The Spiraling Cost Of Higher Education

California Governor Arnold Schwarzenegger has signed legislation (SB 190), authored by State Senator Leland Yee, which would require the governing boards of California’s two university systems – the University of California and the California State University – to determine future pay increases of university executives in meetings that would be open to the public. “This bill is simply intended to let a little sunshine into the process,” Yee has been quoted as saying.

Personally, I am convinced that the problem of rising administrative costs and the attendant escalation of higher education costs is going to require much more than a “little sunshine” to curtail it.

In good times and bad, there is one thing that is as certain as death and taxes: the cost of going to college will continue its upward spiral. There are many reasons for this circumstance, a few of which come to mind. But, anyone who is familiar with higher education can attest that the lack of “sunshine” laws is not one of those reasons; and the imposition of such laws, no matter how worthy that might sound, is not likely to have much effect on the problem.

The University of California (UC) has increased the cost of undergraduate fees by nearly 10 percent for the 2007-08 academic year. Unlike many private institutions, this fee does not include the cost of housing, meals and books. Nationally, fees increased by 6.6 percent. In the context of all this, it is appropriate to recognize that the national rate of inflation for the past year was 1.96 percent. Clearly, many heads of household of the students paying these fees experienced no increase in their incomes.

The underlying problem, especially for public institutions, may be summarized as follows: higher education is regarded as essential to one’s ability to experience “the American Dream;” every high school graduate is presumed to have a right to a publicly financed college education; every public university wants to keep pace with its “comparison institutions” when it comes to faculty and administrative salaries; and the funding base to pay for all of this is not what the consumer (students) can afford to pay, but how much can be squeezed out of the public coffers.

When Tanya Schevitz, a higher education reporter for the San Francisco Chronicle, asked UC about their fee increase for this year, Brad Hayward, the UC spokesman, said the fee increases are necessary “to maintain and improve the quality of education, expand student mental health services, increase financial aid and help raise faculty and staff salaries closer to market rate.” Hayward added significantly that the UC system is “underfunded” by the state by $77 million.

Let’s consider how this works. First, assume that the university develops an annual budget of $100 million. Assume further that $50 million of this $100 million is requested from state government. Finally, assume that the state only provides $25 million of the amount that was requested. In a private market circumstance, that would be the end of the story, as the institution would be required to adjust to a $75 million budget. Not so with most public universities. In their case, the $25 million that was not funded is considered an “unfunded” obligation of the state. The university doesn’t tighten its belt in view of the amount that it actually received; it dips into its reserves, if it has any, raises fees (a more probable scenario), and operates as if the “unfunded” amount is an account receivable. As a consequence, there is no internal discipline for the institution to live within its means.

Throughout the nation, there is a growing awareness that the cost of higher education is like a runaway freight train. Evidence of this fact may be found in the recent announcement by U.S. Senator Charles Grassley of Iowa of his intention to pursue a number of congressional initiatives to reign in the “eye-popping” rates of increase in college tuition rates. More than “sunshine” laws are needed to slow that train. I suggest the following.

First, there is inadequate fiscal oversight by those charged with the responsibility of governing our colleges and universities. The most frustrating aspect, by far, of my twelve-year term as a regent of the University of California (UC) was trying to understand the fiscal affairs of the institution and to assert some influence on them. It would be difficult to accomplish this objective with regard to any multi-billion dollar enterprise, but that difficulty becomes a virtual impossibility when it comes to a major university.

Without adequate oversight, university administrators have no incentive to discipline themselves to be more efficient or resistant to the endless pressures, from all segments of the university family, to engage in activities that result in increased costs of running the institution.

Public universities are very unique institutions, the administrators of which can easily craft a structure that insulates them from outside influences, including their own governing boards. When administrators craft the budget and lobby what they have crafted to the Legislature, the governor and the regents, it becomes more than tempting to “whipsaw” the separate parties, especially when the regents are in little position to distinguish fact from fiction. Strong governance can mitigate much of this.

