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October 25, 2012 11:00 AM Greedy Colleges

By Daniel Luzer

A basic line of thinking embraced by many liberals with relation to higher education (myself included) is that the reason college costs are increasing is that states are simply not funding their institutions as generously as they once did.

According to a piece by Neal McCluskey at Cato, however, maybe it doesn’t really work like that. Looking at recent data from the American Council on Education he points out something interesting:

There are only two academic years in which colleges’ per-capita tuition increase simply made up for state-subsidy losses: 2004-05 and 2010-11. Every other year tuition rose well in excess of subsidy losses, ranging from a 1 percentage point net gain in 1992-93 to 7 points in 2007-08.
So even by ACE numbers, our supposedly beleaguered public colleges actually look pretty greedy. And what likely enables that greed? The ability of students to cover price increases with aid.

Here’s the chart he’s referencing:

10-25-12Luzer.jpg

What’s often implied in the “state cuts are responsible for all tuition increases” line is that that if we just give public colleges a lot more money, tuition will fall back to the manageable levels where they were in the 1960s. It probably wouldn’t really work like that.

That being said, it’s still likely state cuts really do promote and encourage these increases in the real prices families pay for college. McCluskey writes that “efficiency is something colleges—even, it seems, public ones!—almost certainly don’t want. They love making money, and do it most easily when government gives out dollars like water.”

Well perhaps. What’s really going on here is probably something more like this. The state cuts the funding and so colleges, attempting to try and operate the way they did before, increase tuition. Students pay for a lot of these tuition increases with loans. What colleges discover, however, is that if students are willing to take out loans, rather than skip college, to pay for education, well, why not have them take out more loans? If a $10 million state cut can be addressed by a $1000 tuition hike per student, well, by raising tuition $1200 a student the institution can perhaps both address the state’s cuts and build a new science center. While this is very, very burdensome for students, it makes a lot of sense financially for college administrators.

But McCluskey seems to suggest that it’s likely to be ineffective to give colleges more government money because they might just raise tuition anyway. They’ll take both the government aid and then add a lot of tuition in to increase the total annual take. Because they’re so greedy.

Well of course they are. They want to enjoy the highest operating budgets that they can obtain. That’s just economically rational. If the goal is to reduce students’ loan burden, however, there’s no need to worry about the troubles of college greed; just tie the aid to the price of college. If colleges make no effort to keep costs down, if they increase tuition, just cut them off from the aid. They’ll pretty quickly figure out how to operate efficiently then, won’t they?

[Image via]

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

Comments

  • Anonymous on October 25, 2012 3:21 PM:

    I'm sorry but I just don't see his chart as proving his point. The chart shows that in years when state support drops radically, tuition goes up radically. In years there is little change in support there is little change in tuition. Yes, there seems to be a steady trend towards slightly higher tuition regardless of state support, but state support seems to be the main thing driving this in the data he presents. Obviously as a CATO type he has to massage things till he gets to his pre-made conclusion "it's greedy colleges" but I don't see any reason we should buy this

  • ThenAgain on October 25, 2012 3:26 PM:

    @anonymous His point is just that they raise tuition to MORE than compensate for state cuts. The graph does show that.

  • SR_EducationGroup on October 25, 2012 7:10 PM:

    There has to be some point where colleges have to be concerned about the ever-growing student debt problem. If one in five households are in student loan debt and the total price tag is over $1 trillion, that has to become worrisome. Some of the bigger name institutions might not have anything to worry about but it is a competitive market and the market might shrink as families start to not be able to send 2, 3, 4 kids to college.

    What if one college simply did something drastic and lowered their tuition drastically? Kin of as a way to say, hey, we know college is expensive, this is what we need from you to provide you a quality education. I guarantee you their stock would skyrocket and they would take a much bigger piece of the market place (especially if they incorporated online classes/degrees).

    I mean, it's highly unlikely but it's an interesting thought.

  • anotheranonymous on October 26, 2012 11:53 AM:

    ThenAgain and Neil McCluskey misse a central fact -- state support has historically been the single largest source of revenue or colleges and universities. So a small percentage decline in state support would require a larger percentage increase in tuition just to hold the universities harmless. In Wisconsin, for example, it used to be the case that a $1 cut in state support required a $3 increase in tuition to make up for the lost revenue. SInce many state legislatuires actually set or approve public sector tuition increases, the trade off -- budget cuts and tuition incereases is often very explicit. The chart provided offers a perfectly symmetrical relationship between state budget cuts and tuition increases. Therefore it actually demonstrates the assumption laid out in Luzer's first paragraph.