were the main employers of engineers.)

Here on the European continent, the universities were (and often still are) typically free of tuition, even outside the field of teology. The universities were mainly producing future civil servants, so the tuitions were never high.

The really original feature of the American system is the vague, amorphous undergraduate degree:
1. The undergraduate degree essentially includes a lot of material that here in Europe is considered to belong to the high school. E.g. I studied history, foreign languages, philosophy and other “liberal education core” subjects only in high school. In the University, I only studied subjects pertinent to my field, and an odd language course on the German technical vocabulary of my field. Well, the American high schools are uneven, and you cannot require these as prerequisites as we do in Europe.
2. In Europe, it is typical that you receive a study right to study a certain field. For example, if you apply to the University of Helsinki as general history as your major, you need to re-apply if you want to major in Finnish and Nordic history. Similarly, if you apply to study electrical engineering in Aalto University, you need to re-apply if you want to change to I&C engineering. Each major has a quota that has been decided by the Ministry of Education, based on projections for future employment needs.

I wonder to what extent the rise in the level of expected (and perhaps mandated) services from universities is connected to the rise in college costs. It’s understandable to be critical of the growth in the administrative layers of US colleges and universities and perhaps this is at least partially justifiable. At the same time, though, those same colleges do more than they did in the past, e.g., provide subsidized IT services, help for students with disabilities, etc. And it of course costs money to provide those services.

There’s really no mystery about tuition. Elite education is a positional good, and the gains of growth in the past 30 years have gone to about 1% of the population, who have fewer kids than other people, and have bid up the price of an elite education very high. They can’t spend all that new money on cocaine and yachts, and they want to secure advanatge for their kids. On top of that, girls now compete for places that were previously available only to boys. Their kids, having grown up in huge homes, with all sorts of luxuries, expect those things in dorms (and foreign vaacations etc) and that drives up the price of dorms etc. Costs have not risen anyway near as precipitously in other parts of the sector — and to the extent they have risen it is the Baumol effect driving it.
Not nice, but there it is.

Elite education is a positional good…

This is a good point, and though I’m by no means an expert in economics, the positional aspect of a college degree makes me a little skeptical of some of the ideas out there to bring college costs down.

The mall idea is interesting to me, because I’ve been wondering about: Is it weird to have, say, dance or yoga classes, in what otherwise seems to be a medical building, or one of those office buildings where you don’t know what what anyone does, but they all seem to be either insurance offices or probably really work for the CIA? Or what used to be a warehouse space? Is it “unprofessional,” because it doesn’t look right? Or is it exactly what you would expect?

I think if you think it looks “unprofessional,” you’re probably not going to be happy with campus spaces that have cinderblock or old paint on the walls, either. Or with wooden lecture-hall chairs that are “quaint” and 75 years old and haven’t been refinished in quite some time. You’re paying $20,000/year and they can’t even refinish the chairs? And so the tuition creeps up to $30,000 and beyond.

To be fair, the older campuses really did need a lot of work so kids could plug in their computers without blowing a circuit breaker. AFAIC a microwave is a luxury, but a printer actually isn’t, and there were rooms built on the “a blow drier or hot plate is a luxury” principle.

“Perhaps part of the luxury of the university is that it provides things which one might expect any thorough welfare state to provide: health care, parks, community centers, basic housing, food (though typically only the parks and community centers are part of the tuition cost).”

This is a truly bizarre statement. How is it luxury to provide cafeteria food at a profit? To charge above-market rents for multiple-occupancy dormitory housing? To provide a minimal first-aid health care service? (If you have a serious health problem, you deal with it on your own – and the school won’t admit you without evidence of health insurance.)

And yes, some schools have very nice, large lawns. But those that do typically bought that land generations ago, and they don’t pay real estate taxes. So provision of “parks” costs them only the cost of groundskeepers.

The one thing I will give you is that schools do provide state-of-the-art gyms.

I’m surprised that the discussion has focused so heavily on the supply side and not the demand side. Given the wage premium for college grads, high tuition might be worth it in many situations. And not just at elite schools — any college degree confers considerable lifetime earnings benefits on a graduate. That reflects both the stagnating wages of blue collar labor and to the disproportionate share of income that the wealthiest cohorts earn. If the only way to make a decent living is to go to college, kids will naturally be desperate to go to college, and if more kids are desperate to go, colleges will need to find a way to discriminate among them. One handy tool is price (others might include SAT scores, GPA, athletic ability, etc.). Unless states are willing to subsidize colleges to increase enrollments or to directly subsidize students, the price will need to go up to meet the demand. Some of that demand, at least at the top end, will come in the form of Veblen good-style prestige competition, but it is grounded in the fact that going to college does make a huge difference for one’s lifetime financial success.

