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The Long Con: Pricier Colleges Provide Better Education

By College Planning FOXBusiness

If you are in your 50s or 60s, you probably recall what it cost for you to get a college education. Among those living in my middle class town on Long Island, college was a privilege and not a “right” or “requirement.”  A lot of kids who were in my high school graduating class thought they were lucky to get into community college- and that’s as far as they went.  Many were happy to be accepted into one of the New York state colleges where the tuition was hundreds of dollars a semester- significantly more affordable than a private school.  Most of us worked over the summer or during school to help our parents pay for the cost. 

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The difference is that, unlike today, back in the 70’s and early 80’s four years of undergraduate school- even at a private institution- did not equate to a third or more  of the average family’s total income.  Parents did not have to re-finance the family home in order to suck out all of the built-up equity so they could make a deposit on a child’s college education.

Average Annual Tuition (does not include room & board or fees) (1)

  Public College Private College
1970 $358 $1,561
Today $9,139 $31,231

What happened?

It Started at the Ivies

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Dr. Robert Iosue is co-author of the just-published College Tuition: Four Decades of Financial Deception. He says that “around 1974, William Bower, an economist and president of Princeton University, figured out that Princeton’s name had cache value.  This meant people would pay extra.”

Iosue refers to this as the “Chevas Regal Effect.”  In other words, “the label [itself] is worth money even if the product is good, but about the same as everywhere else.”

Iosue, who refers to Harvard, Princeton, Dartmouth, Yale, et al as a “cartel,” maintains that “what one Ivy league school does, the others do.  Then, all of the wannabes picked up on it.” 

All it took was for a critical mass of the public to buy into the argument that “more expensive” meant “better education,” and the race was on.  Of course, no one put it in these terms.

Up, Up and Away

According to Iosue and co-author Dr. Frank Mussano, every year “from 1974 to the present, tuition across the country has [grown] at twice the rate of inflation.”  Over the years, a worried Congress has held hearings: How could America remain competitive with the rest of the world if our young people could not afford a proper college education?  “Presidents of colleges blamed [the increased cost on] everything but reducing the teaching load- including the higher cost of heating oil,” says Iosue, who also testified as some hearings.

In fact, the actual number of hours professors spent teaching in the classroom dropped from 15 hours/week in the 1960s to 12 hours/week in the mid-1970s to 9 hours/week the next decade.  But apparently they still felt over-worked.  After all, there was research to conduct, papers to get published (in order to receive that much-cherished tenure), faculty committee meetings to attend, etc.

“In the 1980’s,” says Iosue, “faculty decided they should teach less than 12 hours of credits.  Many schools [dropped this] to 9 or 6.” 

It’s Econ 101

Any freshman economics student can tell you that if you reduce productivity – the number of classes a professor teaches- then the cost per widget (or student has) to go up. 

Additional faculty has to be hired to cover the same number of classes. Alternatively, class size increases dramatically.  Today, students attending certain classes at the University of Pennsylvania’s Pittsburgh campus never see their professor.  Instead, they are instructed by teaching assistants- essentially graduate students- some of whom can barely speak English!   Classes are so large students are packed into overflow classrooms where they huddle around a television screen to watch the lecture taking place across the hall.  Especially at large schools, it’s rare that an undergraduate student can drop by their professor’s office so they can ask a follow-up question or engage in discussion. She or he is likely too busy doing “research.”

Ironically, at the same time their classroom duties were shrinking, professors’ salaries began a steady increase.

The Great Administrative Expansion

“As colleges reduced the teaching load of faculty in the late ‘80s, schools started packing in non-teaching staff,” explains Iosue.  Some of this is understandable, such as the need for increased campus security or a sophisticated technology team that can handle both the computing needs of students as well as the school itself.  However, even accounting for such necessities, he characterizes the overall increase in pure administrative staff as “staggering.” 

“The University of Minnesota has one non-teaching staff member for every 3.5 students.” From 1980 to 1993, the number of students attending the University of Pennsylvania went up by 29 students.  “Over the same 13-year period, they added 1,820 administrators and other non-teaching staff!”

