The cost of higher education has far outstripped the cost of living. In the late 1960s, my tuition at an elite private school was $2400 a year, the equivalent of $12,381 in today’s dollars. Tuition today at that same elite school is $33,000. (Room & board is extra.) I’ve read reports that say that on a percentage basis, the cost of public colleges and universities has risen even faster.
At the same time, financial aid is down. In the late 1960s, I had two scholarships, a National Merit Scholarship and a state scholarship that supported attendance at a private school in the state. These were need-indexed, paying only $100 or maybe $200 apiece at a minimum, but in my senior year when both my siblings were in college, in combination they paid more than my tuition, and I made a couple hundred dollars’ profit towards living expenses by registering for my last quarter, even though I had met the requirements for graduation already. I worked all through college and held some unpleasant jobs, but I worked 10 hours a week, not the 20+ a lot of our students are working at state schools. I was not unusual. (Well, OK, I like to think I was unusual in the ability that led me to win those competitions, but need-based aid was widely available, and quite a few of my friends at said elite private school were from substantially lower class backgrounds than my own and got more financial aid than I did.)
The proportion of the population who are going to college is rising. The economic divide between the college educated and the non-college educated population is growing, but a college diploma is no longer a guarantee of economic success. Elite colleges (both private and public) are increasingly filled by those from the top 20% of the income distribution. There are plenty of non-selective colleges available, so that everyone can be admitted to a college somewhere. The question is whether s/he will be able to afford to attend it. Even public institutions are increasingly out of the price range of the bottom half of the income distribution, and financial aid is not making up the difference.
The financial facts are pretty well known. But I’ve seen much less discussion of why this is happening. Is this just because I don’t know where to look? Is it cost-driven? If so, where are the costs? Is this related to the escalation in faculty salaries at top institutions? Health insurance is surely taking a bite, but that has to be affecting everyone. Is something else going on besides costs? Are universities somehow making a profit? Does anybody know?
At my public institution, we don’t know much about our costs, because information is seen as dangerous in our political climate. The university is administratively part of the state (unlike, say, Michigan or Penn State) and the state legislature has a track record of actually raiding and putting into the general fund any money that is accumulated anywhere in a state agency, including student activity fees and the bank accounts of agencies set up as “cost recovery” centers that were supposed to be operating independently of the state budget. This has led to a culture of mystification in money matters, and transparency is viewed as dangerous. A schematic of the distribution of grants overhead looks like a bowl of spaghetti, and is more or less a money laundering system. I sat on a special committee to address graduate tuition issues that met weekly for nine months and came to be viewed as someone who really knows a lot about the university budget. I still don’t have a clue about basic facts like what proportion of our expenses are faculty salaries. We argued about whether grants were effectively subsidizing instruction or whether undergraduate tuition was effectively subsidizing grant-funded research, and could not get data that could answer the question. Colleges at other schools tell me that the “dirty secret” of elite schools is that undergraduate tuition effectively underwrites research.
So there’s my question. Or questions. 1) What is really going on financially with higher education? and 2) Why is it happening?
The defunding of public education seems relatively easy to explain as part of the politicized defunding of the entire public sector. Also, there is a higher percentage of the young population trying to go to college, so the total cost of college students per taxpayer is perhaps higher. (But this may not be true, as I went to college in the baby boom years when there were a lot more young people.)
But what is going on with private universities?
I am convinced that those of us at public institutions need to understand our financial realities better. Maybe so do the folks at private schools.
Edit: A point I meant to make that isn’t worth a separate post. I publicly chastised an administrator on exactly this point a few weeks ago. Because it gets billed to grants & a weird feature of our budget process means that our campus writes a check to system for uncollected graduate tuition, faculty and even administrators (who should know better) refer to graduate tuition as a “cost,” when it is obviously a revenue. The budget people view tuition remission as lost revenue that can be collected by giving fewer remissions. But if, as the faculty insist, graduate students respond to the loss of tuition remission by dropping out of school, the net effect is lower revenue and a deeper budget crisis. On the faculty side, there is a tendency to disparage the unfunded graduate students who are actually paying to attend the institution and to ignore their positive contribution to institutional revenue. The cost of graduate education is the cost of putting teachers in the classroom to teach graduate students and the cost of faculty time in individual advising. Graduate students do work as teaching and research assistants. Institutionally, the net cost of a graduate student is the value of his/her work to the institution minus his/her stipend minus his/her health insurance and other benefits and minus the cost of educating him/her. On our campus, we don’t do the calculations to figure out whether graduate students are generating profit or loss, or to compare programs on this factor.
