The $375-Billion Question: Why Does College Cost So Much?

From the halls of Congress to the kitchen tables of American families, that long-simmering complaint — Why does college cost so much? — is getting louder and more urgent.

As a slew of recent reports, public forums, and growing media interest suggest, the rising cost of college looms larger and larger as a personal and national concern.

The sticker shock could also become a factor at the ballot box. A poll of likely voters commissioned by the National Education Association and released two weeks ago showed that 70 percent of parents and 65 percent of students said making college affordable was an important issue for them in the fall election.

Certainly the Wall Street convulsions and housing-market turmoil now reverberating through the economy are doing little to ease people’s apprehension.

“The public is really restive about this,” says Patrick M. Callan, president of the National Center for Public Policy and Higher Education, who notes that for more than 10 years, percentage increases in college costs have far exceeded those in housing, transportation, even health care. Family incomes, for the most part, haven’t kept pace.

Even before the recessionary slide, concerns about college affordability had risen to new heights. In May 2007, polling by Public Agenda for the center found that 62 percent of Americans believed that many well-qualified students did not have an opportunity to get a higher education. It was the highest proportion since the polling began, in 1993. “Today that number might well be higher,” said the center, in an August report.

The problem looks even worse from the bottom of the economic ladder. According to a forthcoming report from the center, the cost of tuition, room, and board at a four-year public college, even after taking into account financial aid, was equivalent to 55 percent of the household income of the poorest 10 percent of American families in 2007, compared with 39 percent in 2000.

Scarier still, if the rising-tuition and family-income-stagnation trends of the past 10 years continue, by 2036 the cost of tuition and fees at the most expensive public research universities will amount to more than 28 percent of the median family income, and at expensive private universities, more than 98 percent, according to the National Association of State Colleges and Land-Grant Universities.

Even now, when a few private colleges will soon charge as much for tuition, room, and board — $50,000 — as the nation’s median annual family income, it is hardly just the neediest parents and students who are worried about how they will afford college.

“It’s daunting,” says Aidan P. McAvinchey, a hospitality-industry consultant from Andover, Mass., who has a daughter in college and two other children in high school.

For his daughter, a sophomore at Suffolk University, a private institution in Boston, he obtained a $5,000 federally subsidized student loan and tapped into his home-equity line. He is not sure how he will pay for the next two children. Still, with his own income and some chipping in from his wife, who works in financial services, Mr. McAvinchey knows that he is more fortunate than most: “We were lucky that we were able to get credit. How do other people cope?”

More Than Meets the Checkbook

But for Mr. McAvinchey and millions of other parents growing more anxious, frustrated, even scared about their ability to pay for college, the answers to this seemingly simple question about why college costs so much are damnably complex.

Indeed, even the question itself is more intricate than it appears to be. Is the problem one of growing costs to students, or higher operating expenses for institutions?

Actually, it’s both, and they are related.

And if price is the problem, which price? The stated price in the catalog, which very few students actually fork over, or the actual, lower costs that most students end up paying, thanks to student aid?

Here too, it is both, because at all but the wealthiest institutions, student aid relies on a fragile financial model of “tuition discounting” — using some of the tuition dollars from students paying full freight to subsidize the tuition of others — which typically drives tuition prices higher.

If the questions are hard, the answers are even knottier. And all too often in the public debate, they are tinged with misrepresentations, miscalculations, and myths.

Over the next several months, The Chronicle will explore the fault lines of this complex issue.

No one who understands even a little about the topic believes that the problem is easily resolvable.

The many forces and factors driving costs and prices in higher education — shifting priorities in the states that leave holes in public colleges’ budgets, growing demands for student aid from financially needier pools of students, big ambitions for research that come with hefty price tags — are, in many cases, uncontrollable.

Still, America’s higher-education enterprise — which in terms of colleges’ spending has become a $375-billion industry — is, as even its most ardent defenders are beginning to acknowledge, anything but a model of efficiency or frugality. It is often needlessly duplicative, overly reliant on outdated approaches to teaching and management, maddeningly slow in adapting technology to save money, and notoriously, even proudly, resistant to change.

The Chronicle will look at societal and economic trends as well as at some of the more noble and ignoble traits of the sector — ego, competitiveness, envy — that also play a role in setting the bottom line for colleges and their students.

2 Truths

We begin with two important truths: The problem is real, but it isn’t nearly as bad as the general public perceives it to be. The problem also is no longer nearly as dismissible as many higher-education and policy leaders have let it become.

Why not as bad? That’s simple. Millions attend college where the prices are hardly stratospheric. Of the more than 18 million students enrolled in nonprofit colleges, 40 percent attend public two-year institutions where tuition and fees average less than $2,400 a year, and another 40 percent attend public four-year colleges where the average in-state tuition and fees run $6,185. Last year 79 percent of all full-time undergraduates attended colleges where tuition and fees fell below $9,000.

Take Ball State University, a public institution in Indiana, where four years of tuition and fees for a bachelor’s degree run about $30,000. That’s “less than a good car,” notes the president, Jo Ann M. Gora, and it “prepares you for the rest of your lifetime.”

Even with that, she notes, about 80 percent of Ball State’s students receive financial aid.

The college-cost debate, which focuses so heavily on expensive colleges, “makes me slightly crazy,” Ms. Gora says.

Leaders of expensive and not-so-expensive private colleges are frustrated, too.

