Wednesday, July 27, 2011

The Higher Cost of Higher Education

I keep seeing figures like this one from the American Enterprise Institute floating around showing that the cost of higher education is growing much faster than the rate of inflation.

I have two young sons, and it is likely that my family will continue to grow over the next few years. I expect that my children will want to go to college, and I am very much concerned about the cost data displayed in that figure.

I have my own suspicions about the reasons for the rapid growth in higher education costs.

Part of it is almost certainly that colleges provide many more amenities and services to students than they did in the past. Equivalents to the professionally staffed academic advising center, writing center, counseling center, and career center available to my students at Texas A&M were not available to my dad at the University of Florida in the late 1960s. nor was he able to make use of programs like the Alcohol and Drug Education Program, the GLTB Resource Center, or the Student Conflict Resolution Center available to Aggies today. As near as I can tell, his in-state tuition and fees and UF got him a pretty Spartan dorm room (no air conditioning, community bathroom, weeknight curfew) and 15 credit hours a semester. Paying to build space and staff for these programs is expensive.

Another chunk is almost certainly due to the amazing growth in university administration and equally amazing increase in administrators' status and pay. The Chancellor of the University of Texas System makes about three aquarters of a millions dollars a year and the President of the University of Texas is pulling $600,000 annually. The president of Texas A&M makes a more modest, but still hefty, $425,000 a year. In the College of Liberal Arts at A&M, we have a dean, four associate deans, and two assistant deans. That's seven deans for twelve departments. My hunch is that if you could dig up an organizational chart for Texas A&M University thirty or forty years ago, the ratio of deans to departments was much lower and that the salaries of those serving as administrators were more comparable to ordinary faculty salaries.

The biggest mover in higher education costs, though, is very likely to be good old-fashioned supply and demand. In 1940, only 4.6% of Americans age 25 or older (about 3.4 million people) had completed four or more years of college. In 2010, 30.0% of Americans age 25 or older had completed four or more years of higher education (about 59.8 million people). Given the very high costs and long lead times necessary to create new universities or expand the capacity of existing institutions, it strikes me that places in colleges, especially in good colleges, are simple much more scarce than they used to be. As providers of a valuable service, colleges and universities are simply pricing higher education at its market rate. If anything, they are pricing it below market rates in many cases since, I would guess, many colleges could substantially increase tuition over today's rates and still fill incoming classes many times over with students of equivalent quality.

In the big picture, I am sure you could make some meaningful but ultimately marginal dents in the cost of higher education by rolling back student services, unpopular academic programs, and scaling back central administrations, but until students stop clambering to get in there is no reason for prices to come down. Higher ed reformers, therefore, are likely to have their biggest impact on college and universities (in terms of pricing and in terms of education) by working to create viable alternatives to traditional colleges and universities that still serve as gateways to reasonable employment opportunities. Only when demand for higher education actually wanes will suppliers of higher education have real incentives to lower prices.

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