Sociological Confessions 
An interesting part of the rise of tuition at private universities is that it accompanies a rise in money from endowments, so the overall amount of revenue increase at a private university is even greater than the tuition increase would suggest.
I don’t have any actual facts on reasons why tuition has increased, but since this is a blog I won’t feel ignorance encumbering me from assertively speculating. I think universities are sort of like the way people used to talk about post-Soviet Russia, where they will basically consume whatever money they are given. While the idea of the tax-and-spend liberal is overstated in American politics, it’s probably well suited to the liberal grove of academe. In any case, when a bunch of different universities have large pots of revenue, they can spend it competing with each other for faculty. So I don’t really think the explanation falls on the expense part of the ledger.
Instead, I think the main part of the explanation is on the consumer side. Higher education has become expensive because of what people are willing to pay for it. Elite colleges can charge an enormous premium because they have characteristics of an oligarchy. Plus, it’s people spending money on their kids, and on an expense that’s seen as absolutely focal to how the rest of their kids lives turn out. (Notably, certain economists who have argued that the economic value of an elite private education is overrated still sent their own kids to elite private schools despite the much greater cost.) So maybe the puzzle is really why higher education was not more expensive when you went to college.
Jeremy beat to saying it, but two different questions–why is does it cost more and what are they spending it on? On the spending side, I don’t think faculty salaries, on the average, have gone up in step with tuition increases. So, I’m trying to think about what we are spending so much more money (proportionally) on in higher ed.
I think the biggest change in percentage terms are the insane laboratory start-up costs that come with hiring new faculty. Used to be more the norm that you’d work in someone else’s lab until you landed a big grant to get your own going. Now the universities are expected to pay for multi-million-dollar labs to get the person to come, not to mention the costs of moving a senior person. These people do need the labs to do their work, so there’s some justification there, but the bigger problem comes when they only stay a year or two and then get yet another university to pay to set up another lab.
I don’t think that this has a one-size-fits-all explanation. I do think that people are willing to pay to make their kids’ lives “better” (and have all sorts of options – albeit few of them very good or financially sound – for providing money for an education) and that, because college is increasingly seen as a necessity, people are willing to pay dearly for it.
the bigger problem comes when they only stay a year or two
I think that this has changed education markedly as well. It seems to me (and I’ll admit that I haven’t thought much about this or researched it) that people are much more mobile in education than they once were, especially seniors, and this is expensive for schools (recruitment/moving/start-up costs), lab or not.
Let me take a moment, though, to thank BM for setting me up with a lab. 🙂
Re the “what the market will bear” hypothesis, teaching colleges charge high sticker prices because otherwise people will think they must not be any good, but then deeply discount the tuition either for need or to attract better students. We did not qualify for any need-based aid, but our children qualified for merit scholarships at two excellent but not elite private teaching colleges, effectively paying about 60% of the sticker price.
Re labs etc., the implication of this hypothesis is that expensive science programs are effectively subsidized by the less-expensive teaching-intensive programs in the social sciences (and in some cases the humanities).
The idea that it costs more because we’re willing to pay more implies that we value higher education more now than we did 20 years ago. That’s certainly true since the whole economy has shifted to the service sector and away from “trades” where non-college educated folks could make a good living. So, it cost less in the past because we valued it less. Some groups always valued college highly but now almost everyone does.
Also, I wonder how many students actually pay full sticker price? I did (rather my parents did)–at a respectable public university in the late ’80s, but it was so ridiculously cheap that I didn’t pursue merit-based aid and I didn’t qualify for need-based aid. Tuition was about $900/year.
From economics you’d have cost disease and a positional-goods analysis as potential explanations.