To Infinity and Beyond: Why College Tuition Keeps Rising

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By Zach Gorwitz.

The estimated one-year cost of attendance at Duke University is $63,530. But while students and their families are suffering from sticker shock, Executive Vice Provost Jim Roberts maintains that students are, in fact, getting a discount — “We’re investing on average about $90,000 in the education of each student.”

The price of attending universities across the United States is rising rapidly and has been for some time. Over the past 40 years, tuition has tripled. This astronomical increase in college costs dwarfs corresponding changes in the consumer price index, American wage growth, housing prices, etc. Even as students protest on California campuses and Occupy Wall Street protesters cry out against crippling student debt, high-ranking administrators at campuses across the nation argue that college is still a good buy.

So, which is it? Though the most reported topics in higher education are cost and price, we have been unable to unearth a definitive answer. The truth is, there isn’t one. The stories of three distinct schools — Duke University, George Washington University, and the University of California, Berkeley — reveal why colleges continue to raise tuition and how they spend your money.

“A Peculiar Institution”

Before diving into our case studies, it is worth examining the business model of what Duke University Public Policy Professor Charles T. Clotfelter calls “a peculiar institution” in his 1996 book Buying the Best: Cost Escalation in Higher Education. American colleges and universities are always hungry to improve, and there is no limit to how much they can spend. Thus, institutions raise all they can and spend all they raise. These ambitions are nothing new. As Harvard President Charles Eliot boasted in his 1869 inaugural, “This University recognizes no real antagonism between literature and science, and consents to no such narrow alternatives as mathematics or classics… We would have them all, and at their best.”

A second peculiar feature of American higher education makes this spending possible — top institutions routinely turn away willing customers because demand far outpaces supply. As a result, consistent revenue streams are all but guaranteed for the elite schools, and those who want to compete must raise tuition to keep up. A more disputed point is the discrepancy between cost and price. The brass at these high-caliber institutions will argue that they are spending more per student than they are charging, effectively making education a bargain. But this varies depending on the type of institution and whether the student is a full pay student or on financial assistance.

Sticker Shock

Cost of attendance for a year at Duke is $63,530. A senior at George Washington can expect to pay $66,660, and an in-state senior at Berkeley will pay $33,092. These numbers seem ludicrous, and to most families, they are. But as CNN asks “Does College Cost Too Much?” and the New York Times searches for “The Real Reason College Tuition Costs So Much,” most Americans do not realize that the shocking sticker price is not what most students actually pay for college. Only about 50% of Duke undergraduates pay full tuition. The rest have their financial aid subsidized by the tuition of full-paying students. Former Duke Provost Peter Lange puts it this way: “For those paying full freight, the full sticker price, their tuition dollars are supporting students who otherwise could not afford to come to Duke.” In fact, in academic year 2013-2014, 24% of Duke tuition dollars went to financial aid, second only to the 25% dedicated to faculty compensation. So, despite that $63,530 sticker price, 20% of Duke undergraduates pay less than $10,000 in fees. This high tuition-high aid model extends far beyond Duke. Andrew Gillen of Education Sector found that, between 1999 and 2010, private colleges spent 60 cents of every dollar in increased tuition on aid. But not every school spends this aid money the same way.

George Washington University, a tony, selective private research university in Washington D.C.’s Foggy Bottom neighborhood, has also been raising tuition to spend on aid. A study by the New America Foundation took a closer look at the high tuition-high aid model and found that GW, along with other “second-tier schools” such as Colorado College and Santa Clara University, use their tuition hike dollars for merit rather than need-based aid. This is part of a concerted effort conceived by former President Stephen Joel Trachtenberg to turn George Washington into the preferred destination of those students who could not make the cut at the Harvard’s, Duke’s, and Stanford’s of the country. Trachtenberg had plans of lavish spending aimed at sending George Washington rocketing up the infamous U.S. News and World Report rankings. The school could not spend from the same cushy endowment as the nation’s elite schools do, so it had to rely on tuition. In order to recruit a student-body that would attract as many full pay students as possible, George Washington University gave smaller, merit-based grants to well-qualified, wealthy students rather than need-based aid to those less privileged. While Trachtenberg succeeded in turning GW into a destination for the upscale student and probably improved the quality of education, middle and working class students continue to suffer as schools race to compete with the nation’s best. The New America Foundation concludes, “[T]he school remains among the 30 least socioeconomically diverse private colleges in the nation… GW’s lowest-income students pay an average net price of nearly $15,000, and student loan borrowers at the school graduate with an average debt of about $33,000.”

