Paying for College

College Costs: Where Will They End?

How much is enough? How much is too much? How much is way too much?

In a previous article, I noted how one particular school of a university in New York City has an annual total cost (including NYC lifestyle expenses) of over $75,000. That’s for one school year. Nine months, actually. Granted a student there might get some financial aid, but the students I’ve worked with who have been accepted to NYU have not been overjoyed with the school’s financial aid. The big draw for NYU appears to be the city of New York. NYU certainly has some outstanding educational aspects, but a $300,000 gross-cost price tag presents a challenging hurdle for most families, regardless of financial aid.

So, once again, we’re faced with the old maxim: Return on Investment (ROI). I’m not picking on NYU. I’m just using it as an example of the runaway cost of higher education. Speaking of runaway costs, I often wonder how families are making ends meet these days with the prices of food, clothing, gasoline, and just about everything else climbing sharply. But, heading (or nearing the top of) the list of heavy expenses is college.


Some time ago, an interesting article from Bloomberg Businessweek — Are College Costs Reaching a Breaking Point? — made this interesting statement:

 The growing attention to universities’ soaring prices is pushing some private colleges to a tuition tipping point, according to Standard & Poor’s Rating Services. In a new report, S&P said costs have risen so much, “many of their customers can’t afford tuition without significant financial aid.” If some schools don’t keep their tuition under control, they’ll shoot themselves in the foot and face the need for more drastic cost-cutting, such as layoffs, and potential mergers or closures, S&P says …

 

There has to be a solution to this dilemma. However, there is a kind of Catch 22 to all of this. That happens to be the old Law of Supply and Demand. As long as colleges have no problem filling all the beds in their dorms, they have no real incentive to lower their fees.

If you ran a business that sold a product and every year you had no problem selling 100% of your manufacturing capacity, you would have confidence to keep bumping the price of that product, not only to cover the rising costs of doing business but also to maintain whatever profit margin you have set. Of course, you may eventually reach that “tipping point” mentioned in the Bloomberg article I cited above. Knowing when the tipping point is reached is not an objective skill. In other words, you may have already reached (or surpassed) the tipping point, but clear evidence of that may not become tangible for some time. By then, it may be too late to take corrective action and recover the customers you’ve lost due to what they viewed as excessive costs. So, what about college costs?

I wanted to do a little research on both ends of the college cost spectrum, so I searched for “most expensive colleges” and “least expensive colleges.” This took me to a helpful U.S. News article cited in Huffington Post during the fall of 2013. Getting right to the heart of the matter …

Below are the 10 most and least expensive private colleges and universities for the 2013-2014 school year. Unranked colleges, which did not submit enough data for U.S. News to calculate a ranking, were not considered for this report.

The Most Expensive:

Columbia University (NY) $49,138

Vassar College (NY) $47,890

Trinity College (CT) $47,510

George Washington University (DC) $47,343

Carnegie Mellon University (PA) $46,962

Wesleyan University (CT) $46,944

Tulane University (LA) $46,930

Bucknell University (PA) $46,902

Oberlin College (OH) $46,870

Union College (NY) 46,785 41

The Least Expensive:

Berea College (KY) $1,070

Brigham Young University—Provo (UT) $4,850

Rust College (MS) $8,900

Lane College (TN) $9,180

Life University (GA) $9,747

Tougaloo College (MS) $10,210

Park University (MO) $10,600

Alice Lloyd College (KY) $10,620

William Carey University (MS) $10,800

Allen University (SC) $11,940

The gap between the most expensive and least expensive schools is amazingly wide. Of course, one might care to ask, “What price, name recognition?” Most college-knowledgeable folks will recognize all the “most expensive” school names. However, they might be pressed to know anything at all about most of the “least expensive” institutions.

