Income Inequality and College Tuition

Oh yes, this raises so many issues I’ve thought about for so long. Just one comment and a link on a related topic I’ve been meaning to post.

First, I agree with you that if only students realized the amount of potential financial aid available to them at certain schools, they would apply more broadly to institutions that otherwise seem completely out of reach financially speaking. Is it fair to say that knowing about these options is a type of cultural capital? I suspect college prof parents are well aware of this and thus can advise their kids accordingly. (Yes, children of many college profs would likely qualify for financial aid at all sorts of institutions.) But so many people have absolutely no idea. (Well, I don’t know of studies on this, but anecdotally I have encountered it numerous times.) So the question is: how do we get the word out about these financial aid options more broadly? I know some individual schools take this on to some extent, but some broader more systematic approach seems necessary.

Second, here is some commentary taking up similar issues that I’ve been meaning to share: http://www.hastac.org/blogs/cathy-davidson/2013/08/24/why-does-college-cost-so-much-and-why-do-so-many-pundits-get-it-wron

Is a climbing wall really any more expensive than any other athletic facility? Or is it just a relatively new form of athletic activity that 50-year-old pundits know wasn’t in their gym when *they* went to college, so it must be a symptom of everything going to hell these days?

@4

Exactly right. Equality of outcome for adults (high marginal tax rates, strong financial regulation) begets equality of opportunity for the young (public investment in human and physical capital).

#3:

A climbing wall is cheap as facilities go – you can see some really, really cheap ones here: http://www.rockwerxclimbing.com/3486.xml

It’s cheap because you just nail it to an existing gym wall, more or less.

For operating costs of sports facilities in general, if I had to guess, the heated swimming pool and the stadium would top the list.

The info is hard to come by, but has there been a rapid increase in tuition at Vassar? I mean net tuition. Many “elite” colleges have seen flat or declining net tuition over the past decade. (For some reason, this is one of the best kept secrets in higher ed.)

Also, I think climbing walls are a red herring of sorts. A climbing wall indicates an institution’s lack of concern for learning, and so implies that they are in a sense “overpriced”, but a good college education, sans wall, is still going to be hella expensive, and will probably still increase in cost faster than inflation.

Do these calculations take into account that “financial aid” might include loans at market rate, or that “ability to pay” might include home equity? I had friends, in a neighborhood at the low end of the middle class range, with younger siblings living at home, whose parents were advised to sell their house to pay the oldest child’s college costs. This was before the home equity craze; that’s not a solution, either.

bianca steele – You raise an interesting point, a complicated one though. The following is not a comment on your friends, obviously, just using the example to raise some questions.

Let’s take a hypothetical that illustrates why these things get complicated quickly. Let’s take Family A, a family of four, two parents living with two kids. They have a 5-bedroom house. They are in considerable debt, because that house sure cost a lot and more than they could afford. Consequently they have little left to contribute to their child’s college costs. Let’s take a similar family of four, Family B, same configuration (living in the same neighborhood, similar income, similar needs), but they live in a 3-bedroom house and thereby have had enough to set aside for their children’s college costs. In that case, should it be on the college or the state to help out the child of Family A whose tuition the parents cannot afford, because they decided to live in a larger house than what made college savings possible? Or should it be Family A’s (the child’s or the parents’) responsibility to take out loans to pay for the costs (loans that may eventually require them to move to a smaller home)? If we go with the former and Family A child gets grants to defray the costs then that may make Family B feel pretty stupid about having bothered to save up for college if the alternative was a grant.*

Of course, the tricky part in all this is deciding what constitutes a reasonable expectation regarding the cost of a home and other expenditures. My understanding is that colleges run all sorts of models on things like this, but often do so in rather faulty ways.

By the way, another little-known component of the financial aid process is that if you are really set on a school, but cannot make it work with the package you were offered, you can go back to them and ask for more. The initial financial aid package that my alma mater offered me was a non-starter, but thanks to a friend who understood the system better than we did, we pushed back and got considerably more help. Based on that experience, I do know that the formulas that many colleges tend to use for expected contributions are extremely flawed. But it’s not clear that there are obvious formulas to implement given the multitude of variables to consider.

* Re grants, I realize that in many cases financial aid comes in the form of a loan, but some private schools often include considerable grants as well.

