It’s funny how, in recent years, the cost of domestic services such as college tuition and health care – services that can’t be outsourced or purchased from abroad – have been two of the few items in the consumer price index that have risen relentlessly. The Economist looked at how college costs stack up with inflation and wages in this story the other day.
They note that college fees have been rising far faster than incomes. Perhaps if all higher education could be conducted somewhere in Asia where salaries are lower and benefits are not so generous, a college degree wouldn’t be so expensive.
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Why does Harvard charge so much for tuition? Because it can.
Two observations. One, instead of implying that colleges are overpriced, wouldn’t it would be the case that colleges were underpriced?
Two, run two lines between PUBLIC college tuition and level of state appropriation. The correlation between the two figures is probably a negative .8 or so.
Big words make Mongo’s head hurt.
I was a professor at a small liberal arts college in Japan for sixteen years. We had about two thousand students overall, a faculty of a hundred or so and administrative staff of less than fifty. We received some government support, but tuition and fees for our students are less than ten thousand a year (higher for the new nursing school).
A bubble lesson: After attrition and pay cuts amounting to about 20% of our salaries, the personnel costs for faculty were cut by almost 50%. However, mismanagement, deflation and low birth rates meant that we were forced to eat another concession; retirement age was cut by two years (another feature of Japanese employment lets a faculty member retire once and be rehired at half pay–second retirement was moved up three years, as well).
Savings to the school were enormous–I calculated my total loss (real vs. originally promised income) at somewhere around four hundred thousand dollars. Multiply that by a hundred!
Salaries were also pegged to the pay scale of public employees. This was great during the boom years; as the CPI rose, so did salaries. Came the budget crunch and salaries began to fall. Soon after I retired, there was a 10% across the board salary cut for public employees in the Prefecture, so my former college peers took another hit. For some of the younger faculty, the lifetime losses will easily amount to seven figures (that’s ten figures in Yen).
Is this the future for the US?
The capture of the universities by administrators is another feature of US higher education that needs to be addressed. Even as more and more faculty are reduced to adjunct status, administrators proliferate. This non-educational burden will eventually sink the entire system.
The idea of for-profit education might have shown initial promise, but these school corporations were founded on a flawed premise: profits first, education second. Their growth was in turn fueled by the insane student loan bubble (a part of the mess that Greenspan made) that transformed them into mini financial institutions (or should I say casinos). Instead of lowering costs and providing better education, they proved to be just another method of putting the already disadvantaged further in debt.
Sorry for jumping all over the place.
The reason for the cost inflation of university education is simply government subsidy cash flowing in. The same thing happened in housing health care, etc. Whenever the U.S. government gets involved, it destroys markets and destroys efficiency.
Leftists, leave us alone.
Cheney/Palin 2012
You’ve hit the nail on the head.
The folks in DC can’t seem to grasp the significance of Newtons Third Law Of Motion.
Every time they get involved, their interference throws everything out of balance.
FrancoBollo
PS I’ll leave political leanings out of this, since DC meddling applies to both persuasions.
It all transpired on Cheney’s watch, Steve. It was Cheney who said that Reagan proved that deficits don’t count.
It’s all about debt. We are training our sheeple as early as possible to get into debt and stay there. Students graduate with tens of thousands of dollars in student loans, a debt which allowed them to shell out for the ludicrous tuition and books. The debt is backed by the government, so it is cheap.
So, under our wonderful “free market” capitalism, universities can charge what the market will bear, and it can bear lots thanks to this debt. Wall Street, Washington, and unions are all getting fat suckling on the public tit. Why shouldn’t academia?
I’ve gone on about this over at “outside the beltway,” a blog whose owner is more a fan of traditional university education than I.
My basic positional is that it is time to reinvent post-secondary education. It is really unconscionable to me that when “bits” of knowledge flow at the lowest cost ever (as with this blog) education costs soar.
Someone is not using the technology. Why? Well it gets back to one of the first concepts in economics, doesn’t it? Incentives. The incentives are not to lower costs. With higher costs everyone makes more money off the poor student.
That would have dead ended and stopped when students and their families ran out of money, but we invented a solution, right? A massive system of college loans. Which of course feed the incentives again.
(There are edu-hackers out there, trying new things, but they swim against the tide of all that loan money.)
I’m not an edu-hacker, but it strikes me that a lot can be done with a mentor-type setting tasks for students to do themselves on the web. They’d pass the “course” when they accomplished, and did not skip, the mentor’s goals.
The implied promise that these high costs and the the debt needed to pay them will lead to a well-paying career is also taking a shellacking. This spring, according to the National Association of Colleges and Employers, less than one in four 2010 college graduates who applied for a job had one waiting after graduation – and that was up from 20 percent the year before and before the economy began to stall over the summer.
Absent a new bubble, it’s hard to imagine how these poor kids will ever find work that pays enough to service their debts.
Definitively proving there is no justice in the universe – for those finding jobs this year, finance majors’ starting salaries were up 1.6% and liberal arts majors’ down 8.9%. No mention in the article of engineering majors’ starting salaries. Unlike finance and health care, engineering is apparently not a hot field.
The problem of education is a big one.
To notjonathan’s point:
No where is Pournelle’s Iron Law of Bureaucracy more prevalent than in education – from the University level on down: “In any bureaucracy, the people devoted to the benefit of the bureaucracy itself always get in control and those dedicated to the goals the bureaucracy is supposed to accomplish have less and less influence, and sometimes are eliminated entirely.” That is a major source for rising costs – those are the folks who make the decisions to build the Taj Mahal’s of education (and there seems to be one in every city nowadays). They are also what makes organizations top-heavy, increasing costs without increasing effectiveness.
What else? Credentialism is rampant, and many solutions that worked for decades (if not centuries) such as apprenticeship (particularly in law) are no longer an option, even though a case can be made that that particular solution produced better results.
Who knows what will happen with higher education. What is absolutely certain is that the present system cannot go on forever. And as Stein said “when something can’t go on forever, it will stop.”
Perhaps there is some kind of analogy between the higher education and housing situations, in which “customers” are taking on increasing amounts of debt for an “asset” (diploma) which has increasingly limited or questionable returns. The debt is the debt, and it stays forever until you pay it off or go bankrupt (and sometimes even after you go bankrupt). Eventually there will be a huge market for “renters” – those that don’t want to or can’t afford the high costs, and they’ll need to go elsewhere, because credentialism is not going away soon. My bet is on distance learning, which is becoming more accessible and convenient. Unfortunately at most universities, its still a big cash cow (they charge the same tuition as a regular class) but there are a few exceptions.
It has become my custom to join discussions of this sort so that I can intone “Dissolution of the Monasteries”.
At this point it is impossible to make an economic case for a 4-year degree. A graduate today have no chance of recovering the $80 – 100K a degree costs in an economy loathe to offer more than $10 hour. After 10 years in publishing, I’m cooking in a restaurant. (I said I didn’t have a degree.) It pays almost as much as the editing job I lost when my employer decided to find a 22 year-old English major who would do the job for minimum wage, even though they still insist on a 4-year degree. (How the English major will make his $700 month student loan payment I don’t know.) My new cooking job is well above minimum wage. And I dare them to move my job to India.
This is a direct result of all the “free” money to attend via student loan programs and federal assistance. I suspect the experience of the housing market will repeat here in the future.
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Interesting point that healthcare and college educations can’t be purchased from abroad or outsourced.
However, they also happen to be items that seem to be greatly distorted in price by government and other 3rd party payers. Supply and demand forces are therefore weakened, with the net result that prices rise relentlessly.