Student debt: What's been driving college costs so high, anyway?
Average tuition at public four-year colleges rose 73 percent from 1999 to 2009, even as median family income fell about 7 percent. Tuition at private colleges outpaced income, too. Here's why.
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But so far, students remain willing to pay, concluding that to forgo a college degree would be worse for them in the long term. And many colleges, especially the best ones, are still flooded with applications.Skip to next paragraph
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Little incentive to contain costs
"There's a lack of incentive in higher education to be cost-efficient," says Richer Vedder, director of the Center for College Affordability and Productivity, a think tank on higher education finance. Constituencies that usually matter most to college administrators are faculty, alumni, and, to a lesser extent, students, he notes. Parents, who are often footing the bill, don't factor in much, and even many students with loans are not yet thinking about the cost.
Alumni want new stadiums and good football teams; faculty want good salaries and a low teaching load; students want nice dorms and facilities – all things that cost money.
Even the college rankings in U.S. News & World Report can help drive up costs. Colleges can move up in the rankings by paying professors more, having more alumni who contribute to the school, and attracting better students.
"How do you get good students?" asks Mr. Vedder. "You bribe them [with things like merit scholarships and fancy facilities]. There is a sort of academic arms race. To get to the top, you have to spend. You're not only raising money to keep people happy on campus, but also to improve reputation."
Marks, for one, knew he was taking on loads of debt when he opted to attend Carnegie Mellon, where tuition is almost $45,000 a year. But he thought the degree would be worth it. Now he's in a 30-year repayment program in which his monthly payment is $1,300 – and will only grow over time. "I kind of knew what was going on," Marks says about his borrowing decision. "But you don't really think about what it actually means to have a house worth of debt, on a higher interest rate than a mortgage, until you're getting close to graduating and thinking about having to repay [it]."
The recent recession has contributed to soaring college costs, too. Public schools, in particular, have been hit by budget cuts from state legislatures – and they are making up for much of it by raising tuition. In many instances, public colleges now get more money from tui-tion dollars than from the state – a reversal of the traditional setup.
"States tend to be, with a couple of exceptions, very good to higher education during good times and very hard on higher education during bad times," says Terry Hartle, a senior vice president at the American Council on Education (ACE). Compared with the three other major state expenditures – K-12 education, Medicaid, and prison systems – "higher education has a lot of people who look like paying customers," says Mr. Hartle, "and the decision is usually that we will ask them to pay more."
Access to loans begets higher tuition?
Some people see another culprit in the rising cost of higher ed: wide availability of federal loans. Often called the Bennett hypothesis, for former Education Secretary William Bennett, the argument – which remains controversial – is that federal financial aid allows schools to raise tuition because it shifts costs from schools to the government and the families who are borrowing.
"You can't say the loans caused this," says Callan, but he says he believes the generous loan programs contributed to the rapid tui-tion hikes of the past 25 years. "It doesn't mean we should make them go away, just that we should recognize them as a piece of the puzzle."
Finally, traditional universities are notoriously inefficient, with high fixed costs: lots of buildings, big campuses, and large faculties and staffs.
Moreover, containing costs isn't always a priority. Most schools aren't in session year round, and most retain the traditional model of a college class, with a professor teaching a roomful of students.