How to Get College Tuition Under Control

Author: Douglas Belkin

Three economists debate the causes of and possible solutions for the high cost of college

In the past decade, college tuition has risen three times as fast as the consumer-price index and twice as fast as medical care.

How can that be—and what can be done about it?

To answer those questions, The Wall Street Journal invited three economists with distinctly different orientations within higher education to discuss the issue.

Rudy Fichtenbaum teaches at Wright State University, Fairborn, Ohio, and is president of the American Association of University Professors, which promotes academic freedom and shared governance on college campuses. Katharine Lyall was president of the University of Wisconsin System from 1992 to 2004. Richard Vedder is director of the Center for College Affordability and Productivity, Washington, D.C., which researches cost and efficiency in higher education.

This conversation was conducted by email between Aug. 28 and Sept. 3. Here are edited excerpts.

Why So High?

WSJ: Why does college cost so much?

DR. FICHTENBAUM: One of the most important factors driving price at public colleges and universities has been the decline in state support for higher education. Between 1987 and 2012, in real dollars, government support has declined from $8,497 to $5,906 per student.

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The second major culprit is rising costs. Critics of higher education often blame faculty salaries for rising costs. However, when measured in constant dollars, salaries for full-time faculty at public institutions have actually declined. What is driving costs is the metastasizing army of administrators with bloated salaries, and our university presidents who are now paid as though they were CEOs running a business—and not a very successful one at that.

There is also the growth in entertainment spending and spending on amenities. Many universities claim that they must compete and therefore have borrowed millions to build luxury dorms, new dining halls and rock-climbing walls. They also spend millions subsidizing intercollegiate athletics.

DR. VEDDER: Prof. Fichtenbaum tells part of the story well. But faculty are not all saints: At many schools, tenured faculty have acquired low teaching loads to pursue trivial research published in journals no one reads, forcing administrators to hire cheap adjuncts who often do a fine job teaching at much lower cost.

The role of sluggish state appropriation growth is somewhat exaggerated. When appropriations rise, universities have used a large portion of the money to fund the unproductive bureaucracy. Moreover, the good professor ignores the 50-fold growth in federal student financial assistance programs since 1970. Former Education Secretary Bill Bennett was mostly right when he said federal aid programs enabled colleges to raise tuition fees, helping to fuel the academic arms race.

DR. FICHTENBAUM: Prof. Vedder puts forth the "Bennett hypothesis" that it is rising financial aid that is driving tuition higher. Perhaps the most comprehensive review of the literature on this topic is a study ("Does Federal Financial Aid Drive Up College Prices?" by Donald Heller, dean of the College of Education at Michigan State University) which concluded: "While the Bennett Hypothesis may be intriguing, there is little compelling evidence that it holds true with respect to the price-setting behavior of colleges and universities in the United States."

DR. LYALL: On the point about "administrative bloat," I'd make two observations.

(1) The single largest engine of this was the embrace of IT by universities. In the beginning, faculty (a few) dealt with their colleagues' computer problems. But the burgeoning demand for campuswide IT services soon swamped what faculty were willing/able to do—and raised the cry to hire IT staff. Of course, IT then exploded in size and complexity. So, when faculty bemoan "administrative bloat," the first question should be whether they're willing to go back to the days when they (faculty) handled all that.

(2) Another way to reduce "administrative bloat" would be to merge, eliminate, and restructure higher-education organizations, simplifying the large number of individual departments, centers and institutes into fewer administrative units. Anyone who has tried this knows how jealously faculty guard these little fiefs.

DR. VEDDER: Universities are extremely secretive about some basic issues relating to their performance. The federal government spends $35 billion or $40 billion annually on Pell Grants, but to my knowledge they do not publish data on the percent of Pell recipients who graduate in, say, six years, a rather important statistic. Even more fundamentally, we don't even know whether graduating students at, say, Harvard, Kansas State or Cuyahoga Community College know more or think more critically than when they entered.

Prof. Lyall's defense of the administrative explosion is weak. No government agency forced universities to add armies of sustainability coordinators, diversity specialists, communications officers and assistant deans of everything. IT growth has been large, but in most of American life this has brought productivity advance and lower costs. The opposite is true in higher education.

How to Reduce?

WSJ: Let's turn toward solutions to cut costs. Prof. Fichtenbaum offers this: "The federal government and accrediting bodies could play a positive role here by developing regulations that force institutions to spend a certain percentage of resources on instruction and [by] writing regulations that would reduce competition over luxury items."

Would this just amount to further regulatory bloat?

DR. VEDDER: The last thing higher education needs is more regulation from the federal government and accrediting agencies—who themselves are anti-innovative and have huge conflicts of interest in their dealings.

Significantly reducing the federal presence in financial aid would serve two desirable goals: reducing enrollments somewhat (improving the imbalance between the availability of good jobs and the number of graduates), and by reducing the demand for higher education, lowering the ability of colleges to raise prices. It would lower college revenues and force schools to take steps to economize: reduce administrative bloat, force professors to teach more, stem the collegiate edifice complex that raises capital costs, etc.

Cost-cutting ideas like three-year bachelor degrees and greater use of testing to demonstrate workplace competency might take hold, along with greater reliance on electronic forms of learning. State governments should give subsidy payments to students, not institutions, as a way to refocus emphasis on instruction and enhance competition.

DR. LYALL: We need to start from a recognition that we have crossed a key line from "higher education as subsidized public good" to "higher education as a competitive market good." (I regret this, but it is nonetheless the case.)

This means we need a new and more honest business model for public universities, one that ceases to treat them as state agencies and treats them as valuable market-driven entities.

This means reducing regulation to health and safety issues, releasing universities from state government operating requirements (such as mandatory participation in state health insurance and pension programs), permitting universities to manage their own capital bonding and building projects, and enabling universities to manage their own human resources (hiring and pay) policies outside state civil-service rules. It also means letting some institutions fail when they cannot compete in the marketplace.

DR. FICHTENBAUM: I want to partially agree with Prof. Lyall that we are at least in the process of crossing a key line, where higher education has been a subsidized public good to one where it is being privatized.

Unlike Prof. Lyall, I am not willing to give up on making higher education a subsidized public good. This is the path toward creating a bunch of "Wal-Mart" type universities that will serve working-class and middle-class students, while America's elite will continue to receive a first-rate higher education at elite private institutions. This will further exacerbate the growing inequality in our society and lead to the dismantling of our system of high-quality public higher education that has been the envy of the world.

Mr. Belkin is a Wall Street Journal reporter in Chicago. He can be reached at[email protected].

DMU Timestamp: November 11, 2014 20:35