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10 minute read.
We’ve all seen the news about skyrocketing college costs. It’s everywhere you look, and it only seems to be getting worse. It’s no secret that college tuition has risen too quickly, and debt is unmanageable for a staggering numbers of students.
This hits home for me particularly because I have kids in school, which means I am right in the middle of this whole mess whether I like it or not. I am an average person with an average income, and my income can only be stretched so far until it gets very uncomfortable.
Student loan debt in the U.S. has reached a staggering $1.2 trillion, and the average graduate will have to repay more than $35,000. The big question everyone is trying to answer, including myself, is “Why?” The other big question is “How do we fix it?” No doubt, this question is getting more desperate.
In this article, I crack this issue wide open to see if I can find the truth of why this is happening, and what we can do about it.
Where Did the Student Loan Crisis Originate?
Baby boomers were once able to pay for college with money they made from summer jobs. And for many middle class families that had students starting college more than 30 years ago, parents were able to step in and help their kids pay for college.
Over the next few decades, public funding for higher education was massacred. These ever-increasing cuts forced colleges and universities to raise tuition more each, which in turn forced millennials to take on crushing educational loans, and we all know how that turned out.
This is the story college administrators like to tell when they’re asked to explain why, over the past 35 years, college tuition at public universities has nearly quadrupled, to over $9000 per semester in 2014. It is a story that makes you wonder, “Is it really true?” It may in fact actually be the opposite of the truth.
Is it True?
In a recent National Public Radio series on the cost of college, Sandy Baum of the Urban Institute told NPR “It’s not that colleges are spending more money to educate students. It’s that they have to get that money from someplace to replace their lost state funding — and that’s from tuition and fees from students and families.”
In fact, public investment in higher education in America is vastly larger today, in inflation-adjusted dollars, than it was during the supposed golden age of public funding in the 1960’s. This kind of spending has increased at a much faster rate than government spending in general. For example, the military’s budget is about 1.8 times higher today than it was in 1960, while legislative appropriations to higher education are more than 10 times higher.
This likely stems from the explosion of college tuition since the 1970’s, but even so, it’s still tough to explain why college tuition has skyrocketed. In fact, the growth in tuition likely stems from a variety of factors. For example, a paper from the Federal Reserve Bank of New York suggested that colleges were raising their sticker prices because the federal government was giving students more loans.
The Single Most Important Factor Increasing College Tuition
But according to Adam Davidson in New York Times Magazine, he said the single most important factor behind the rise in tuition is that high tuition allows colleges to “shape” their student bodies. What does this mean exactly? In essence, the higher the tuition cost, the easier it is for universities to recruit the exact type of students they want by offering them college tuition discounts.
Ah, now we’re getting somewhere. It’s about pricing strategy! That sounds like a sales trick that’s as old as time itself. Tricks that used car salesman use on unsuspecting buyers. Kevin Crockett a consultant with Ruffalo Noel Levitz, told The Times Magazine “I’ve got to have enough room under the top-line sticker price.”
Adam Davidson goes on to say: “A school that charges $50,000 is able to offer a huge range of inducements to different sorts of students. Some could pay $10,000, others $30,000 or $40,000. Only a handful can pay the full price.” A college is able to then recruit a diverse set of students with competitive test scores and accomplishments. It’s all about the math and law of probability.
This, of course, explains primarily the reason for tuition increases at private colleges that don’t get any state funding. At public universities, there are additional factors for college tuition increases, such as students, rather than state governments, absorbing more college costs.
But What About the Future of College Tuition Costs?
Today’s college prices will seem cheap when compared to the price hikes of tomorrow. Still, they’re rising at alarming rates, and yes you guessed it–far faster than inflation. As you probably have noticed, in-state public schools have also recently increased tuition costs–a lot! As an example, the University of California announced a tuition price increase of 9.6 percent — on top of an already approved 8 percent increase — beginning in fall 2017.
Even at low-tuition schools, college costs are soaring out of control, especially when students add an extra year because they can’t handle the workload. They may also lose scholarships or experience a dramatic change in their financial situation because of this. This is beyond frightening.
Critics blame high prices on overpaid professors or unnecessary expenses. But is that the real reason why college tuition is getting so high? Lobbyists tend to blame budget cuts from state legislature. But a new study tells a different story–how easy it is to get federal student aid (loans!). They make it very easy–almost too easy.
