The Reasons for the Increasing Cost
There are many reasons why the cost have increased. The first must be inflation, but college cost have also increased in real terms, that is increased over and above inflation. However, it is also one of increasing competition and as such where the costs are increasing there needs to be justification for that increase. If one looks at the number of people employed in education this has been increasing at a fast rate, and this is true throughout the entire public education. (Economagic.com, 2000)
There are many other costs involved in education in addition to only the cost of the teachers and the schools. In recent years there has been the increased need for technology with the provisions of computers and the relevant software. The increase in library material, teaching support and other less obvious aspects such as higher levels of security have all been introduced over the last twenty years.
There have also been the one off incidents that have taken resources, such as the fear of the year 2000 bug in technology and the costs of preventing problems with older computer software, as well as other devises throughout the school which are run with computer chips (The Government Accountants Journal, 1997).
Bowen (1990) outlines what can be referred to as the “Laws” of Higher Education Costs: 1. The dominant goals of institutions are educational excellence, prestige, and influence. 2. In the quest of excellence, prestige, and influence, there is virtually no limit to the amount of money an institution could spend for seemingly fruitful educational ends. 3. Each institution raises all the money it can. 4. Each institution spends all it raises. 5. The cumulative effect of the proceeding four laws is toward ever-increasing expenditure. To sum up the five laws, there is no internal mechanism to stop spending.
This increasing cost in higher education can be explained in terms of Costs of Recruiting and Enrolling Students – Sample costs:
(Lecture 10/31/00)
McPherson (1991) estimated relations changes in funding between publics: raised tuition by $50 for every $100 increase in federal aid. However, this is a correlation and not causation.
There is a basis hypotheses on the rise in tuition costs:
- “Colleges face increasing prices for what they purchase.” Labor (salaries and benefits), Capital, Compliance
- “Colleges are using tuition increases to finance expanded or improved services.” Including career guidance, counseling, recreation, child care, tutoring; also remedial courses
- “The share of revenue from sources other than tuition is contracting.” Less government aid; Maintenance of research programs no longer fully federally supported
- “Increased availability of student aid had led colleges to raise their student charges.” Greater responsibility for financial aid and greater costs to attract and maintain the best students. Incentives implicit in federal financial aid (Bennett Hypothesis)
(Lecture 11/02/00)
Other authors mention what has caused raised tuition, such as Larson (1997) in Time magazine article notes how competition between colleges began driving up faculty salaries. Well-known university professors not only drew top students but also improved a university’s chances of winning harder-to-get federal research funds. Larson notes an example of how faculty benefits drive college cost up at the University of Pennsylvania where Penn generously reimburses its faculty members for their children’s college tuition.
Kane (1999) gives four different explanations to account for the rise in college cost. Three of which relate to public universities. First, a large share in the rise in tuition charges at public universities is due to a decline in the share of cost covered by state and local appropriations. Second, to the extent that costs per student did increase, the increases were largely in line with changes in the wages of more educated workers in the economy – at public institutions, at least. Finally, the increasing competitive market for more talented students means that colleges find it more difficult to charge a uniform price.
Clotfelter (1996) suggest three possible explanations for rising cost in higher education. The first possible cause is exogenous forces, any external influences that have the effect of changing the prices that institutions pay for inputs. For example, explanations stressing the high cost of computers and scientific equipment, the increased cost sharing in government grants and contracts, or the growth in burdensome government regulation all relate to forces outside the influence of any one institution. A second possible explanation for rising cost is output choices, such as the increases in expenditures required for institutions to upgrade their faculty, add new programs, or diversify their student bodies by offering new scholarships. A final possible reason is inefficiency. Whenever a given set of inputs produces less output or lower-quality output than it could produce under ideal conditions, the cost per unit is higher than it could be; this is inefficiency.
One must note that the latter two explanations assume that the “output” of colleges and universities can be identified, if not actually measured. Note, the services that these institutions produce are numerous, diverse, and not at all amenable to quantification.
The Future
Funding trends will have a significant effect upon public higher education. In many states it is the public community colleges that have held tuitions down. However, if these funding trends continue not only will state colleges and public universities be increasingly out of reach for economically disadvantaged students but community colleges as well. (McPherson, 1998)
Mumper (1996) gives a detailed discourse on the future of college prices. Some of several factors Mumper mentions will drive college costs up are:
- College expenditures will be driven up as a result of new technologies and the emergence of new fields of study.
