Leading Progressives Blame the Wrong Culprit for Rising College Costs
By James D. Agresti
June 20, 2019
Elizabeth Warren, Bernie Sanders, and certain media outlets are blaming steep rises in college costs on reduced government funding for higher education. The reality is that inflation-adjusted government spending per college student has risen by about three times since the 1960s and is now at an all-time high. In spite of this, college graduation rates, academic time investment, and the learning of practical skills are all suffering.
The True Costs of College
Over the past several decades, college tuitions have ballooned, negatively impacting parents, students, and recent grads who are struggling to pay back student loans. The inflation-adjusted average sticker price for public college has doubled since 1980. For private colleges, it has nearly tripled:
Many students pay less for college than published sticker prices because of discounts, scholarships, and financial aid. Thus, David Leonhardt of the New York Times argues that sticker prices exaggerate the cost of college. However, the truth is that society pays for all of these costs and more. Whatever students and parents don’t pay, taxpayers and donors do.
In fact, the full costs of colleges far exceed their sticker prices. The average annual sticker price at 4-year public colleges is $20,050 for in-state students and $25,657 for out-of-state students. In contrast, the average spending per student at these colleges is now $44,965 per year—roughly twice their sticker prices.
For in-state students at 2-year public colleges, the difference is much larger. Their average annual sticker price is $3,243, while the average spending per student is $16,512—five times their sticker price.
The difference declines considerably at 4-year private non-profit colleges, but the costs to society still surpass consumer prices. Their average sticker price is $43,139 per year, while the average spending per student is $58,794—36% higher than the sticker price.
The soaring costs of college are also evidenced by the fact that outstanding student loan debt is now larger than any other type of consumer debt except for mortgages. Furthermore, the 90-day delinquency rate for student loans surpassed that of credit cards for the first time, and it is now 47% higher than any other major type of loan.
Taxpayer Funding of Higher Education
The burden of paying for higher education is becoming a major campaign issue, and Democrat contenders like Elizabeth Warren and Bernie Sanders are blaming the situation on reduced government funding. Media outlets like the Washington Post and the Associated Press are telling the same story. In the words of the AP, “Year after year, colleges say they have to raise tuition to offset state funding cuts. Students have shouldered the cost by taking out loans, pushing the country’s student debt to nearly $1.6 trillion this year.”
Like the AP—Warren, Sanders, and the Post focus on state funding, which declined after the Great Recession. However, they fail to mention that federal funding rose by more than state funding declined. Looking at the big picture, data from the U.S. Bureau of Economic Analysis shows that inflation-adjusted government spending per college student has risen by nearly three times over the past century and is currently greater than it has ever been:
In 1959, the earliest year of available data, taxpayers contributed $3,550 per student. This climbed to $10,182 per student in 2017, the latest year of data. These figures reflect the inflation-adjusted averages for all higher education students, not just those who receive the money.
Also, the portion of recent high school graduates (aged 16–24) enrolled in college rose from 45% in 1960 to 67% in 2017. Hence, taxpayers are not only paying more per student—they are also paying for more students.
Large portions of these students are not graduating, especially those who attend highly subsidized schools like community colleges. This lessens the societal benefits of investing in education. Among full-time, new college students who entered a 2-year public college in 2014, 25% graduated from the same institution within 150% of the normal time required to do so.
Perhaps most importantly, even among graduates of 4-year colleges, many are not learning practical skills that increase their productivity, which is the main driver of living standards. In 2014, Professor Richard Arum of New York University and Assistant Professor Josipa Roksa of the University of Virginia published a study using the Collegiate Learning Assessment to measure the “critical thinking, complex reasoning, and writing skills” of 1,666 full-time students who entered 4-year colleges in the fall of 2005 and graduated in the spring of 2009. The authors found that if the test “were rescaled to a one-hundred-point scale, approximately one-third of students would not improve more than one point over four years of college.”
Cost Drivers and Outcomes
Contrary to the Democrat/media narrative, students and parents aren’t paying more for college because government funding has declined. They are paying more because colleges have become more costly.
