Monthly Archives: November 2010

The Cost of College

Why state aid is the problem, not the solution

Of all the issues concerning college students these days, few hit closer to home than the issue of college tuition. In a world where a college education–especially a four-year degree–is seen as a bare necessity to compete in the global economy, making a quality education affordable to the most people should be of utmost importance to us as a society. Many people view higher education as something the government should predominantly, if not completely, fund. This sentiment surfaced in Wisconsin with the advent of Governor Walker’s Budget Repair Bill, and prevailed in the discussion surrounding his subsequent biennial budget proposal. Absent from this discussion, however, was a thoughtful inquiry into the root causes of skyrocketing tuition, and the true effects of government aid to public colleges and universities.

For a quick macroeconomics refresher, let us first observe the basic roles of costs and prices in a normal market situation. In a normal market situation, competing firms strategically limit costs and prices in order to attract customers and maximize revenue, which will consequently maximize profit.

This is not the case in the world of higher education, where very few colleges operate under the motivation for profit. In the world of higher education, prices are heavily subsidized by the government. The University of Wisconsin itself derives a hefty amount of financial comfort from this system. Students, just look at your fall semester bill sometime: at the bottom, under “IMPORTANT NOTES” you’ll see a message that says “The Legislature and Governor have authorized $1,001,508,980 of state funds for the University of Wisconsin System and its students during the 2011-2012 academic year. This is a tuition subsidy of $6,418 per student from the taxpayers of Wisconsin.” Because of this, the student is never faced with the true cost of their college experience, and colleges have no incentive to limit costs because they know the government will pay for most of the resulting growth in the price. However: one substantial problem arises from this: Whenever a subsidy shields consumers from the true cost of a product, they tend to overuse the product, and whenever consumers overuse a product, that product will be more costly to produce. Unfortunately, government doesn’t cover all of the new costs incurred by the university, and these costs are passed on to the students. Consequently, we have seen tuition rise far faster than the rate of inflation. According to the College Board, in the last decade alone, tuition at a public four-year college or university has had an average annual growth of 5.6% above the rate of inflation. In fact, it is now 259% more expensive today than it was in 1980, even after adjusting for inflation, and we can see similar trends in both private four-year colleges and public two-year colleges.

This problem is exacerbated by the fact that the assessments of various college accrediting agencies, such as the American Bar Association: Council of the Section of Legal Education and Admissions to the Bar, and the American Dental Association, set academic standards for colleges based primarily on inputs–how much the college spends–and not on outputs, or the individual end result of higher education. This forces even the smallest and most frugal colleges to constantly spend more than they otherwise would, on things they don’t need, simply to gain accreditation. Colleges are also required to periodically publish research in journals and reviews in order to gain accreditation. This diverts resources (professors) from teaching and focuses them on research.

There are two main things we can do to limit the price of college education. First, is simply to stop or severely limit our subsidization of it. Without the promise of massive government funding, colleges would be forced to make more prudent decisions regarding costs, and eliminate waste. If they didn’t, the costs they amass would be too great to sustain because the unsubsidized tuition would prevent students from attending altogether.

Second, we must have accrediting agencies more concerned with the results of education at a specific college, not with how much the college spends. The Secretary of Education is required by law to publish a list of nationally recognized accrediting agencies which are considered reliable in the evaluation of colleges. Any accrediting agency which does not focus primarily the educational outputs of colleges should not be included, and we should not rely on them as a proper gauge of higher education quality.

This doesn’t mean we’d have to sacrifice quality of education either. Colleges could still achieve positive results by finding cost effective ways to deliver education, such as prioritizing teaching over research, providing more flexible hours and classrooms in which professors can teach, and through implementing online teaching technology. College tuition may still rise, but it would rise more gradually, concurrent with inflation.

If we continue to trust the misguided recommendations of accrediting agencies, and if we continue to heavily subsidize our compliance with those recommendations, then we will continue to see a rapid growth in college tuition, as we see today.