By Doug Webber
Excerpted from fivethirtyeight.com
The rapid increase in the cost of college in recent decades — and the associated explosion in student debt, which now totals nearly $1.3 trillion nationally — is all too familiar to many Americans. But few understand what has caused the tuition boom, particularly at the public institutions that enroll roughly two-thirds of all students at four-year colleges. Many commenters, particularly in the popular press, focus on ballooning administrative budgets and extravagant student amenities. Those elements have played a role, to be sure, but by far the single biggest driver of rising tuitions for public colleges has been declining state funding for higher education.
It is true that today’s students enjoy better amenities — usually in the form of nicer gyms, dorms and dining halls, though some campuses feature lazy rivers and climbing walls — than I or, especially, my parents did during our time in college. It is also true that today's universities employe far more administratorsand staff who don’t have any direct role in either research or instruction. When my father attended the University of Florida1 in the 1970s, professors were required to also serve as academic advisors and meet individually with students to plan their schedules. Today, schools retain many staffers whose role is to assist both faculty and students. Some of those jobs are easy to mock: One frustrated grad student built a job-title generator that spits out bloated titles such as vice executive for the committee on dining relations.
And it is also true that professors (at least those on the tenure track) are paid better than the people who held those same jobs years ago. Average salaries for full professors (the highest rank) at top public institutions exceed $160,000 annually. Salaries for full professors have risen 12 percent in excess of inflation since 2000.
All of those trends add to the cost of college, but not by that much. At most, about a quarter of the increase in college tuition since 2000 can be attributed to rising faculty salaries, improved amenities and administrative bloat. By comparison, the decline in state support accounts for about three-quarters of the rising cost of college.
Consider Pennsylvania’s four public research institutions, one of which is Temple. Average tuition revenue per student (adjusted for inflation) increased by $5,880 between the 2000-01 and 2013-14 academic years (the most recent available data). State appropriations per student have declined nearly $4,000 over the same period, from about $7,750 to $3,900. Put another way, if Pennsylvania restored funding for higher education to its 2000 levels, Pennsylvania’s public research institutions could reduce tuition by nearly $4,000 per year without altering their budgets. For students, the impact could be even greater once loan fees and interest were taken into account.
By contrast, imagine that each of these institutions cut per-student spending for student services, administration and instruction back to 2000 levels, then passed those savings on to students in the form of lower tuition. How much would students save? Reducing student services would save each student $380 per year. Dropping all those new administrators would save $150 per student per year. And rolling back spending on faculty salaries would save $850 per year for the average student. Together, those three categories have added $1,380 to the cost of attendance since 2000, about a quarter of the total increase. At least some of that spending benefits students directly: Student-service spending has been found to increase the likelihood of graduating, and increased spending on instruction leads to higher earnings later in life.
National trends for all public four-year schools mirror those from the research institutions of Pennsylvania, although there are sizable differences across states. In the median state, South Carolina, the decline in state appropriations explains 81 percent of the increase in tuition revenue. Only three states — Alaska, North Dakota and Wyoming — have kept funding for higher education on pace with inflation and enrollment growth. In 17 states, the price of college would have actually declined since 2000 if funding had been kept constant and the schools applied that money entirely to students’ tuition bills. While state funding has rebounded somewhat during the economic recovery following the Great Recession, most states’ increases have not kept pace with enrollment growth.
The picture is a bit different at private schools, which do not receive state funding but have nonetheless seen substantial tuition increases. At private nonprofit colleges, the spending categories described above — student services and faculty and administrative salaries — together explain most of the tuition increase over the past two decades. Among for-profit institutions, it is much more difficult to pin down a reason for tuition increases, though recent research suggests that one big cause is the generosity of federal student aid: Some institutions may be raising tuition in order to capture as much government-backed money as possible.
The overarching message is that there is no single cause of the tuition boom. The reason for rising costs differs based on the type of institution and the state it’s in, and even varies over time. But, at least among public institutions, the dominant factor has been a steady decrease in support for higher education on the part of state legislatures.
Doug Webber is an assistant professor in the Department of Economics at Temple University. Much of his labor economics research focuses on the economics of higher education. Read Webber's full article, including detailed institutional data, as it first appeared on fivethirtyeight.com here.