Why is College Tuition So Damn Expensive?

Average Student Debt by State | StartClass

As millions of students prepare to leave the college bubble every May and June, millions more high school grads prepare to take their place. Dozens of articles and op-eds appear discussing the rising cost of college and the rising prevalence of student loans.

This year has been no different. Lee Siegel’s piece in the New York Times about why – and how – he made the decision to default on his student loans was only one of many pieces to call out America’s higher education system. These days, everyone from billionaire entrepreneurs to other billionaire entrepreneurs love to opine on the topic. But the one thing missing from most of the think pieces being flung back-and-forth is a simple answer to the question on everyone’s minds:

Why is it that the cost of going to college is so damn high?

Let’s be honest: like most things, there’s no simple answer to why the cost of tuition has skyrocketed in the past few decades. However, there are a couple of things that we can look at that will definitely help put things in perspective.

Increased Competition

We’ve all heard the adage that a college degree is as important today as a high school degree was for our parents’ generation. It’s not necessarily wrong: today’s college grads are poised to earn about a million dollars more over the course of their lives than their peers who do not have a bachelor’s degree. And, despite the fact that some tech giants like Google don’t care where – or if – you went to college, for the rest of us, a college degree still looks very much like the ticket into a long-term, sustainable career.

As a result, the best colleges are competing more and more to attract the best and brightest students (generally by offering them more financial aid) and to hire the best and brightest faculty (by paying them more).

At the same time, universities that may not attract students on intellectual reputation alone tend to spend more on amenities than their Ivy League peers. Those amenities, such as dorm rooms with private bathrooms or gyms with rock walls and newly renovated pools, drive up costs for lower-ability and higher-income students, according to a 2013 study from the University of Michigan.

The result is a self-fulfilling prophecy. Formerly less-selective schools that spend on amenities attract more applicants. This, in turn, allows them to reject more students, lowering their acceptance rate and making them appear more selective. This, of course, allows for additional tuition hikes as the school or university recruits more elite students and faculty.

Administrative Bloat

Obviously, not every increase in the cost of college over the past few decades can be attributed to students looking for country club-like accommodations.

One leading argument as to why college spending is so high is simple: colleges are spending too much on administrators and support staff. As colleges look for more ways to attract top students, they increase the amount that they spend on things like admissions counselors, career services staff and other personnel.

In fact, the original intent behind this blog was to echo the findings in a feature entitled “Administrators Ate My Tuition” from the Washington Monthly. In it, Benjamin Ginsberg, a political science professor at Johns Hopkins, blames super-sized administrative budgets (and salaries) for the increase in tuition. He writes:

A comprehensive study published by the Delta Cost Project in 2010 reported that between 1998 and 2008, America’s private colleges increased spending on instruction by 22 percent while increasing spending on administration and staff support by 36 percent. Parents who wonder why college tuition is so high and why it increases so much each year may be less than pleased to learn that their sons and daughters will have an opportunity to interact with more administrators and staffers— but not more professors. Well, you can’t have everything.

The problem seems endemic. Top administrators pull salaries nearing, if not surpassing, $1 million, while their students graduate thousands of dollars in the hole. On top of that, many university presidents have their accommodations and much of their travel paid for, are able to host lavish events at the cost of the school and receive board of directors-approved “incentives” that often triple or quadruple their salaries.

It’s easy to see why that’s a problem. Despite all of the awesome amenities, extra-curriculars and other opportunities outside of the classroom, the whole point of going to college is to learn — even if your major is Underwater Basket Weaving. As schools spend more and more on support staff that may or may not actually help students (Ginsberg refers to them as “deanlets” and “deanings”), they’re also sacrificing students’ educations.

The Subsidy Argument

This argument is one that you may already be familiar with, as it’s been covered on GenFKD before. The “subsidy argument,” known to some as the “Bennett hypothesis” says that, the more the government tries to subsidize something, the more of it you’ll get.

What this means is that the more generous schools and the federal government are with their student aid packages, the more college administrations feel justified in jacking up the cost of attendance. Because the market is artificially buoyed (most people aren’t going to decide not to go to college, even though tuition may increase 5 or 8 percent), schools are at liberty to continue raising rates.

The last time tuition increased at the same rate as inflation, *NSYNC was still on the radio. | Source: Bloomberg

The Other Subsidy Argument

According to a recent paper by Demos, a policy think-tank, one of the leading reasons for rapidly increasing tuitions isn’t anything that we’ve already mentioned. Instead, the massive increases in tuition can be attributed to a decline in state funding, just as colleges needed state funding the most. Take a look at the chart below:

80 percent of recent increases in the cost of college tuition can be attributed to reduced state support | Source: Demos

Demos’ research blows a lot of the previous arguments out of the water. While instructional, administrative and construction costs are responsible for some tuition increases, a great deal more – approximately 80 percent — come from plummeting public support for what are, for all intents and purposes, necessary institutions.

The underlying problem is that, unlike so-called “entitlement” programs or many other state expenditures, education spending is considered a “discretionary” expense. So, when state legislatures need help balancing their budgets, they often look to education spending first. After all, it’s much easier to levy spending cuts at a school that just installed a rock wall in its gym, despite that rock wall having very little effect on the school’s bottom line, than it is to cut programs that directly impact voters.

The effect, of course, is that students shoulder more of the cost of going to college and assume more cheap government debt, continuing the cycle of driving up college costs at their own expense.

So What?

College simply isn’t getting any cheaper. And the mechanisms behind why grow more and more complicated at approximately the same rate as student loan debt is growing.

The important take away here is that, while colleges and universities are absolutely guilty of runaway spending at times, there are greater, unseen forces at work as well. I’ll leave you with one more chart:

College spending per student really hasn’t increased much in 25 years | Source: The Chronicle of Higher Education

This is an economic issue that affects each and every one of us personally, regardless of how much student loan debt we may have or where our degree comes from. And it’s only going to get worse if you and I don’t do something about it.

As the 2016 presidential election looms, now is the time to start educating yourself as much as possible on the issues that will directly impact you. Student debt and runaway college costs should be two of those.

How do you think we should fix the American higher ed system? Let us know in the comments below.