The Myth of Exploding College Costs

March 10, 2015

“And, of course, there is the cost,” writes Joe Nocera in a New York Times column in which he extols Kevin Carey’s new book, The University of Everywhere, an imagining of how college could be in the future.  Carey, Nocera tells us, presents “both a stinging indictment of the university business model ands a prediction about how technology is likely to change it.”

The technology part of the argument is interesting enough, and there is lots to criticize about business models in higher education. But Nocera tells a whopper (and it seems Carey, too) when he says it is the “out of control cost of college [Carey] believes will cause people to search for a different way of educating students.” To see what’s wrong with that, let’s focus first on “cost of college” and then on the “out of control” claim.

Anyone serious about higher education has learned to distinguish between “cost” and “price.” “Cost” is what the institution spends to provide the education. “Price” is what an institution charges for that education.  And with “price” we need to distinguish “sticker price,” the published charges for tuition and fees, and “net price,” what students and their parents actually pay. There’s a big difference between sticker and net price because of financial aid and other subsidies to institutions.  Mostly people talk about sticker price, and that’s misleading. Few students actually pay that.

Nocera (and perhaps Carey) points to rapidly rising student debt (“now tops $1 trillion”) as an indication of “out of control college costs.” Indeed, student indebtedness has been exploding. That’s because students are being asked to pay more and more in “net price.” But it isn’t the “cost” that’s gone up to push up “net price,” it’s the decline in financial aid and subsidies.  More and more of the expense of college has been pushed onto individual students and their families.  Governments, especially state governments, are providing less and less of a subsidy.

The College Board provides the most comprehensive, accurate annual look at what is happening to cost and price in higher education.  Sensibly, it disaggregates the data it provides by kind of institution, because there is a world of difference in both cost and price between a research university and a community college, and important differences, too, between public and independent institutions.

Look at the data in the Table below, which has data from the past decade for which it has been compiled. Yes, net price has been going up quickly, especially at public institutions where the withdrawal of subsidies from state governments has hit particularly hard. The increase at private, non-profit institutions is more modest, but since wages and salaries have been flat for all but the wealthiest for more than two decades, any increase is hard to bear.

But is the cost going up? Hardly at all, unless you are looking at the private doctoral institutions (think Harvard and Yale, Stanford and NYU).  At public two-year (community) colleges, the educational expenditures have actually gone down. At private non profit bachelor’s colleges (think Earlham) the cost increase is just 3% spread over a decade.

Table 1:  Change in Educational Expenditures and Net Tuition Revenue, 2001-02 to 2011-12
Price Cost
Net Tuition Revenue Educational Expenditures
Public Doctoral 66% 6%
Public Master’s 66% 3%
Public Bachelor’s 60% 9%
Public Two-Year 54% -7%
Private Nonprofit Doctoral 18% 21%
Private Nonprofit Master’s 19% 10%
Private Nonprofit Bachelor’s 11% 3%

Source: College Board, Trends in College Pricing, Figures 19A and 19B

This isn’t a story of exploding college costs, it’s a story of exploding college prices for students and families.  In the not-so-distant past, we helped families pay for college. Now we don’t so much. That’s the crisis.  Instead of education, we are using our tax dollars to pay for war and prisons.

And bear this in mind. The educational costs at public two-year, bachelor’s and master’s institutions is $12,000 per year or below. These are where the majority of students attend. $12,000 is about how much we expend, per student, in public k-12 schools per year. Do we really expect a college education to cost less per year?

 Table 2: Cost
Average Educational Expenditures/year
Public Doctoral $16,600
Public Master’s $12,040
Public Bachelor’s $11,920
Public Two-Year $8,130
Private Nonprofit Doctoral $40,320
Private Nonprofit Master’s $16,090
Private Nonprofit Bachelor’s $21,080

Source: College Board, Trends in College Pricing, Figures 19A and 19B

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About Doug Bennett

Doug Bennett is Emeritus President and Professor of Politics at Earlham College. He has a wife, Ellen, and two sons, Tommy (born 1984) and Robbie (born 2003).
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