Reasons for high inflation in college fees
September 16, 2011 11:37 AM   Subscribe

Can you suggest any thoughtful analyses of why the costs of college tuition in the US consistently exceed inflation by a large margin?

I'm looking for books, magazine articles and blog posts. I am more interested in the why of it than any particular policy recommendations for a fix.
posted by Fiery Jack to Education (23 answers total) 6 users marked this as a favorite
Public institutions have historically relied on state funding to keep things rolling. That funding has whithered over the past several years.

I'll try to keep the politics out of it, but higher education is a popular punching bag for those politicians preaching 'defecit reduction'.
posted by Think_Long at 11:43 AM on September 16, 2011 [2 favorites]

Government subsidies and easy to get student loans means that demand is rather price-insensitive, so schools can get away with jacking up tuitions.
posted by empath at 11:44 AM on September 16, 2011 [3 favorites]

My tinfoil hat theory involves the fact that getting Americans into debt as deeply and quickly as possible is really good for creditors.

I found this article, which has a few other explanations.
posted by Jon_Evil at 11:47 AM on September 16, 2011

Also, a progressively larger portion of the economy is made up of jobs where people are expected or required to have a college degree, so demand is up.
posted by rmd1023 at 11:48 AM on September 16, 2011

Best answer: The Real Cost Equation, an article by Robert B. Archibald and David H. Feldman, authors of the book Why Does College Cost So Much?

Links to some data and news reports on the cost of higher education at
posted by medusa at 11:55 AM on September 16, 2011 [3 favorites]

Supply and demand.
posted by i_am_a_fiesta at 12:10 PM on September 16, 2011

(1) Reduced direct subsidies from state governments
(2) A very large proportion of its costs are labor, which ends up meaning that increases in things like health insurance costs hit higher education harder than many other sectors
(3) Salaries have been increasing over the longer term to what are now more or less market rates for highly educated information-processors
(4) Costs have increased rather dramatically because of an explosion in what amounts to middle-management positions
(5) Gaming selectivity and other statistics for aspirational purposes
posted by ROU_Xenophobe at 12:15 PM on September 16, 2011

Best answer: Check out Science Mart by Philip Mirowski. I took his Economics of Science class in the spring of 2009 and we went over a lot of the material that wound up in the book.

The idea here is that from about 1945 through about 1980, the Pentagon spent billions on R&D, most of which found its way to universities. This enabled universities to rapidly build out their science and engineering programs without having to depend at all on their endowments or donations, which could then be used to support the humanities and social sciences.

Well, around 1980, the Pentagon really cut back on this kind of expenditure. The private sector eventually picked up the slack in R&D spending, but it took almost two decades, and most of it didn't go to universities. It went to in-house R&D departments or boutique research corporations. Thus, over the last three decades, universities have found themselves needing to support programs that were only made possible by a vast amount of military spending while said military spending was in the process of drying up.

The money's got to come from somewhere, and the availability of student loans created little incentive to keep costs under control, the alternative being to drastically cut back on the size and scope of the institutions in question.*

All of this serves to magnify the factors ROU_Xenophobe describes enormously.

*Mirowski's real focus is on the transformation of science from a public good to a private one, which is interesting in and of itself, but the above implications are definitely in there, whether or not the actual argument survived the editing process. I'm relying on my memory of what we did in class here, not the book itself.
posted by valkyryn at 12:19 PM on September 16, 2011 [4 favorites]

Expanded, government-backed credit for higher education allows colleges to raise their prices accordingly (cite).
posted by Blazecock Pileon at 12:19 PM on September 16, 2011

Inelastic demand + easy credit on the form of both government subsidized loans for the students and home equity mortgage withdrawal on the part of the parents. This allowed all of the other cost push factors mentioned by others here to persist.

If education behaved like a normal consumable good where price matters the everything ROU_Xenophobe and valkyryn talk about couldn't have happened. You would have had to control costs much more stongly.
posted by JPD at 12:27 PM on September 16, 2011

The services have also exploded: gyms, pools, counseling, health services, fancy week-long orientations, motivational speakers, elaborate graduation pageants, lounges with designer furniture, etc. Most schools in Europe don't have any of this fancy stuff. Hell, most people who are not at least upper-middle-class don't have free access to those kinds of services.

