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September 04, 2013 11:12 AM Actually, Rich Kids Are Getting Screwed by High Tuition

By Daniel Luzer

Dylan Matthews has an interesting piece over at the Washington Post about how much we pay for college. Maybe it’s America’s rich kids who are responsible for tuition hikes. As he writes:

In the 2007-08 school year, students from families making $100,000 or more paid an average of $30,159 a year in tuition, fees and room and board to attend private four-year colleges and universities, and they paid $16,871 a year to attend public four-years, according to the College Board. Students from families making under $32,500 a year paid $17,050 a year on average to attend private schools and $9,404 a year to attend publics.
One theory proposes that charging different prices actually drives up the cost of college because it makes the institutions dependent on tuition from wealthy students to cross-subsidize tuition discounts for poorer students. Those wealthy students expect a certain quality of life at their colleges, one that calls for more spending on the part of those colleges and universities. Thus, the underlying price of the college experience rises, which means higher tuition for everybody.

Or, as the headline puts it, “Is this all rich kids’ fault?”

RichStudents

This might just be an example of using a provocative and misleading title to generate interest (which is fine, I sort of did it here), but Matthews brings up a good theory:

Are rich students that schools want to recruit demanding this spending, or are colleges choosing to devote new revenues here for other reasons? That’s a hard one to answer, but other evidence suggests that the story… of schools recruiting rich kids with nice amenities checks out.

Well sure it “checks out.” If colleges offer nice amenities, and are somewhat cagey about the real learning-gains-and-jobs-and-salaries stuff colleges that structurally distinguish one college from another, students are going to make decisions based on amenities; they can see amenities. Poor kids operate like that, too.

There is plenty of evidence that schools are using increased amenity spending to entice full-pay students. That’s not the main driver of cost increases, and arguably it’s only made possible by the kind of nonprofit budgeting that the Bowen hypothesis implicates as responsible for cost increases. But it does contribute to the problem.

But this is misleading. It’s not rich kids’ fault that college tuition is high; it’s colleges’ fault for charging rich people an astronomically high price.

In 1958, after all, tuition at the University of Pennsylvania was $1,050 a year (that’s about $8,400 in today’s money). And most students paid that, unless they were poor and they got a scholarship. Today Penn tuition is $40,000, and almost 45 percent of Penn’s undergraduate students receive financial aid. Is Penn enrolling a lot of poor students? Well, no. The school is just charging middle and upper-middle class students a price that (more or less) reflects the cost of operating the institution. Penn isn’t losing money on 45 percent of its students. The school is simply charging the rich an artificially high price.

Actually, rich kids are getting screwed by high tuition. This not to say they’re suffering, but they are paying more, far more, than it costs to educate them.

It’s hard, frankly, to generate much sympathy for America’s most affluent, especially since most of American life is pretty weighted to favor them. Sure they have to pay $56,000 or something in total but their parents can, after all, actually afford to do that. As former George Washington University President Stephen Joel Trachtenberg said to me a few years ago about his own college’s tuition plan: “Some 40 percent of students pay list price. These are people from wealthy families; I have no compunction about charging them list price. They can afford it.”

Of course they can. But the problem with this is that it distorts the real price of college most students pay. Because if the published price of college is $56,000 it looks like someone who only has to pay $30,000 is getting a generous scholarship. Well maybe, but $30,000 a year is still a great deal of money. It’s not that the scholarship kid is getting a great deal; it’s that the rich kid (or his parents) is getting hosed.

It doesn’t cost anything like $56,000 a year to run a college. The real price is probably something more like $30,000. As Trachtenberg admitted, George Washington University hiked tuition because the historically wealthier and more selective Georgetown University was more expensive: “I saw the gap as an opportunity. If you equalize for program costs, all schools cost virtually the same amount to run. I would use that new tuition money to fund expansion.” The kid paying $30,000 thinks he’s getting a scholarship, but he’s actually paying something like full price. The $56,000 is just a way to raise some extra cash.

Expansion, particularly in the GW case, is totally used for amenities. But rich kids aren’t at fault for the amenities race. Rich people don’t need marble bathrooms and student centers with leather couches any more than poor kids do. John D. Rockefeller, Jr., whose father was one of the richest men in the United States at the time, hemmed his own dish towels when he was a student at Brown University in the 1890s.

Think about it this way. If I go Starbucks, I pay about $2.00 for a cup of coffee. But should someone who makes ten times what I do pay $20 for coffee? Well, of course not. But if he did pay $20 it would be a hell of a lot easier to charge me $3.00; it looks like I’m getting a deal! Maybe the extra cash opened by the window between $2 and $20 would allow for greater amenities. More comfortable seating areas, better lighting, more surfaces for working. The slightly higher price would also keep some of the homeless out. Customers would appreciate all those things (the coffee itself would probably be the same) but they wouldn’t exist because rich people demanded them. They’d be there because the company offered them, and people grew to expect them.

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer

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