I also found this report from the College Board on tuition costs, and it made an interesting point: in terms of institutional costs, the greatest increase from 2000-2006 came in “utilities” (72% increase), the second was in “benefits” (31%), and the third was “administrative salaries” (26%). The benefits part makes sense (health care), but who knew colleges were spending so much more on power and water? Is that related to all the new gyms and swimming pools?

58

A personal printer would certainly be a luxury. I as a permanent faculty member do not have my own printer and have to share with a dozen other lecturers. Neither as an undergraduate in the US or postgraduate in the UK did I own or know any students who had their own printers either. I am holding out for the day when the administration does provide us with funding for more printers in the department.

“Baumol’s Cost Disease” is one of those confounding conundrum/paradox theories that has the ability to bring everyone’s brain to a halt, but I have seen zero proof (mathematical or empirical) that it actually exists. The conditions that Baumol describes have existed since the first comfortable agricultural surplus was safely stored away (perhaps 10,000 years ago), yet human progress had not recursively stopped back to that day – even in symphony orchestras.

Cranky

Salaries of symphony Presidents have increased 20-fold since 1990 though…

65

I have considered purchasing a printer and bringing it to campus. But, I would need to make sure that the university provided the toner cartridges for it. Otherwise while the printer is affordable, multiple cartridges probably are not, especially since the temptation to print out journal articles and books rather than read them on my lap top would be pretty great if I had my own printer. But, I am glad to hear that you large US state university is no better equipped in this matter than my very large flagship African university. Perhaps equalization is occurring. When our salaries reach parity then we can throw a party. I will bring the fufu. ;-)

I suspect that the campuses of many public U.S. universities look the way they do for the same reason that there were chandeliers in Moscow subway stations, i.e they were intended to function not as resorts, but as Potemkin villages. Certainly, accommodations in the dormitories were nothing like what the façades promised — most resembled barracks rather than hotel rooms — and were often very cheesy barracks at that. Which is why owning a substandard apartment building in a college town was often a license to print money.

Things have changed, but not that much, I think. The idea is still to give physical embodiment to aspirations that the founders hope to engender in the students they’ve managed to enroll, congratulate their inevitably vain private donors on their good taste, and awe legislative critics into submission to the University’s budget requests.

Is all of the frippery necessary? Probably not, but one-time money is always easier to pry loose from the unsuspecting than continuing money is, and a secure, familiar environment is one less thing to worry about when you’re trying to make sense of the internal architecture of the universe, and/or your own place in it.

Universities, for all their shortcomings, were a place to hide away for a while from the Philistines — yahoos demanding to know why professors insisted on doing comparative studies of the microbial content of dirt from the different regions of Burkina Faso, or parents wanting to know why their kids weren’t studying something useful and lucrative, like Hotel and Restaurant Administration.

That sort of refuge is impossible these days, it seems. Should we congratulate ourselves? Somehow I doubt our new pragmatism is as much of a good thing as we’re all making out, but clearly we need to come up with something else. I just hope Phoenix University isn’t what we finally settle on.

As I think you hint, it’s not instruction costs driving up the price of college, it’s the amenities. The question is not, why can’t we have a KIA. It’s why did we move from a Honda to a Mercedes. And should we go back?

Here’s the , on college costs, biggest increases in Research! and student services. How much publishing is a pure waste of resources? Can some services be unbundled from tuition?

@53 is right; Baumol’s cost disease explains most of what is going on here.

Actually, that wasn’t what Harry said. He said that Baumol’s cost disease explains some of the rise, but that the principal cause is the 1% bidding for a positional good.

“college is expensive because it provides a lot of things.”

That’s not how pricing works. It’s my belief – although it’s only a belief, because as far I have seen, good data is not available – college is expensive because the sellers of college can charge a lot for it. They can do that because lenders will lend whatever the colleges charge, with the government guaranteeing that the money will be repaid. Students are mortgaging their futures in the same way that unsuspecting home-buyers were pursuaded in the 2000’s to buy lovely new homes that they couldn’t afford. And the buyers – the students and their parents – are utterly unable to do an appropriate analysis of the return on their investment.