And lets not forget sports! Even Division III will cost you $100k just to have a volleyball team.

And in addition to the pricy bloaty professionalization of administration, you've got trustees with some kind of size contest going on with all the other schools. Instead of using just a little bit of the endowment to put new windows into Schmenge Hall, they trash half the campus for 5 years to build the 200 Million dollar Snodgrass Center for Learning, Advancement, Progess and Education.
posted by mr.ersatz at 12:35 PM on September 16, 2011 [1 favorite]

The author at Confessions of a Community College Dean has argued that it's about productivity in the economists' sense of the word.

The idea is, most industries are getting more efficient over time. If you don't get more efficient, then the cost of your product will need to go up relative to the cost of everyone else's.

His argument is that the credit hour system is keeping colleges from getting more efficient. At a school with fixed class sizes, a B.A. takes as much labor to produce now as it did 50 years ago: twelve hours a week for four years, plus time spent grading, divided by the average number of students per class. So, he says, it's inevitable that the cost of a B.A. has gone up relative to things that are made more efficiently now than they were 50 years ago.

I'm not sure I agree with the argument, but it's interesting food for thought.
posted by nebulawindphone at 12:55 PM on September 16, 2011 [1 favorite]

Industries get more productive because there is price pressure. Because there is an advantage to being cheaper. There is no advantage to being cheaper --> productivity is flat or declining.
posted by JPD at 12:58 PM on September 16, 2011

I don't know if you have access to the National Bureau of Economic Research's websites, but from my searches I see the authors Caroline M. Hoxby and Thomas J. Kane have done work in this area.
posted by BuffaloChickenWing at 1:03 PM on September 16, 2011

As others have said, subsidies plus the ease of getting student loans distort the price for a college degree upwards, but the price doesn't track inflation because it tracks the premium you earn over the course of a lifetime if you have a degree versus without. Last time I saw a number bandied about, I think The Economist claimed the difference was about a million dollars. Admittedly, that's over 40 years, but it still means they can charge you a pretty penny.

If you want more on the subject, The Economist's archives would be a decent starting point. They've talked about this a good deal recently.
posted by yerfatma at 2:35 PM on September 16, 2011

This article by a Johns Hopkins professor puts the blame squarely on the vast increase of the bureaucracy - in particular higher management. If his data are correct, more than half of the increases seen are due to additional administrators earning vast salaries.
posted by zomg at 2:58 PM on September 16, 2011 [1 favorite]

Higher demand causes prices to rise. Employers want college degrees, and the government subsidizes schools and provides or guarantees loans for tuition.
posted by MattD at 4:43 PM on September 16, 2011

Other industries are constantly increasing their productivity - they get more done per worker. Colleges have a very hard time with this, especially with employees at the top of the pay scales like professors, deans and football coaches.
posted by caddis at 4:46 PM on September 16, 2011

In 1996 or thereabouts, Washington University, which I attended, hired a new chancellor. He immediately started making noises about really jacking tuition. When asked why, he didn't hedge: "to make our tuition on par with Rice." Rice was in the next spot in the US News & World Report ranking. The higher the price, the more apparent prestige.

In other words, one reason for runaway tuition prices is...pure bullshit.
posted by notsnot at 5:05 PM on September 16, 2011

Best answer: A signaling device is a zero-sum good that an entity invests resources into, whose effectiveness is inherent in the fact that the entity has shown that it is capable of expending those resources. Familiar examples of signaling devices include:
- male peacocks' monstrously elaborate tails, a signal to female peahens that they are genetically wealthy enough to afford the inconvenience of the tail's drag;
- nuclear proliferation, whereby two superpowers stockpile more nuclear weapons than would obliterate the earth, a signal to would-be satellite states that they are the more economically-productive superpower and will inevitably prevail.

There is no limit to the investment that myopically rational entities are willing to pour into a signaling arms race: so long as they are all becoming richer and richer, each will rationally divert at least some of his new wealth to outcompeting the other by canceling out the other's most recent signaling.

