Why have American colleges and universities become so expensive?
This is a deep and complex question, one not susceptible to single answers or easy slogans. Fortunately, two William and Mary economists have published one of the best and most accessible explanations I’ve ever seen.
Robert Archibald* and David Feldman, authors of The Road Ahead for America’s Colleges and Universities, recently wrote “Drivers of the Rising Price of a College Education” for the Midwest Higher Education Compact (MHEC). There they identify three primary trends.
- We generally tend to pay more for the services of professionals with post-secondary degrees. “The higher education workforce is highly educated and the cost of hiring highly educated workers has risen sharply since 1981…” They find similar patterns in fields that are similar in this way, such as physical therapy, law, and dentistry.
- American higher education generally devotes a great deal of attention to student success, more so than most nations’ systems, and more over time. “A college’s mission and market require it to meet a rising standard of educational care.”
- Baumol’s “cost disease” applies to higher education. Put very clearly, “[l]agging productivity growth is endemic to personal service industries, so service prices rise faster than goods prices.” For example,
a 15-student research seminar isn’t the same if taught to 40 students, and a 35-person lecture isn’t the same if taught to 120. Measured productivity can always be increased by stuffing more students into a class, but the experience changes
Added to these three is a fourth trend for public colleges and universities: “The decrease in real state appropriations per student has been one of the major reasons why tuition at public institutions has risen more rapidly than tuition at private institutions.” The authors remind us that 74% of students attend public campuses, “44% studied at public four-year universities… and 30% went to public two-year schools.”
Summing up and simply put, “[t]he cost of producing a year of college education has risen substantially.”
Archibald and Feldman also take down some other explanations for rising costs:
- Administrative bloat? This may “grab headlines but do[es] not account for much of the rising cost. Rising numbers of professional staff and improved amenities are not inherently inefficient…”
- The amenities arms race? See preceding. Also this devastating note: “less than 20% of America’s college students actually live and eat on campus.”
- Increased federal support drives increased tuition, sometimes dubbed the “Bennett Hypothesis”? “The notion that more generous federal grants and loans cause upward pressure on list-price tuition has only been demonstrated conclusively at for-profit colleges. Public universities tend to pass most or all of any increase in federal aid back to students as a lower net price.”
Helpfully, the authors remind us of the important difference between published tuition and what students actually pay:
At private non-profit institutions, fewer than 20 percent of full-time students pay the list price, and the average discount is close to 50 percent. At public universities, roughly half of the students pay list price.
This gap is increasingly driven by escalating income and wealth inequality:
At public and private colleges alike, list price tuition has risen more rapidly than the net price the average student pays. Rising list price reflects the increasing affluence of high-income families relative to median-income and low income families. This reflects the increasing use of tuition discounts, not soaring costs.
As a result, “many families still misperceive the true cost of attendance.” Worse, “[t]his problem is greatest among students who are the first in their family to go to college…”
Note the way Archibald and Feldman carefully distinguish between higher education institutional categories: for-profit versus non-profit, public versus private, campuses that can draw significantly on philanthropy versus those who cannot. (For the last point, the authors offer a keen and painful insight:
Most public universities, however, have not been able to tap into non-tuition revenue in great amounts…
The most selective flagship institutions have been more successful [in private fundraising], and this is differentiating them from less selective institutions that serve a greater number of lower income and first-generation college students.)
I would amplify or tweak some points in the report. For example, in their description of wealthy families and their role in tuition debates (“Families that pay list price tend to have well-above average income, and they vote, so changes in list price tuition have an outsized political impact, especially at public universities”) I would add “they also are more likely to donate to candidates and parties, and also are more likely to socialize with same.”
In their history of college costs the report offers this important little nugget: “College cost per full-time student rose rapidly in real terms until the late 1960s and then entered a stable or declining phase for over a decade.” I wonder how many people who enjoyed that 1960s-1970s cost period now shape American higher education, either within the field (as senior faculty and administrators, as board members) or nearby (as state legislators)? That must have been a deeply formative experience.
I’d also like to see more details broken out by race and geography. And I’d explore why news media are especially keen on rising college costs; my theory is that this has to do with rising education standards for reports plus the wealth of media outlet owners. But for a 20 page pdf, Archibald and Feldman cram in a lot. Recommended for reading and sharing.
*Professor Archibald was a fine and early Future Trends Forum guest: