Tuesday, November 26, 2013

Why College Is So Expensive



Why College Is So Expensive
By Michael Busler and Wendy Bidwell

It is at this time of year that high school seniors across the country begin applying to college. Students are searching for the college that best fits their needs, hoping that they can get accepted to the school of their choice. As they go through this process, what is most shocking to them is the cost.

Regardless of the negative views questioning whether college is a worthwhile investment, the reality is that investments in human capital (like education) tend to have the highest returns in terms of monetary gains, job opportunities, upward mobility and overall job satisfaction. For those who could attend college but decide not to, the decision to enter the work force will probably have negative effects on them, well into the future.

Those who attend are often shocked at the cost. Publicly supported colleges will cost in-state students around $20,000 per year considering tuition, room and board, and the various fees charged. For out-of-state students at public colleges, the cost usually tops $30,000. For those who want to attend private schools, the cost is usually between $40,000 and $60,000 per year with many of the elite schools costing even more. Why is college so expensive?…

I found five reasons why the cost of college has risen much faster than the rate of inflation for the past 30 years.

One is that aid to colleges from the state has declined dramatically. In New Jersey, for instance, state aid used to cover up to 70% of the operating budget. The figure has declined steadily in the past and today the state aid covers less than 15% of the operating budget. This vast decrease in aid has to be made up somewhere, so tuition and fees are increased. The trend is not likely to be reversed as states struggle to find additional revenue.

Two is that administration costs have skyrocketed. Colleges have to comply with ever increasing federal and state reporting requirements, so they add more personnel. In addition, schools have found that they have to market effectively in order to attract the best and brightest students, so that marketing and admissions departments have grown significantly. The salaries of administrators have similarly increased, so that being employed as an administrator at a college or university is no longer a low paying job, with many workers earning salaries easily exceeding $100,000 per year and college presidents sometimes earning compensation packages in excess of $1,000,000 annually.

Three is the increases in salaries for college professors. This field was historically considered to be low-paying but individuals justified this by noting that the lifestyle offered to college professors is very appealing. While most do research work or other college related service, the actual time spent in the classroom averages less than 12 hours per week for generally 30 weeks per year. This flexibility offers professors freedom to pursue intellectual interests while meeting the requirements of the position. Today the non-monetary perks are still there but the annual salaries are now much higher, often exceeding $100,000. Add in the benefits package and the cost to the college can exceed $130,000 for some professors. Even adjusting for inflation, the cost is much higher than in prior years.

Fourth is that colleges are now offering much more services to the students and much higher quality services. At most schools, every classroom is a "smart" classroom with computer projection equipment, access to the internet, and software systems, like Blackboard, that provide easy access for the student to receive assignments, review Power Point slides, complete online homework and easily communicate with the professor and other students. Schools offer more luxury in the dorms rather than just a bed and a desk and the dining services are often outsourced to firms that provide higher quality food, more choices and special selections for those with various dietary needs. In addition there are counseling services, career development services, numerous social organizations and other services geared to helping the student with a range of problems.

Fifth, and this may be the most significant, is that regardless of the cost, the federal government will loan virtually anyone who has been accepted, enough funds to pay the entire bill. As a result, it matters less to the student what the price actually is, since she can pay any amount by simply borrowing more. The intention of the government was to make sure everyone could pay the price of college (which sounds like the housing bubble… Just substitute "pay the price of college" with "own their own home"). The result is that students and parents are less concerned about the price because the loans allow them to pay it.

The bottom line is that higher education is expensive and the costs are likely to keep rising. I (Busler) admit that I have a bias because I have been a college professor for more than 30 years, and I believe the question of whether colleges and higher education is worth the investment is often answered by those who say, "If you think education is expensive, wait until you see the cost of ignorance."

I (Bidwell) believe those seeking a college education and their parents must negotiate a tough reality… the cost of education is at an all-time high. The average wage continues to fall, and the middle class is getting poorer. Meanwhile, according to the Christian Monitor's College costs keep rising faster than inflation, survey says from August, "College tuition costs, as well as room and board, are racing upward. Tuition and fees at community colleges are up 24 percent more than inflation over the past five years, according to a new College Board survey."

In the end, just like we experienced with the housing bubble, government-provided free money is doing nothing to really help Americans… It just leads to more personal irresponsibility. Americans get to ignore the real costs and dodge the responsibility for these costs by never repaying the loans they take out. University costs are bloated… Universities overpay their employees and spend more money than if our economy were an organic, authentic free market.

Today, government-provided money for college is creating the next big bubble that will pop and wreak havoc on all of us. In the meantime, until the bubble bursts and education costs normalize, Americans who want to get a college education must navigate an increasingly complex landscape.

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