Tuition Rising Faster than Inflation

Gee, with everything costing more these days, its a welcome relief that inflation is so low; Otherwise, we’d really be in trouble.

All kidding aside, lets look at a case in point: Education expenses. The headline above is imprecise — rising Tuition IS inflation. Its more precise to say that Education Expenses are going up faster than "median inflation."

Let’s have a look at a few charts.

First, thanks to Mark Thoma, we have a chart depicting exactly how fast Education expenses have been rising:
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Inflation Adjusted Tuition and Fees
click for larger chart

Infl_adj_tuitionfees101505

Chart courtesy of  Economist’s View

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Secondly, let’s have a look at a chart from todays NYT:
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click for larger chart
Nyt_tuition_graphic_1

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Clearly, education cost increases predates the rise in energy expenses.

Here’s the Ubiq-cerpt:™

Average college tuition grew more quickly than did overall inflation again this year, although the rate of increase slowed after a period of explosive growth, according to an annual survey released here Tuesday by the College Board.

Annual tuition at public universities rose on average by $365, or 7.1 percent, this fall, after a year in which overall inflation was far less. Private universities increased tuition by $1,190, or 5.9 percent. Two-year community colleges increased tuition on average by $112, or about 5.4 percent, the survey said.

In the past two years, public universities had raised tuition by 10 percent and 13 percent, and the slowing growth rates registered in this year’s survey were a relief to higher education leaders who have faced public criticism over campus costs that are outstripping increases in the rest of the economy.

Total expenses – including tuition and fees, room and board, books and supplies, transportation and other expenses – now average $15,566 for an undergraduate student attending a public university in his own state, the survey said. Total expenses at private universities now average $31,916 . . .

One reason tuition has been rising fast in public universities is that they have had to replace revenues lost when state legislatures reacted to budget deficits by reducing appropriations for higher education."

Incidentally, this might be where a good hedonic adjustment is necessary. Despite the rising costs, quality of college education is going down, at least by several measurable metrics: Schools have increased class sizes, postponed faculty raises, and have
shifted to lower-paid, part-time faculty.

Less for more . . .  Sounds like inflation to me.

Source:
Tuition Rise Tops Inflation, but Rate Slows, Report Says
SAM DILLON
NYT, October 19, 2005
http://www.nytimes.com/2005/10/19/education/19tuition.html

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What's been said:

Discussions found on the web:
  1. calmo commented on Oct 19

    This needs a wider lens: the total cost of education and the departure of government funding.
    Students and their families are shouldering more of the costs while the government spends elsewhere. Wealthy students, who see no financial hurdle, benefit in a climate that dilutes the academic pool by eliminating the poorer but brighter students.

  2. skoobz commented on Oct 19

    ahhhhhhhhhhhh! thanks barry for bringing this one up.
    i believe tht education is the silent bubble that, given its sacred cow status in our country, no one wants to talk about. here’s why scondary education is a problem in this country:

    1) education is consider the “gateway” to success in america, but increasing it is looking like a gateway to financial encumberment. real return on education is falling (wages) as real costs go up. this is not sustainable

    2) low interest rates make make servicing education debt easier and going into debt for an education more seductive.

    3) universities spend an inordinate amount of money of prettying up their campus facilities in order to attract better students and boost their US news ranking. yet these costs get passed to middle class parents that send their kids to private institutions have to pay upwards of $120,000 per child – and that’s after tax income.

    4) unlike 30 years ago, one could graduate from college and not have to get a grad degree to generate a good income. but now, the academic system is asking for a grad degree on top of the more expensive BA degree. it’s a hustle.

    in my opinion, it’s highly immoral for private universities with large endowments to not use that funding to subsidize tuition costs for all their students. it’s outrageous that harvard university asks undergrads to pay $40K yearly when they could easily pay for every undergrads’ tuition AND STILL grow their endowment massively.

    you ask the university and endowment heads and their response is, “i don’t think you can ever invest enough in education”. they are out of touch.