The Government Aids and Abets

In typical fashion, the government reacted to the sky-rocketing cost of a college education by throwing money at the problem, primarily through the expansion of student loans.  Unfortunately, that’s like responding to your teenager’s desire for   fancy designer labels by increasing her weekly allowance so she can indulge in them.    

The result was predictable:  colleges continued to increase tuition because, well, thanks to the government and Sallie Mae, theycould!   After all, students had access to loans enabling them to afford higher tuition. 

And the best part of all is that colleges have absolutely no obligation when it comes to paying that money back.

In Mussano’s view, this represents “a deep, deep conflict of interest.”

He points out that, legally, an 18-year old is considered an “adult” and can therefore sign contracts.  “A financial aid officer will say, ‘We can get you a government-subsidized loan.  You don’t have to pay anything until you graduate and then it will be at an interest rate of 6%.’”  But how much does a fresh high school graduate really understand about the implications? 

Not much, according to a new study by the Brookings Institution, which found that

…about half of all first-year students in the U.S. seriously underestimate how much student debt they have, and less than one-third provide an accurate estimate within a reasonable margin of error… [A]mong students with federal loans, 28% reported having no federal debt and 14% said they didn’t have any student debt at all. 

The conclusion of researchers:  “Students who do not have a good idea of their level of borrowing may make expensive mistakes that they will later come to regret. They are also likely to be surprised or even fearful when their first loan payments come due…”  (2)

“When the kid leaves college, he is the one who has to pay that loan back. The college has already gotten its money.  It never had any responsibility.” 

“It’s no different than the housing boom,” he says.  “Banks made it sooo easy to get the loan that the price of a $300,000 house jumped to $450,000  [simply] because someone could go to the bank and get a loan [for that much].  Until the bubble burst.”

In the meantime, in 2009 the amount college graduates owe in student loan debt surpassed the total amount all Americans owe on their credit cards and now exceeds one trillion dollars

Defaults are a growing concern.  Part of the problem is that a B.A. isn’t worth what it once was.

“Since 2005, the average student loan has grown by 35%, while median salaries [for those with B.A. degrees] have fallen 2.2%,”  according to Mussano.  He cites a study  by the Economic Policy Institute which found that in 2011 the average salary earned  by someone with a BA degree dropped from $22/hour to $20/hour.  Or, as he puts it, “In 1980,  1% of all taxi drivers in this country had a BA.  Now it’s 15%.”

Reaching for Ratings

The media has also played a role in the rising cost of attending college. You know those “Best Colleges in America” surveys that come out every year?  Guess what a key factor is- the cost of attending!  Again, it’s assumed that the higher the cost, the better the education one receives. 

Mussano, who was a dean at York College of Pennsylvania for almost 40 years, says “The highest-priced colleges get the headlines… A number of consultants told me if we increased the tuition, our enrollment would go up because the public perception would be that the education was better.” 

“Parents would be asking ‘How can you be so much lower? You can’t be a very good college,’” says Iosue, who was a math professor and president of York College for 25 years. “I told them, ‘You should be asking why those other colleges are so expensive!”’

For the 15 years that their careers at York College overlapped, the two men made sure that the price to attend the school would not increase faster than the cost-of-living index.  Eventually the media got wind of this and began asking how they were able to accomplish this.  In fact, despite holding the lid on tuition and fees, Mussano proudly points out that “SAT scores improved, enrollment went up, standards improved and so did the stature of the college.”

The Day of Collegiate Comeuppance?

Mussano and Iosue have looked at the demographic trends and concluded the future does not bode well for bloated, over-priced institutions of higher education.  For one thing, the U.S. birth rate is declining.  According to Mussano, in 2020 there will be fewer high school graduates than this country saw in 2011.  This means that in the decades ahead, colleges will be competing for a smaller number of potential students.

As a result, if they want to stay in business, colleges will have to become more competitive in order to attract students.  Reducing the cost of attending is one obvious answer.

Let’s hope they learn this lesson before it’s too late.

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