College Tuition Inflation.

Obama recently stated that student loan debt exceeded credit card debt for the first time in history as he rolled out his plan for student loan relief. It seems the real problem is not being addressed. College tuition inflation has been going through the roof and no one is addressing this as the real issue. Where is the money going? Why don't people respond to this the same way the respond to food, housing, health care, energy inflation? I would love to understand this better.



http://articles.businessinsider.com/2011-01-19/markets/30101621_1_industry-inflation-guess

 

I can only speak locally; but state budgets are pressed, public funding is being decreased significantly, endowments are down, and this is the consequence.

 

Here is a link to a list of colleges and universities by endowment. The University of Texas (system wide) has about $14 billion. Harvard has about $27 billion.

http://en.wikipedia.org/wiki/List_of_colleges_and_universities_in_the_United_States_by_endowment

Regarding state budgets, I understand cuts to budgets, but why don't we see a corresponding cut in costs? Why don't we see the economies of scale happening, i.e. the cost for the second 1,000 students less than the first etc. to the point where with technology there should be almost no incremental cost increase for one additional student taking a class. It has been a long time since I graduated, I am wondering if there has been any innovation applied at all to control costs.

 

Since the Reagan administration, there has been a steady movement to take general welfare functions of government and privatize them. Something about removing the inefficiencies and giving somebody a profit. Let's take a look:

Healthcare - moving from public, non-profit organizations to private for-profit companies. Results - escalating healthcare costs.

Education - moving from public, non-profit organizations to private for-profit companies. Results - escalating educational costs.

The military - outsourcing research, security, intelligence and solder support functions to for-profit companies. Results - escalating costs for the nation's defense.

Does anyone else see a trend here?

 

I don't know about other schools, but cost cutting has occured at my school in addition to tuition increases. We've had faculty and admin cuts, hiring freezes, salary freezes, etc. I suspect the free availability of loans has something to do with the elasticity of college demand with repsect to tuition increases.

I don't think Obama's student loan debt relief plan does anything to fix overall problem. He should introduce a plan that ties student loan rates to the lesser of 10 year treasury yields and some ceiling rate. There's no reason to charge someone 8% on a loan with no credit risk.

 

The endowments really kill me. Raising tuition 8-10% annually while sitting on multi-billion dollar endowments (just to brag you have them, apparently) is galling

 

Keep in mind, government assisted education is socialist. It's a popular place to cut in the current political climate.

The graph pretty much explains it, costs are going up, sources of revenue outside of tuition are going down, and the end result is tuition making up the difference. Endowments frequently carry all sorts of restrictions and are generally intended to be invested for long term use.

 

There are two parts to what prompted me to look into this, one being the cost drivers, the other being how people are responding to the increases. If business' in the private sector simply said that costs were being passed on to consumers as an explanation for exorbitant price increases people tend to be outraged by it (i.e. a $5 increase in debit card fees) - but in the higher education sector this seems to be accepted without much of an issue (occasionally I see reports of students being upset but it is usually directed at state government for cuts not the universities for their failure to control and reduce costs). I am getting into this because I have a 14 year old son planning on attending college. The odds are it is going to cost more than $100,000 for a four year degree - that is outrageous to me! Doesn't it outrage you?
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In healthcare the government restricts competition in the healthcare insurance market. In my state I have about two choices for my healthcare insurance. Life/auto/home insurance is different, with more choice costs are more reasonable.

Is the trend to private education like University of Phoenix significant?

National defense has always had a relationship with the private sector in terms of weapons, equipment and supplies including imbedded R&D costs. But if we look at national defense costs as a percentage of something (you pick your a base) those costs have been stable or have gone down depending on the time-frame used.

No.
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Why is it a government question at all?

Perhaps people are picking unproductive lines of study rendering their degrees virtually worthless in the market - causing them to have problems repaying the loan. The metric for any use of debt should be the same, what is the expected ROI. If a person goes to a community college and incurs no debt and can get the same income as a person who spends 10x as much while incurring debt, isn't that utilization of debt foolish regardless of the interest rate?
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If oil companies said gas prices are rising because they can, Congress would symbolically tar and feather oil company CEO's as they have attempted to do on many occasions in the past. There appears to be a different standards in play for colleges and universities.

