Why Does College Cost So Much?

http://economix.blogs.nytimes.com/2011/02/18/why-does-college-cost-so-much/

by mhb • 15 years ago

40 61 15 years ago

economix.blogs.nytimes.com

larsberg• 15 years ago

I wonder what role the diminished state of funding has had on increased college costs. In the 90s, the money from DARPA/ONR and even NSF flowed quite readily into schools, which take 50-55% of that as "overhead" costs. Now, military research funding is more commercially targeted, and the combination of competition and shrinking funding for the NSF has turned it into a dogfight over scraps (at least so it seems in CS).

mcgillroy• 15 years ago

how I love socialist europe: free world class college in germany and france, in holland and danmark, in austria and switzerland. that and world class health care for free too.

yes taxes are high, insanely high by american standards - but in the end it more than evens out. plus life is less stressful.

anonymoushn3• 15 years ago

I don't think they are insanely high by American standards. The marginal tax rate for Americans of almost all income levels is about 40%, until it drops to 15% or lower if you're extremely wealthy and able to route all your income through "investments."

mode02• 15 years ago

Where do you get this figure?

danik2• 15 years ago

Taxes are higher, but you don't have to pay for private insurances, healthcare etc. to the same extent.

I don't know why people keep bringing up the level of taxes, it's not important or interesting. What's important is how big part of your salary you need to spend on necessities like government, schools, roads, healthcare and pension. That's what should be measured.

Vivtek7• 15 years ago

I don't know why people keep bringing up the level of taxes

Because it wouldn't be profitable if people looked at service levels instead of an artificial number that made them think they were getting something other than the short end of every stick in their vicinity?

Vivtek7• 15 years ago

Not insanely high, once you add up what Americans pay for health insurance that won't actually pay out if they get sick, plus state and local taxes, and higher usage fees and so on.

My daughter will probably be going to TU München instead of Purdue, actually. It's time to blow this popsicle stand.

apl5• 15 years ago

Good university, and way better than 90% of what the American HE market has to offer. Unless, of course, you value the electives system a lot.

mbesto• 15 years ago

Hey Michael!

Sounds great. München is an awesome city. Much better than Lafayette (sorry Purdue fans). She'll learn German too!

Question: As an American citizen how is it possible to take advantage of this?

brudgers10• 15 years ago

From what I understand about the German education system , significant features of US education are missing [I cannot speak to the others] - primarily a pursuit of universal access to higher education and the opportunity for second, third, and fourth chances at a college degree.

To put access in perspective, University of Phoenix has 400,000 students - the entire German higher education system issues about the same number of Abitur each year. In the US more than half the population [55%] has some college compared to 22% of the German population with post-secondary education. The percentage of the US population with Masters and PHD is almost as large [10.5%] as the percentage of German population with any type of University degree [13.6%].

http://en.wikipedia.org/wiki/Educational_attainment_in_the_U...

http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/In...

http://en.wikipedia.org/wiki/Abitur

apl5• 15 years ago

  > [...] and the opportunity for second, third, and
  > fourth chances at a college degree.

Can you clarify what you mean by that?

Jd• 15 years ago

First you are comparing the percentage of the US population over 25 with the German population 15 and over.

Also, I'm not sure how you came up with the 13.6% or the 22% figure.

ceejayoz2• 15 years ago

Is it possible that German businesses do the smart thing and don't require a bachelor's degree for basic data entry and other similar tasks?

I have a hard time believing 55% of the jobs in the US require a college education to perform.

perlgeek• 15 years ago

Actually some German states now also take tuition fees, but they are quite low (1000 Euro per year) compared to other countries.

watchandwait2• 15 years ago

French universities are a disaster:

http://www.nytimes.com/2006/05/12/world/europe/12france.html

barry-cotter2• 15 years ago

They spend less per capita on university students than on high school students, have something verging on universal access, and, looking at their economy, get approximately similar value out of the education system as the USA for much, much lower expenditure, and that's a disaster?

Sure, university is not as much fun or as luxurious as in the states, but what is actually wrong with the French system for French society? Note, I did not say for French students or French academics.

anamax• 15 years ago

> yes taxes are high, insanely high by american standards - but in the end it more than evens out. plus life is less stressful.

The US tax revenue per person is about the same as the tax revenue per person in Western European countries. (The US collects more taxes per person than Canada.)

That means that the US govt has the money to provide europe-class services. It doesn't, but that's not due to a lack of money.