This raises the question of why colleges are so expensive. I did some additional research to find out the reasons for this. Here are a few of the more astute opinions:

The Wall Street Journal gathered the opinions of three economists about why college is so expensive. Here are some highlights:

– Rudy Fichtenbaum teaches at Wright State University, Fairborn, Ohio, and is president of the American Association of University Professors:

One of the most important factors driving price at public colleges and universities has been the decline in state support for higher education. Between 1987 and 2012, in real dollars, government support has declined from $8,497 to $5,906 per student …

The second major culprit is rising costs … What is driving costs is the metastasizing army of administrators with bloated salaries, and our university presidents who are now paid as though they were CEOs running a business—and not a very successful one at that …

– Richard Vedder is director of the Center for College Affordability and Productivity, Washington, D.C:

… The role of sluggish state appropriation growth is somewhat exaggerated. When appropriations rise, universities have used a large portion of the money to fund the unproductive bureaucracy … Former Education Secretary Bill Bennett was mostly right when he said federal aid programs enabled colleges to raise tuition fees, helping to fuel the academic arms race.

– Katharine Lyall was president of the University of Wisconsin System from 1992 to 2004:

The single largest engine of this was the embrace of IT by universities. In the beginning, faculty (a few) dealt with their colleagues’ computer problems. But the burgeoning demand for campuswide IT services soon swamped what faculty were willing/able to do—and raised the cry to hire IT staff. Of course, IT then exploded in size and complexity. So, when faculty bemoan “administrative bloat,” the first question should be whether they’re willing to go back to the days when they (faculty) handled all that …

Turning to “Everyman” (the general public), instead of credentialed “experts,” we find some interesting comments from readers of The Atlantic‘s article Why Are Colleges Getting So Expensive?

–  There’s a few underlying reasons for all of them. 1) The government subsidizes students taking on more debt so universities have no incentive to contain their tuition. 2) Employers use a college degree as a sorting mechanism for young hires.

There could be a few more reasons given, but I think that is the majority of the problem that skews supply and demand. That, and it is hard for an 18 year old to realize they will be a debt slave if they go down a certain path, and parents don’t step in enough to stop that from happening.

– Well, basically, colleges refused to adjust and streamline their budgets when education spending by the government went down.

With less free money from the government, colleges should have adjusted their spending, for faculty salaries and perks, college president salaries, administrative positions, and pensions and benefits for the lot of them.

Administrative positions and salaries, and pensions/benefits have skyrocketed. Additionally, some universities might simply be running themselves as out-and-out profit-making enterprises. They’ll keep charging until people stop buying.

– Here are several:

1. More money sloshing around in middle-class households, since most consumer items have fallen dramatically in real cost (thank you China!) See also: housing bubble and stock market bubble.

2. Uncertainty in predictions. College is a one-time investment. Are you willing to accept, say, a 20% higher chance that your kid will miss out on a great life, to save 40% in college cost?

3. Irrespective of the ‘learn vocational – those jobs will never disappear’ exhortations, most people know that a high standard of living more or less requires moving up the value chain. You can be a plumber earning 6 figures today. But do you expect that you will be able to go back to college 20 years in the future (when no new brain cells can form), in case your remunerative plumbing job disappears/gets automated?

All that being said, I do hope that the ‘uncollege’ movement develops into a mania by the time my toddler is ready for college.

– Administrator parasites are absolutely a major cause of cost increases. As an example, my school had 9 vice presidents who were paid over seven figures. No one knew what they did. The faculty never got raises and when they tried to form a union they got shot down.

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I find my own answer to this article’s question — College Costs: Where Will They End? —  in a line from the final minutes of the movie Three Days of The Condor. Professional assassin, Joubert, discusses his profession with CIA employee and former Joubert target, Joe Turner, and says:

“Well, the fact is, what I do is not a bad occupation. Someone is always willing to pay.”

“Someone is always willing to pay.” Indeed.

Thus, my answer to my question about when college costs will stop rising comes as an inference, from Joubert’s lips to your eyes: Never! There will always be someone willing to pay.

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Don’t forget to check out all my admissions-related articles at College Confidential.