 

You're talking about the student's angle. I'm talking about the government's. If the us gov't can issue debt for substantially less than the rate it demands for student loans and it chooses to do so, it's gouging its own citizens.

As for unproductive lines of study, well, right now even the productive ones are unproductive. Why would an employer hire someone fresh out of college with no experience when they can get someone with experience who is currently unemployed for the same price? I graduated with honors-level grades from mechanical engineering bachelor's program a couple years ago and my degree was worth just about the same as an english degree when it came to getting responses from potential employers. There are literally millions more people seeking jobs than there are jobs available. The idea that only english and philosophy majors have problems with student loan debt is fantasy.

 

As far as I can tell, the "useless degree" meme is perpetuated primarily by the type of people whose only solution to any large scale societal problem is to assign blame and walk away.

There are a whole class of jobs which, despite not requiring any sort of vocational training, aren't available to people without degrees. Many of these jobs pay better than the type of jobs that are available to people without degrees. So if you want to meet the bare minimum requirements for a certain class of jobs, you need to get a degree. So really, there's no such thing as a useless degree.

 

If the government can lend billions of dollars to banks/Wall St. at 0% interest, they can make interest free loans to students.

 

At least thats an investment that there will be a reasonable rate of return.... I personally think there's an education crisis to go along with most of the other crisis. From my personal experience....

I grew up in outside of Langdon which is close to Calgary, AB, Canada... and I moved to Columbus, Ohio midway through 10th grade. The difference in education was that in Ohio, when I was in grade 12, I was doing the same math I was doing in grade 10. Now read what you will into that, the school I went to in Canada, we didn't have any specialized courses, other than the sciences and the odd home ec and computer classes. In Ohio, we had classical mythology, Geology, Oceanography/Marine Life, had many high level "AP" classes. As a comparison, I was never on the honour role in Canada, in the US, I was on every report card. I was still participating in the same activities I did in Canada, hockey, track...etc. In Canada you didn't see kids getting scholarships from the military where as in the US, there must've been 30-40 kids going in there... In my mind as well, it was more difficult to get into University as well... Those are just some of the things I noticed between the two....

I really cannot get into the dynamics of education or american society as I haven't lived there for 5-6 years now....

 

Tell that to the 50% of the workforce that has no college education. There are plenty of jobs out there...maybe not the jobs that the spoiled, entitled youth of America want, but they're out there. 20 million illegals have no problem living and working in this country with no college degree. So maybe it's time for people to take what's available and stop complaining about what's financially out of reach.

 

I'm about 20 years removed from college but I'm surprised by the lifestyle that I see now on campuses.
My alma mater has built beautiful indoor gym and outdoor athletic facilities; the entire campus has broadband connectivity; the dining halls are more like a quality restaurant than the old style cafeterias they used to be.
All this stuff costs serious dollars.
Those dollars are coming from the students.
The students can't afford the lifestyle they are living there but it all gets lumped in as college debt to be paid for later.
I think they get expectations of belonging to a great gym, having a pool to swim in whenever they want, and high tech gadgetry at their every turn, and at least some of them carry those expectations forward with them and continue to live a lifestyle they can not afford even after college.
I stopped donating to my college after they built spectacular outdoor play space, then a year later released a bunch of adjunct faculty for lack of funds.
Where are the priorities?

 

That is the main thing. And part of that is the cheap loans, and colleges know that the students can get them.

I don't really know what the answer is. I wasn't ready for college when I went. Not because of the classwork, but from a lack of knowledge about living, the real world, and what I should be studying.

Do we want to reduce the number of students in college? How do you get colleges to compete against one another on cost? I went to the cheapest good school, and it was the right choice. But, most people probably don't take that into consideration until after they looked at other aspects of the school.