Along with these cost increases, academic time investment by full-time college students has fallen. During the school year, they are now spending about 50% more time on leisure activities and sports than on academics. As reported in a 2011 paper in the Review of Economics and Statistics:
Full-time students allocated 40 hours per week toward class and studying in 1961, whereas by 2003, they were investing about 27 hours per week. Declines were extremely broad based and are not easily accounted for by framing effects, work or major choices, or compositional changes in students or schools. We conclude that there have been substantial changes over time in the quantity or manner of human capital production on college campuses.
Notably, these institutions have become dominated by Democrats and progressives. A paper published in 2018 by the journal Academic Questions found that among 8,688 full-time, Ph.D.-holding professors at 51 of the 66 top-ranked liberal arts colleges, the ratio of registered Democrats to registered Republicans is 10.4 to 1. Among the college academic departments examined, 78% had “either zero Republicans, or so few as to make no difference.”
Determining the root causes of increasing college costs can be difficult because association does not prove causation. Beyond the actions of people who manage higher education, other variables are almost certainly at play.
One of these factors may be increased government spending on colleges, which creates a cost disconnect with consumers. Normally, people will not buy products or services unless they receive adequate value for their money. However, when taxpayers pick up part or all of the tab, this can create an effective monopoly because the costs don’t fall directly on consumers. Per the academic textbook Antitrust Law:
Monopoly pricing confronts the consumer with false alternatives: the product that he chooses because it seems cheaper actually requires more of society’s scarce resources to produce. Under monopoly, consumer demands are satisfied at a higher cost than necessary.
Along similar lines, Deborah J. Lucas, director of the MIT Center for Finance and Policy and former chief economist of the Congressional Budget Office explains that:
some observers point to the easy and low-cost access to federal student loans as fueling the steep rise in the cost of higher education in the last decade. Easier access to credit markets is not always advantageous to program participants. Unsophisticated borrowers, such as some college students and first-time homebuyers, may not be fully aware of the costs and risks associated with accumulating high debt loans.
Whatever the ultimate causes may be, the facts are clear that students, parents, and taxpayers have paid increasingly more for higher education, with dubious results. Yet, Elizabeth Warren, Bernie Sanders, and various media outlets are misleading the public about these issues while calling for taxpayers to provide even more money.
Here’s a shortened version of your article: “It’s the student loans, stupid.”
I have always said that if the government capped your ability to borrow for college at $10,000, then a four year education at any public college or university would cost $10,000. But, this seemingly endless supply of cash with no upper limit has turned universities and colleges into greedy bottomless pits. They can charge ANYTHING because students will borrow whatever they must. The universities are creating the college loan crisis themselves.
“Here’s a shortened version of your article: “It’s the student loans, stupid.”
Was one to the point rebuttal to the article or maybe support comment would be better as it supported pointing out that Warren and Sanders are not the only ones that make up unsupported positions out of thin air and I would add neither are Waters, Harris, but none are more ill starred than the two at opposite ends of this ill fated than the one at the top and the one ot the two at the bottom.
Biden has his chance and wishy washed his way out even though he had impeccable credentials as a second rate, second position also ran who did nothing to prepare for the possibility of becoming and Supreme Court sanctioned President. His sole contriubtion of any note was setting his son up with some Chinese money men and assuring the family fortune.
Even so the all but empty barren cupboard has brought forward no one else except the dregs and dredgings of the bottom betom-ed out O’Rourke who has even less training, education and experince than the then and now Biden.
Beto however will meet his just future as a third rate wanna be.
Beto has nowhere to go but out and come to think of it so does Biden when Clinton decides it’s her turn again and what day for cheering that will be. Beo rounds third base slides past fourth and hasn’t a clue in all the dust where Is Home Plate. Biden gets ref called to third place as he’s reminded it’s still Clinton’s turn and besides Hillary needs the legal protection of the Oval Office. And the rest of the Fab 40 collide into a single slide pileup reminiscent of Bob Dylan’s comment after trashing his hotel room in London.
