Friday, December 05, 2008

Cost of College

There's an article in the New York Times about the decades-long rapid increase in the cost of higher education. Another one is on cnn's website. Both refer Measuring Up 2008, The National Report Card on Higher Education (pdf) from the National Center for Public Policy and Higher Education. In the Times article, the Center's President is quoted saying:
The report, “Measuring Up 2008,” is one of the few to compare net college costs — that is, a year’s tuition, fees, room and board, minus financial aid — against median family income. Those findings are stark. Last year, the net cost at a four-year public university amounted to 28 percent of the median family income, while a four-year private university cost 76 percent of the median family income.
I found median family incomes by state here, and looked up our state to find that it's about $53,000. According to the statement above, a private university would have a net cost of around $40,000. We're nowhere near that. In fact, family contributions are less than a quarter of that figure. But we have also not raised tuition much in the last decade--certainly nothing like the graph shown in the article (reproduced from the original report below).

In 1995 our tuition was $10,488. Now it's $18,792, but discount rates have increased too. Leaving that detail aside, it would be an increase of around 79%, or 4.6% per year average. The graph shows an increase of about 293% in the same period, or 8.6% per year. The point of this is that the averages conceal considerable variety.

Loans increased by over 100% in the last decade, according to the report (Stafford Loan borrowers increased by 50%). This leads naturally to the speculation that tuition prices have been inflated by the credit bubble along with housing. With loans harder to get, the grim calculus isn't hard to compute: some combination of fewer students enrolled and lower net tuition paid. This will reduce net revenue to many institutions.

What to do? Undoubtedly, there are efficiencies to be found at any institution. The luxury of NCAA division II (scholarship athletes) will be under pressure. Division III nominally has no athletic awards, which adds up to a lot of money quickly. Other ideas include:
  • Instead of direct institutional aid, require some work-study for the money. This saves on part-time employees.
  • Instead of direct institutional aid, make institutional loans. I don't know of anyone who does this, but it worked well for GM for a long time. Small institutions could form a consortium for this. The way it would work is to loan students money with repayment starting at some point after graduation. The money loaned isn't real--it's just discounted tuition, so no real money changes hands until repayment. There are probably legal issues here I'm not aware of, but it would alleviate the loan crunch and also let colleges eventually generate interest from these loans. Maybe later on they can divide them up into tranches and sell credit swaps (just kidding).
  • Add or increase after-work classes for working adults. The infrastructure for a college or university is large and expensive. Using classrooms at night and hiring instructors is a small additional cost for the additional revenue generated. Flexibility in tuition structure can make it easy to meet demand with supply.
  • Online classes are trickier because of the competition. This may or may not be a good investment for the institution, but even traditional or evening classes can be made more efficient by using a hybrid approach. If some of the class meetings are online, there are additional types of learning opportunities, as well as the potential to reduce some costs and make it more convenient for commuters.
In any event, I predict a growth industry in education consultants to come and tell you how to make your operation more efficient. This give the administration someone to blame when they eliminate positions.

No comments:

Post a Comment