@2 – well, the top schools that offer good to great financial aid
a) would still get enough rich folks, who of course also tend to go to better high-schools, be they private or in suburbs with astronomical property prices.
b) are really, really rich. Northwestern – where my wife went not least because they gave her a better deal than UW Madison (in state) has an endowment in the 6billion range.

@bianca: FAFSA, which is most commonly used, doesn’t include home equity. (though CSS does) Generally, the wealthier the school, the more you’re likely to get as a grant rather than a loan. I believe Harvard guarantees people with family incomes under 100k (or so) to graduate debt free.

That said – why this is a great strategy for elite high school students – i.e. if you can make it into top tier private schools, you’ll likely get a better deal there than at a state school if you’re middle-class or below – if you’re not among the to 5-10% of college applicants, those prospects are a lot less rosy.

Eszter — that’s true about the resume padding, but admissions offices can surely (and do, surely) take that into account when looking at applications, no? (the biggest cost an internship would have, and does, involve, for many of my students, is just the cost of not working for pay — but, again, this is all pretty transparent on an application).

At the low end, above the level you’d call poverty, we’re talking about the child of a union worker and a college-educated secretary or bookkeeper, or the child of a post-office employee, or the child of a single mother who fits the same description. People who fit that description can be found in every kind of school, from urban to suburban (even often in the wealthiest towns) to rural. We could also be talking about the child of two college-educated parents, one staying at home and the other earning between $80-100,000 a year–typically in the “better” schools with better resources and a higher “information level.”

I don’t think this adds to what the OP already said, so I’ll leave this there.

Eszter H. @13 — re your hypothetical — someone left a comment on the transcript I linked @ 10 who was very angry that he (father of a student) had been penalized by financial aid offices for saving while the family across the street lived high and then claimed no savings and got more help. Obvs this is anecdotal but it may go to your point about flawed models.

A second related story: I read a Quebec student protestor frame their struggle over tuition as whether it will still be possible for a student to work his or her way through. I’m not sure that’s still possible here. It was certainly much easier in the 50s and 60s.

Oh, it’s definitely not. You can work full-time for four years to save enough money to then go to college for four years, if you can somehow find a job that pays that much without a college degree.

LFC’s anecdote is commonplace. But it makes sense: colleges have no interest in rewarding the virtuous behaviour of parents. There’s a market at work, and if you have more money available it makes sense that you’ll get charged more. Said father could have got a better deal, though, by sending the kid to a less competitive college which would have wanted his kid more (and would have been more willing to discount).

Satan Mayo is also, basically, right. At least, it takes incredible energy. I know one kid who paid for the whole of college by working 40 hours a week, and all summer every summer, and got through (Madison) in 4 years. Her GPA suffered, but my god she got a good letter of rec from me (no better than she deserved).

But: if you are going to complete a four year college degree, it is still worth going into quite a lot of debt — the premium to graduating college versus just graduating high school has gone up. Its not worth going into debt for a philosophy PhD, of course.

The failure of the top tiers of the system to expand enrolment makes almost any attempt at reform a zero sum game at this level. The really big problems for the US system are in the third and fourth tiers: non-flagship state universities and community colleges.

The fact that these aren’t even discussed in a thread like this is indicative of the failure of the system – hardly anyone who goes through these institutions ends up in the group from which CT readers and commenters are drawn.

harry b @ 19 – LFC’s comment @23 was in response to my comment @13 responding to bs’s @11, which brought up the issue of selling a house to pay for a child’s college costs. I guess I read too much into that comment though as I thought the advice had come from the college, but there is nothing in the comment to suggest that. However, colleges possibly suggesting that parents take out more loans to deal with other parts of their lives and expenses doesn’t seem that far-fetched. My point was that in the case of the hypothetical I present @13, that may not be a crazy perspective. (That ignores the more general challenges of college costs, of course.)

JQ, I think the real problem in the US is what I’d call the fifth tier, massive for profit univerities (you see adds for them on TV all the time), with mostly very relaxed academic standards. These have tuitions matched to the maximum student loan rates and will even help the students fill out the loan applications. I doubt many of these students are highly sought out after graduation.

The upscaling, I noticed the most was the food. Dorms used to come with essentially all you can eat caferterias -not great food, but adaquate and affordable. Now dorm students get cash credit at the food supplier, and every single item is overpriced. So the cost of feeding a student has clearly gone up much more than inflation.

