The high price of (academic) business

Hi kids. It’s September, and you know what that means. It’s time to go back to school and realize that tuition has gone up yet again. I know, I sound like your Grandpa. I can remember the days when Cokes cost a nickel. It’s almost content-free to complain about how expensive college is. In fact, it’s even a bit hypocritical since you might reasonably assume that I’m part of the problem. But the big issue isn’t the high price of college. The inexplicable part is why the cost of college tuition is rising so much faster than anything else, even healthcare. To wit:

Let’s put some numbers on this. Over the last 50 years, from 1959-2009, the consumer price index has averaged an increase of about 4.3% per year. Over that same period of time, tuition increases at private universities have average about 7%. Think 2.7% doesn’t seem like such a big deal? It means that in the last 50 years, tuition has risen by a factor of 4 in real dollars.

Are students getting a better education? Why aren’t people like me getting more efficient at educating our students?

I’m not the first to think about this, of course. In addition to the very nice wikipedia article above, reports abound on the internet which purport to explain this phenomena. Most of these explain away tuition as a sort of death by a thousand cuts. For instance:

  • Increased faculty salaries
  • More financial aid
  • Lower state/federal funding
  • Greater emphasis on expensive research programs
  • Infrastructure investment (fancy gyms, etc.)
  • Increased focus on student services
  • Expanded recruitment efforts

To my mind, this isn’t particularly helpful. Every reason is no reason at all. I’d much rather know the 1 or 2 factors that dominate.

Another non-answer is to focus entirely on demand-side economics. Tuitions go up (so goes the argument) because and only because people will pay the higher rates. This is true (so far as it goes), but a) it doesn’t address what all that excess money is being spent on. Unlike private companies, the net revenue is not being dispersed to shareholders. b) It doesn’t explain why I couldn’t open my own college and get all of the best students by simply focusing on providing an outstanding educational experience at low, low prices.

So consider this post just a bit of brainstorming (although I would love to hear from other academics, students, or parents about this). I might submit a later version to the Chronicle of Higher Education. Here’s my potential list of “Are your tuition increases spent mainly on X?”

Of the 2.7% average tuition increase over inflation, your money goes to:

  1. Scholarships? Yes. 0.6% (about 1/4 of the total)

    As of 2004, the “discount rate”, the amount of tuition paid back to students in scholarship averaged 33.5% at private universities, according to the college board. This is an increase from 23.8% in 1994. The upshot is that as the discount rate increases, the average amount paid by students goes down compared to the overall tuition. It means, in essence, that the tuition rate becomes much more graduated, something I can’t really argue against. Assuming that a discount rate was virtually non-existent in 1959, universities would need a steadily increasing tuition rate (in real dollars) just to keep revenues constant.

  2. Faculty salaries? Sort of. ~0.1%

    I’ve looked at the rate of change of faculty salaries over the last several decades using numbers from the College and University Professional Association for Human Resources. On the whole, I’ve concentrated in Assistant Professor rates, since those reflect the salaries given to new faculty, and it’s expected (and borne out by other numbers) that other ranks rise at the same rate. Faculty salaries have risen by about 1% above inflation every year. I should note that the median income over the US has not risen at the same rate. Indeed, over the last decade or so, it has merely kept pace with the CPI.

    Since faculty salaries represent more than half the expenditures of a university, we might be tempted to suppose that salary increases account for about 0.5% of the tuition increases. However, there is another important factor. Over the last few decades, there has been a consistent trend in moving away from tenure-track and tenured faculty to non-tenure track lecturers and instructors. Typically (based on CUPA-HR numbers) they earn half the salary of tenure track faculty, and based on my experience, teach approximately twice as much. According to the American Association of University Professors about 25% of the lines in private universities are filled by non-tenure track faculty (in addition to “adjunct” part-time appointments, which make this effect stronger still). This trend has increased significantly over the last few decades. As a result, the salaries are only about 70% what they would be were all courses taught by tenured and tenure-track faculty — as they used to be. Combining this with the faster than inflation salary increases yields an average rate of about 0.1%.

    Of course, this number can change dramatically if the number of courses offered, the average enrollment in each, and the average teaching load change significantly over time. It also doesn’t factor in the effect of adjuncts.

  3. Infrastructure/Building? I’d guess no, but I don’t have a firm answer.

    Construction has always been an important part of growing universities. It’s not obvious why this number should increase dramatically in recent years, especially when we compare current university architecture to what has been built in the past.

  4. Increased administrative lines? I don’t know – yet.

    It’s been my distinct impression that the number of administrative offices and roles have increased dramatically in recent years. However, I don’t yet have the numbers to back this up. Stay tuned…

As I said, any thoughts on the subject would be greatly appreciated.

-Dave

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2 Responses to The high price of (academic) business

  1. Seth says:

    I think it is more compound than any one area.

    Let’s start with research. Exciting new research.
    This could be done by hiring a temporary researcher, they of course will need lab facilities, utilities, equipment (probably aid for by a NSF grant or the like). Of course whats the use in having such new research on campus if no one were the wiser. So a little bit gets dragged into a terribly small add campaign which is on scale of negligible.

    What about the paper trail this creates. New patents… ( – oh dear, I’m afraid to even mention the word lawyer*.)

    OK, so how about student services? Security is a big one. Between the incident at VT, schools like Columbine- security, legal protection* (probably more of a dent to the budget than I think it is) in general is a capital investment. I can’t imagine how much or how little universities have/are investing in public safety.

    Then there’s web applications, site licenses and the rest of the IT garb I find myself more than familiar with. Schools pride themselves with new computers, the latest versions of software and the ability for every student to have access (if they so chose to). Buying factory direct in bulk sure saves some cash, but replacement of 1-3 year old machines might impact the increase.

    If all else fails, blame it on the gnomes in the dryer.

    -Seth

    *Laws, contracts, patents, health codes, city ordinances, law suits- these are but a few reasons to have lawyers on retainer. Not only do those retainers periodically increase, but the general fees for when the services are necessary do as well.

  2. dave says:

    Some of what you mention — security and lawyers — falls under non-academic staff, and I suspect there may be some truth to that. However, you need to remember that we’re trying to explain an effect which amounts to a five-fold increase in real tuition. Both of those categories existed 50 years ago and in Drexel’s case, I have a reasonable idea of the size of both the size of our general counsel office and the size of our security force. Even if both were zero fifty years ago, the contribution to the growth in tuition is minimal.

    As for your researcher… a “soft money” person as you describe is actually profitable to the university. Their salary is derived from NSF/NASA/NIH dollars, as is the equipment (computers, vacuum chambers, lasers, etc.), well as a hefty “overhead” (typically ~50% on the dollar) which goes into the university coffers and is meant to support the infrastructure used by the research.

    Software licenses are, admittedly, a new expense, but a relatively small one. Site licenses for products like Office can be had for ~$100/person, a miniscule (0.3%) fraction of the total. Computers themselves are an unlikely explanation. They’re getting cheaper in real dollars over time.

    Interesting ideas, but you see the problem. Things not only need to add expense, but it’s hard to figure why these expenses increase so quickly in real dollars.

    Hope all is well in Delaware.

    -DG

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