Making the most of this no risk federally-guaranteed money, the schools jack up the “rack rate” as high as they can. The top schools can pocket most of the money, although some of them are wealthy enough in endowments that they can give out a fair number of genuine scholarships. The next tiers use the full tuition they get from their dumbest/richest students to cross-subsidize prices for smarter, less wealthy students in order to raise the level of the entering classes. They call the difference between rack rates and the discount prices “scholarships” although they are not true scholarships at all. Does the airline that charges a lower price for reserving two weeks in advance say that it’s giving out “flyerships”?

Because the schools are competing on prestige more than price, and because the buyers – high school students and parents – are unable to form any useful views on the quality of the comparative quality of education being provided , the schools build beautiful gyms and hire big grounds crews to sell the schools to parents. At the same time, schools hold academic salaries steady and cut the number of jobs by farming out teaching duties to grad students and adjuncts, degrading the educational experience.

Most of the money, I believe, goes to pay inflated salaries to ever-larger armies of administrators. But I’ve never seen a genuine analysis of university expenditures over time. How much have library expenses increased – and how much of that goes to Elsevier, providing no value at all to students? Has the total amount spent on instruction increased compared to the rate of inflation – and how much more are “star” professors who don’t teach undergrads taking home? How much more do university presidents get paid, and how much larger are their staffs? How much is spent on marketing and fund-raising? How much on varsity sports teams that don’t benefit the average student at all? Without real data, it’s simply apologetics to say that college is expensive because it provides a lot of things.

As Cranky said @67 Baumol’s supposed ‘cost disease’ should be retired from these kinds of discussions. Or at the very least reformulated in a dramatically more modest way (e.g. rather than saying some things are ‘naturally labor intensive’ which is idiotic, say that if we choose to make something labor intensive it may cost more).

Cranky #67 and MQ #79,

If the phrase Ost-Cay Isease-Day bugs you, cross it out in the text; the argument won’t be damaged by it’s loss. Why Does College Cost So Much? looks at the economics of college and other service industries to form its claims; Archibald and Feldman use it as a label, not an explanation.

Their argument is that explanations of the high cost of college have to be considered in light of several related correlations: First, as a fee-for-service business, college tuition closely tracks the cost of visits to the dentist, but not the cost of getting your nails done. Second, college tuition remained largely unchanged during the Great Compression (of productivity and wages) of the 1970s. Third, since the early 1980s, tuition at poor 2-year colleges has risen at the same rate as tuition at rich 4-year ones, while non-tuition expenses at 4-year colleges have risen more slowly than tuition at those same rich institutions.

Taken together, A+F conclude that the most significant input to the cost of college (which they think of as the more important metric than price) isn’t the brand new climbing wall or the Infotainment Center replacing the dusty old stacks, but the wage premium commanded by skilled labor: faculty, administration, and even a shift to higher-skilled workers, as with the disappearance of the typing pool, and the appearance of the IT department.

…and I just saw that Harry and I made similar arguments in #53 and #54, so Cranky and MQ may have been responding to that appearance of Baumol. In any case, WDCCSM? meets MQs test of making the case in a modest way, and providing several sorts of economic correlations on which to judge their argument.

You had to post this the day I’m working on my first application for a tenure-track post?

Okay, I guess this is my problem now. So far, I’ve been paid out of research grants that acted as non-tuition subsidies rather than prof pay, but if I get that teaching job that will change I suppose. A quick check shows that the university I’m applying to sees about $16000 in revenue per student and charges $2250 a year in tuition ($75 per credit hour based on a 30 credit school year). About 50% of budgeted expenses are payroll for teaching staff.

Now, to be fair, this is not an American university. But really, under the circumstances, I’m not sure holding classes at the mall is going to lower expenses unless wages are cut. A look at the CSU systems’ budget is not that different except in the amount of subsidy received: expenses of about $20000 per student, and tuition at $13000. It costs $7000-$12000 a year to teach a full-time undergrad in teaching staff costs alone. Administration and facilities costs do not look that out of control to me when compared to other industries.