Sorry if I contributed to things getting a bit tangled in terms of who was responding to whom. My point was simply that I had read a comment in another place from a parent who was *really angry* because he felt his virtuous behavior, in harry b’s phrase, had not been rewarded but the reverse. (I don’t know a lot of the details because the comment from the angry parent was more angry than enlightening.)

Harry B. @27 may be correct that colleges have no particular interest in rewarding saving by parents, but perhaps they should. One might think that that way they could direct more of their financial aid to those who actually have the most need. Indeed it seems likely that at least *some* financial aid offices (though evidently not the ones encountered by that angry parent) would have established expectations about how much they expect parents to have saved, based on annual income, assets, number of children, other circumstances, etc. But I’m just speculating here.

My own time as an undergrad was several decades ago, when tuitions everywhere were much lower. From this financial standpoint it’s only in retrospect that I see how relatively lucky I was in (a) going to college in the late ’70s as opposed to 20 or 30 yrs later, (b) not having to work while in college, (c) as an undergrad at least (this didn’t apply so much at the next stage) not having to worry about or concern myself at all with how I would pay for school. However, and perhaps paradoxically (or ironically, if that’s the better word), this retrospective recognition of how relatively privileged I was also makes me angry that I didn’t take fuller advantage of my four years at an elite university but rather, for various reasons, spent a fair amount of time being unhappy. I did learn something, but on balance I wish I could have done it all over later. But as that old beer ad proclaimed — arguably one of the high points (cough) of American advertising in the 20th century — you only go around once.

Repeating myself, I know, but I remain stunned by the fact that the top tiers of the US system have been nearly constant in student numbers since the 1950s (Ivies, Seven Sisters etc) or 1970s (state flagships).

Not only have existing institutions remained the same size, but there’s been almost no new entry (since 1970, I’m aware of George Mason and UC Merced, are there any others?) and not much, if any, upgrading of previously third-tier places.

That’s a dramatic contrast with most other developed countries, which have seen rapid growth of comparable institutions on all three margins (size of existing institutions, creation of new ones, promotions from lower tiers).

JQ — I can’t find it but a couple of years ago Mike McPherson and Sandy Baum had an oped in the Chronicle advocating that the top colleges double their enrollments. It was not a popular suggestion! Something to note is that since the 70s the talent pool for admissions at that level has expanded dramatically — first, women entered the mix, then rich people started spending way more on enrichment for their kids, and the appeal of teaching at elite public high schools rose relative to the appeal of other public high schools, etc.

But there have been upgrading. USC (where I went to grad school) is a good example — it is much harder for undergrads to get into than it was when I was there (a new President in the 90s transformed it in many ways). It’s not alone – though I hesitate to name others for fear of pissing off our readers who are vintage graduates of those places.

Having recently been imersed in this topic it has been an eyeopener. The whole college aid topic is the only thing I’ve ever seen more complicated than commercial airfare and I think it definitely does reinforce income inequality despite its occasional best efforts to not do so. Gathering some points from upstrand:

There is an information asymmetry. At private high schools there is routinely one or more full time staff devoted to nothing other than helping students find grants, scholarships, aid packages etc. This is beyond the counselors who help suggest the where to go – this is the how to go as cheaply as possible. While some publc school systems may have this the ratios are no where near as good – its akin to having a travel agent for college selection. These resources are for students of on-balance wealthy parents many of whom could afford ‘full sticker price’ but likewise have the resources to investigate how they might not need to.

The loan system is a sham. While in theory loans are extended to all students equally its patently evident when parents compare notes that loan grants consider the parents ability to help repay the loan. A parent with an 800 credit score, it is apparently assumed, is not going to let their kid’s loan default even though they may not be legally obliged to pay it.

Children of such parents simply get bigger loans which then allow them to afford comparatively more expensive colleges or pay a greater portion of the “full sticker.” Its hard to tell if that helps the kid getting entry – many schools are seemingly pretty good at separating admission from financing, but it can’t hurt.

Its amusing to observe parents compare aid packages from the same school: Big U offered us A & B, ohh really, they only gave us C &D and then watch as the two sides work out their relative wealth and whether getting more aid is “good” or not in that context. The bottom line in either event is two rich kids will sit next to each other in class and both will have paid/will pay a different price for the same lecture.

