Some American parents are putting the money they’d otherwise spend on out-of-state tuition and room and board for their college-age kids into local real estate

Why is college tuition in the USA so expensive?

Thomas Johnson gets it about right. Even non-elite universities are in an arms race to seem attractive to students who might apply. You might argue, with some justice, that this is the university’s fault, but it references a much larger problem. Today’s students want dorm rooms that are at least as good (ideally better) than their bedroom at home, a new fitness center that looks great even if most students use it only a few times, and Internet speeds much better than at home. Parents also demand more from students services — career centers, health and especially psychiatry availability, etc.

Athletics are a financial problem. Only 5 or 10 universities actually break even or have a profit — the usual suspects (Texas, Alabama, Ohio State, etc.). Donations that arguably would not go to academic purposes (although there’s no good data that this is the case) make up part. But most universities are out of pocket a significant amount. Why? Because the alumni demand it, and guess what? Students like to attend schools with good jock teams. When you have a head football coach making more than the president, usually by a significant amount, you’ve got problems. Financial aid to jocks is a huge expense, partially covered by endowment and donations but a double cost to the university which has to come up with the scholarship money for the jocks and loses the opportunity to have tuition paying students fill their places.

Universities need new buildings with new technology and in the case of science buildings to house the latest equipment. Classrooms that are often hard to fit into building plans are very expensive. Guess what? Universities that have smaller classes require more classrooms. Gone are the days when a builder came in, looked around and built a functional building that more or less matched the rest of the buildings. Architects (often famous ones) cost money; they build pretty buildings. I’m guessing that building supplies have risen more than the general cost of living.

Utilities have risen dramatically, and again much more than cost of living generally.

Library costs have gone up exponentially. It’s not uncommon for major scientific journals to cost $3000 or $4000 a year as subscriptions. All institutions that sponsor journals charge far more for library subscriptions than for individual. Well, let’s just go all electronic. Makes sense. Yes, except the charges for electronic subscriptions are usually the same as for paper and often require that the library purchase paper copies to get the on-line stuff. Has anyone noticed that books seem to cost a whole lot more now than then. Well they do, and the rise is more than inflation. Students who used to buy a semester’s load of books for $100 now sometimes pay double that amount for one book — science texts often even more (and, no, Kindle will not solve that problem) Book budgets for libraries have again risen faster than inflation, much faster.

Most of a university’s budget goes for salaries. Faculty are now paid a living wage, some would argue too handsomely. Some faculty get really high salaries, but it costs big bucks to get a famous person on board. Why does that matter? Arms race, again. On the other hand, famous faculty attract other famous faculty, and more research money, and better graduate students, and, also, better undergraduates, perhaps for the wrong reasons. Many students (and their parents) like the possibility that they can take a class with a Nobel Prize winner, but in many places will never lay eyes on him or her. And while we’re on salaries don’t forget to add in contributions to retirement and health care, which seems to be going up at a rapid rate.

Administrative costs at universities have risen dramatically as they have at almost all other organizations. Partially that’s because of increased reporting responsibilities, more regulations, etc. At my former university when I arrived in 1989 the legal staff was one half time person borrowed from a major law firm in town. Now there is a whole office with several lawyer, all paid living wages I assume. I frankly have no idea what they do, but I’m pretty sure that they’re busy. In fact I know they are.

Several people have pointed to research costs. That’s difficult to access. In most major universities research is largely funded by outside grants and is therefore self-supporting. In addition most grants come with indirect costs theoretically to support utilities, library costs etc. It’s a big source of income, and major research universities would fold without indirect costs. There are other research costs, of course. Some graduate students may not have stipends that are fully covered by grants. and the university picks up the tab. Typically graduate students pay no tuition or it is paid by a funding agency. That makes graduate education very expensive as faculty devote more time to non-tuition paying students than those who pay (like undergraduates). Labs are built and remodeled by the university. New faculty off get substantial start-up costs to get their research off and running. There are, of course also research costs in the humanities although not nearly as much.

Computer costs. Don’t get me started. Faculty typically get a personal computer, but usually not top of the line. But the big expense is in maintaining the campus network and connections to the Internet. Gotta have it for research, for instruction, and to appeal to students. Classrooms have to be wired with the latest and greatest.

And speaking of graduate education most law schools and business schools are self-supporting although not necessarily when utilities, maintenance., etc is included. Medical school lose incredible amounts of money although you need a PhD in accounting to try to figure out what medical education costs. It’s complicated, but no matter how you do the spread sheet, medical schools are money swamps.

Tuition costs a lot, but at most elite and semi-elite places something between one-third and one half of tuition is given back by scholarships, some externally funded, but at most places the university simply eats the expense. Some financial aid is in the form of loans or work, but many places put a cap on how much scholarship aid can be loans.

