One trillion dollars. No, that is not the cost of four years at an Ivy League college, though it may be pretty soon. Rather, it is the total amount of student debt outstanding. It has become a big deal in the last few weeks because, well, one trillion dollars is a lot of money, as well as being sort of a milestone or marker. Also, when Congress cut the interest rate on student loans temporarily back in 2007, they had to put an end date on the temporary cut. 2012 is it. If Congress doesn’t do something, the rate will go back up to 6.8% shortly.
Back in November I wrote two posts on “The High Cost of College Tuition”. In one of the posts, I talked about the dramatic increase in college tuition over the last forty years, an increase that was way more than the increase in the Consumer Price Index. In the other I talked about the fact that other costs have gone up more quickly than the CPI, too. For example, medical costs. But at least with medical costs, the quality of medical care has gone up, too. I don’t think one can say that for college education.
One of the concerns about the amount of student debt we have is the effect it could be having on the economy:
“Graduates lugging huge debt loads with few job opportunities to pay them off are reluctant to buy cars, purchase homes, or start families. Family formations, a key bulwark to home prices, have been in a seemingly inexplicable funk over the past five years or so.”
In November I left the question of what we can do about the cost of college tuition (and, tied in with it, student deft) to this post. How can we make college more affordable? The traditional answer, at least from politicians, has been to increase student loans and grants. But the problem has been, when more loans or grants become available, tuition seems to go up, too. Many colleges are already taking all of the money that students (and their parents) are willing to spend on college (plus a little, in some cases). If students (and their parents) have more money available to spend on college tuition (because, for example, more federal loans are available or there are higher Pell grants), at least some colleges will increase tuition to get that money, too.*
This is why I was pleased to hear President Obama say this in his State of the Union address:
“Of course, it's not enough for us to increase student aid. We can't just keep subsidizing skyrocketing tuition; we'll run out of money. … [C]olleges and universities have to do their part by working to keep costs down. … [L]et me put colleges and universities on notice: If you can't stop tuition from going up, the funding you get from taxpayers will go down.”
The President said a little bit more in a speech he gave at the University of Michigan on January 27, 2012:
“But it’s not just enough to increase student aid, and you can imagine why. Look, we can’t just keep on subsidizing skyrocketing tuition. If tuition is going up faster than inflation, faster than even health care is going up, no matter how much we subsidize it, sooner or later, we’re going to run out of money. And that means that others have to do their part. Colleges and universities need to do their part to keep costs down as well.
Recently, I spoke with a group of college presidents who’ve done just that. Here at Michigan, you’ve done a lot to find savings in your budget. We know this is possible. So from now on, I’m telling Congress we should steer federal campus-based aid to those colleges that keep tuition affordable, provide good value, and serve their students well. We are putting colleges on notice – you can’t keep – you can't assume that you’ll just jack up tuition every single year. If you can’t stop tuition from going up, then the funding you get from taxpayers each year will go down.”
Obviously, the President’s comments were pretty general. The key will be what the Administration does to follow up on them, but it was good to at least hear him say this much.
After the President’s speech, college spokespeople were defensive. At Northern Illinois University, officials claimed that they had been working hard to find financial aid for students and that “you have to be able to pay for the education that you’re delivering. You do pay for quality.” Christopher Kennedy, chairman of the Board of Trustees of the University of Illinois, said: “For a big research institution, we need to concentrate on affordability and greatness.”**
Others, including President Obama, have complained that tuition at public universities is going up because states have been cutting back on spending for state schools. That is true in many cases. But it really doesn’t address the underlying problem, which is that public colleges, like all colleges, do a lousy job of keeping their costs under control.
This also ties in with the student debt problem. Making more loans available for students going to college really doesn’t make college more affordable. It just increases debt students will have when they graduate from college.
And in its own way, increased state funding for public colleges doesn’t really solve the problem, either. College is still too expensive. It’s just being paid for by the public instead of the students. At a time of growing demands on public funding for all kinds of things, I have to wonder if spending more money on colleges is really the answer.
The real question is not who pays college tuition. The real question is does college need to be as expensive as it is. All kinds of products and services are getting relatively less expensive, either because they cost less or because the quality is up – or both. Colleges are neither. They cost more and it is hard to see the quality being better. Except maybe in one way.
The physical facilities are nicer. Housing is nicer. Food services are nicer. There are health clubs. It is almost as if colleges are competing on the fanciness of their facilities instead of the value of the education they provide.
The problem is that there is no (more accurately, not enough) pressure trying to keep tuition down. And that ultimately is what we need to do, keep college tuition down. Now, here comes the hard part: To keep tuition down, you have keep costs down. But keeping costs down can’t just mean keeping costs from increasing as quickly To keep tuition down, i.e., to make college affordable, you have to actually cut costs. Costs have to go down.