Administration could be cut by having teachers collect fees directly from the students. Lessee… $75 per student per credit hour per semester for three credit cattle class Intro to Linguistics comes to $11250 for 50 students… I can use the same PowerPoint as last year, so it’s not too bad on prep time, just a midterm and a final and three hours every Tuesday at 8:30am. Not so bad, as long as I don’t have to read papers. But what’s it going to cost me to rent the space at the local cineplex? And only $3750 for the 10 schmucks who register for a semester of slogging through Jurafsky and Martin for 5 credits, and I have to run the labs? Not such a good deal.

Unless some kind of “accredited freelance teacher” deal is set up (and, I personally, believe in tenure because I want it very badly), I don’t see how realistic it is to lower expenses.

Taken together, A+F conclude that the most significant input to the cost of college (which they think of as the more important metric than price) isn’t the brand new climbing wall or the Infotainment Center replacing the dusty old stacks, but the wage premium commanded by skilled labor: faculty, administration, and even a shift to higher-skilled workers, as with the disappearance of the typing pool, and the appearance of the IT department.

Well faculty salaries certainly haven’t increased at anything like the rate at which tuition has increased. The cost of benefits has increased significantly, but that’s the same healthcare cost nonsense that’s squeezing everyone, because our system for financing healthcare is insane.

Is it just that colleges employ more people now than previously?

Isn’t it also in part because big donors like to contribute buildings with their name on it, and these require a lot of energy to maintain.

Also, liability insurance is incredibly expensive — because the exorbitant cost of health care is a big incentive to sue. If healthcare and pensions were state supported (also middle income housing), personnel costs would be arguably be much lower.

#83 – “the wage premium commanded by skilled labor: faculty, administration, and even a shift to higher-skilled workers, as with the disappearance of the typing pool, and the appearance of the IT department.”

I simply don’t believe that this is true.

Tuition at private colleges has gone up about 3% annually in constant dollars (i.e. the rate of inflation plus 3%), year-in, year-out, for forty years. See, e.g., http://www.collegeboard.com/prod_downloads/about/news_info/trends/tuition_fees.pdf

Over that period, full-time faculty salaries have gone up only 7% in inflation-adjusted dollars. http://www.nea.org/assets/docs/2012_Almanac_Faculty_Salaries.pdf

Adjunct compensation has actually fallen after inflation over that period, id., and adjuncts make up an increasing portion of the academic work force.

The “disappearance of the typing pool” has meant a shift in performance of adminstrative duties from staff to the faculty members themselves. People do their own typing, copying, and mailing now, and their own filing.

Wherever the money is going, it’s not going to people who provide instruction to students.

Katherine. This is exactly what I meant. They were definitely not employed at the institutions my two children attended in the nineties and oughts, and the results were deplorable.

LFC, Obama went to Harvard Law School and Clinton went to Yale.

I agree with those who suggest that college education has at least some large component of being a positional good (prestige in this case). Government subsidies to the purchasers of positional goods translate to higher prices because the main point of positional goods is to show that you have something better that someone else doesn’t have. If the subsidy is in the form of loans, this leads over time to enormous student debt. If you are going to subsidize something with a large positional component, you probably need to do it on the supply side if you don’t want the price to skyrocket.

Wouldn’t it be more helpful to focus on the change in college total budgets, rather than the change in tuition prices, to sort out what is happening? The tuition is obviously greatly affected by the steep decline in public support, but the budgets are a separate issue. I have no idea what the trendline might be on college budgets per full time equivalent student, for example.

I’ll repeat a peripheral point from my comment earlier. An almost-definitional feature of a resort is that you go away to it, and “going away to college” seems to be taken for granted in much of the US, even in the state systems. As quite a few posters have said, that seems likely to drive accommodation costs higher than if students went to university in their hometown as in Australia. On the other hand, it would seem as if some costs ought to be lower, given the availability of cheap land for expansion and so on.

Still, it seems to me to be empirically correct that going away to college goes with high costs.

John Quiggin-
Look, Holbo has now explained the “resort” thing and I understand the point of it, but please, give it a rest. You have no idea how offensive it is to parents whose children are at college in the current economic environment. Yes, going away to college is like spending four years at Club Med. It’s also like serving a prison sentence, like doing missionary work, like being kidnapped by Peruvian rebels, like recovery in a rehab hospital. Unless you’re trying to piss people off, “resort” is a crappy analogy. Let it go.

