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Mitt Romney recently told an aspiring college student that if he had trouble affording college, he should just shop around for the best price, which proves that Romney has no idea how college prices work:
“Don’t just go to one that has the highest price. Go to one that has a little lower price where you can get a good education. And hopefully you’ll find that."
Romney also made sure to point out that the student should get no government assistance of any kind to go to college, which proves that Romney has no idea how America's post-war prosperity worked.
Meanwhile, the White House is holding another meeting about college affordability and productivity. The phrase "productivity" suggests that the White House already has a solution in mind, which is that colleges have to become more "productive" and "accountable." You can find this idea echoed by the economist Robert Frank. The idea is that college teaching is antiquated and therefore unproductive and inefficient, and needs to be transformed, through technmology and neoliberal management, to become more productive.
This is a superficially convincing idea. Tuition keeps going up because faculty pay keeps going up. Sounds totally logical, until you look at the numbers. But the numbers don't bear this out at all.
The price of college tuition has vastly outpaced inflation over the past few decades, growing almost three times as fast as the inflation rate. The average pay for full-time faculty, on the other hand, tends to do slightly better and occasionally slightly worse than inflation. So for faculty pay to be the main driver of these cost increases, the number of faculty on campuses would nearly have to triple. This is not what has happened, however. As I've mentioned before, colleges everywhere have been reducing the number of permanent faculty (the kind with salaries) and shifting the teaching burden to a small army of ill-paid "part-timers," who often string together gigs at three or four different schools each semester. The inflation in college costs are not primarily being driven by the cost of paying teacher's salaries.
The real story, as Catherine Rampell recently pointed out is that public education is no longer publicly funded.:
But at least at public colleges and universities — which enroll three out of every four American college students — the main cause of tuition growth has been huge state funding cuts.
While the Baby Boomers were in college, state governments picked up the majority of the educational tab for students in state schools. Now they pay a very small amount of those school's budget; even at some flagship schools, the state's percentage of the budget is now sometimes 10% or lower. This has been done by massively off-loading the expense onto students, even while putting less money into their education. This is why University of California students now pay three or four times the tuition that they paid in 2000-2001. This is why, when you factor in financial aid policies, Harvard is now cheaper than Cal State, even for families with six-figure incomes. If that's shocking, it should be. But that fact isn't a freaky exception. It's an illustration of how things work these days.
This is actually the story of American education over the past thirty years. Public education has been privatized. It is the main story. Everything else is a sideshow or a smoke screen.
The price of college has skyrocketed at the state schools that 75% of students actually go to because their government funds have been taken away. Period. And that's more than 75% of the problem.
What about the other 25% of colleges, the private schools whose tuition continues to skyrocket? It's a complicated question, but here's a beginning.
The first thing that you will notice about college prices is that there is relatively little differentiation between them. Most private schools charge very similar tuitions, although they each vary a bit from year to year. If you checked prices for all the private universities in Boston, you would find that the tuition at Harvard and MIT was pretty much the same as the tuition at Boston College, Boston University, Tufts, Northeastern, and what have you. (Apologies to the 63 fine institutions of higher learning I've left out.) Similarly, private schools that have only local reputations and generally weaker programs than Tufts, Northeastern, BU, etc., also charge the same sticker price as Tufts, BU, or Harvard. What to make of this?
First of all, it suggests that the private schools exert a limited kind of market discipline on each other's prices. No one sets their tuition price too high above the competitors'. But similarly, very few private schools make any serious effort to undercut each other with sticker-price tuition. No school is going to ask 15% or 20% more in tuition than other private schools do, and no one decides to slash tuition by 15% to scoop up more students. (The reasons for this behavior require a second post.) Imagine that all luxury cars, Porsches and Jaguars and whatnot, sell for equivalent prices. Now imagine that mid-level cars, the Ford Tauruses for example, sell for basically the same price as the Jaguars, or even for $200 more.
