College Costs and the Price of Higher Education

It is rare to come across a book both so enlightening and as frustrating as “Why Does College Cost So Much?” The authors, Robert B. Archibald and David H. Feldman, are economists at the College of William and Mary. They are strong researchers and thoughtful analysts of higher education. They write well and their book is chock-full of valuable information and observations.why-does-college-cost-so-much

All that said, their book highlights one higher education’s greatest challenges: how best to understand and communicate with the public. For those of us who toil within the gates of the academy, certain of the rightness of our ways, data and formulas – after all, we are the experts – we often fall short when it comes to finding allies and persuasion. We may win the disciplinary battle but lose the war,  the bigger picture. Unfortunately, this work – despite its great strengths – misses the boat when it comes to the public and the cost of higher education. It is right but it answers the wrong question.

Archibald and Feldman open their book with multiple observations about the finances of higher education. They make clear the difference between the cost of something (all the factors that go into its creation) and its price (what a consumer pays for it). Their investigation focuses on the factors leading to the rising cost of higher education which, they stress, is not all that different from the rising costs in other services such as dentists. They explain how costs for higher education and similar services have increased significantly over the past few decades. Many studies and troves of data support this observation. When looked at through a macroeconomic lens, rising costs in higher education makes great sense.

In contrast, the cost for other things – durable goods, for example – have remained steady or dropped. Archibald and Feldman explain how technology and innovation can reduce costs. For example, over the past few decades automobiles have become better and, all things considered, they cost less. It is impossible to make the same claim with the costs of a hair stylist, orthodontist, or professor. The author’s work is in many ways an extended discussion of how Baumol’s cost disease has affected higher education.

Archibald and Feldman agree that college costs have gone up faster than inflation. They acknowledge problems at some institutions with administrative bloat. They also recognize that needless competition for prestige and country club environments for coddled students can increase costs. However, they argue that these are not the real factors in driving up costs. College has become an essential preparatory step for training and educating our future workforce and, like all services in such an economy, costs will rise. Archibald and Feldman stress that higher wages for college graduates offset rising costs and that there is no competitive pressure to cut tuition and fees. In fact, as colleges and universities invest in new technologies, costs go up.

The authors spend a great deal of effort exploring the various ways that institutions provide discounting, scholarships and grants. They stress, rightly, that there are significant differences between listed tuition and fees and what students and their families pay. Private institutions rely heavily upon tuition discounting and especially merit grants to build classes of students. This usually leads to higher tuition sticker price. In contrast, public institutions are often constrained by legislatures in how they set tuition or offer scholarships. These methods may or may not be efficient in market terms, but again at a macro level, seem to suggest that many Americans can find their way to college and find a way to pay for it.

Archibald and Feldman’s high-level economic analysis rings true from an academic perspective. There are no villains here and no smoking gun. They note that until incomes flattened out a decade ago, rising college costs were matched by rising family incomes. Now for most families, college costs take up a larger proportion of the family’s budget. Accordingly, they see the real problem as stagnant wages. And, from an economist’s point of view looking at the big picture, they are correct.

Most people are not economists. They do not necessarily understand their individual situation through a macroeconomic lens. Instead, they experience economic conditions immediately. Archibald and Feldman’s argument will give little or no comfort to most students or their families. In fact, misinterpreted or mis-communicated, it could worsen higher education’s relationship with the public. Higher education, I believe, needs to own and acknowledge the great financial demands that we place upon our students and their families.

Imagine yourself writing an editorial or talking with a group of parents about their child’s college tuition: “The issue isn’t that we’ve raised tuition to $50,000 – it’s that your salary has not increased at a commensurate level.” How do you think that would be received? What as academia done to commit itself to controlling costs?

It is my experience that when families wrestle with college costs – or more precisely, the price of college and what they have to pay and borrow – they are acutely aware that they are not wealthy enough or earning enough to give their child with the best possible college education. Most adults I know very much want to make more money. They want to provide their children with a high-quality college education. Many, though, simply cannot afford to do so. The gap between affordability and desire leads to some very difficult discussions and decisions about where their daughter or son goes to school and how they pay for it. College, too, is not a simple transaction. It is about networks and value. A college education is an investment into a future career, lifestyle and identity.

Archibald and Feldman would claim, looking at their data, that community colleges, regional public institutions, and discounted tuition at private institutions offers most students enough options to get students into colleges. It is true, too, that more and more Americans are finding their way into college. But that does not mean that the journey is easy or welcome.

It is my experience that college tuition and fees are felt by families as extremely stressful. It is the cost of college that serves as the catalyst, too, not the flat wages of parents. The failure of wages to increase is a source of frustration, but it does not lead to the same level of anxiety and resentment as a massive tuition bill or crippling student loan payments. Higher education, in other words, bears the burden of high college costs – whether it is fair or not from a macroeconomic perspective. And any examples of waste in higher education, be they high salaries for administrators or lazy rivers for entitled students, can serve as reminders to the public that higher education does not focus on controlling costs.

The shift – and it is a crucial one – when moving from this book to real-life in the front line of colleges is from macroeconomic forces to institutional and personal responsibility and action. If we in higher education are going to develop and maintain friends in the community, we have to listen carefully to concerns and complaints of students and parents about affordability. We have to situate ourselves, institutionally, on the same side of the table in financial aid and bursar offices as our students. We need to be clear about cost disease, how we hope to combat it, and how and why we handle financial aid.

Why Does College Cost So Much provides answers at a macroeconomic level to question that policy makers have been wrestling with for some time. It is an important question and one that we collectively have to address. More immediately for those who work in colleges and universities, a more pertinent question is “What are we going to do about it now?” Referencing this book and macroeconomic forces is no answer to an aspiring student and her concerned parents.

David Potash

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