A few decades back, we changed the routing of funding for education and new costs emerged as a consequence. This began as necessary state level budget cuts, but was eventually touted as bringing choice to students. At any rate, as senior administrators I listen to periodically joke: ‘we used to be state funded, then we became state assisted, in a year or two we’ll be fortunate to be state located.’

With budget cuts, we now receive the same contribution per student that we did in the 1990’s, with costs courtesy of 2012. The difference has to come from somewhere.

But it’s so much more than just a great recession, rising health care costs, technology investments or general inflation. A part of the explosion in student (perceived) cost is nothing more than shifting from subsidy to direct billing.

However, when we made this transition, our mission changed (whether we realized it or not). We now have a dual mandate – the development of knowledge AND the recruitment of students.

We now have to build our system around attracting and retaining students, and with that a whole new slew of expenses emerge.

You NEED new facilities (not just to use new technology), but to make your University attractive to students choosing where to spend their dollars. You NEED better entertainment and a high quality athletic program to attract students and retain alumni commitment. These needs then NEED new administrators to administrate the new needs. All of this then leads to a NEED for new administrators to beat the bushes for new money to pay for the salaries of those we need to manage the things we now need.

It’s all quite rational in a thoroughly irrational sort of way.

Atop this, of course, we have a woefully inadequate financing system for the bottom up pay model we now use as others have noted.

Simply reversing the funding spigot would not, I suspect, solve this problem at this point. We have institutionalized administrative bloat – and that’s not turf protecting, greedy middle management. Quite the contrary, those new administrators are NEEDS in the system we have re-engineered. It’s a somewhat logical system response to our sourcing needs for our primary dollars (student tuition and fees). I doubt we can simply put the lid back on this box.

@100- And you think that benefits have zoomed ahead of salaries for academics over the past four decades. Better pensions? More inclusive health care plans? Earlier retirement? More sabbaticals? Company cars, flats with parquet floors, free child care? What?

Look, I’m just trying to introduce some data into this free-floating conclusion-jumping parent-bashing student-condescending thread. College is like choosing between having another pina colada and taking a ride on the parasail! Student housing is like the Ritz Carlton Montego Bay! Batshit insane salaries! Baumol’s disease! Elite signalling!

It’s a fair point that my data isn’t sufficient to draw firm conclusions. It’s just a little googling, that’s all. But you can’t say, “I reject your data and therefore I’m free to go back to drawing conclusions out of my navel.”

I attended a large land-grant university in the 1970s (UIUC); iirc, my folks paid about $120 a month for my room and board in a (very nice, new, though spartan) dorm – I had a merit-based tuition scholarship, so tuition wasn’t a consideration, though I recall it being about the same as room and board.

My children attended university in the 2000s (00-04 and 07-11); the elder went to an Ivy League institution at a cost of $35,000 p.a. (about half of which we paid for, the other half being a combination of scholarships and loans), while the younger attended a nationally-ranked liberal arts college at a cost of $40,000 p.a. (again, half paid for by scholarships, the other half paid by loans and the parents, i.e. us).

All three of us received excellent – outstanding, really – liberal arts educations, but to be perfectly honest, I feel that I (and my folks, who had very little money) got the best deal – a BA summa cum laude at a cost of under $5000, loan-free.

Re: “bells and whistles”, hmm. The clean, spartan dorm I lived in in 1971 was tons nicer than the dorm child #1 lived in in 2001 … or that child #2 lived in in 2011. Amenities? Very similar, to be honest.

As the founding dean of a liberal arts college in Europe in a former life, I would recommend that anyone interested in the subject of skyrocketing college costs consult the very instructive statistical tables published yearly in the CHE.

@101

Health care costs and defined-benefit pension costs have been rising at rates much higher than inflation. These are benefits that are still widely available in the education sector. (Well, more available than they are in the private sector at any rate).

The poster who first brought up Baumol’s cost disease did not pull the argument out of his navel — he cited a book about college costs.

When you look at the faculty salary component of a university budget you also have to look at how many courses a faculty member teaches.

When I was an undergraduate at the university I now teach at the course load in my department was 3-3, maybe including one graduate seminar. Now it’s 2-2 including a graduate seminar. So undergrad courses taught by a faculty member have dropped from 5 (or 6) per year to 3. You can see the same pattern at many other Canadian universities, e.g. the one I used to teach at, and I suspect at US ones too.

