Colleges, pricing themselves out of relevance?

I’ve been poking around the discussions on the price of college and feeling a bit of it firsthand. What is going on here?!

First off, I will say that my tuition at Harold Washington College is, at least relatively speaking, QUITE affordable. I’m paying something like $1080 for 11 hours. Here are a few comparisons though.

-Back around circa 1989, The University of Houston was charging something like $700 per semester for 9 hours as I remember. It was definitely under $1000 at any rate. The same tuition as near as I can tell from their website would now cost about $3100 for 9 hours. This is about the same rate as I expect I’ll be paying whenever I transition over to University of Illinois at Chicago. That’s close to a 440% increase in 21 years. The CPI (rate of general inflation) for that same time period is about 80%. That leaves a 360% increase to account for.

-A local private college my wife is attending, Columbia College of Chicago, which seems to serve quite a large number of non-rich students judging from their literature, my wife’s experience of the student body and others we know who attend/have attended. The tuition here would make any state school in the nation blush. 6 hours clocks in at around $4300. Thank goodness for tuition reimbursement programs.

-Another friend, attending grad school at Loyola here in Chicago, is currently paying around $2800 per class. I don’t know how much this has increased but, anecdotally speaking, another friend who recently finished up a grad program at the University of Michigan told me something along the lines of “grad school is where they really stick it to you.”

I began poking around looking for explanations a few weeks ago. Far and away, the most unconvincing one came from a couple of economics professors (go figure!), Robert Archibald and David Feldman, in this article on Forbes.com pimping an upcoming book on the matter imaginatively entitled “Why Does College Cost So Much?” (Hint, they aren’t overly concerned about it.) Here is a bit of their pitch:

Like many large organizations, American universities could be made more efficient, but our review of the evidence convinces us that the primary forces that are driving up costs are not to be found by scouring the account books of colleges for examples of waste. For starters, the dysfunction stories have trouble explaining why inflation-adjusted college costs were flat or falling for over a decade in the 1970s and early ’80s, or why the rate of cost increases is so high today, but was not nearly as high in the ’60s, when baby boomers began flooding into school.

Were cost increases so high when the baby boomers began flooding into school in the 60s?

From the University of Pennsylvania archives, the annual costs of tuition from 1960 to 1969 goes like this:

1960 Undergraduate Schools:

College of Liberal Arts for Women, School of Engineering and Applied Science (SEAS), the Wharton School, the School of Nursing, and the School of Allied Medical Professions (SAMP)
Tuition: $1,250
General Fee: $150

1969 Undergraduate Schools:

College, College of Liberal Arts for Women, School of Engineering and Applied Science (SEAS), the Wharton School, the School of Nursing, and the School of Allied Medical Professions (SAMP)
Tuition: $2,150
General Fee: $200

That’s $1400 at the beginning of the decade and $2350 at it’s end, a 39% increase (inflation-adjusted) over the decade of the 1960s.

The University of California system was TUITION FREE from 1960 to 1970. Registration and misc. campus fees increased from $147 to $334 over the decade, an inflation-adjusted increase of about 200%, but still in the ballpark of the General Fees of the U Penn for an entire year.

(Edit: more on UC fee increases found here, from the archives of a State Senator Al Rodda who was, even in the early 70s, wary of decreasing support amongst politicians for the state mandate of tuition-free education at the very time Reagan was declaring war on the concept in CA as well.)

I was unable to find hard data for the University of Texas at Austin, but several sources quote tuition and fees as unchanged at around $104/year for in-state students throughout the decade of the 60s. By contrast, tuition has increased from $3500 to $4708 for a full-time undergraduate SEMESTER between 2004 and 2010, an inflation-adjusted increase of approximately 22% in 6 years.

The City University of New York system also provided free tuition until 1976.

So let’s say that, respectfully, perhaps that assertion is a little under-supported. They continue:

Instead of holding up a magnifying glass to the industry, we take an aerial view. The view from above shows us different things. Rising college costs are an important byproduct of broad economic forces that have reshaped the entire economy, and in particular of the technological progress that has so dramatically raised living standards over time.

