Tuesday, November 07, 2006

Why is the cost of college increasing so quickly?

One of the biproducts of planning for college expenses is the nausiating realization that not only is college very expensive, but that it increases in cost almost as fast as equity markets.

I surveyed a number of friends in their late 30s, purposely selecting people who did not have children in or near college. I asked them what they thought it costs - not a single one was right! Most imagined that thne top schools are $30k a year, tuition, room, board, health fees, etc.... When I told them to add 50%, they almost fell of their chairs.

The second response was ... "that's ridiculous, how much is it going up each year?" When I told them about as much as the market on average, maybe 7%, the response was "this has got to stop."

I honestly wonder how it will stop. Will any of them send their children to less expensive, less exclusive schools if they could otherwise afford more exclusive and expensive schools - I doubt it? We strive to do the best possible for our children - too many make the mistake of sacrificing their retirement savings to pay for their children's college - we want to give them as much as possible.

For at least 25 years college has been increasing in cost far beyond the rate of inflation. when I went to school the best private universities were about 1/3 of the cost for the same schools today.

I can only imagine that easy credit - the ability to borrow on behalf of both parents and children is the source of such a dramatic increase in costs. Just as the housing market boomed a few years ago.

In many top schools the college students and the professional schools subsidize the liberal arts graduate students.

But the rapid growth of major university endowments confuses me - why don't the endowments help lessen tuition costs or at least hold them steady with inflation?

Are "social engineers" at the universities using high tuition payments to push out the upper middle class - how do you make a university more diverse - make it too expensive for those who historically could pay for it and then selectively provide scholarships to those you would like to see enter the university - is this what's happening?

Although I'm skeptical, I truely hope that on-line education programs act like a pin and pop the incredible inflating university expense.

One would think the advent of technology would allow most universities to dramatically lower the cost of delivering education, broadly increase accessibility and enable lower tuition and fees. It could also improve the availability of training materials. After taking some additional professional education classes I found a hodge podge of technology poorly integrated and effectively ignored by a professorship untrained and uncomfortable with the tools available.

I wonder how competitive our archaic and costly models will be against the rising tigers and emerging markets?



Anonymous said...

Most services rise in cost faster than inflation while manufactured goods rise in price slower than inflation. This economic phenomenon is called Baumol's disease. This is because productivity improvements are easier to achieve in manufacturing, agriculture etc. But wages rise just as fast for a given skill level in every industry... That is the main reason behind this phenomenon.

The full price is also driven by what the wealthiest people can pay. As their income is rising faster than the average due to rising inequality the price of full tuition at private universities is rising faster than average wages. The actual after grants/scholarships average is probably rising slower.

The high income students and their parents demand rising standards of accomodation and services. These cost a lot to upgrade...

At state universities the rising relative cost of services is causing state governments to reduce subsidies which pushes tuition up faster still.

These are some of the reasons....

Dimes said...

The university my husband and I went to 7 years ago cost about $30K in all at the time and is over $43K now. I'm glad I wasn't born later! If they maintain their current rate of tuition increases, twenty years from now when we have college-age kids, a year's expenses will cost around $100K. I really hope the kids get a big break for being legacies.