Why Is Education So Expensive?
EDUCATIONFEATURED
"The rising costs of higher education coupled with the stress of paying student loans are putting increasing pressure on students."
- Hank Johnson -
Apart from hospital care, college tuition has increased in price more than any other good or service over the last two decades. While generous financial aid means that students typically pay far less than the "sticker price" of tuition, the net price of public four-year colleges has more than doubled since the turn of the century. Furthermore, underlying costs at American colleges are the highest of any large country in the developed world. A new paper by Manhattan Institute economist Beth Akers asks why college tuition is so high and still rising.
The immediate causes of tuition inflation are well-known: administrative bloat, overbuilding of campus amenities, a model based on high-wage labor, and the widespread availability of subsidized student loans. The more fundamental question, however, is why the market has allowed these cost inefficiencies to persist. In most industries, competition drives down product prices over time. In today's dollars, the first laptop computer cost more than $5,000, but laptops with far more computing power can now be purchased for $200. Why hasn't the same thing happened in higher education? Akers investigates four possible explanations:
Students overestimate the return on investment of a degree.
Colleges are not transparent about their true prices.
There are too few institutions in each regional market.
There are significant barriers to entry for new educational providers.
Overestimation of Value:
The overestimation of the value of the standard 4 year degree is based on 2 main factors: Parents of children in college in recent years were more directly and proportionately benefited by their own degree, and were able to achieve higher paying jobs and certain milestones like home-ownership and having kids. They are likely to encourage their own offspring to follow a similar path, based on their own lived experiences. The second factor is that employers are essentially being “too picky” with their educational requirements. It could be argued that only a few degrees are worth paying top dollar for. The general perception that every degree is valuable increases students' willingness to pay for college and, as a result, raises college tuition. The perception that a college degree is the new "minimum requirement" for many entry-level jobs, where previously a high school diploma would have sufficed, adds weight to the societal expectation to obtain a degree. This cyclical reasoning becomes a self-fulfilling prophecy.
When discussing what education level jobs require, people frequently assume that employers make this decision in a reasoned, economical, and rational manner: surely they wouldn't ask for a bachelor's degree if a bachelor's degree wasn't actually required for the job! This assumption places far too much trust in employers. Take for example, this 2014 study by the labor market analysis firm Burning Glass. It discovered significant disparities in many occupations between the number of workers with a certain education level and the number of job listings for the occupation that require that education level.
Job postings requiring a Bachelor's degree outnumber actual workers with that degree by 26 percentage points in management positions and 21 percentage points for computer and mathematical specialists. Things get even more dramatic when you drill down into specific occupations: Only 19% of executive secretaries and assistants have a bachelor's degree, but 65% of job postings for those positions require one. Although only 25% of insurance agents have a college degree, they are required in 49% of job postings. This incredible disparity between an employer's advertised expectation and the reality of what the job requires leads to the general public's perception that a degree is required. College degrees are frequently used as a form of intra-class social signaling in today's labor market. Regardless of what you learn in college, graduating from a four-year institution may broadcast that you have discipline, drive, and perseverance. Many employers appear to believe that if you can't be bothered to get a degree in this day and age, you must be lazy, unreliable, or dumb. How uneducated of them.
Concealed Costs:
The issue is that the true cost of a college education is frequently concealed. While most students receive some form of financial aid, prospective students typically do not know how much aid they will receive until they are accepted to college. This makes it impossible to compare prices across a wide range of institutions. Because application fees are high and there is limited time to apply, students often limit their application queries to just a few universities. Lower-income students are particularly affected by application fees - everywhere from a few dollars to hundreds of dollars, and also the cost of time. Applying to a college often involves a lengthy application, as well as an expertly crafted essay, personalized to the college of your choice, elucidating on why that particular applicant is a valuable addition to the student body. A lower income student is more likely to have an after-school job, a lengthy commute, or have other barriers to the time needed to apply to multiple colleges. And while financial aid and grants are available to those in need, the same requirements are in place - most grants request some kind of detailed essay, complete with a touching personal story of overcoming adversity, in order to extend the much needed funds to the young applicant. Those in lower income spheres may also be under-educated regarding how many opportunities are available for financial aid. In addition, well-off young applicants can hire essay specialists and tutors to help them achieve higher levels on standardized tests, which are heavily weighted factor, as an institution evaluates its applicant pool. Lastly, colleges and universities are incredibly biased to favor legacy relationships, so a first generation college student can be at a disadvantage as well. Colleges have every incentive to be stingy with financial aid because they know students will have few options by the time they see what they will pay.
Few Options:
While there are thousands of accredited colleges across the country, the average student has far fewer options. Because of steep discounts for in-state applicants, familiarity with local schools, and a desire to save money by living at home, the majority of students attend a college in their home state. With fewer competitors, colleges face less competitive pressure to offer price cuts or improve educational quality. The lack of competition is one reason proponents of privatized education propose private colleges offer better education, but private colleges are often the most expensive option for a student. Many young people are unsure of their career path and want to get a good general education while determining their area of specialty. Major-switching is common, and can drag out the education process. The archaic and convoluted systems colleges’ and universities’ use to “transfer college credits” often does students an incredible disservice, by making it difficult or impossible to transfer certain credits - forcing a student who has switched universities to take basic courses again - adding to the cost.
Barrier to Entry:
All colleges must be accredited in order to receive federal funding, but the accreditation system is notoriously hostile to newcomers. Accreditors frequently evaluate schools based on factors such as curriculum and faculty, rather than whether they achieve better student outcomes at a lower cost. This system disadvantages schools with newer and cheaper but potentially more effective educational models.