It’s all been in aid of research, which in the data OGT links to has had one of the biggest increases in expenditure in recent years. Universities have in effect transferred resources from teaching to research and are asking undergraduates to help pay for that. I’m not sure why they should think that’s a great idea.

I am just suggesting that we should see it as normal and to be expected that if you go and live somewhere that provides you with a lot of stuff, much of which you would expect to be costly, you should expect it to cost you.

That’s not true at all. Most soldiers aren’t paying anything to their government in exchange for all the costly stuff they get (equipment, training, room and board, etc). Paying for them and their stuff is considered a good investment for the government to make, but not because the government is actually profiting off each soldier’s work, the way businesses profit off their employees. The soldiers are provided with the tools, support, and accommodations they need to be effective soldiers. We sink lots of money into paying for soldiers and soldiers’ costly stuff because having a lot of well-equipped well-trained soldiers generates substantial positive externalities for the entire economy. Insofar as having a lot of well-equipped well-trained college graduates generates substantial positive externalities for the entire economy, the government should finance that too. Students should be provided with the tools, support, and accommodations they need to be effective graduates.

Ok, so, sure, this is not a very good argument at all, but neither is analogizing Club Med, is my point. They both miss the boat by about the same distance, even if we set aside the unintended ‘luxurious leisure’ implication.

College has and continues to be, for better or worse, a rite of passage. That rite of passage starts to break down when you start having large influxes of non-traditional students, but here in Japan, that number is miniscule, so getting parents (and society) to think of education in cost terms is impossible. There is also a strange relationship with the demographic decline and the way universities are trying to change but I can’t tell if it is wrapped up with problematic aspects of conservative thinking in Japan or not.

If most of Club Med’s “beautiful buildings” were paid for and named after rich donors, a substantial percentage of its services provided by indentured servants (aka graduate students), and it passed itself off as a non-profit, I would think twice about paying $50k to stay there for 2/3 of the year.

The student debt situation is becoming a crisis, and although I can’t articulate the precise reasons why tuition is rising uncontrollably, it certainly has nothing to do with the amenities or the services offered. Harvard, Berkeley, et al. are not substantially better institutions than they were in the 1960s, for example, and I would be interested to see but doubt that the diversity of academics offered is actually that much greater.
Obviously enrollment is way up.

My guess is that tuition continues to rise because the percentage of young Americans who feel an overwhelming social pressure to attend college has risen. In the 1960s it was a select group of people going to college. Now it is axiomatic that you are supposed to go to college. Naturally, the market has exploited that fact by charging students exponentially more. Because schools can get away with it these days.

Judging costs at private universities in the U.S. can be difficult. Some universities find it better from a public relations point of view to announce, e.g., the tuition is $50K per year, then hand out $20K in “financial aid” to just about everyone, rather than say that tuition is $30K a year.

= = = Melatone@6:52: To avoid derailment, let me just say first of all that I’d love to see a CT discussion about the meaning of Baumol’s Effect (as opposed to the existence, which seems definitionally sound.) = = =

I understand your point about derailment, but the question of whether or not the postulated Baumol “effect” exists and whether it applies arises in every discussion of college costs, since if it does it is fairly central.

And I’ll state explicitly that I question whether it even exists in practice, making it unlikely to be the root cause here. The structures of the institutions most often cited in support of the Baumol Hypothesis, symphony orchestras and universities, have existed in much the same form since the 1500s and have continued to exist through periods of great wealth increase in their surrounding societies (e.g. California 1920-1970 – stupendous wealth increase whilst high-quality colleges remained relatively affordable). Yet it is only since 1980 that the “cost disease” seems to have struck these institutions in such a devastating fashion. Hmm.. what else got started in 1980? The transformation of US society (at least) into one based on extreme forms of winner-take-all structures and the active assault on reasonably equal sharing of created wealth. Coinkidinks.

Cranky

The two obvious ingredients are extremely high capital expenses and a dramatic increase in administrative overhead. The latter is reaching 20% of cost, from a much lower historical baseline. The former is enormously expensive. Neither student to teacher ratios nor faculty salaries have changed significantly over the last 30 years, so the one area that isn’t changing is direct instruction. Tuition has risen much faster in public US universities because of a withdrawal of public support, which is frankly a disgraceful abandonment of youth from my generation.