On the whole, data shows that the students who need the most aid are better off at public universities rather than private ones. While only a handful of private schools use the high tuition-high aid model to support low-income students, two-thirds of public four-year colleges continue to enroll a large share of low-income students and charge them a fair net price. However, a telling trend emerged among public schools. States that maintained a low-tuition model, such as North Carolina, charged a much lower net price to needy students. But when states let campuses independently set tuition in hopes that they could compete with their private counterparts, they went the way of George Washington.

The University of Michigan, an elite “public Ivy,” moved to a high tuition model in 1997, and the results are discouraging for low-income students. Michigan shifted to this model to improve quality and expand access to low-income students, but since 1997, the number of low-income UM students has decreased by 10%, while the number of wealthy students has increased by 8%. Executive financial aid director Pamela Fowler explains, “Our cost scares people away, because, you know, you read how expensive the University of Michigan is.”

The blame falls partly on the school and partly on the media. A lack of in-depth reporting by major newspapers on the causes of tuition increases and the destination of those new tuition dollars has contributed to the (in some cases, false) perception that a high sticker price translates to college being unaffordable.

National headlines are dominated by news of tuitions soaring to new heights because local and regional newspapers are disappearing. Whereas the Washington Post used to be able to run a story about Duke University’s spending of tuition dollars with information gathered from the News & Observer, the local paper has severely downsized the staff it has dedicated to covering non-athletic higher education activity. The death of regional papers has led to underreporting of the functional difference between sticker price and actual price and why that difference exists, possibly deterring students who would be able to afford a college education with institutional aid from applying at all.

Declining State Funding

Rising tuition and state support of higher education are undoubtedly linked, and as tuition rises, state funding falls. Ron Ehrenberg, a professor of economics at Cornell who has done research on colleges costs, writes, “There’s always sort of the fear that if you raise tuition you’re going to lose public support, and that’s going to make state appropriations go away even faster.” Mr. Ehrenberg is correct in some cases, but the opposite causal relationship is more common — schools face declining support from their state legislatures and move the burden to students and their families to make up the lost revenue with tuition dollars, and public schools are facing the brunt of the cuts.

study done by the Government Accountability Office in December 2014 found that the money public colleges collect in tuition surpassed the money they receive from state funding in 2012. That year, state funding made up only 23% of public universities’ revenue. In the 1970’s, that number was 75%. The battle between the University of California system, led by Janet Napolitano, and California Governor Jerry Brown illustrates these tensions well.

The frictions between state and university are nothing new. They existed when Ronald Reagan was the Governor of California and Clark Kerr was President of the UC system. Just a couple decades after Vannevar Bush authored a report suggesting that federal and state investment in higher education and the research done at those institutions is a matter of paramount importance to the nation, Governor Reagan began to write off the liberal arts mission of some California universities as an “intellectual luxury.” After political turmoil roiled the campus, Reagan cut Berkeley’s budget by 10% and proposed charging tuition. Moreover, in the first five years of Reagan’s Presidency, spending on higher education was cut by 25%.

Fast forward to 2015. California’s expenditures on the University of California system have severely declined since 2008. President Napolitano, a former governor and Homeland Security secretary and a tough politician, is fighting with Governor Brown to give the system the money it needs to maintain its status as one of the best in the world. Rather than wait for a cash-strapped state to fill the void, Napolitano proposed a tuition increase of her own that would reverse the three year tuition freeze and increase tuition 27.6 percent over five years. The UC Board of Regents approved that proposal. Governor Brown, however, will only increase funding if tuition remains flat. This game of chicken reveals a key insight — the cost of higher education is rising, and the only disputed point is whether the state or students will foot the increasing bill.

The unavoidable reality of increasing costs for public higher education threatens the nature of the institution. For years, public schools like the University of California, Berkeley had the advantage of being high quality schools at affordable prices, compared to schools like Duke. But now, declines in state funding have disproportionately hurt public schools, leaving them with a choice: the Berkeley’s of the world can either keep tuition low and sacrifice quality or raise tuition slightly and spend those new dollars on faculty hires, research, and infrastructure rather than student aid.

Neither choice is a good one. Without more revenue, California schools will lose top faculty, and students will find it hard to take the classes they need to graduate. Jeannine Raymond, Assistant Vice Chancellor of Human Resources at Berkeley, admitted, “The reality is, we can’t compete with the private sector on salaries… If salary is your motivator, the UC system may not be the place for you.”

