If you have a teen headed to college or are contemplating higher education yourself, you might wonder why college costs keep rising. There is one thing you can be sure of in life: college tuition will rise every year. Prices rise and fall all around us, but tuition never goes down.

The National Center for Public Policy and Higher Education reported that college tuition and fees have increased 439 percent from 1982 to 2007 while median family income rose only 147 percent in the same years. It’s apparent that tuition is not keeping up with the rate of inflation; and if you are paying those tuition bills you can attest to that reality. Even more disturbing, the annual cost of attending a private college can easily exceed the annual salary a graduate receives during their first few years of work.

In “Declining by degree: Will America’s universities go the way of its car companies?“, published late last year The Economist clearly noted that:

“Two right-wing think-tanks, the American Enterprise Institute (AEI) and the Goldwater Institute, have both produced damning reports about America’s university system. Two left-wing academics, Andrew Hacker and Claudia Dreifus, have published an even more damning book: “Higher Education? How Colleges are Wasting Our Money and Failing Our Kids and What We Can Do About It”. And US News & World Report, a centrist magazine, says in its annual survey of American colleges that: If colleges were businesses, they would be ripe for hostile takeovers, complete with serious cost-cutting and painful reorganizations.”

Understanding the factors that drive up the cost of college tuition might help you swallow the “tuition bill” pill a little easier. Then again, you just might choke on it.

Inflation

Inflation generally refers to the natural increase in the cost of living over time. Inflation, unfortunately, is a fact of life. But it’s clear from the statistics that college tuition is rising at a much higher rate. College administrators claim that there are numerous reasons for these huge increases. David Hodge, president of Miami University of Ohio, attempts to explain in a recent interview: “Everybody expects us to do a lot more security. Students are coming with more physical disabilities and emotional needs. There are greater expectations for career services. And that kind of administrative and support spending is a really good investment. It helps the students.” Additionally, insurance costs for running these institutions have risen significantly since 9/11.

Funding cuts

State budget cuts and declines in philanthropy and endowments helped push the cost of college tuition up much higher than general inflation across the country. The simple fact is that as state and federal governments cut funding to these institutions, colleges have to make up for that lost income somewhere. The easy way to recover those funds is to pass it on to the students.

Competition

More and more universities are in competition with one another because having the best students gives them the ability to raise their prices. In a recent publication explaining their rising tuition costs, Robert Frank, the Henrietta Johnson Louis Professor of Management and professor of economics at Cornell University clarifies their position:

“…Universities face increasing pressure to bid for the various resources [top students and faculty] that facilitate the quest for high rank. These pressures have spawned numerous positional arms races that have already proved extremely costly, and promise to become more so. While the race benefits individuals who get admitted, it works to the disadvantage of the group because it inflates expenses. Frank called the educational marketplace, in which universities compete for a high ranking, a “winner-take-all market where small differences in performance — or even small differences in the credentials used to predict performance — translate into extremely large differences in reward. Universities must spend more and more in financial and merit aid to attract the best students, he said. Though Cornell doesn’t offer merit aid, it must compensate by allocating more and more resources to attract and retain the very best students it can.”

Demand

Everyone is familiar with the law of supply and demand: demand drives up prices. In other words, the more people want the same thing, the more its price is likely to climb. More students than ever before are seeing the value of a college degree. This allows colleges to be aggressive in their pricing. Every year, most colleges turn hundreds of students away because there are plenty of students willing to pay for that coveted education. They don’t worry about scaring students off with high prices because we all know that the more something is valued, the more we want it. As evidenced in the market by designer items. They may be overpriced, but consumers clamor to own them based on their brand identity. Parents and students do the same with high-priced universities. This demand is welcomed by schools since it allows them to increase their tuition.

Tenure

There has been a debate recently about the value of tenure and how it inflates tuition costs. Some believe that colleges and universities have become a rich feeding ground for bureaucratic parasites, who neither teach nor learn. Very simply, tenure means salary increases and drives up the cost.  In the above referenced article in The Economist, the another issue of tenure is also addressed:

“The most plausible explanation is that professors are not particularly interested in students’ welfare. Promotion and tenure depend on published research, not good teaching. Professors strike an implicit bargain with their students: we will give you light workloads and inflated grades so long as you leave us alone to do our research. Mr Hacker and Ms Dreifus point out that senior professors in Ivy League universities now get sabbaticals every third year rather than every seventh. This year 20 of Harvard’s 48 history professors will be on leave.”

While tenure is not the sole cause, it has to be seen as one of the contributing factors.

Will it ever end?

You would think that eventually the bubble will burst and when families can’t pay, the demand will decrease. When families are unable or unwilling to pay, colleges will be forced to reduce their prices. Or will the public frustration reach a level that equals that of the recent uprisings in Canada, Great Britain and France? Only time will tell.

4 comments on “What drives up the cost of college tuition?

  • Great article, as usual, Suzanne. Whew! That’s a lot to swallow. And it’s relative as to why your information products and mine will see a growth spurt as soon as more parents find out about them.

  • You’re right Paul. It is a lot to swallow. And I think it will be interesting to see just how many consumers (parents and students) say “enough is enough”!

  • Hello Suzanne: Thank you for the shout-out. I was yesterday at CUNY’s McCauley Honors College and was so impressed. Tuition is free, students start off with a free laptop, they get scholarships for time off abroad for global studies–and there are dorm possibilities in NYC. Grade point average minimum: 3.5. For instate students, these new honors colleges within flagship schools are really quite the alternative. We have some other suggestions in our book, “Higher Education?” like the Barrett Honors College at ASU and the Barksdale within Ole Miss. Both were outstanding.

    Best, Claudia Dreifus

  • Thanks Claudia for stopping by and leaving a comment. Your book is a great resource for “thinking outside the box” as far as colleges go. I think too many times parents and students stick to the obvious college choices when there is so many other choices to explore. It’s encouraging to hear that there is a place for every student.

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