  3. skoobz commented on Oct 19

    one more point. looking at tuition costs on a year by year basis doesn’t do these outrageously scary numbers justice.

    you’re not just paying 20K more in real dollars than you were in 1975, you’re paying 80K more for the degree.

    I sure would have like to have gotten a degree from a prive college for just 45K!

    then education would have been worth. it’s a glorified overnight camp right now.

  4. George Demmy commented on Oct 19

    Having spent, er, several, years at university, both as a undergrad (FSU) and grad (UF), I’ve noticed a couple of trends that require buckets more money as the trends trend upward. The first trend was an expansion of services provided by (Florida) universities to students. The second trend, which has exploded in the past few years, was construction of new buildings and facilities. Exactly how both of these are funded beyond my purview, but the money must come from somewhere. If it’s not taxes, it’s got to be tuition (and fees), or bonds. Rising tuition makes me think it’s the former…

    Tying in calmo’s point, if the tuition is skyrocketing, and the slope of the curve is steepend by these trends which are secondary (or weakly primary) to the university’s mission, what’s going on here? Demand is much greater than supply. But demand and supply of what? Supply of “the college experience”, which increasingly is “nice environs” rather than “that bastard econometrician professor that busted my ass but I’ll cherish ’til the day I die”. Folks who are demanding, and are willing to pay for, “nice environs” have little need of education (because they’re rich), per se, and are willing to pay. Folks who are demanding education, are increasingly unable to pay. Pile on an ever more palpable popular contempt for science… This is a vicious feedback loop that needs breaking, and soon. How? Now, there’s a question…

  5. skoobz commented on Oct 20

    good comments george

  6. TDM commented on Oct 20

    You cannot compare college costs without accounting for financial aid. You must compare how much people are actually paying. Only the rich pay list.

    There is a revenue curve for tuition. If tuition is too high you will only collect the financial aid contributions of low income students. I remember economists saying that public college tuition was too low not long ago.

    BR: Okay, do a full analysis of the relative increases in tuition, room, board, textbooks, expenses versus the increase in financial aid — and get back to me.

  7. George West commented on Oct 22

    Hey Barry,

    Happy Birthday Big Guy. Go for the THs box set and if you don’t like it, send it my way.

    Re: ” BR: Okay, do a full analysis of the relative increases in tuition, room, board, textbooks, expenses versus the increase in financial aid — and get back to me.”

    It’s not a full analysis but it covers the years from 1990 to 2000 and I think it gives a sense of what’s going on with tuition expenses and financial aid.

    I used the data available at

    http://nces.ed.gov/pubs2004/2004158.pdf in a report titled “A Decade ofUndergraduateStudent Aid:1989–90 to 1999–2000” particularly the data on public four year colleges.

    I also used the source that Mark Thoma referenced “http://www.ous.edu/budget/tuihist.pdf” although I only used the data for resident tuition to the University of Oregon and did not attempt to create an average over all the Oregon schools.

    The results are much more striking graphically. Drop me an email if you would like a copy of the spreadsheet and graphs.

    Results:

    Percentage change in U of Oregon/National Tuition and Fees charged 1990 – 2000

    (52.11% / 74.86%)

    At the same time the average net tuition (tuition – fin aid) and fees paid by students nationally grew by 62%.

    Fees actually paid grew by a rate less than the growth of actual fees charged.

    The dramatic period of time is between 1994 and 2000 when National Average Tuition and fees grew by 19% the net fees paid grew by roughly 10%.

    When we look at the price of attendance (Tuition and Fees plus board, books, booze and birthcontrol) things get really interesting.

    For 1990 – 2000 the average price of attendance grew by 51% and the net price grew by 21%. During the same time period the percentage of students receiving financial aid grew from about 53% to 73%. Again, the list price grew faster than the net price by a significant amount and the number of students receiving fin aid grew by roughly 45%.

