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The Primary Problem with Higher Education, in Four Words: It Costs Too Much

April 28th, 2014 by dfarish

On Monday, April 14, 2014, the Lumina Foundation convened a group of opinion leaders in Washington, D.C., to discuss college affordability, federal student loan policies and the role of states in supporting public colleges and universities (The Chronicle of Higher Education, “Paying for College: Experts Gather in Search of New Models,” April 15, 2014).

Unfortunately, the experts came up empty.

One commentator noted that “affordable” does not necessarily mean “cheap.” Another touted the merits of a net-price calculator designed to show the number of years after graduation at which “the benefits of college outweigh the cumulative costs.” A third suggested that greater numbers of women and minorities should choose more lucrative majors.

I hope the Lumina Foundation did not overly deplete its endowment to pay for these platitudes and in-the-box thinking.

An online commentator on the Chronicle article had it exactly right: “The real issue is the raw cost of a higher education, not ‘affordability’.”

In order to do something useful, let’s spend a little time reconciling two quite different reports: “How America Saves for College 2014,” (SallieMae); and “The Ongoing Inflation of the Higher Education Bubble,” Townhall.com, April 6, 2014.

The SallieMae report is full of interesting (but mostly depressing) statistics:

  • Just 51 percent of families with children under the age of 18 are saving for college, down from 62 percent in 2009.
  • On average, families are devoting a mere 10 percent of their savings for college.
  • The average family savings for college is only $15,346.
  • The primary reason for not saving is that families say they don’t have the money.
  • Over 40 percent of parents have a plan for college – but not all planners have actually saved anything (and not all those with college savings have a plan).
  • Parents with a plan expect to pay for 40 percent of college costs through their savings and income; parents without a plan expect to pay for just 23 percent through their savings and income.
  • Parents with a plan expect about 26 percent of college costs will be covered by grants and scholarships; parents without a plan expect that grants and scholarships will cover about 36 percent of college costs.
  • 73 percent of high-income families are saving for college, but only 34 percent of low-income families are doing so – and the average amount saved for college by low-income families is just $3,762.
  • Savings goals are based more on what families say they can afford than on how much they think college will cost.
  • Large numbers of parents report being “anxious,” “annoyed,” “overwhelmed,” and “frustrated” about saving for college, and these reactions are particularly strong among non-savers.
  • High-income non-savers are four times more likely to say that their child is responsible for paying for college than are low-income non-savers.

The Townhall.com posting includes two fascinating graphs. The first graph shows average tuition and required fees for all four-year colleges and universities from 1969 through 2012. Tuition and fees averaged just $754 per year in 1969 and $13,608 in 2012. (When adjusted for inflation, the $754 figure would have been $4,619 in 2012 – a great deal less than the actual figure of $13,608.)

The second graph is devastating. It shows the ratio of average tuition and fees to median household income over the same 43-year time period. In the 14 years from 1969 through 1983, the proportion of the median household income needed to pay for tuition and fees rose slowly from 8.6 to 10.2 percent. It rose more than 4 percent (to 15.2 percent) in just four years, between 1990 and 1993, and reached 20 percent by 2004. By 2012, the proportion of the median household income needed to pay for tuition and required fees was 26.7 percent – three times as much as in 1969. (This last jump was attributable, in large part, to the fact that median household income did not increase between 2006 and 2010, whereas tuition and fees continued to grow.)

It would not require a crystal ball to predict that more and more families, faced with little income growth on the one hand, and the need to devote a backbreakingly large fraction of household income to pay for just tuition and fees (remember, room and board would be extra), might well decide to abandon completely the idea of saving for college. Even the families that have saved find, with an average savings of just over $15,000, they can pay for only one year of tuition and fees.

No wonder families feel “anxious, annoyed, overwhelmed and frustrated!”

No wonder student debt (to say nothing of parental debt) has shot up like a Roman candle!

So if fewer families are saving for college, and fewer families appear able to afford college, shouldn’t we see a drop in college attendance numbers? Glad you asked. Just two days ago, on April 26, The New York Times published an article with the telling title, “Fewer U.S. Graduates Opt for College After High School.” Last fall, only 65.9 percent of high school graduates from spring 2013 enrolled in college, continuing a four-year downward trend from the historic high of 70.1 percent in 2009. It is safe to assume that much of this decline is due to the belief by an increasing number of families that college is just not affordable.

The overall picture is even more dispiriting. Nationally, the number of high school graduates has been declining since 2011. Now we see that over the past four years the percentage of these high school graduates enrolling in college has also been in decline. No wonder so many colleges are falling well short of their enrollment targets! No wonder economists are expressing such concern about the negative impact on our economy that will result from a shortage of college-educated adults!

So if government won’t pay for very much of the cost of a college education, and if parents can’t pay for it, the problem is left squarely in the laps of the colleges and universities. There is no alternative: the primary task American colleges and universities face today is controlling their costs.

How should this task be addressed? College and university presidents must start by committing to limiting tuition and fee increases to no more than inflation – but that is only the first step. We must also develop other revenue streams to subsidize the costs of residential college education, if we want to see this well-honed, time-honored and truly excellent model of American higher education survive at more than a handful of very affluent campuses that cater largely to the wealthiest stratum of our society.

There is no avoiding it – college and university presidents must work assiduously to reduce both their sticker prices and their net prices. America’s continued success as the world’s leading economic engine depends on it. It may not be fair; it may not be right; but presidents of higher education institutions must accept this responsibility. No one else can, or will.