Second, it becomes very clear that tuition prices do not respond to demand for a particular school. Harvard has its 7 or 8% admissions rate, or whatever shocking percentage it's fallen to, but charges the same tuition as other area schools for which there is much less demand. In fact, many of the schools which are in less demand might ask more in tuition, in any given year, than the most in-demand schools do. Harvard might decide that with demand from prospective students so high, it could jack up its top tuition price by 50%, or 100%, and still have more than enough good applicants. But (for perfectly sensible economic reasons) it does not.
In fact, the real cost of attending the wealthiest and most famous colleges, the ones usually in most demand, is actually lower than the price of going to less prestigious schools with smaller endowments and saner rates of admission. College tuition, especially at the powerhouse schools, is famously on a sliding scale based on the student's ability to pay and the depth of the school's pockets. Not only does Harvard keep its top sticker-price tuition the same as the sticker-price for its academic neighbors, but it discounts that tuition more deeply, and for more students, than its local competitors do. Harvard is the same price as BU or Tufts for the very richest students, and for most of its students it is actually far cheaper than BU or Tufts or similar schools. This is because private colleges' economic strategy revolves around producing successful alumni and raising funds from them, rather than around making money off tuition per se. Imagine that Jaguars and Ford Tauruses have the same sticker price, and the Jaguar dealers actually make customers better deals than Ford dealers so that in practice the Jaguars are cheaper than the Fords. That's the basic situation.
(If you're keeping track, Mitt Romney's "shop around" advice is ridiculous because there is no serious price competition in the market, and also because the only significantly cheaper option, public education, is no longer cheap.)
Now, the private colleges do restrain the growth of each other's tuition prices to a limited degree. But that restraint is not enough to keep tuition prices from rising much faster than inflation. The reason for this is that since World War II, the real check upon price growth at private universities has been the low price and high quality of public education.
Harvard will never raise its tuition much higher than that of the schools it deems competitors (Yale, Princeton, Stanford, etc.), but is content to rise at the same speed that they do. Other private colleges are likewise happy to raise rates at the same pace as other private schools. The only real price discipline has come from the existence of a much cheaper high-quality option. When the Universities of California, Michigan, Indiana, etc., were educating students for something like a quarter of the tuition at private institutions, or less, there was a genuine downward pressure restraining the prices of private schools. You could get a much, much cheaper education at a public school than a private one. In many states, the subsidized public education was well-funded and genuinely very good: "Ivy-League education at one-tenth the price." The Universities of California and Michigan are world-famous for reasons. So for private schools the question of tuition rates wasn't just what the private competitors were charging, but what premium students and their parents would pay for the superior prestige and perceived quality of a private college education.
Now that lower-priced alternative is not much lower-priced, and its price rises faster every year. Meanwhile, because shifting the economic burden onto students still doesn't make up for all the lost state revenue, even the premier state schools have to keep cutting back on the resources that they put into educating students. It used to be that the Jaguars and Fords were priced the same, but you could get a perfectly nice Volkswagen Jetta for a much lower price, and that Jetta would run reliably and well. It might even perform better, over time, than the Ford, and be less expensive to keep up than the Jag. The Jaguar had better ratings in car magazines and was more likely to impress people, of course, and Jag dealers could charge a premium for those things. But that premium was added to the low baseline market price that the Jettas set for good underlying quality.
There are still plenty of Jettas in the educational market, but they now cost 75% or 80% of what a Jaguar costs. And they no longer always come with a warranty. That obviously does not lower the demand for Jaguars or Fords. Now that the Jaguar and Ford schools' cheap, reliable competitors are no longer especially cheap or reliable, it's natural that the Jaguar and Ford prices rise at a faster rate.
In 1972, Ivy League schools competed with each other, but also with excellent and extremely cheap state universities. An Ivy League education was only marginally superior to the Cal or Michigan education, but Cal and Michigan charged a fraction of Ivy tuition. Today, Cal and Michigan are only marginally cheaper than the Ivies, and are forced to provide significantly diminished educational quality. The natural result is that the Ivy League prices go up, and the prices of less famous private colleges are effectively pegged to the Ivies' prices.
There are other issues that require a second post, but public support for higher education didn't just make college affordable for the 75% of America's college students who went to public schools. It also indirectly subsidized students at private universities, by placing market curbs on what private schools could charge. This will not be brought up at high-level policy meetings. But it's the truth.