There are plenty of good ideas about how to cut costs. One is to get professors teach more – and research less, at least on students’ money. If research by college professors is that important, maybe the state (or federal) government ought to pay for it directly, instead of making students pay for it.
Administrative spending is a prime area for cost cutting. Some reports indicate that administrative spending in colleges and universities has gone up even faster than tuition, which is pretty amazing considering how fast tuition has gone up. According to one report, from 1993 to 2007 administrative costs per student went up 61% in real (i.e., inflation-adjusted) terms.*** Another report noted that, in the California State University system, from 1975 to 2008, the number of teaching faculty went up 3%, while the number of administrators went up 221%. The California State University System now has more administrators than teachers.
Here is another idea: Companies that provide prep courses for college entrance exams or grad school exams have all kinds of different options. Different courses (more intense or less intense). Different ways to take the courses (in person, live lectures on the computer, taped lectures on the computer, etc.). All with different price points. Because there is competition and people can choose.
A lot could be done to keep costs and tuition down. But how do we get the colleges and universities to do these things?
For public universities, I suppose that state legislatures could knock heads together. State legislatures aren’t good at micro-managing (and some state legislators, often those with state schools in their districts, seem to be in the back pocket of the universities). On the other hand, it is unclear how good the current administrations of a lot of our public universities are at managing, either. Maybe states have to tell their colleges: Here is the amount of money we can afford to give you. Here is the amount of tuition your students can afford to pay you. And here are the number of students you have to admit. If you can’t run the school on this basis, we’ll find somebody else who can.
President Obama has a good idea, too. Maybe the key is simply for government, both federal and state, to stop subsidizing excessive tuition bills. President Obama talked in general terms when he said to colleges and universities: “If you can’t stop tuition from going up, then the funding you get from taxpayers each year will go down.”
Let me suggest something more specific. Set a formula: If tuition increases more than X% – or, even better, if tuition is more than $YY per year, then the maximum amount of loans and grants that a student can get to go to that college goes down. In other words, the more you charge in tuition, the less the government will give a student to go there. The less a college charges, the bigger the loan and/or grants available to students going there. And if a school’s tuition gets too high, maybe we need to say that the government won’t help pay any of it. After all, the federal government has a limited amount of money available to help students go to college. Maybe the federal government should spend its money where it can do the most good for the most students – by helping as many students as possible go to schools that do the best job in keeping costs down.
I realize the problem with this last idea is that it might mean poor and middle class students would not be able to go to certain expensive schools – those schools whose annual tuition is more than a high-end luxury car. I understand that may not seem fair. These are supposedly the schools where the best and brightest go. These are the schools that turn out leaders of our country. I understand that it somehow doesn’t seem fair that some students can’t go there because their parents don’t have enough money.
On the other hand, how fair is it for students to have to mortgage their futures with loans to go to schools that seem to wear their high tuition as a badge of honor? Or for middle class taxpayers to give grants and loans that, in effect, wind up supporting the upper middle class lifestyle of college academics? Also, if poor and middle class students can’t afford to attend those schools, maybe we can shame those schools into either cutting their costs or at least figuring out a way to use some of their own money to help poor and middle class students go there.
The fact is: College tuition can be lower. Colleges can cut costs. American businesses were forced to cut costs and get more efficient by foreign competition. Businesses had to learn to get the job done with less money. And they did. Now colleges have to learn the same thing.
But, just as businesses only cut costs because they were forced to, colleges will only cut costs if they are forced to. So far, the best idea I have seen for forcing colleges to cut their costs is to reduce the amount of grants and loans that are available for students going to schools with the highest tuition. As I said above, we need to tell schools: the more you charge in tuition, the less the government will give to students (either through grants or loans) to go to your school. And the less you charge, the more that will be available to students who go to your school. Obviously, this won’t be easy. It won’t be fun, and it’s going to be really hard on the students who are in the middle. But something has to be done to get college tuition down. This seems like the best idea to me. But if somebody has another one, I’m all ears.
And that is where our federal system can help. While some states and the federal government might try the idea I mentioned above, other states could try something else. We could see what works and what doesn’t work. Just like competition helps businesses figure out what is best, federalism and different states trying different ways to control college costs, can help us figure out the best way to control college costs.
The bottom line is: College costs have to come down. It doesn’t matter how we do it. Just so the job gets done.
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* This is not a point that people have only started making recently. In going through my files on college costs, I found an article by Joan Beck making this very point over 15 years ago: Joan Beck, “Proposed tax break for college only of temporary help,” Chicago Tribune, September 15, 1996.
** Christi Parsons and Kathleen Hennessey, “Obama targets college costs,” Chicago Tribune, January 28, 2012.
*** Schumpeter: “How to make college cheaper,” The Economist, July 9, 2011.
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