Lastly (although there are dozens of other posts) children of rich parents are more attractive because they represent better potential donors – above and beyond whatever the tuition spend might be. Public or private universities want donations and see parents AND grand parents as a lucrative source of these. Where this fits in the admission calculus is hard to judge, but there’s no way its not in the equation.

Bottom line, while the admission/aid process may not mean to reinforce income inequality it surely does and it’s a complicated onion to unpeel given the complex ways both public and private universities are funded.

Inequality has another powerful effect on college affordability.

Recall: if the income distribution today were the same as it was in 1970 median family income would be around $90,000 a year rather than around $50,000 a year.

An additional $40,000 a year in annual income for a very broad swath of the population would, all by itself, make current college tuition rates affordable for many of the families that struggle with them.

Still I would really like to see the finances of a small private college laid out to see where the $30,000 a year per student is going. Just two students pay the salary of a professor. If one thinks of classes as the prime service and professors as the direct providers of it the overhead is something like 7:1, which is pretty extreme. A lot of these places don’t even have fancy student perks.

jeff fisher:

Vassar has a pretty detailed breakdown online. They say they spend 95 million on compensation– that counts faculty, administration, and staff. They don’t break down those categories, though they do say they have 1100 employees. They advertise an 8:1 faculty-student ratio, which would mean about 300 faculty. I figure 120K average faulty compensation (counting benefits); that leaves 60 million to spend on 800 administrators and staff. The average amount isn’t crazy, though the total number of non-teaching personnel may seem high– until you start thinking through all the positions you would need from groundskeepers to substance abuse counselors.

Here’s the thing: they get only 72 million a year from tuition and fees (2400 students * 30K average net tuition). And we haven’t counted physical plant costs and consumables. Donations, including endowment, keep the whole operation afloat, as is the case at every college.

Bloix@44: I imagine the cost of everything on a university campus is 1.5 to 2x the normal cost. This is the nature of a huge bureaucracy, especially one that is so shielded from actual costs. The cost is not always exposed to students, but now it is starting to be, in the form of higher tuition.

On administrator bloat–this Dean Dad post is interesting.

His summary–growth in administrators has been almost entirely in services to students with special needs, IT, and financial aid.

Inequality drives up the price of goods that not everybody can have. Houses in a good school districts. Baseball and concert tickets. Colleges.

Inequality has effects, and a little collection of trivial observations of some of them, shouldn’t be allowed to obscure the larger truth that inequality is the product.

The entire system is deeply, deeply corrupt, and “designed” top-to-bottom — 1st tier to 5th tier — to produce “inequality”, not in the abstract, but by constant corrosion and abrasion. This comment thread is chock full of illustrations, from the debt peonage, which is the logical outcome of debt-financed education to cheating students in the cafeteria or at the bookstore (have you seen the price of textbooks?) or cheating most of the working faculty at many institutions of even a living wage. This is how “inequality” is produced — it’s not some mysterious, bank-shot side-effect of “technology” or “globalization”: it’s running the entire world like the pawn shop subsidiary of a crooked casino.

@29/Quiggin: Yes, it’s pretty amazing. And the obvious result is that the difficulty of admission has skyrocketed. I’m pretty certain I would not get into Berkeley today with the application I did 17 years ago.

As an outsider, I’m surprised the campus movements at the UCs, that I am a little familiar with, don’t focus more on this. Even free tuition at the UC wouldn’t help the vast majority of California residents, because they couldn’t get admitted. And this is, of course, directly tied to their income level.

Harry, tell that to Mario Savio. Other forces are at work today, impeding college students’ from serious analysis of class issues and from becoming activist about them.

Average expenditure per student per year at German Universities of Applied science was 3970 € in 2010 and even that number does include some research expenditure that should not be something students have to pay for.

Research Universities spent twice as much per student per year despite much larger class sices. That can be explained by research spending, higher saleries and by their monopoly on expensive subjects like medicine or chemistry.

Harvard alone spends about as much as all those Universities of Applied science combined and the tuition fees still can only cover a small part of the budget. Luxury dorms and climbing walls cannot explain that. The most plausible answer is that those elite schools spend most money on reasearch and use education as a cash generator.