Can We Make College Cheaper?

Critics of American higher education have a set of theories to explain the ever-rising cost of college tuition. Schools are inefficient. They blow too much money on administrators, not enough on academics. The academics they do have spend their time on research, not students. And those students live in an increasingly plush world created by the arms race for prestige rankings: Best medium-sized college in the Midwest! Most wired campus in the country! Top-rated college for would-be aerospace engineers!

“These people are going to say, ‘Ah! Colleges, they’ve turned themselves into country clubs!’” said David Feldman, an economist at the College of William & Mary. “Everybody can point to an anecdote of a souped-up dorm and say, ‘Yep, that’s the problem right there!’”

Feldman and William & Mary colleague Robert Archibald refer to this set of theories as the “dysfunction narrative” of the rising cost of college tuition. This is the narrative that dominates policy debates around what to do about the problem. And Feldman and Archibald argue that these explanations get the whole story wrong.

“There’s a part of the story they may explain,” Archibald said. “But I think it’s a much smaller part of the story than other people think.”

The two economists pick apart the case for higher-ed dysfunction in their book, “Why Does College Cost So Much?” And they’ve distilled their alternative explanation into a breezier paper just published by the American Council on Education that should inform policymakers and angry Occupiers trying to figure out where all this college debt came from — and what we’re going to do about it if we want more Americans to have access to some higher education.

“Everyone’s saying, ‘but we ought to just be able to economize and cut out all the fat, that’s the solution to this problem. Schools are fat, sassy and over-fed. And if government cuts off the spigot, it’ll force us to become more efficient,’” Feldman said. “We began to look at that seriously: Is that really what’s going on?”

Their first observation is a jarring one: the cost of college education generally always rises faster than inflation. But the pair argues that’s not the real problem here; education isn’t unique in this. Feldman and Archibald produce this graph charting products (cars, jewelry, nursing homes, education, etc.) that grew more costly than the rate of inflation over the last six decades:

Number of Years with a Percentage Price Increase Exceeding the Inflation Rate CLICK IMAGE TO ENLARGE 

In 52 out of those 64 years, the cost of education outpaced the rate of inflation. A couple of industries to the right of education on this graph did this even more often: dental services, life insurance, hospitals, and nursing homes (many of which, not surprisingly, are tied to the other great cost debate of the day: health care). Some sectors of the economy simply outpace inflation in general. The common denominator? They’re service industries, not manufactured goods.

This is the core of Archibald and Feldman’s argument: We expect technological progress to make things cheaper. Assembly lines have made cars more affordable. Advances in computer technology have made an iPod possible for every teenager. Technology in these industries increases productivity growth, and as a result, whatever goods pop off the assembly line tend to fall in price.

The same rule doesn’t hold for education, however, or for most personal services.

“For services, you’re not going to have productivity growth, because productivity growth means doing more per hour, or more per worker,” Archibald said. “And there are lots of service industries where really what is being purchased is the time of a person.”

In that case you get a crummier product — say, a haircut — if you get less of that person’s time. This is true whether that person is your hairdresser, or the violinist in an orchestra you’ve paid to see, or your college professor. These are jobs that can’t easily be turned over to machines (although many education policymakers are currently debating this). And so goods become cheaper while services — like education — become more expensive.

Technology, in fact, frequently has the opposite effect on education that it has on cars. Schools have to put a computer on every desk and cutting-edge tools in every science lab, and that makes education more expensive, not less so.

But here is the main point the authors want to make: just because college costs generally rise more rapidly than inflation doesn’t mean college becomes less affordable over time. This is because — as a result of all of that technological progress — the quality of life in America has been rising, along with the incomes of the average family. So as tuition has increased, so too has the ability of families to pay for it, especially as the real cost of your car, and your washing machine, has declined. (And that doesn’t take into account tuition discounting: many students — and not just top scholars or athletes — aren’t charged the sticker price at many colleges and universities.)

This pattern held for decades. This is what the real cost of higher education has looked like over time:

Index of Real Higher Education Costs CLICK IMAGE TO ENLARGE 

More recently, though, families haven’t been able to keep up. Archibald and Feldman note that this problem really kicked in around the year 2000. And this is the part of the story that has nothing to do with educational dysfunction and everything to do with trends in the broader economy.

“Something very unusual is happening in the economy with all of the income gains, where the rising tide only lifts yachts,” Archibald said. As economists have widely noted, most of the income gains over the past decade have been concentrated among the wealthiest Americans. “That’s generated a lot of problems, which rebound down to how people think about higher education. If we can figure out what’s caused that and change it, a lot of what appears to be a problem with higher education doesn’t look nearly as bad.”

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Read the rest of the article at Pacific-Standard Magazine

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