According to a new analysis, private colleges have significantly upped their spending on student aid. The amount of aid provided by private colleges from their own resources grew by 173 percent in inflation-adjusted dollars from 1996 to 2006, says the National Association of Independent Colleges and Universities, which represents nearly 1,000 private institutions. That increase far outpaced the rate of growth in tuition and fees at private institutions, as well as at public colleges, which grew by 34 percent and 52 percent, respectively, during the same time.

But critics say an unhealthy portion of that aid, along with some of the student-aid money that states provide, is going to middle-class students, who don’t need it as much as needy students do. And as more college-aged kids come from poor families in coming years, the demand for aid will only increase, placing greater strains on college budgets. That, in turn, will increase pressure to raise tuition.

And on it goes.

What’s more, despite the rise in student-aid spending, students themselves are going deeper into debt to pay for college.

According to the Project on Student Debt, a nonprofit advocacy group, more than two-thirds of students at four-year colleges carry student-loan debt by the time they graduate. In 1993 fewer than half such students had student loans.

The amount of that debt is rising as well. In 1993 students who graduated with loans carried an average debt of $9,250. By 2007 that debt had risen to almost $22,000, an increase of 63 percent even after adjusting for inflation.

“What’s bad about that is that that’s the average,” says Robert M. Shireman, executive director of the three-year-old group, noting that for many students, actual indebtedness is much higher and often dictates the kinds of jobs they can afford to take after they graduate and how soon they can afford homes of their own.

“It has been too easy to just throw higher education’s apparent need for more money on the backs of students,” he says.

Straining Students

That analysis is on the mark, but it describes only part of the problem.

Colleges rely more than ever on tuition dollars to cover their costs, says the Delta Project on Postsecondary Education Costs, Productivity, and Accountability.

That’s not primarily because colleges are spending more per student, but because subsidies, the other sources of revenue that colleges depend on to make up the difference between what students pay and what it actually costs to educate them, are declining in proportion to overall costs.

Those subsidies, whether in the form of state funds, private donations, or earnings from endowments, range greatly, depending upon the institution. They are the reason that for all colleges, even the sticker price is a bit of a fiction.

The growing reliance on tuition is particularly acute for public colleges, where revenues from subsidies are shrinking.

“Unless subsidies increase and/or costs decrease, tuition will continue to rise,” said a recent report from the Delta Project, which is financed by Jobs for the Future and the Lumina Foundation for Education.

In fact, state and local financing of public colleges, across the board, has grown. But so has the number of students at public colleges. As a result, per-student spending actually declined by nearly 8 percent in the five years after 2002.

In many states, lawmakers often blame their inability to provide more money to colleges on the need to provide funds for things like prisons and Medicaid. And that’s a valid point. But advocates of higher education grumble that lawmakers’ unwillingness to raise taxes has also been a factor in public colleges’ falling behind in many states.

The next few years are unlikely to bring much change. As the State Higher Education Executive Officers has noted, state support for higher education has declined in every recession, and “current economic indicators do not give much room for optimism.”

That prediction came in early 2008. Since then, prospects for states’ coming to colleges’ rescue have grown even dimmer.

For public and private colleges, a down economy means fewer and smaller donations and lower endowment returns. Meanwhile, more students will be coming to college with a greater need for aid.

Even the wealthiest institutions are worried. “All the revenue sources are going to be challenged,” says David S. Clay, treasurer at Grinnell College, which boasts one of the largest endowments per student, nearly $1.1-million.

New Watchword: Productivity

With few prospects for improving subsidies, pressure is mounting for action on the equation’s other crucial variable: costs.

Congress, where lawmakers like Sen. Charles E. Grassley, a Republican from Iowa, and Rep. Peter Welch, a Democrat from Vermont, have led the discussion, is just one source of this pressure. (See excerpts from an interview with Mr. Welch, at left.) The coming federal “watch list” of colleges that raise their tuition rapidly, created as part of the recently reauthorized Higher Education Act, could become another point of pressure.

This month the Lumina Foundation is expected to lend its clout to the debate with a series of grants to a wide range of organizations — some notable for their critiques of higher education — with the aim of promoting college productivity.

And increasingly, college leaders themselves are calling for reform. As one of them recently expressed to colleagues privately, the political and public pressure may be hitting “a rebellion point.”

“It’s time for a collective and serious conversation on how we can contain our costs,” adds another, Anthony W. Marx, president of Amherst College. He was one of several college leaders who spoke about college costs at a Congressional round-table discussion in September.

But it’s not just politicians’ reactions that campus leaders are worried about. Some see how market economics have altered the health-care industry, which, like higher education, is labor-intensive, employs highly educated people, and is criticized for being too expensive. They worry that unless they seize the momentum themselves, the same forces that brought us managed care could herald an era of “managed higher education.”

As John Immerwahr, a professor of philosophy at Villanova University and a senior research fellow at Public Agenda, puts it, “Some 23-year-old accountant could be telling us how many people are in our classrooms.”

The analogy goes even further. Just as families need affordable health care, they increasingly see a college education as “incredibly important” to their future and that of their children, he says. So as college seems to be more out of reach, their anxiety is nearing the boiling point.

Over his 14 years of looking at polling and focus-group data, Mr. Immerwahr says he senses an “angrier mood” over college costs. Families may be less upset about college than they are about health care, he says, only because they still see safety valves in the higher-education system, things like community colleges and part-time programs at four-year colleges.

Those options keep access to college in sight, he says. “Otherwise people would be going nuts.”