- Upward pressures on faculty salaries are likely to continue and benefits will drive up costs.
- The cost of institutionally awarded student aid will heighten the pressure on colleges to expand their aid programs to reduce the impact of increasing prices.
- The growth in traditional college age students will lead to increased enrollments, which will allow colleges to spread their fixed costs over a larger number of students.
Winston (2000) in addressing the question “Where Is Price Competition Taking Us?” exposits several indicators as to what the future looks like. Winston states “a very different price structure will emerge across higher education with higher prices charged by the poorer schools who spend less on their students and lower prices charged above. As quality goes down across the schools, price will go up” (p 3) Winston further notes amongst several future cost anticipations “Need-based financial aid faces an uncertain future as, more generally, does all college pricing that serves, idealistically, to redistribute income. It won’t matter at the top where student stipends are being paid all around, but it may seriously reduce low-income students’ access everywhere else” (p 4).
University education in the United States increasingly has become one of the country’s major export industries, sending an ever-growing number of graduates back to their native counties (Clotfelter, 1996). The increasing cost may affect the ability of American universities to retain this preeminent position.
One thinks no matter how high college costs increase parents will still find a way to fund their children’s education. Fifty-eight percent of parents surveyed believe that a college education is important and said they would send their children to college regardless of the cost (Reisberg, 1998).
On the other hand, if the current level of aid by way of scholarships and loans does not increase in real terms then there will be an increasing gap, with a student belonging to either a privileged family that can afford the increasing college prices, or to the lower socioeconomic class where there are the higher levels of government support. Those caught in the middle will be increasingly unable to attend, or have their education affected by the need to work a higher number of hours to support their education. Therefore, those who can afford the education may be increasingly attracted to private rather than public colleges, which will also become a greater strain on those who are left behind due to higher reliance on government subsidy.
The costs may then increase even further in a disproportionate way as there will be a lower percentage of the population attending college and the ability for the college to take advantage of economy of scale may be seen as even more difficult.
There are also other knock on effects, such as the toll the increased pressure will have on resources and teachers. This may also place a greater amount of stress on whom, and as a result the community may suffer with larger social divides as well as a drop in the currently high levels of take up education.
If one also considers that along with social class there also appears to be a correlation with attainment, this will then hit on the results of the colleges and bring down the average attainment levels making them less attractive, especially in the very competitive environment. It is natural for parents as well as students to go to a college where they feel they will get the best chance at a high result, and if they see the average results as being lower there is an assumption that it is because of the teaching and facilities, as much as the social condition.
Therefore, we can see that the underfeeding of colleges and the increasing costs means that there may be a vicious circle which will be difficult to break once entered into, the best way of breaking this circle is to increase funding so that college cost will only rise in line with inflation, but it appears that this is unlikely to happen in the short term.
References
Clotfelter, Charles. Buying the Best: Cost Escalation in Elite Higher Education. 1996, pp 1-13
Deloitte & Touche (1996) Education Costs Paying for School [online] accessed at http://www.dtonline.com/edfund/edcost.htm
Economagic.com (2000 Nov 7) [online] accessed at http://www.economagic.com/em-cgi/charter.exe/blscu/cusr0000seeb01
Economagic.com (2000 Nov 12) [online] accessed at http://www.economagic.com/chartg/blsee/ees80820001.gif
The Government Accountants Journal, (no author cited), (1997 Winter) Progress on the Federal Government’s Year 2000, The Government Accountants Journal, conversion.v46 n4 p50(2)
Kane, Thomas J. (1999) The Price of Admission Washington, D.C.
Larson, Erik. “Why College Cost Too Much” (March 17, 1997) Time Magazine, vol. 149, no. 11.
Long, Bridgett (2000) Lecture Notes. Harvard University
McPherson, Michael and Morton O. Schapiro (1998) The Student Aid Game. Princeton, NJ
Mumper, Michael (1996) “Understanding College Prices.” (Chapter 2) Removing College Price Barriers. Albany: State University of New York Press, pp. 23-49.
National Center for Education Statistics (2000) http://nces.ed.gov
Reisberg, Leo. “Most Americans Overestimate College Costs, Poll Shows,” The Chronicle of Higher Education, May 29, 1998, A39
Winston, Gordon. “Why Can’t a College Be More Like a Firm?” Williams Project on the Economics of Higher Education, Williams College, May 1997.