Note that US GDP per person is significantly higher than much of Western Europe.

anonymoushn3• 15 years ago

I suspect that Peter Schiff is closer to the mark.

http://www.youtube.com/watch?v=AIcfMMVcYZg#t=1m30s

His hypothesis is that increasing the capacity of students to pay (to almost arbitrarily high levels) by providing government guarantees of student loans allows allows schools to charge ridiculously high tuition. To some extent, this is correct, and there is no reason for the people involved not to want to increase tuitions. For the school, higher tuition will mean the school can improve itself and become more attractive to students. For the lenders, higher tuition means more loans returning 5% or more for which the government assumes all the risk.

It isn't entirely accurate to say "the government assumes all the risk" either. Student debts are the most toxic debts around, and cannot be thrown off in bankruptcy. If you refuse to pay, the government is authorized to garnish your wages or raid your savings.

This isn't to say that Schiff's hypothesis explains the entirety of the increase in the cost of tuition, but I think that it plays a much larger role than what is discussed in the article.

Vivtek7• 15 years ago

That is entirely plausible, though - the same reason house prices went through the roof.

slavak• 15 years ago

This seems to be a much better explanation than the article provides, which seems to be along the lines of "the smart people teaching in college must be paid a lot."

The answer to the question posed by the headline is: It isn't. The correct question would be "Why does College cost so much IN THE US?," which implies there's a fundamental difference between the higher education system of the United States vs. that of a large part of the world.

You COULD claim that professors in other countries are being paid ridiculously low wages, but this sounds far fetched. A much more convincing explanation, in my opinion, would involve the difference in the way the economy of higher education works in the US versus other parts of the world.

Duff• 15 years ago

I think that it is one of the driving factors, and that the experience of the housing bubble confirms it. I live in sleepy Albany, NY, which as a state capital and small city it is a pretty stable place. No boom-bust cycles at all -- it's always "ok" in the region as a whole.

House prices that were stable from the mid 80's to 1999 suddenly went mad, up to the median income in the area for the legions of state workers. If you tried to buy a $200k house, there would be a bidding war minutes after the sign went up... but not much above $250k.

forgotAgain• 15 years ago

A corollary is that schools have packaged loans as financial aid. Financial aid representatives sell loans to students as if they reduce cost. They mask the true cost which preserves demand and therefore price.

Lost_BiomedE• 15 years ago

I tend to agree.

The schools are also making a money grab due to the availability of money. The university I am enrolled in said they will have to raise tuition "drastically" because the state will only give them $125mil vs. $150mil due to cuts. I checked average salary of administration positions, 130k in 2006 and 230k in 2010. Also, they have built two buildings last year and have two more going up this year. Obviously, nothing can be done but hiking tuition.

brudgers10• 15 years ago

>"For the lenders, higher tuition means more loans returning 5% or more for which the government assumes all the risk."

5% is a typical origination fee for an educational loan. The lender takes it off the top. Interest on educational loans - since loans to parents and relatives are a big part of the business - can run quite high for non-government backed loans (9%-11% was not uncommon for loans written in the 1990's).

Focusing on traditional educational loans (Stafford, Plus, etc) misses the other big form of educational borrowing - credit cards. Perhaps this has declined with the recent downturn, but from the late 1980's credit card companies increasing targeted students, and it was not uncommon for people to graduate with $3000-$12,000 in credit card debt in addition to student loans. [and it has also become a more difficult debt to discharge through bankruptcy]

btipling• 15 years ago

The article links to this other article which I find to be a better summary of the book and answer to the question:

http://www.insidehighered.com/views/2010/10/19/feldman

nhangen• 15 years ago

On top of this, I'm amazed at the differences in cost between state and out of state tuition. Is this because of state funding, or is it because it's another income stream for colleges and universities?

brudgers10• 15 years ago

Traditionally, the former. More frequently the latter as state universities increasingly strive to attract out of state students as a way to offset price controls set by state legislatures.

bugsy3• 15 years ago

The reason is that the colleges are subsidized by state property, income and sales taxes which are paid by residents over many decades, but not by out of state students.

neutronicus• 15 years ago

Where I went to school, there was an "international programs in engineering office," a "minorities in engineering program office," a "engineering student entrepreneurship office", and many more that I can't remember, presumably duplicated on the liberal arts side, all populated by people earning salaries from the University.

It seems like there are a lot of people earning livings off of the University system who aren't educators or researchers. Maybe there's been a lot of growth in this sort of thing since the cheap-college days of yore?