The second major problem is the fundamental culture of “selective” universities, such as the University of California. Such institutions get caught up in a “keep up with the Joneses” method of operation by comparing themselves to other “comparable” universities. For example, when the University of Chicago gives its administrators a salary increase, the UC administration gives its administrators an increase. The next year, the University of Chicago gives an increase because last year UC gave one – and “the beat goes on.”

While there is something to be said about the need for universities to compete for top-notch scientists and other faculty “stars,” I have yet to see a compelling case made for UC having to compete with U-Chicago or Harvard or any other institution to recruit and retain some specific administrator. If the State of California can attract top people to be cabinet officers at salaries of less than $200,000 annually, why is it necessary for UC to pay double that amount? It is hard for me to understand why the requisite skills to be Senior Vice President of Finance in the Office of the President of UC, for example, are so significantly greater than that of being Director of Finance for the State of California. Counting beans is the same, no matter where you count them. Therefore, the salary comparison for administrative positions at UC should be based on the California job market, not a national group of “select” universities.

Keeping up with national “comparison institutions” also accounts for what many would consider obscene “perks” such as housing and relocation allowances, low interest mortgage loans, jobs for spouses, and other benefits that are not common among most public agencies. Relocation allowances on the order of $25,000 to $40,000 often bear no relationship to the actual cost of moving; they are little more than a “signing bonus.” I am certain that Bekins or Starving Students could get the job done for a fraction of that amount.

The third factor is the attitude that everyone must go to college, an attitude that unquestionably contributes to escalating costs of higher education, because it helps to create a market for a product that is considered as essential as food and housing. As long as college administrators can convince our society that “college is the gateway to upward mobility,” a built-in pressure for rising costs is created, because the product they are selling us is considered indispensable to our future.

Finally, governors and legislators, both Democrat and Republican, also bear a lot of unwitting responsibility for the rising costs of going to college in California. And, this problem is not unique to the “Golden State.” Here is how they do it. Every year, the university prepares its budget and adopts a fee schedule based on what it needs to provide a “quality education” (whatever that means). When the proposed fees (tuition) are announced, governors and legislators fall over themselves to “buy out” the fee increase in the form of a state subsidy to the university. Thus, they are able to say when running for reelection, “I kept college fees low.” In reality, they did no such thing. What they did was to allow the university to raise the fees, but not pass the increase along to students, and thereby escape the necessity of providing a product that the consumers (students) can afford.

Terms such as “accountability” and “transparency” are critically important with respect to public universities, but they are also quite elusive when applied to the fiscal operations of such institutions. That is why the cost of going to college continues its upward spiral and there is not much hope of that changing until fundamental changes are made with respect to university fiscal oversight.


16 thoughts on “The Spiraling Cost Of Higher Education

  1. The main cause of the high cost of a university education is the emphasis on research at universities. This is easily demonstrated by comparing the cost of a credit hour of instruction at a community college, where there is no research to subsidize, with the per-hour cost at a research university. The university almost always charges at least twice as much.
    Why does research push up the cost of university education so much? Several reasons: (1) Professors doing research spend far more time on research than they do on education; we’re lucky if a modern university professor teaches 6 hours worth of courses; the great bulk of their time is spent writing proposals and doing research and other “scholarly” work. (2) Research work requires a huge support structure comprising labs, libraries, computers, and graduate schools, all of which are very costly and must be subsidized by undergraduate tuition. (3) Since universities judge one another on the “quality” of their research faculty, they compete to attract the most highly regarded researchers, which of course pushes up the salaries and benefits of their top researchers. (4) Since research universities view themselves primarily as communities of scholars rather than educational institutions, they forgo of fail to take full advantage of opportunities to cut costs by, for example, using part-time (adjunct) instructors.
    If all the emphasis on research at universities was producing valuable information and better educated students, it might be worth it. However, there is no evidence it is doing either. I have had the opportunity to look at many university research proposal and research reports, and almost every one has been of poor quality–much poorer on average than similar documents produced by commercial organizations. Similarly, in my experience researchers are often not the best teachers. Moreover, many researchers push their teaching work off on to untrained graduate students, so undergraduate students get little if any benefit from the highly-paid professors.
    If we are ever to control the cost of higher education in the United States, we are going to have to start by getting control of the research scam at universities.