As others have pointed out American universities not only look better (and often for good reasons), have better labs and libraries, what I’ll call amenities are much better, dorms exist (which is often not the case in other countries) and are generally pretty nice, and faculty salaries relative to averages are higher. Of course, in US universities students actually attend classes (well at least sometimes) and don’t end up in crowded lecture halls with little chance of access to instructors or even the ability to be able to take courses they need because they are over-enrolled.. Kids here have it much better, perhaps that’s good, perhaps not. But that’s what the market demands. And it’s probably good generally.

It has become a mantra of conservatives that the problem is the easy availability of loans. Because students can get easy money to pay for their expenses universities have no incentive to curtail costs. That’s is very simplistic and mostly wrong. Universities don’t run on money provided by student loans. Tuition (whether from loans or parents) typically pays about 25% of the cost of universities. The part supported by loans is some fraction of that and although it’s not a trivial part of the budget, it’s not a major part either. The fantasy (and it is that) seems to be that if we didn’t give students loans, suddenly kids would stop applying and colleges would be forced through some logic of supply and demand to lower costs. Unfortunately it simply won’t work generally. If everyone had to pay the full cost state universities and less elite ones probably would suffer a decline in applications and enrollments. However, most costs are not easily lowered. The easiest place would be in terms of building maintenance and salaries. The former means just kicking a can down the street, and if faculty salaries were frozen or, god forbid lowered, many would leave the profession or gravitate to places where they could make more money. Good riddance? Well, not really. We really don’t need that kind of brain drain, already a major problem in the sciences. But the major solution, already occurring, is that instead of paying professors say $100,000 a year we’ll hire adjuncts or graduate students to do the teaching. So let’s do the math. Our mythical tenured professor teaches say 5 classes (although most teach fewer especially at the more elite universities) so that works out to $20,000 a class. But we can hire an adjunct for maybe as low as $5000 a class (what my previous university paid), and you don’t have to have a degree in higher math to see where that’s going. Also you don’t have to pay retirement or health insurance, which adds something on the order of 20% to the salary of our professor. Now I should be very clear that many adjuncts work harder at teaching that tenure-track faculty and some are actually more effective at it. But they can’t write effective letters of recommendation, provide research opportunities or even spend much time with students out of class as they rush from one teaching assignment to another.

If we reduced loan opportunities the Harvards and Stanfords would still flourish quite nicely although they would probably be even more populated by rich kids. There are always going to be parents who are willing to pay almost anything so that they can have bragging rights about where their children go. It’s hard to predict what might happen at state universities, but certainly the general consensus has been that education at such places has generally worsened once states stopped contributing as much. Cutting costs isn’t going to make things better — just cheaper. There seems to be some assumption that university administrations raise tuition on what amounts to a whim without worrying about the effects on their students. Nothing could be further from the truth. Raising tuition is usually an agonizing decision,, and one not taken lightly.

Cutting down loan possibilities as a way of putting pressure on universities is about the same as cutting government spending to reduce the deficit. In principle that sounds great, but in practice it’s hard to get agreement on what to cut and most of the items that are easiest to cut have little impact on over-all spending. For better or worse in some important respects higher education is beyond the laws of supply and demand. In that it’s like American medicine.

There’s much more to be said, and I agree that in some ways higher education is out of wack or at least has screwy priorities. But it’s hard to make education cheaper, and college administrators spend a huge amount of their time trying to figure out ways to lower costs within the various constraints they have. There are some things we could do to make education cheaper, but most would decrease the perceived and probably real benefits. What we might do is for a different discussion but curtaining loans is not a good idea because it would not solve the problem and would make it harder for poor kids, who most need the education, to go to college.

ADDITION 3/12/19: Recently Rice University announced a policy of free tuition for children from families that make less than $130,000/yr, and no tuition or room and board fees for those making less than $65,000/yr. Students who come from families making less than $200,000/yr will also not be required to take out loans although they will be expected to earn money during the summer or while on campus. Most elite universities have adopted similar programs. At Rice tuition is $47000, room & board $14000, fees are $745, and books $1200. Harvard, Stanford, etc. are slightly greater.

Of course, many private colleges are more dependent on tuition income and cannot afford to be so generous, but even there financial aid often covers a substantial part of costs. State universities, of course, are much cheaper and generally have fewer resources to offset tuition. In that regard it’s important to note that one reason tuition has risen so fast at state universities is because almost all state legislatures have cut their support of higher education dramatically. As one example, in 1984 the state of Texas paid 47% of the costs of the budget at the University of Texas, with tuition accounting for 5%; in 2018 the state paid 12% and tuition revenues 21%. Now there is a legitimate argument that students who benefit from a college degree should pay for it rather than the state. But that is short-sighted since the entire state benefits from having well educated folks around and about. By the same logic, I who have no children in elementary and high school should not be “forced” to pay for the education of the children across the street who go to public schools. Historically Americans have always believed that support for education provided general benefits and should be paid by all. At any rate, the primary reason for rising costs at state universities has been the decreasing support from the state. Whether that is fair or wise can be debated.