10 December 2008

Skyrocketing College Costs

The Objectivist
Dunkirk-Fredonia Observer
December 8, 2008

The cost of higher education is skyrocketing. This is troubling, not just because it involves massive waste, but also because it threatens to make college less affordable. This will lead to not only economic loss, but also personal loss if a college education generally makes people’s lives go better.

According to The National Center for Public Policy and Higher Education, college tuition is climbing at an alarming rate. From 1982 to 2007, college tuition and fees rose 439%. This rise is even more impressive when one considers that medical-care costs rose 251% over that period and inflation (consumer price index) increased 106%. This alarming climb makes college less affordable. This is particularly true because the increased cost of college is running far head of the increase in family income during this period (median family income rose by 147%).

In concrete terms, college is expensive. The cost of an average public four-year college (including tuition, room, and board) is $13,842. For middle-income families, this is 25% of their income and this is true only when we reduce this amount by taking financial aid into account. For many, financial aid has helped to reduce these cost increases. In 2003-2004, roughly 63% of students received aid and this reduced the average out-of-pocket costs to $6,600 per student. This percentage is even higher (69%) at public four-year institutions.

As usual with public education, taxpayers are carrying a good deal of the load. One 2003 study by Cato scholar Neal McCluskey, using data from the National Center for Educational Statistics, pointed out that more than half of public universities’ revenue came directly from federal, state, and local taxpayers. In comparison only about 19% came from student fees and tuition. On a per pupil basis, the taxpayers at all levels currently pay about $9,500 for each full-time student. This includes grants, loans, and tax credits. Even the rich line up at the trough. For example, in 2002, 8% of college students from families with parental income of $100,000 or more received state aid, with the average award being $2,400.

These patterns also hold true for New York. The state paid around $7,800 per student (6.9% of state and local tax revenue). This might explain why even spendthrift New York charges only slightly more for tuition, room, and board than the national average, $13,589. When prices are so reasonable, you know New York taxpayers are being fleeced.

As usual, when the government starts blindly shoveling money into something, performance suffers. According to The National Center for Public Policy and Higher Education, when it comes to Americans ages 25-34, the U.S. has slipped to 10th place in the percentage of persons with an Associate’s Degree or better. We lag behind not merely Asian competitors such as Japan and Korea, but also our Canadian neighbors and European competitors like Ireland, France, and Belgium. Worse yet, when it comes to percent of college students who get a degree, the U.S. performance is mediocre. The U.S. ranks 15th in worldwide graduation rates. This is made worse because the percentage of U.S. students who finish college in four years is surprisingly low. For example, at Fredonia less than half of the entering freshmen graduate from Fredonia in four years (in 2000-2003, the percentage was about 47%) and less than two thirds graduate in six years (around 64% from 1999 to 2001).

Shoveling taxpayer dollars toward higher education also likely fueled the cost increase. After all, when competing for students, administrators felt little pressure to engage in disciplined spending. My guess is the subsidies have helped to pay for an expansion of student services. The modern university is stocked with workers who provide psychological counseling, career counseling, child care, and special services for minority students. Other staff members handle public relations, promote diversity and affirmative action, and provide a sizable on-campus police force. This is in addition to employees who serve the food and oversee dormitory life. Even at small colleges, these programs cost tens of millions of dollars and drive up tuitions and fees. It is interesting to consider whether higher education would be better served without the bells and whistles.

This pattern can be seen at Fredonia State. There around 36% of full-time employees are faculty and they likely account for less than half of the 33% (inflation-adjusted) increase in spending that occurred at the school between 1998-1999 and 2007-2008 academic years.

Another interesting issue is whether taxpayers should subsidize college students in such large amounts. On average, college graduates make more than those without a college degree. As a result, it seems a little unfair to force blue-collar workers to subsidize their soon-to-be wealthier peers. It is often argued that education has positive effects for third parties (that is, it benefits people other than students and the people who provide educational services) and this explains why we should subsidize it. For example, higher education makes people more productive, thereby leading to more scientific and commercial discoveries, new businesses, more tax revenue, etc. However, subsidies also have negative effects. They encourage young adults to purchase more education than they want or, in some cases, can handle. Consider the low graduation rates. Subsidies also lower academic standards as colleges try to educate students who are not ready for college. On one estimate, 29% of state university freshmen needed a remedial course. And, as noted above, subsidies probably also ratchet up the cost of a college degree, thereby making college less affordable and saddling many students with weighty loans.

The balance of positive and negative effects that flow from massive subsidies to higher education is unclear. What is clearer is that politicians who promote higher education subsidies and then criticize skyrocketing costs are working at cross purposes. In addition, we should have little tolerance for those demagogues who bemoan the lack of taxpayer support for higher education.


The Objectivist said...

An interesting issue is whether private colleges would provide administrators incentives to control spending.

The Objectivist said...

My guess is that one cause of the skyrocketing spending is the attempt of too many colleges to be all things to all people.

One market response might be to have more specialization. That is, schools would specialize in education, the arts, the humanities, etc.

The Objectivist said...

I wonder why outside of the think tanks, there is so little discussion of how the massive subsidies affect overall educational spending and costs.

Mberenis said...

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The Constructivist said...

O, have you looked at this piece in Inside Higher ed?

The Constructivist said...

O, are you suggesting the government stop subsidizing private colleges, too? B/c they get a lot of taxpayer $$$, too....

The Constructivist said...

O, any response to Marc Bousquet?

stella said...

I got a grant from the federal government for $12,000 in financial aid, see how you can get one also at