  2. M. Carroll, I’m not sure where you are going with that. While I supose one can use taped lectures and video conferencing distance learning (see the University of Phoenix) to generate a high student/professor ratio, it is a problematically interchangable commodity with a “traditional” education. If we confine ourselves to “traditional” education there is an argument that productivity has been improved by technology (is it faster and more efficent to recieve and grade e-mailed papers over physicaly turned in papers?) but for the most part an educator produces as much education/hour as Socrates did a few millenia ago.

  3. Thesis (Ward Connerly): College costs too much.
    Antithesis (Randall K. Filer): Baumol’s cost disease means college always costs too much.
    Proposed synthesis: We as individuals and we as a society need to ensure we get the best value for our education dollars. I think German T. Cruz is onto something when he separates out the specific fields and evaluates each on its merits.
    There is no such thing as “a college education.” There are various degrees from various colleges; some are a good value and some are not.
    A BA in Economics from U Chicago, for instance, might be more cost-effective and a better value both for the individual and for taxpayers than a PhD in Women’s Studies from SFSU. Some combinations could even represent a net negative.
    Careful thinking requires careful speech. Let’s resolve not to use terms like “college education” if the fulcrum of the issue is really “students, degrees, and institutions.”
    (Of course, that turns the issue from old chestnuts like “America needs to send more kids to college” and “a college education is a ticket to improvement” to the political hot potato of “justify your school, your department.” That’s a threat to many established interests, so I am not hopeful that we’ll hear it as often as we should!)

  4. Years ago, (1960’s), I went to a state school with a combination of work and a small amount of assistence from my low income family. I graduated with no outstanding debt – none, although it did take 6 years to get 4 years of education. Now, college has become so expensive that even well-to-do mid class folks have to go hat-in-hand to the enrollment officials. People come out with a degree, thousands in debt and no assurence that they will find a job to pay for that debt. Why don’t more people look at out-sourcing their education? India seems like a good place to get an affordable education in English.

  5. The point about service industries and the string quartet played by a trio is a nice one. But has Mr. Filer heard of CDs and iPODs?

  6. Really to be quite honest the spiraling cost of higher education is directly related to federal subsidizes of student loans….as long as the government continues to fork out cash to families and students….costs will continue to rise. Simply, the formula of supply and demand is thrown out the window….the ceiling is gone. With the removal of the ceiling…..where does the pressure come to control the rising costs of education????…..certainly not from the universities.

  7. Great job picking nits and lice, comatose. You have two customers waiting on their espressos – get back behind the counter, and make ’em.

  8. I don’t believe Baumol can be extended to argue that it is enevitable that service oriented sectors of the economy have a continuously decreasing productivity. If Baumol’s Disease were the cause of college pricing then the rate of increase should be about the same as the rate of nationwide wage inflation, which jumped to about 4% last year from it’s more normal recent 2-3%. So Baumol’s Disease cannot solely explain the increase in college prices. Unless you want to argue that labor costs are the same (adjusted for wage inflation) and quality of education is the same, but that professors have become less efficent Baumol isn’t sufficient explaination for the rate of increase in cost.

  9. May I modestly suggest a federal tax on the employers of college graduates? Say, $1000 per year for a BA, $2000 for an MA and so on (or make up your own figures).
    I am pretty sure that employers would suddenly discover that degrees weren’t all that important after all; that the colleges’ captive market would disappear; and that what degrees were awarded would actually add value to their recipients.

  10. “meteorologists”
    Seems like rather a strange item to include in your list of glutted non-science professions. In both my alma maters, meteorology was taught by the physics department.
    Can’t disagree about the others.

