A few weeks ago, BobN of GA wrote us the comment, Rather than doing what you are doing, why not tackle the acute problem of tuitions being way too high? Bob has a point: Tuition and fees have been going up at approximately 6 percent a year for the past decade, whereas inflation has been rising at about half that. So, we asked visiting blogger Judy Genshaft, president of the University of South Florida and chair of the board of the American Council on Education (the nation's umbrella higher education association), why costs are spiraling out of control. Here's what she had to say:
If you're a student or the parent of one, chances are you've had a bit of sticker shock when researching and then paying for college. Because every family has a different set of financial circumstances and every student has unique educational needs and ambitions, there is no one-size-fits-all formula to judge whether you're getting a good deal. Luckily, a quality education can be had at many price points if you shop wisely for the right education at the right price.
Still, it's true that higher education costs have grown faster than the rate of inflation. Here are the seven main reasons:
1. State Appropriations. In the past 20 years, states have systematically reduced spending on higher education, resulting in increased tuition and fees at public institutions to offset the reduced state revenue. In most states, governments themselves set the tuition levels. Only 14 states nationwide give public colleges autonomy to set their own tuition. For public institutions, there is a direct and inverse relationship between the level of state appropriations and the level of tuition increases: A 1 percent decrease in state appropriations may result in a 3 to 5 percent increase in tuition. Even private colleges and universities can be affected by state appropriations in states where students use public grants to pay private tuition.
2. Labor Costs and Competition. Colleges and universities are very labor-intensive enterprises, reliant on highly skilled-and often expensive-talent. Between 60 and 70 percent of an institution's operating budget is devoted to personnel costs. Hiring tenured faculty means a commitment to them for the full extent of their working lives, and that doesn't come cheap. And in order to attract the best faculty in high-demand fields, universities often have to compete in international markets. This, too, raises labor costs.
3. Operating Costs. Students are discerning consumers. After all, campus is where they will spend the next four years, or more, of their lives. Students, and their parents, expect to see top-notch academic support, counseling, health services, and campus security-all of which contribute to increases in costs at most institutions. Also, when they come for a campus visit, students and their parents want to see a wide array of facilities-a nicely maintained campus, housing that isn't cramped, and student centers and food facilities that are state of the art. Most states don't subsidize those amenities, but without them, colleges and universities know they are at a competitive disadvantage in attracting students.
4. Rapid Increases in Knowledge and Technology. In most academic disciplines, knowledge doubles every two to five years. Institutions seek to provide the most up-to-date libraries, labs, and other scientific resources to ensure a high-quality education. The costs to update equipment and instruments vital to undergraduate teaching-such as electron microscopes and DNA sequencers-can be extreme but are necessary to meet the demands of the workplace for 2009 and beyond.
5. Government Regulation. The persistent growth of federal, state, and local regulation creates costs for colleges and universities, which translate into personnel expenses as institutions hire people to perform those regulatory duties. With the exception of the Consumer Product Safety Commission, all federal agencies are involved in regulating some aspect of higher education.
6. Economic Ebbs and Flows. Just like businesses and families, colleges and universities feel the impact of economic conditions. When things like energy prices rise, our electric and gas bills go up, too. In the current economic downturn, institutions have seen the value of their endowments plummet and charitable giving decline. When endowments take a hit, tuition and fees have to make up a bigger portion of operations and financial assistance to students.
Some of the elite universities with very large endowments have been able to offer even more financial assistance to students from families with moderate incomes or even guarantee their students will graduate loan free. But don't think that every institution is backed by a big endowment. Most endowment wealth is held by a relatively small number of colleges and universities-which is why when you graduate, your alma mater will kindly ask you for a donation.
7. The Sticker Price Isn't Always What You Pay. Here's the one side of tuition costs that often isn't considered: The net price of what a higher education costs any individual student varies even within institutions. The College Board reports that more than $143 billion in financial aid is available to students and their families and about two thirds of full-time undergraduates receive some sort of grant aid. In 2008-09, estimated aid in the form of grants and tax benefits averaged about $2,300 per student at public two-year colleges, about $3,700 at public four-year colleges, and about $10,200 per student at private four-year colleges.
Even as public colleges and universities raise tuition, a sizable percentage of proceeds from those increases is dedicated to financial aid-effectively lowering that sticker price substantially for some students. Again, every institution handles its scholarships and financial aid a little differently-which is why students need to be smart shoppers to find not only the best academic programs for them but also a price they're comfortable paying.