Who is in charge of accrediting? For public schools, there are two types of accreditation. The first is administered by individual states, typically through an office within the state's Department of Education. The second is managed by one of six regional accreditation organizations, three of which are now managed by a company called AdvancED. Around 20 states conduct their own accreditation, and some of them make school participation voluntary. Other states require schools to seek regional or other external accreditation. Students who graduate from an unaccredited high school face a higher bar when applying to public colleges and universities in some states, such as California and Florida. Some critics argue that accrediting agencies are too soft and riddled with conflicts of interest. Richard Rothstein, Rebecca Jacobsen, and Tamara Wilder argue in an article adapted from their book on education accountability that regional accreditation agencies rely on membership fees from the very schools they evaluate. The authors also contend that assessment teams have an incentive to go soft because they are made up of teachers who know their school will be assessed at some point. Jacobsen, an assistant professor in the College of Education at Michigan State University, told Stateline that evaluators have told her, "We don't want to be too tough, because we know that will be coming back to us soon." What happens when a school or district is decertified? Again, it is conditional on the state. Districts that lose accreditation might be unable to issue diplomas the following year. They will also be ineligible for future state assistance until they submit an acceptable improvement plan. This impact can extend beyond the classroom. According to surveys, homebuyers consistently rank school quality high on the list of factors they consider when purchasing a home — losing accreditation will undoubtedly hurt a city's housing market. Furthermore, researchers at the Universities of Kentucky and Minnesota discovered a link between a district's performance on state assessments and its bond credit rating in a 2007 paper. While the findings do not explain why better test performance might result in higher bond ratings, they do suggest that districts that lose accreditation may find it more difficult to borrow for school improvements. All of this financial pressure creates an environment in which accreditation is used as a benchmark for a schools’ perceived quality and legitimacy, yet the accreditors themselves are essentially compromised by a system that does not encourage innovation or competition.
Indirect Costs:
In addition to the confusing costs of tuition and financial aid packages, indirect costs often shock students and their families. Costs such as books, laptop computers, transportation, and off-campus housing and meals can quickly add up. These so-called indirect costs — expenses not paid directly to the institution, such as rent for off-campus housing and payments for food outside of a meal plan — can account for half or more of the cost of attending some colleges, and may catch students from lower- and middle-income families off guard who aren't expecting them to be so high, according to a report from uAspire, a nonprofit group that promotes college affordability.
According to Laura Keane, chief policy officer at uAspire, even students who borrow the maximum amount of federal student loans face significant gaps in covering the true cost of attending college. "It causes significant stress for students," Ms. Keane said. According to her, the financial burden on students has been increasing over the last decade and will be exacerbated by the economic effects of the pandemic. After applying all federal student loans and grants to the cost of college, uAspire discovered that students face an average $12,000 shortfall, leaving them struggling to make ends meet. Schools use funds first to pay their own bills, and any money left over may be insufficient to cover other, ongoing expenses. As tuition costs rise, it becomes increasingly difficult for students to make up the difference by working.
Students are aware that they must purchase textbooks, but they are frequently surprised to learn that they must also purchase accompanying digital access codes, which allow them to submit homework assignments and tests online. One student told the uAspire researchers that costs for certain lab courses, requirements for equipment such as a lab coat and goggles, were not disclosed until after registration for the class was completed. Another student mentioned an unexpected $100 ticket to a Broadway play as part of a class. Even if students intend to live off campus and prepare their own meals, they may be invited to grab pizza or snacks after class as part of informal study sessions. This may cause them to overspend in order to avoid missing out on important academic and social connections. That may seem obvious, but students who are the first in their family to attend college may not be aware of all the costs involved.
A meal plan for an academic year typically costs between $3,000 and $5,500, with the most expensive plans costing upwards of $9,000, according to experts. Schools typically require residential students, particularly first-year students, to purchase a meal plan because kitchen space in dormitory common rooms is limited. Higher meal plans include benefits such as unlimited dining hall access, extra guest passes, and additional swipes to other food vendors on campus. However, if not properly budgeted, there is a risk of being left with extra meals or dollars at the end of the semester or year. Some meal plans carry over from the fall semester to the spring semester but not to the next academic year. Others do not roll over and are nonrefundable unless certain conditions are met, such as a leave of absence or withdrawal from the university. And this cost is typically financed with student loans, which of course have an interest rate. Most Americans buy groceries with cash, not credit, especially not with credit that takes between 10 and 30 years to repay.
While the cost varies slightly depending on the university, the average annual cost of living in a college dorm is usually between $8,000 and $15,000. That means a student will pay between $660 and $1,250 per month for housing, but this is not for a cute one or two bedroom apartment. A typical dorm room has two beds, and is 228 square feet on average. That's roughly the size of a single-car garage. Taking into account your roommate, this gives each of you 114 square feet to live in, which makes the relative cost of on-campus living particularly egregious.
If you are concerned about paying for necessities, contact your school's financial aid office and explain your situation. Schools may have emergency funds that they can distribute to students in need, or they may collaborate with local transit systems, for example, to assist with commuting costs. Colleges are becoming more aware that some students struggle to get enough nutrition, so some have set up campus food pantries or other forms of assistance. For example, the University of Houston-Downtown partnered with the Houston Food Bank to open a campus food market where students can receive up to 120 pounds of free groceries each month. The cost of textbooks and other course materials has long been a source of concern. Schools are increasingly providing "open source" digital books at no cost to students, so inquire about availability on your campus.