So you should use private universities as your benchmark, not public (because of the support issue above.) The rate of increase of the two will converge as the public universities have so little public support left to lose.

I can’t find any listings for faculty pay at the University of Washington. What I can find is that the current UW president has a base pay of $550,000 a year. This is a reduction of $100,000 from the prior president. That doesn’t include deferred compensation of $193K a year on a five year contract. Oh, there’s also this mansion that goes with the job.

These salaries seem to stem from the idea of the University as Corporation. You need to pay big bucks to get good CEOs is the theory. I’m sure that there are competent administrators willing to work for a bit less even if their cocktail party chatter might be below par.

The highest paid UW staff member is the football coach (who is also the highest paid state employee by far) who gets $1.98 million a year base pay. Lots of other compensation as well. The usual story is that the football program pays for itself but I’m skeptical of that, particularly adding in a new stadium now under construction.

Apparently, donors will give to the sports program what they won’t for academic programs. All a matter of priorities.

I’m surprised nobody has mentioned this article http://nplusonemag.com/bad-education

Basically, it argues that the rise in tuition costs is attributable to financial-sector gaming of government student debt guarantees. Student debt is attractive to private sector lenders (lendors?) because it can’t be discharged in bankruptcy. So, emboldened by the gov’ts subsidization of the risk of default in private student loans, lenders issue more loans. Schools see that the market can bear higher tuitions because loans are more freely issued, so tuition rises. As tuition rises, there is more demand for loans, etc etc.

I don’t know how big a role this cycle plays relative to more intramural factors, but considering the role of gaming, grasping and outright fraud in the mortgage debt collapse, I wouldn’t be surprised if the same unholy alliance of spastic debt markets and complicit/captured/incompetent gov’t regulation was behind tuition rise as well. As consumer debt categories go, student debt now rivals mortgage debt in value and risk of default. The same kind of money attracts the same kind of predation, absent meaningful reforms (and they are absent).

Nor am I v. swayed by the “dramatic increase in administrative overhead.” Some of that is for marketing and PR people — their functions are peripheral to univs, or should be.

There are some interesting breakdowns at The Delta Project (www.deltacostproject.org/analyses/index.asp, http://www.deltacostproject.org/resources/pdf/Trends2011_Final_090711.pdf). They discuss revenues and expenses at various types of colleges, focusing on the previous decade. Judging from their numbers, the primary reason for rising tuition has been the withdrawal of public support in just about every state. (The vast majority of students go to state schools. The private colleges are barely relevant.) There has also been an increase in benefits costs, most likely driven by rising medical costs and possibly higher pension costs, but faculty salaries have been flat, and more and more faculty are poorly paid part timers who don’t get much in the way of benefits. There doesn’t seem to be much of a Baumol effect since wages have been flat or, effectively, falling and just as many, or more, students are being educated.

You can argue about the quality of the education that colleges produce, but an educated work force is economically valuable. Cities and states with good colleges can support businesses that need educated workers. Dropping state subsidies is just part of the general disinvestment that has been pushed for decades by the right wing. They scorn the baser rungs by which we have all ascended. A friend of mine always said that the baby boomers will eat their young, and that is what is happening. We boomers took advantage of everything our Great Depression surviving parents could offer us, and are doing what we can to deny it to our children.

I was thinking about the supposed position good of a degree, recalling what my older son said yesterday. He is getting a music degree at a private college. He benefited from the fact his classmates weren’t terribly motivated to earn money -so he got the lions share of gigs at the local churches, and local piano students. Now he has sufficient income to be independent of his parents, whilst 80% of his classmates had to move back in with mom & dad, and take jobs as retail clerks. I suspect college as a positional good only works for certain old-boy network dominated careers, and music isn’t one of them. Or maybe it used to function as a useful positional marker, but has now effectively broken down.

There are four-year-universities that cost quite a bit less than $50,000 per year. This post makes it sound as though the options are Tony Liberal Arts paradise or well, some sort of online education-lite as that’s the best we can do. But until very recently, state colleges and universities were reasonably affordable even for the working adult. I work at one. We’re not trying to be a SLAC; I’ve worked at those, too, and can tell the difference in ambitions, amenities, and so forth.

It’s more expensive than it was because more students are going to college at the same time that budgets have been cut, so students have to pay more and take out more loans. It is not going to my salary, and nor do I have a 2/2 load and lots of grad students to do the grading.