  11. “choked”=”chock”
    “as nauseum”=”ad nauseam”
    “along”=”along with”
    “in whose behest”=”at whose behest”
    Clearly, some College of Liberal Arts has failed you. If they changed the name to Conservative Arts, would engineers learn to write?

  12. Good basic argument; however, it must not be forgotten that education in America is really indoctrination to the benefit of political and social interest groups. We graduate far more students in liberal arts than in sciences. The country is choked full of “psychologists”, “political scientists”, “physical therapists”, “meteorologists” , “gender and minority scholars” , “counselors for illiterate athletes” and many other occupations that have a middle to lower value to societal wellbeing but who provide a major tract for many “activists” of all stripes toward a PhD and an eventual place in academia that after tenure serves to affirm a political/philosophical position to continue the cycle as nauseum. While the tenure system purports to be neutral, it is in practice a filtering system to remove undesirable thought from the campus. Along the tenured professoriate comes an ever growing mass of “administrators” with their coteries of “aides” whose careers are forged in congruence with the dominant ideology and who work under the radar pursuing higher and higher positions in a mad game of king of the mountain. You need only to check The Chronicle of Higher Education to see the abundance of ads for “positions” and their “minimum requirements” to see how insane the system has become. Even janitors will eventually need a PhD in Janitorial Science or Public Health Maintenance!!! Most academic bureaucrats (just like all government buraucrats) would be poorly suited for any work in the private sector but by grace of easily obtained “advanced” degrees and preset protection barriers they are able to pretend a form of scholarship that is self-defined and well suited to their purposes.
    A national effort to assess competence and functional value for all academic positions will go a long way toward defining the field with the purpose of thinning the academic forest; however, neither legislatures nor trustees have the courage to attempt this lest they incur the wrath of the unions and interest groups in whose behest they operate. Nevertheless, we must have faith in the laws of thermodynamics and look hopefully for entropy.

  13. Although I don’t have data to back this up, I suspect the ready availability of student loans designed to make college more affordable is also, ironically, contributing to the problem or rampant price gouging by college and universities.
    Mr. Connerly correctly suggests that the belief that a college degree is necessary makes college education a relatively price inelastic commodity. However, rather than let the market correct the situation, the government steps in and “helpfully” loans parents and students their own tax dollars back, thereby giving the school a pass on its tuition rates, the government a nice “perk” for voters and the parents a burden, but paradoxical sigh of relief.
    I wish I had a good suggestion on how to correct the problem without subjecting a generation of college students to a grossly unfair and unfortunate upheavel.

  14. While I generally agree with Ward Connerly, he has missed the boat here. I am sure that there are problems of the sort he identifies, but these are not the main reason why the cost of college has increased so much more rapidly than prices in general.
    Many years ago, Princeton Professor William Baumol wrote a seminal work on “The Cost Disease of the Service Sector.” The problem, as he quite rightly identified, is that there are many industries, typically services, where it is MUCH harder to obtain increases in productivity than in others such as mining or manufacturing. The Minute Waltz will never be played in 49 seconds and a string quartet just isn’t the same with three musicians.
    While there have been limited improvements in productivity in education, the college experience is still rightly very similar to what it was 100 years ago. As long as this is the case, and as long as, like Mr. Connerly wishes, competitive labor markets rule, costs in service industries such as education will increase FAR faster than for manufactured products. The same holds true for meals in restaurants, Broadway shows and haircuts.
    Market forces are inexorable, and if we want to preserve our quality higher education system we had better accept that prices for education will inevitably have to increase at a much faster rate than prices in general.

  15. State support for college education is, in essence, a form of welfare. So long as there are more students applying for available slots, colleges feel free to raise tuition, knowing that the state will continue to fund it.
    The belief that a 4-year liberal arts education is vital to success in life is also an outdated fallacy. There is a high demand for workers in construction, engineering and programming, where a two or four-year degree at a technical or community college is sufficient.
    It’s time to get the state colleges off the gravy train. Let ’em compete for business. As Dan Ackroyd said in “Ghostbusters”: “I’ve worked in the private sector–they expect results.”

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