_delirium• 15 years ago

The high-level administration has multiplied also, in addition to the more peripheral administrative initiatives growing. Where there might have once been a Chancellor and perhaps a Vice Chancellor, there's now a whole Office of the Chancellor, a slew of Vice-Chancellors and Executive Vice Chancellors and Provosts and Deans and Associate Deans, all with staff, etc. Their pay has also increased, even relative to other university pay; the salary multiple of top-level administrators relative to a median professor in 2010 versus 1960 is much larger.

It seems to largely be a result of the professionalization of the administration; in ye olden days universities were largely self-run by the faculty, with Deans and Vice-Deans just being professors who moved up into that position, sometimes rotating in temporarily. Now there's a whole category of professional career administrators who jump school-to-school, roughly parallel to the executive-management class in private-sector organizations (and they expect salaries in the $200k-$600k range).

yummyfajitas2• 15 years ago

But they need to meet the "evolving standard of care in education that is set externally."

One of the most revealing pieces of this interview: ...the dark little secret about these [merit] grants. They do not create access to higher education for students who otherwise could not go.

Interesting - merit grants are not helpful for people who can't afford college? Doesn't that imply that people who can't afford college (mostly) lack merit?

Oops, politically incorrect thought.

cletus• 15 years ago

Inevitably the comparison will be made to those countries that provide free higher education as being superior. I strongly disagree, for several reasons:

1. Anything that's free but is limited gets abused. You need look no further than the NHS in the UK were most GPs are employees of the NHS. Office hours of 9-4 (ie no incentive to provide a better service) are typical, the system clogged up with people who either don't need to see a doctor or, in the case with many old age pensioners, they simply go to the doctor for someone to talk to.

2. I would love to see some study in this but it is my belief that reducing the cost of higher education increases the earning potential of college graduates. When I went to university (in Australia) it certainly seemed to be the case that the earning potential difference between graduates and non-graduates wasn't anywhere as near as the difference in the US;

3. Free systems create extra demand from people who don't really want to be there and are simply going for the lifestyle, which may in turn keep others who really want to go out;

4. Governments may pay per college student but those funds aren't distributed equally. When I went almost nothing was spent on first-year students. Most of that money was diverted to research activities, which brings into question the quality of education the government was paying for;

5. If you accept the premise that paid college leads to higher earning potential, countries that have free higher education will lose people to those countries where you pay as the labour mobility is high and only getting higher. I believe this at least in part explains the brain drain from Eastern Europe to the US in the 90s; and

6. Demand will be increased by other countries. In Germany, for example, you have a lot of Brazilians who go there for free university, typically going there for 6-12 months prior to learn German.

One of the reasons that college costs so much is probably the same reason health care (in the US) costs so much: it's a protected market of sorts. In the US, IP laws mean drugs in Canada and elsewhere cost a fraction of what they do in the US (and most of the cost basis for drugs in the US goes on marketing not research).

If you want to be a doctor (of cours) you need to go to college. But what about a computer programmer? Many of the best companies will require a college degree. A computer science education is obviously useful but not a prerequisite to learning to program. Most programmers I know learnt to program before or outside college.

So what you have a captive market.

It would be reasonable to assume that competition between colleges would sort this out but that doesn't seem to be the case. Sure there is competition for students and teaching/research talent but that's not the same thing. For example, a friend of mine believes (rightly or wrongly) she'll probably never get a great teaching job because her PhD (in history) isn't from a top school like Harvard or Princeton (IIRC).

So you can choose to make a purely economic decision and go to a cheaper school but the cheaper and more expensive schools aren't necessarily equivalent, either in fact or in perception (which can be far more important).

I suspect this won't change until something disrupts the higher education system itself.

psykotic• 15 years ago

Your conclusions are poorly supported by the evidence and reasoning you proffer.

> 1. Anything that's free but is limited gets abused.

Free does not mean unrestricted. Degrees in law and medicine are highly sought in Denmark, and the universities raise the academic requirements for initial entry and continued study accordingly.

> 2. I would love to see some study in this but it is my belief that reducing the cost of higher education increases the earning potential of college graduates. When I went to university (in Australia) it certainly seemed to be the case that the earning potential difference between graduates and non-graduates wasn't anywhere as near as the difference in the US

Supposing there is a correlation, what is its relative significance? For example, Danish doctors are paid less than most of their US counterparts. But that is due to uniform salary standards in the public healthcare system.

> 3. Free systems create extra demand from people who don't really want to be there and are simply going for the lifestyle, which may in turn keep others who really want to go out

How so? If the academic standards are raised to compensate for higher demand, only the most talented and willful be able to complete their studies. On the contrary, in an educational system where money is often the gating factor, you lose talented people who cannot afford tuition.