Federal student aid accounts for most of the college tuition increases between 1987 and 2010, according to the National Bureau of Economic Research. It’s simple. The more money students can borrow, the more colleges are able to charge. They are playing off the government’s ability to offer student loans to anyone who qualifies. So, who can qualify for federal student loans? Every college student in the U.S.!
Over the last few decades, the amount of aid available to students has increased dramatically. Subsidized loans expanded greatly, and guess what else–unsubsidized loans also came into existence. But looking at the big picture, does that money offset the costs to students? Researchers say no, absolutely not. It had the reverse effect.
Instead, colleges increased tuition even more because they know financial aid can cover the difference. With this kind of setup, college students and their families are at the mercy of the federal government and colleges everywhere. Student aid may cover more of the tuition, but if the aid wasn’t available, tuition might not have gone up in the first place.
College students are being played like pawns in a cruel monopoly game, and it’s just not fair.
Grey Gordon, an assistant professor at Indiana University says “You’ve got to somehow tie aid to lowered tuition if you want to give money to students. You have to somehow structure it so colleges can’t just increase tuition and capture that money.” That means some sort of regulation by an agency or governing body.
Other critics deny this train of thought. In fact, David Feldman, economics professor at the College of William & Mary and author of Why Does College Cost So Much? (Oxford University Press, 2010), says that increasing federal aid will rarely change how high a college sets its tuition. “A college’s sticker price is set by its wealthiest students’ ability to pay — and the wealthiest students never take out loans.”
But that doesn’t mean colleges never use federal aid to their advantage. Especially at private colleges, Feldman said, federal aid may replace existing scholarships. Take a student who would have gotten $20,000 from a college. If she gets an extra $1,000 in Pell Grants, she may get $19,000 from her college instead. The student pays the same, but the college pays less. At public universities, increases in Pell Grants typically lower net tuition. “It’s a very different system, Feldman said. “That’s the nuance that’s missing.”
For-profit institutions, on the other hand, are the one sector where student aid tuition increases are perhaps most evident.
In a study done at Harvard University, for-profit institutions that participate in the federal aid program charged tuition that was 78 percent higher than those that didn’t.
It’s a story that’s pounded into our heads all the time in the higher education arena–state support is down, and students are covering the difference. This idea is also backed up by research in that states investing more in higher education will see lower prices, said John Barnshaw, senior higher education researcher at the American Association of University Professors.
“As states increased their funding, the net price dropped,” Barnshaw said, “and it was a statistically significant drop.” According to Gray Gordon, “Even if appropriations have fallen, there are other sources of revenue that have offset that. Sports programs, hospitals, and endowments all play a part. Endowments is the big one.”
But we all need to be careful and know what to believe based on hard evidence and research, so that we can pinpoint the exact root causes and have a good starting point on how to fix the problems, whatever they are. Mudslinging and blaming back and forth will solve nothing. The irresponsibility of the federal government and how colleges and universities operate must all be addressed in tandem, and in the most positive manner possible.
A Growing Cost Disease
Now for a word on a touchy subject–faculty salaries. The idea that faculty salaries increase tuition is a popular one, and the reason is something called Baumol’s cost disease. In the 1960s, economist William Baumol said that certain sectors become more productive over time, which allows them to cut labor costs and lower prices. But sectors that don’t see productivity increases still end up increasing their salaries, which drives up the cost for consumers.
But according to researchers, Baumol’s hypothesis doesn’t hold up. In Gray Gordon’s model, costs were up but instead of raising college tuition, the response to the higher costs was to increase enrollment. “The cost is not a per-student cost,” Gordon said. “It has not become more costly to educate an additional student. It’s become more costly to educate all students in general.”
It’s hard not to blame rising faculty salaries. That may be the case with some colleges, but it’s more often the exception rather than the rule. In fact, colleges rely more and more on part-time faculty members who often work for low pay and no benefits. “I go to college campuses almost every week and look at their expenses, said Howard Bunsis, an accounting professor at Eastern Michigan University who does research for the AAUP. “It’s not student aid that’s getting a bigger share of the pie. In most places, it’s the administration.”