But the alternative is not necessarily better. To raise tuition and spend it on educational quality rather than need-based aid is to functionally become a private university. The once affordable crown jewel of California becomes just another expensive university… that happens to be located in California.

Following the Money

In following the stories of Duke, George Washington, Berkeley, and others, it seems that tuition increases are inevitable due to commitments to financial aid, a furious desire for prestige and quality, and a decline in state support. But how are presidents, deans, and trustees spending these considerable new tuition dollars? Spending differs based on the type of university, but most selective institutions have one thing in common: they are engaged in an arms race of spending.

As previously mentioned, the university does not operate like a typical firm and does not base its success on economic profit. Rather, it measures success in education delivered, which seems to have no diminishing marginal returns. One of the main barometers of academic quality is the strength of the faculty, and to attract the best faculty, the university must pay a competitive salary. Duke pays its full-time faculty an average of $180,200 — 9th most in the nation. On the other hand, George Washington, another private school with tuition even higher than Duke’s, pays its full-time faculty an average salary of only $156,000 even though the cost of living in D.C. far outpaces the cost of living in Durham.

Here, we get a glimpse into the priorities of a university. In its quest to raise its profile, George Washington has earned a reputation as a “rich kid” school, spending more on lavish dining halls and apartment buildings than the academic programs of the university. Instead of actually making George Washington into one of the best academic institutions in the nation, its leadership, specifically President Trachtenberg, made it just look like one. A New York Times profile of the school explains, “Mr. Trachtenberg, however, understood something crucial about the modern university. It had come to inhabit a market for luxury goods… [He] convinced people that George Washington was worth a lot more money by charging a lot more money.”

This trend goes beyond just George Washington. Ohio University economist Richard Vedder diagnoses the problem as an “Edifice Complex” — schools are taking on mountains of debt to build state-of-the-art athletic facilities, beautiful dorm rooms, and amenities like movie theatres, pools, and shuttle services. For the schools that do not get a guaranteed 30,000 applications per year like Duke, Harvard, Stanford, Columbia, etc., all this is in search of enrollment growth. Rankings sites such as U.S. News and World Report, The Princeton Review, Huffington Post, CollegeFactual, and The Daily Beast, laud the colleges for these expenditures. Ehrenberg goes on to write that, “Competition has expanded beyond spending to improve the academic quality of the institutions to spending to enhance all aspects of the student’s college experience.”

The public universities, however, have been unable to enter this competition. UC Berkeley still pays its faculty an acceptable salary and has not gone on any building sprees. However, without a drastic rearrangement of funds, such as moving money away from athletics or cutting administrative bloat, it has very little chance of improving far beyond the status quo. It is fair to say that at Berkeley and other public universities like it, tuition is rising for a fair reason — the school simply wants to maintain the level of quality that currently exists.

One private college has managed to escape the rat race — Lafayette College, a small private school in Easton, Pennsylvania. Lafayette’s President Daniel Weiss, a former management consultant, is one of very few presidents to admit the current model isn’t sustainable for most schools. “I genuinely believe that we are at a crossroads here in higher education. I think we have reached a ceiling that we’re beginning to bump into,” he said. In recognition of this fact, Weiss froze many salaries, scaled back building projects, and cut back some student services.

This is what Americans want to see. A poll in California found that 57% of voters were strongly opposed to tuition hikes or even increases in state funding. What they really wanted, the poll found, was for higher education to start acting like a business and slash spending to bring costs down. Contrary to what most university administrators will claim, cuts can be made. A study from the Delta Cost Project found that between 1998 and 2008, private colleges increased spending on instruction by 22 percent while increasing spending on administration and staff support by 36 percent. It also found that new administrative positions — particularly in student services — drove a 28-percent expansion of the higher-ed workforce from 2000 to 2012.

Students, faculty, and the media alike have decried this administrative bloat as a principal driver of increasing costs. Yet tuition dollars continue to flow. Given the ubiquitous availability of student loans and the wealth of well-off American families, tuition costs will not decline until students and families put their money where their mouths are.

Costs Under Careful Scrutiny  

The issue of cost and tuition is not a niche debate, only had in hallowed halls and on idyllic quads — it is a fundamental conversation about social mobility in the United States and whether education is still “The Great Equalizer.”

While Duke released a breakdown of its spending from 2013-2014, the University of California has refused requests from the legislature to disclose theirs. As tuition rises for different reasons at different schools, students and their families have a right to know where theirs is being spent, and this transparency would encourage smart investments in quality education rather than attempts at climbing the rankings ladder or adding more administrative positions.

 




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