And the aftermath is the media trying to damesplain how they could get things SO wrong.
Back on subject. The guys at 18 are still stuck with paying off the high priced loans while the chicks engineered a pay off. Remember they vounteered and unlike the guys were not forced into it by the DNC sponsored draft laws.
SSS.gov read it and weep but it also holds part one of a way out. Do the time and earn a paid for GI Bill which can be used to retire that college loan debt.
Loved your comment. You should do a weekly or daily column for some news outlet if you don’t already. Of course it would probably have to be a Alt News publisher.
None of the comments are based on any research other than the kind focused on bean counting financials and time spent on x theories studies that are all about economics and “grades” with no operational, educational science, or business impacts really taken into consideration. The problem lies squarely on 18th century style “outcomes” based education instead of “capabilities” based education grounded in actual and current knowledge, skills, and ABILITIES required to be a functional adult. The vast majority of the people talking about the problem, especially the politicians, could not begin explain the difference between the two approaches. This is the root cause of the problem. Just like in US Medicine we have an approach that guarantees wasting money due to the 18th century approach of a fees based system. Colleges should be flat fees propositions with the students having to emerge with clearly defined capabilities to do real work, not meaningless grades. How is it that you have flat fees in most of the technology fields and get a guaranteed product or service as a result but not in law, medicine or academia. The answer is that they are run like 18th century guilds and not modern enterprises. It should be go and no go with a NO go for anything less than total competence and if the student needs to repeat the assignment fifty times, then they will work 100 hours to do it on their OWN time and their OWN dime. The students who master the tasks get a go and a degree, the ones that don’t must leave after three chances to get a go under a capabilities based system. Additionally, colleges need to be prohibited from having overhead costs that exceed 18% of the actual cost of the materials, infrastructure, and the actual professor that teaches the course. No pay for professors who are directly involved and responsible for the students performance. I have been in the corporate world, military and government FOR YEARS in each case and I am now in academia so I know what I am talking about. Nothing wrong with public institutions. I successfully completed all other careers and now am on my fourth. The problem is that there is hard and irrational resistance to implementing the changes need to come into the 21st century and this problem exists throughout our society, not just academia.
I meant to say, no pay for professors who do not transform their classes to get results through transition ot a capabilities, based system.
High Costs due to excessive salaries paid to too many worthless professors, who are being paid as if they are profoundly effective during their two to three hour workdays.
Funny thing there about that $3,550 per student taxpayer contribution in 1959, just to keep up with inflation it needed to be $29,902.96 in 2017 instead of $10,182.
Then again, it’s not like anyone who is sane and honest doesn’t know that Conservatives hate relativity – we knew that since the original Privatizers ranted and raved against Relativity in the early 1930’s.
P.S. https://hechingerreport.org/bureaucratic-costs-colleges-twice-whats-spent-instruction/
Wrong. As the article states, the figure of $3,550 is already adjusted for inflation. For reference, the nominal figure is $412.
Two economists released a study on this topic just last month. Here’s a rundown from The Economist:
“In “Why are the prices so damn high?” Eric Helland of Claremont McKenna College and Alex Tabarrok of George Mason University write that quality has improved far too little to account for [the rising price of U.S. college]. Administrative bloat is not the answer either. In America the share of all education spending that goes on administration has been roughly steady for decades. Health-care spending has risen faster than GDP in rich countries, despite vast differences in the structure of their health-care systems.
The real culprit, the authors write, is a steady increase in the cost of labour—of teachers and doctors. That in turn reflects the relentless logic of Baumol’s cost disease, named after the late William Baumol, who first described the phenomenon. Productivity grows at different rates in different sectors. It takes far fewer people to make a car than it used to—where thousands of workers once filled plants, highly paid engineers now oversee factories full of robots—but roughly the same number of teachers to instruct a schoolful of children.