Therein lies your answer. Most of today's jobs and social roles decidedly do not require college education, and forty years ago would not have been filled by college graduates. But higher education is a ready signaling device. By dropping four years and $X on the good, a person indicates to future employers: "I have the skills to stick with a project for four years, I am far enough from poverty that I can afford to drop a huge chunk of my time on a side project, and I have at least some grounding in the mores of the striving class." So long as Aaron dumps more and more time and resources into this signal, Bob will too, so Aaron will too. And so each year the real tuition rate rises as colleges find students will pay still more, more, more. There is not an end to this.

The same process drove a proliferation of unnecessary high school diplomas forty years earlier still. (Of course, the economics of the situation were very slightly different, since high school is publicly funded and college is usually funded privately. But the strategic analysis was the same, since it's no less an expenditure of resources to spend time in high school than to spend money on college.)

The next question, of course, is: how do you coordinate a mutually-beneficial stand-down of wasteful expenditure? This is left as an exercise to the reader.

(Hint: every imaginable factor in that process -- from a public ideology deifying the B.A., to the massive numbers of people who would need to coordinate, to the fact that the purchaser of the good is ordinarily the child's parents rather than the child itself, to the fact that education resonates with social caste -- runs against stand-down ever taking place.)
posted by foursentences at 9:46 PM on September 16, 2011 [5 favorites]

Basically all services - Real estate, health care, education - that have not been outsourced, have become very expensive in the US. Real estate has collapsed, health care and education are industries waiting to be disrupted. Will IBMs Watson computer revolutionize health care? I don't know. I expect education to be the next thing running into problems.

* extremely expensive
* fees can not be justified anymore with expected salaries (see current law graduates)
* University offer something overpriced that could be sold for a fraction of its asking price
* Many students will default on their student loans

Many professors can't teach. A few a excellent. Why not just stream this online?

The education industry will be disrupted. Things like Khan academy, MIT open course ware etc., are starting points.
posted by yoyo_nyc at 12:40 AM on September 17, 2011

Response by poster: Thank you all for providing such a wide range of sources and thoughts. Exactly what I was hoping for.

foursentences - I am tempted by your argument but I wonder: how do you categorize an investment as a signalling device? For example how would you know if the increase in health care expenditure is not a signalling device while spending on higher education is?
posted by Fiery Jack at 7:02 AM on September 19, 2011

On reflection, here's how I'd categorize an investment as a signaling device: it must be:
- visible
- relatively unambiguously indicative of a positive trait
- not worthwhile if invisible

1. Visible
For a signal to be effective, it needs to be visible to the signal-ees. Bosses are unlikely to know how much you've spent on health care, but are likely to know what college you went to, its approximate price tag, and the fact that college takes four years.

For a signal to trigger an arms race, it also needs to be visible to competitors, who are similarly unlikely to see your health care expenditures.

2. ~Unambiguously Positive
It's not clear to me just which positive trait would be signaled by health care expenditure -- maybe you spent more because you're richer or more cautious than the next guy, but then again maybe you spent more simply because you're sicker. The very fact that its import is so ambiguous makes it a poor candidate for use as a signal.

3. Not Worthwhile Unless Visible
Finally, an investment isn't a signaling device if it has a positive expected value in its own right (ie, if it was still worth doing even supposing that nobody learned about it). In that case, although there could still be competition to outdo others' investment, it would be productive competition rather than zero-sum competition, and nobody would really condemn it. (But this line might be harder to draw -- some people definitely *do* use their college educations in work or in life, and some people probably *do* spend medical fees without having a clear sense that they'll prove worthwhile.)

It's an interesting question whether doctors are signaling something to patients, by competing to maximize medical spending -- for example by invariably recommending exhaustive tests. Their spending here is certainly visible to patients. It telegraphs the doctor's caution and rigor. And I've heard that many medical tests are not worth their costs -- though I don't know much about that topic. The case could certainly be made, anyway.

Sorry to take so long to reply -- didn't notice the followup until now.
posted by foursentences at 3:18 PM on October 9, 2011 [1 favorite]

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