Business Journal Op-Ed

College Costs

Invoices for fall semester tuition and fees will soon begin to hit mailboxes of families with students planning to return to colleges and universities.  Recipients can expect some measure of sticker shock from increases ranging from an average of 6% at private colleges to 14% at public universities, based on trends of the past few years and far above the 2%-3% annual rises in consumer prices. 

Discussions about college costs are serious business, in that the price tag for a bachelor’s degree are typically second only to the purchase of a home as a family’s single largest expense ever.  In 2002, the average annual comprehensive student fee (tuition plus room and board) approximated $25,000 at private colleges and universities and $10,000 at public institutions.

North Carolina colleges and universities are not immune from these price increases. Guilford College has announced an average increase in tuition and fees for next academic year of 6.5% for traditional students (compared to 4.2% this year) and 5% for continuing education students.   Elon University is hiking its fees by just under 6%.  Proposed increases for next year in the University of North Carolina system range from 9% to 19% depending on the campus.

Are college costs too high and rising too fast?  The question is fair but the answer is far more complex than a simple “yes” or “no.”  Admittedly, inflation-adjusted family income increased 8% between 1991 and 2001 compared to a rise of about 38% in tuition costs.  But financial aid jumped 96% over this same period with colleges and universities handing out $105 billion in financial aid in 2003 alone.  Focusing on what students and families actually pay for college (as opposed to the announced “sticker prices”) reduced average comprehensive student fees in 2002 by a third at private institutions and by half at public institutions.  On the other hand, loans now comprise over half of the typical aid package that leaves the average undergraduate about $20,000 in debt.

Another consideration is that the full cost of college far exceeds what students pay.  Even relatively affluent students who receive no financial aid (“full pays”) are subsidized by sources of revenue other than tuition and fees.  These include endowment earnings, annual giving and state appropriations that make up the gap in the thousands of dollars between student fees and full cost.  For the 80% of students who attend public institutions, this gap has narrowed as state appropriations have been increasing much more slowly (averaging 1.2% last year) or even dropping in 14 states thereby forcing more reliance on student fees.

It is also misleading to compare rises in consumer and college prices.  Consumer prices are based on what individuals and families pay for food, shelter and other household items.  College prices are based on very different goods and services like technology and facilities, laboratory equipment, employee salaries and financial aid to name just a few.  Colleges and universities are highly labor intensive – more so than is typical in the business world – and employee compensation can account for more than 60 percent of annual operating costs.  In the private school setting, as much as 40 percent of operating budgets are often dedicated to institutional financial aid.   Not only do prices for these items increase more rapidly than consumer items but also colleges have to buy them in increasing quantities to stay competitive and maintain quality. 

Finally, students and families may not like the price of tuition, but they clearly see the lifelong benefits of higher education as they continue to apply to colleges in record numbers.  Estimated lifetime earnings of a college graduate exceed those of a high school graduate by $1 million.  Higher education could well be the best buy most people ever make.

Nevertheless, colleges and universities are searching for new and innovative ways to be more efficient.  We must be willing to establish priorities for programs and focus on cost-effectiveness.  We must consider reallocating existing resources for new initiatives.  And we must be willing to step out and pursue new technologies as well as partnerships between proximate colleges and universities to increase our efficiency.  If banks in New York City can run their credit card operations in South Dakota, then Guilford and other colleges and universities in Greensboro should and will do more together.

Financing a college education and managing the finances of higher education institutions are both challenging tasks.  But at the end of the day, lawmakers and education leaders have a moral obligation to meet the higher education customer more than half way.

This opinion-editorial was originally published in the Business Journal of the Greater Triad Area in March 2004.