Economists reckon that workers’ wages should vary with their productivity. But real pay has grown in high- and low-productivity industries alike. That, Baumol pointed out, is because teachers and engineers compete in the same labour market. As salaries for automotive engineers rise, more students study engineering and fewer become teachers, unless teachers’ pay also goes up.
The cost of education has thus risen because of the rising pay needed to fill teaching posts. Other factors matter too, and can explain, for instance, why Americans pay more than Europeans for health care and higher education. But across countries, none is as important as the toll exacted by cost disease.
Baumol’s earliest work on the subject, written with William Bowen, was published in 1965. Analyses like that of Messrs Helland and Tabarrok nonetheless feel novel, because the implications of cost disease remain so underappreciated in policy circles.
For instance, the steadily rising expense of education and health care is almost universally deplored as an economic scourge, despite being caused by something indubitably good: rapid, if unevenly spread, productivity growth. Higher prices, if driven by cost disease, need not mean reduced affordability, since they reflect greater productive capacity elsewhere in the economy.
The authors use an analogy: as a person’s salary increases, the cost of doing things other than work—like gardening, for example—rises, since each hour off the job means more forgone income. But that does not mean that time spent gardening has become less affordable.”
• Mercatus paper: https://www.mercatus.org/system/files/helland-tabarrok_why-are-the-prices-so-damn-high_v1.pdf
• Economist article: https://www.economist.com/finance-and-economics/2019/06/20/the-rising-cost-of-education-and-health-care-is-less-troubling-than-believed
There’s just one major problem with Baumol’s theory…it’s been disproven over and over again including in the recent National Bureau of Economic Research article titled Accounting for the Rise in College Tuition.
Just from the abstract of the piece alone:
““We develop a quantitative model of higher education to test explanations for the steep rise in college tuition between nineteen eighty-seven and twenty ten. The framework extends the quality-maximizing college paradigm of Epple, Romano, Sarpca, and Sieg and embeds it in an incomplete markets, life-cycle environment. We measure how much changes in underlying costs, reforms to the Federal Student Loan Program (FSLP), and changes in the college earnings premium have caused tuition to increase. All these changes combined generate a one-hundred and six percent rise in net tuition between nineteen eighty-seven and twenty ten, which more than accounts for the seventy-eight percent increase seen in the data. Changes in the FSLP alone generate a one-hundred and two percent tuition increase, and changes in the college premium generate a twenty-four percent increase. Our findings cast doubt on Baumol’s cost disease as a driver of higher tuition.””
The subsidy rule: when you subsidize a perceived problem, you get more of the problem and the cost goes up in direct proportion to the size of the subsidy.
The truth of the matter is most of the knowledge gained (if any) from college courses is forgotten within months of graduation – even in one’s major. With very few exceptions a college degree does provide a student with the knowledge required in a real-world job. The real learning for a career occurs on the job. A degree may indicate aptitude, but not success in a career. I received two BA degrees and an MS in Math, Econ, and Business from a California University, but was really hired for my first job because I had worked as a computer programmer in school. I could have just gone to a trade school. My programming skills at the time were rudimentary at best, but I learned fast about how to solve real-world problems and work in a team environment. After casual observation I’m convinced that my story is quite common, students aren’t hired for what they know but for what they are able to learn. So the real question is, is today’s college education a benefit for society of just a personal life-experience benefit for the student? Four years of college life was great for my social life, but should society have subsidized that?
Cutting the availability of loans will definitely bring down the cost of college, as the colleges can’t charge more than the students are able to pay and sustain the model for very long. Unfortunately, several years (if not decades) worth of students will get caught in the immediate cross-fire and be unable to afford college without the loans. Perhaps the best way to attack this is to just freeze all federal loan limits going forward for the foreseeable future.
Colleges now offer too many degrees, many based on what faculty want to teach. Reducing the number of programs offered and the number of support services would enable reduction in prices. If faculty unions did not exist, that would also reduce costs. I think that unions have outlived their usefulness and are mostly corrupt.