Decoding Rising College Tuition: Structural Causes and Solutions
Understanding the Complexity of Rising College Tuition
The story of rising tuition is complex. Unfortunately, much of the public discussion about the cost of attendance is too simplistic. To understand the reasons for rising tuition, and the effect that this has on families, we need to break down the forces that affect how tuition is set and that determine who pays the bill.
Tuition Price vs. Actual Cost: Subsidies and Aid
Tuition is a price that rarely reflects the full cost of a year in college. Unlike most things people buy, university education is heavily subsidized. These subsidies come from government and from private giving. The price a student ultimately pays is influenced by complex need-based financial aid formulas. In addition, schools themselves may discount tuition individually, based on merit and financial need. A major driver of tuition is the actual cost of providing the service. This is what the schools themselves spend on their programming for students, and this is where we begin the story of the cost of attendance.
Common Criticisms of College Spending
Most discussions about the rising cost of education highlight seemingly wasteful practices at colleges and universities. Frequently cited practices include:
- Prestige competition among schools for students and faculty.
- The system of faculty tenure.
- “Gold-plating” the college experience with fancy amenities.
- Administrative bloat.
The Impact of Technological Change on Higher Education Costs
Indirect Effects: Labor Market Shifts
Technological change has acted on higher education in three ways. The first way is indirect. Labor-saving technological change has dramatically reshaped manufacturing and agriculture. This rising productivity has slowed cost growth in every industry that it has touched. In addition, this kind of technological change has reshaped the labor market to the disadvantage of the less-educated worker.
For example, schools could easily raise “output per labor hour” in education just by enlarging class size, but students and their families would be justifiably suspicious of this kind of productivity increase.
Increased Demand for Educated Labor
Technological progress has produced two other important changes in higher education. First, innovation over the last 60 years has progressively raised the demand for workers with ever more years of formal schooling. However, the supply of educated labor has lagged the demand, so the premium that someone earns with a college degree has grown substantially. Today, a college graduate’s wage is **double** that of a high school graduate. This change in the labor market pushes up cost in any industry that uses a lot of educated labor. Education is one such industry.
Costly Adoption of New Technology
Lastly, colleges and universities tend to adopt new technology even if it raises cost. Faculty members need to be at the technological cutting edge to be productive teachers and scholars. And for our students to receive an education that prepares them for today’s labor market, they must be familiar with the current techniques in whatever discipline they study. We live in a time of rapid technological change, and this has been a force for rising cost across the curriculum.
Structural Solutions for College Affordability
The key affordability issues that I highlighted are not easily solved with simple policy remedies like tuition caps. They reflect deep structural changes in the economy and in the state, and these changes occurred over long stretches of time. Solving the affordability and access issues wrought by these changes requires policies that go well beyond tinkering with higher education programs. If we could restore the purchasing power of the middle-income family, many other social ills would be easier to manage. There is no magic wand that will do this, but sensible reform must start with an understanding that educational opportunity begins with improvements at the state level. This is the foundation of later success in college and in the labor market.
Immediate Steps to Improve Access and Transparency
There are steps we can take to maintain access to higher education in this time of rapid technological change and widening income differences:
- Financial aid programs can be simplified so that students can make better choices earlier in the application process.
- Reform processes so that students and families can understand the *real price* of a year of college.
- Programs that are under threat annually need to be defended from the charge that they are the cause of runaway tuition increases.