By Sigurd Neubauer
In a wide-raging interview, an unnamed tenured professor at an elite university in the United States provides a behind-the-scenes look into why tuition costs only keep going up. The off the record and not for attribution interview is divided into a three-parts series. Part I.
Whether you’re about to send your children off to college or even if you have a few more years to plan for such a monumental decision as to where they should go, the question on everyone’s mind is: why are costs for higher education in America only going up?
Over the past 40 years, college costs have increased by an astonishingly 169 percent, according to a 2021 report from Georgetown University titled, “If Not Now, When? The Urgent Need for an All-One-System Approach to Youth Policy.” In terms of actual costs for the academic year of 2021-22, College Board provides the following data:
- Public four-year in-state: $10,740, $170 higher than in 2020-21 (1.6 percent before adjusting for inflation).
- Public four-year out-of-state: $27,560, $410 higher than in 2020-21 (1.5 percent before adjusting for inflation).
- Private nonprofit four-year: $38,070, $800 higher than in 2020-21 (2.1 percent before adjusting for inflation).
The College Board report adds that for 2021-22, the “average estimated budgets (tuition and fees, room and board, and allowances for books and supplies, transportation and other personal expenses) for full-time undergraduate students range from $18,830 for public two-year in-district students and $27,330 for public four-year in-state students to $44,150 for public four-year out-of-state students and $55,800 for private nonprofit four-year students.”
For the same period, the most expensive private universities in the country are over $60,000 per year. But incidentals, such as for room and board and eating regularly at campus restaurants could bring the overall cost up much higher, the professor explains.
What are you paying for?
Higher education in America is no longer just about providing students with an education but rather about providing your son or daughter with what in popular culture is known as ‘the college experience,’” he adds.
In fact, one can even argue that the sharp incline in costs equates the college experience with moving into a five-star resort, the only difference is that your son or daughter will be living there for four years. An academic year is 180 days.
If one divides $60,000 – as the median for some of the most expensive private colleges and universities in America – by 180, the rate per day is $333,33.
By comparison, the average daily room rate in the United States for the week of July 4 of last year was $139.84, which is peak season, according to USA Today. Much of it, of course, has to do with pent up demand for vacation because of the COVID-19 pandemic and lockdown of 2020 in particular.
But back to education. While education is obviously the primary service any college or university provide its students, no institution can justify the ever-increasing costs for what is provided in the classroom alone, which is why the overall college experience is promoted – as opposed to just the education per se.
It is about students having a good time.
The enhancement of the college experience means in practice that colleges and universities will have to expand services provided to the student in order to justify the steadily increasing costs of tuition. This could mean acquiring new buildings for college life and activities as well as expanding sporting facilities, including by constructing new ones for teams sports.
These developments, no doubt, contribute to the enhancement of the college experience. At the same time, they are clear business decisions centering on the universities investing in their students with the strategic objective of forging life-long relationships with alumni who over time can donate money – or endow scholarships – to their alma mater.
Beyond tuition, universities rely on a steady stream of private donations in order to expand, the professor says.
Tuition, of course, is tied to the economy and the ability of families to afford it. When and if there is a downturn in the economy, the number of students looking to return to school tends to increase. On the other hand, families also struggle to pay high education costs when unemployment is up.
But American universities are also impacted by U.S. foreign policy, which became evident during the Trump administration when visa restrictions were imposed. This in turn led to a decrease in international students applying for admission at universities across America.
Even though universities are structured as non-for profits, in practice they are operated as medium-to-large scale businesses with significant operating expenses.
The pandemic has also impacted universities, especially given that they rely on location and facilities.
To use the resort metaphor, hotels make money on their rooms but an additional significant revenue stream is tied to incidentals. When students are studying online and from home during the pandemic, they are by definition not spending money at the college restaurants, attending college sporting events and so forth.
In this scenario, the universities are left having to manage in what some cases are significant real estate holdings but without the customers – the students – to shoulder their fixed costs.
During COVID, universities were clearly stuck with major liabilities and were losing money quickly when students carried out online learning.
The pandemic didn’t impact all of America’s universities equally.
Some of America’s leading universities such as Harvard, Yale, Stanford, Princeton, Massachusetts Institute of Technology, University of Pennsylvania and Columbia University, among others, have large endowments which enabled them to shield some of their operating costs during times of financial uncertainty. Their respective endowments also generate revenue.
The rich universities got richer. State schools, overall, were also able to benefit from the disruption brought by the pandemic to receive taxpayer bailouts.
The Ivy Leagues – Brown University, Columbia University, Cornell University, Dartmouth College, Harvard University, the University of Pennsylvania, Princeton University, and Yale University – play an important role in American culture: they all sell the American dream, if one can only be admitted, that your child can enter the top echelon of society and thereby improve his or her standing in life.
These universities are, of course, the most exclusive of their kind in America – let alone in the world – and are exceedingly difficult to enter. They not only provide a luxury service, in terms of educational prestige and standard of living while on campus, but the status and the potential ability to enter a closed network of wealthy and well-connected individuals only contribute to their allure.
This dream, whether realistic or not, is why the Ivy Leagues can charge what they do.