I’m not sure why you want to put my job in the mall, exactly, out of some sense of democracy? But you seem to be overlooking the existence of vast areas of higher education. Not everywhere needs to be Harvard. But the option shouldn’t be Harvard or well, maybe Western Governor’s can take your tuition money or maybe University of Phoenix.

This idea about renting space in malls being a money-saver is also nonsense. Renting commercial space is very expensive. Land grants are free. Even if you have to pay for the physical building, it’s cheaper, in the long term, not to have to bid against Starbucks for square footage. After all, the mall owner has to pay for the building too, and he does it with the revenue provided by the rents.

Regarding the daft Michael Gove why-don’t-we-have-schools-in-empty-storefronts thing, it’s daft because anyone who’s been a student, much more so anyone who’s been a prof, knows that timetabling is an epic pain even if you’re all on the same campus or all in the same building.

Putting classes in bits and pieces of idle retail space means an enormous amount of pain timetabling, and a substantial time-sink due to travelling between them, plus a higher rate of students (or teachers) not turning up. There is a reason why people build buildings. (Also, space is not homogenous. Good luck if you need computer centre, lab, workshop, or studio space.)

Referring back to the online courses issue, I just found this snarky post elsewhere:

http://highclearing.com/index.php/archives/2012/10/11/15303

I think that tangentially touches a big issue that is bugging me about the enthusiasm for digitization of learning: When we are in our late teens and early twenties, we are not all at our most disciplined and focused. If you design the system to be a bit school-like, with groups of students showing up for pracs, courses and lectures together, having a planned and structured day etc., there is a good likelihood that it works. If, however, you assume that you can plop recorded lectures onto the internet and that age cohort will be organized and ambitious enough to work through it all at home or in a park, with their tablet or whatever is the rage these days in their lap, I think that would be a bit overly optimistic.

Surely it will work for some, but one cannot expect perfect maturity from all university students; one has to design the system to engage them in the right way.

The real advantage of “mandarin schools” such as Harvard, Oxford, Ecole Polytechnique, Harvard, Yale, MIT, Stanford, McGill, etc, is that 10 and 20 years later, when you want to take to the VP of company X, the national Secretary of Whatever, you are talking to your former roommate or frat buddy or classmate.

And if you want to reach the top in research, studying with some top researcxher at MIT will gain you introductions you won’t get from a Lakehead University supervisor.

Sebastian H says, “But it wasn’t always so expensive. In fact in the fairly recent past it wasn’t anywhere near as expensive. So what gives?”

John Holbo says, “I should probably have been more explicit about this in the post. The sort answer is: I don’t know.”

What do you mean by “wasn’t … as expensive”? If you mean in terms of tuition paid directly by students, sure. If you mean in terms of what the institutions are spending, what gives you the ideal that the typical institution is spending more despite having implemented (arguably abhorrent) cost saving measures such as cutting back on tenured faculty in favor of adjuncts?

It appears that the institutions have been spending roughly the same amount for decades (aside from slight increases for adding certain services). What’s changed? At public institutions — which is the vast majority — they’re getting reduced subsidy from state government. They had to make up for that somehow. Some have found ways to cut back (even if painful ways such as adjunctification, simplification by trimming to core programs, etc.). Where they haven’t managed to cut back (or haven’t been willing to sacrifice quality in order to cut costs), they’ve had to raise tuition.

In recent decades, the true, total cost of education has not significantly changed (i.e., not beyond standard inflation). The change has merely been that states have reduced how much they’re investing in their youth, and so a large portion of the total cost has shifted from the states to the students.

Well, education has 2 functions. One is credentialing, the other is improving productivity.

At this, signor Gaspare remarked: “If all the prince’s subjects were good, I think he would be only a petty lord, seeing that the good never number more than a few.”

Signor Ottaviano answered: “If some Circe were to turn all the subjects of the King of France into wild beasts, would you not consider that he would be only a petty lord, even ruling over so many thousands of creatures? And on the other hand, if all the flocks pastured on these mountains of ours were to turn into wise men and valorous knights, wouldn’t you consider that the herdsman in charge of them, and by whom they were obeyed, had become great lords? So you see that it is not the number of their subjects but their worth that makes princes [and principalities] great.” –Baldassare Castiglione, The Courtier (1561)