Our technology story rests on three strong pillars. First, like many personal services, including much of health care, the law and banking, higher education remains essentially an artisanal industry. These are industries in which technological progress has not reduced the number of labor hours needed to “produce” the service. By contrast, labor productivity in basic manufacturing has soared, and this is why the cost of a year of college has gone up compared with the purchase price of a basic car or a basket of groceries.

Students interacting directly with professors and other students in small groups remain a benchmark of quality in education. Ask any family if they want their son or daughter to learn in small group seminars taught by tenured professors, or if they prefer giant impersonal lectures or online chat rooms monitored by adjunct teachers who answer lots of e-mail questions.

Comparing college admissions with health care, law and banking is certainly a revealing choice. Health care expenditures have risen in the US from $253 billion in 1980 to $2.3 trillion in 2008, an increase of about 930% adjusted for inflation. Perhaps by inference the authors are arguing that there is no crisis in health care spending (0ne of the leading causes of personal bankruptcy, even among the insured)?

But the banking industry is really the pinnacle of socially destructive, non-useful behavior and an interesting comparison. I would be curious to know how banking is an artisanal industry. Perhaps it once was back during the “3/6/3” era of banking (pay 3% to depositors, lend and 6% and make the golf course by 3pm) when bankers knew each client they had money out with and had good reason to know, their fortunes being well-aligned with those of their customers, but retail banking today more closely resembles an airline or a WalMart today in terms of customer relations and scarcely resembles “artisanal” work by even the most generous allowance. As for investment banking, I’ll pass the mic over to Paul Volcker speaking at a bankers conference in 2009 regarding the relationship between their “labor” and the industry’s increasing costs:

“I wish someone would give me one shred of neutral evidence that financial innovation has led to economic growth — one shred of evidence,” said Mr Volcker, who ran the Fed from 1979 to 1987…He said that financial services in the United States had increased its share of value added from 2 per cent to 6.5 per cent, but he asked: “Is that a reflection of your financial innovation, or just a reflection of what you’re paid?”

As for the lack of reduction of labor hours in the “artisanal” banking industry, a few glances around at the brewing troubles in the mortgage securitization morass should call into question any notion of bankers having to slave away at making sure all the “i”s and “t”s are dotted and crossed, in fact bankers pounding away creating mortgage backed securities could scarcely be bothered to follow the procedures laid out in the pooling and servicing agreements governing the very products they were creating. These strike this writer as extremely poor examples to make a case with.

Finally, as for interacting with small groups as a benchmark of quality versus “giant impersonal lectures or online chat rooms monitored by adjunct teachers.” The latter condition is what exists now and has for some time for hundreds of thousands of undergrads at expensive public and private schools. There is no shortage of 200 capacity lecture halls at finer institutes of learning across the nation. Furthermore, class size is one of the more easily gamed elements in the critical US News & World Reports rankings driving the decision making of many universities (more on this later). Witness Clemson University’s Catherine Watt describing the way that class sizes were manipulated to increase the school’s “student experience” score while making their way from number 38 to 22 on the list:

While Clemson has always had comparatively small class sizes for a public land-grant university, it has focused, Watt said, on trying to bump sections with 20 and 25 students down to 18 or 19, but letting a class with 55 rise to 70. “Two or three students here and there, what a difference it can make,” she said. “It’s manipulation around the edges.”

Suffice it to say, that in spite of the protestations of these authors and their supporters, many things are amiss with the costs of a college education. In the next post, I’ll lay out some of the more widely acknowledged reasons behind this situation.

(Continued here.)

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About theunlikelyeconomist

theunlikelyeconomist is in the midst of the long slog to attain a PhD in economics.
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2 Responses to Colleges, pricing themselves out of relevance?

  1. Pingback: The 50th anniversary of one of the best predictions ever made. | theunlikelyeconomist

  2. Pingback: Colleges, pricing themselves out of relevance? (Pt 2) | theunlikelyeconomist

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