Even if you base all of this on real data, it still doesn’t represent any real institution. Researchers plan to expand their work in the future, but the way the current models exist to explain this growing issue, it’s simply too complex to explain away with a few theories, no matter how relevant. “We need to look at the incentives that different kinds of schools face and understand the process of tuition setting in order to have a good understanding of how those schools are likely to respond to small changes in federal grant and loan policies.” David Feldman says. It will just take some adjusting and pivoting over time. This problem didn’t just grow overnight.
What You Can Do to Fight It
While taking on the federal government and expressing your rage and anger might be a good idea at the time, it rarely resolves anything and mostly will have a detrimental effect on your personal stress levels. Here are some better alternatives to deal with the growing college tuition and student loan crisis:
Offering more online courses is a good place to start in reducing tuition cost. General education courses with a hundred or more students that have almost no student-teacher interaction could be just as effectively taught online. By converting at least 20 percent of classes to online courses we could collectively save more than $90 billion annually. This an approach can also free up expensive real estate on campus, improve productivity and significantly increase the size of the student population. With tens of thousands of additional students, tuition costs can be lowered. And they should be lowered.
Bring costs in line with revenue. For example, if a school costs $40,000 to attend, or $160,000 for a four-year degree, you can reduce that cost by 25 percent by reducing tuition to $30,000 per year and making the appropriate cuts to ensure that it doesn’t lead to bankruptcy; or provide a mechanism so that students only pay full tuition for three out of those four years. This would essentially put a cap on the tuition once it reaches a certain limit.
Many students are now starting off at an affordable two-year college, either getting an associate’s degree, and then transferring to a four-year university to get their bachelor’s degree, or they are just transferring the credits without getting the associate’s degree. This is known as the two-step college option, and it has shown to drastically cut your higher education expenses. Community colleges cost a fraction of what it costs to attend a four-year college. The myth of the “prestigious” college or university is a farce. It’s a ridiculous marketing label trap that students and families are now beginning to understand more. Don’t fall for it.
And if you want to learn the 6 Steps to Quickly Secure Scholarships for College (and Avoid Student Loan Debt,) click here to learn more about our free webinar training for families.
Make Some Noise
While there are many more methods that you can use to reduce college tuition personally, the elephant in the room (yes, this is a pun for Republicans) needs to be addressed. Parents and students need to make some real noise to get politicians to notice this horrible crisis and finally do something about it. As they say, “the squeaky wheel gets the oil.”
Now before I get into this, I just want to throw out that this is in no way endorsing any political party or candidate. 🙂 We are just trying to show an interesting alternative. No pitch forks please!
Mark Rubio says he does not think tax money should support the current higher education system. He also says that universities raise fees too often, and too quickly. “The higher ed cartel pushes skyrocketing tuition and degrees that don’t lead to jobs. Yesterday’s leaders want to raise taxes and dump more money into this broken system.”
Rubio’s plan proposes that students apply for Student Investment Plans. These plans would link students to private investors. In return for funding from investors, students would pay back part of their income to those investors for a set number of years. Unlike loans, students would not have to pay back the full amount that they borrow from private investors. However, they would still have to pay a percentage of their income for the amount of time that they agreed to.
Sounds pretty creative to me. This is not only beneficial to college students, but it also allows people with money to tap into the most brilliant and creative young minds out there, and motivate them to dive even further into their chosen fields of study and learn more. It allows investors to pair up with students that study subjects similar to the needs of the investor. Companies can then mentor and shape those young minds to be great thinkers and problem solvers outside of the academic setting.
Jocelyn challenged this by asking what would happen if a student changed their major or career field, certainly a li
kely situation. So as you can see, it isn’t fully-fledged out. But still, I like the idea!
In any event, take care of yourself and your sanity. This is not an easy problem to solve, and it all takes time and effort. Keep working on it, and keep on fighting the good fight. We need to stay cohesive and unified to fix this massive problem, and we’ll get there one way or another.
As always, keep leaping forward my friends!
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NJ Lechnir is the founder of Leapfrogging Success and author of the book Leapfrogging Success: 5 Simple Steps to Powerful Presentations and Public Speaking for Nerds, Techies, and Introverts. His mission is to mentor people on how to overcome extreme anxiety related to public speaking. As a concerned parent of students in high school and college, and always looking for ways to ease the financial burden of college tuition, he enjoys researching and contributing articles to The Scholarship System.