> 4. Governments may pay per college student but those funds aren't distributed equally. When I went almost nothing was spent on first-year students. Most of that money was diverted to research activities, which brings into question the quality of education the government was paying for;

Professors are contractually obligated to spend a large percentage of their time on teaching. As a consequence, assuming you don't teach empty classrooms, the total teaching load across a faculty scales roughly with the number of students.

The first-year classes are cheaper to teach per student because classes are larger. But if you break everyone into groups of 15-20 people with their own TA (another professor or graduate student), the quality of the teaching doesn't suffer. In fact, the best teachers usually teach the first-year classes.

I don't see a difference here compared to US universities.

In Denmark there's no such thing as a research-only professorship supported by per-student government contributions, and equipment expenses and research assistant salaries are only covered at a very low level or not at all. My cousin is a biomedical researcher at the University of Aarhus, and his group spends an inordinate amount of time on applying for research grants to cover such expenses. That part is not very different from the US.

> 6. Demand will be increased by other countries. In Germany, for example, you have a lot of Brazilians who go there for free university, typically going there for 6-12 months prior to learn German.

That's a real and present problem but it can mitigated by stricter quotas. From talking to academics at Danish universities, my sense is that many Ph. D. programs are being overrun by Chinese students who are studious but not very talented. For various reasons, that hasn't happened at the undergraduate level.

alextp• 15 years ago

> Anything that's free but is limited gets abused. You need look no further than the NHS in the UK were most GPs are employees of the NHS. Office hours of 9-4 (ie no incentive to provide a better service) are typical, the system clogged up with people who either don't need to see a doctor or, in the case with many old age pensioners, they simply go to the doctor for someone to talk to.

Actually, my experience in Brazil seems to provide counter-evidence to that. Higher education here can be either public or private. There are federal and state universities, but also it is reasonably easy to open a private college and get federal certification for it. In the public universities, in general, there is a far higher pressure for excellence at all levels, from admissions to lecturing and research (indeed, it is usual that the more interested undergrads will work on research projects during their course), and research specially is almost lacking in the private universities.

It is generally accepted here that if your objective is to make money the first thing that goes is demands on research (which is expensive and doesn't make much money for the university), closely followed by standards (as the more people you let in and the higher grades you give them the better-oiled the assembly line is and you can effectively print money as long as you don't lose your government certification).

In the public realm the people are kept motivated by: (1) the promise of very early tenure (effectively one year after you're hired by a public university), (2) the not-so-high salary, with availiability of extra funds in the form of productivity grants (for a researcher's personal use, not necessarly to hire students, etc), (3) the decoupling of the adviser's money from the students' funding (which ends up giving the students more freedom).

reader5000• 15 years ago

College is how the older generation exploits the younger generation, in addition to ss and medicare. The demand for work is inelastic (and purchasing a college degree is roughly purchasing a necessary license to work), there is no competitive market in colleges (colleges do not compete for students on price), and basically there is no way the system could NOT financially destroy the upcoming generation. The bastion of hope is that as old people die off and young people take political power, student indebtedness will be erased.

watchandwait2• 15 years ago

This pattern is more common than you realize. Anytime the government introduces a subsidy, from farm bills to mortgage deductions to limits on the number of doctors, it hugely benefits those with an existing stake in that market. The value of the subsidy is quickly capitalized into the market-- farmland prices escalate with the subsidies, for example. As a result, new entrants get none of the benefit of the subsidy, but instead get to pay higher, distorted prices to enter the market to provide or buy that good or service. Government subsidies not only cheat the public at large, but even in a specific industry they reward the current stakeholders and punish the next generation of stakeholders.

timdellinger• 15 years ago

A year in college (tuition + room and board) is still cheaper than a year in prison (tuition + room and board).

Both have price pressures that are similar in some respects, including both state-funded and for-profit versions.

Both systems have mediocre performance at their primary missions (rehabilitation, education). There are significant start-up costs in both systems that make starting a new facility difficult.

Decisions are made by leadership in both systems to optimize for things other than customer benefit.

tastybites• 15 years ago

College costs a lot for the same reason that houses do: you can either be rich and buy in cash, or leverage up and amortize a huge payment into relatively small monthly payments, making it seem affordable.

Once purchasers start leveraging to purchase a good or service, price elasticity goes way up. Not to mention both are part of the classical 'American dream'.

Why Does College Cost So Much?

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