    What we are seeing with a lot of the data presented in the media (NYT and such) is just one side of the equation – The list price. The street price is not being reported, even though the govt is kind enough to figure it out for us and provide us with the data. Is this what we mean by hedonic adjustments or is it just good old fashioned editorial bias?

    I’m putting my money on government meddling and the relaxation of the requirements to show need rather than any kind of CPI inflation as the root cause here. The growth in tuition and fees won’t (and shouldn’t) show up in CPI since these costs are not born by the consumer. This is just good old fashioned govt distortion of a market by regulation and meddling.

    Keep up the good work. Your Apprenticed Investor columns totally rock and I’m looking forward to the book. Likewise the stuff on the music/movie industry going the way of the dinosaurs.

    Kind Regards,

    G.

  8. TDM commented on Oct 22

    Thanks, George, for doing work that the NYT won’t do. The USA Today crunched the numbers for 98-03 last year. They found that after financial aid and tax breaks, average tuition paid at public universities fell 32% while average tuition paid at private universities rose 7%. Tuition has been raised and states are now subsidizing students instead of schools.

    http://www.usatoday.com/news/nation/2004-06-27-demystifying-tuition_x.htm
    http://www.usatoday.com/news/education/2004-06-28-tuition-burden-cover-usat_x.htm

  9. Shayne Weyker commented on Nov 17

    ALL FINANCIAL ASSISTANCE FOR COLLEGE IS NOT CREATED EQUAL

    I doubt whether it’s right (as the above post says USA Today did) to aggregate all students together and say that they and their parents paid 32% less, all assistance accounted for, from 98 to 03.

    Different forms of aid of equal dollar amounts are not equal in their benefit to the students who receive them. And the more beneficial grant/fellowship/scholarship aid has been shrinking while less beneficial assistantship/work study/tax credit and especially loan aid has been expanding.

    Poor students and/or their families don’t get the full benefit of the tuition tax breaks because they don’t have enough income to begin with to receive the full tax break, and/or the delayed benefit of the tax break can make them borrow money to pay tuition while waiting for their refund.

    Note too that poorer students get work study aid and doctoral students get assistantships. Taking that aid may well have the opportunity cost of not working at jobs that provide the kinds of experience that will earn them more after graduation.

    Not to mention the opportunity cost of working students having less time to focus on their assignments, impress their professors, and thereby get the most out of their degree.

    While working as a TA in the 90s at the U. Maryland College Park I heard that its undergrad students were working more hours per week than students at the college ever had. That should tell you something about the economic stress the students must have been dealing with in that period.

    Finally, that shifting of government funding to students at the expense of support to public colleges will ultimately increase support of private colleges at the expense of public ones (since private colleges never got much if any direct support from governments the new policy favors them compared with the old system).

    And those losses in income will force public colleges to cut salaries/services/capital expenditures. And that will, on balance, be to the detriment of middle and lower class students who disproportionately attend public colleges while being to the benefit of richer students at private colleges and religious students at religious colleges.

    Which should come as no surprise considering the Republicans have been running the national and some state legislatures for a while now, and the republicans answer to wealthier and more religious supporters than the Democrats.

    HIGHER ED MARKET INEFFICIENCIES AND TEACHER QUALITY

    I think that there is indeed a market distortion. At the graduate level, the quantity of faculty publications in big name journals is overvalued and faculty mentoring and quality teaching are undervalued. At the undergrad level the market overvalues shiny new buildings with nice facilities and undervalues small class sizes and quality professors.

    Now if parents/students could just get solid teacher quality data, they could figure out where the real bargains in higher education are and the market could correct itself. Sadly, student evaluations have almost no relationship to teacher quality.

    As much as I am suspicious of the quality of internet-based teaching vs. classroom teaching, the shift away from classroom-based teaching would reduce the need for shiny buildings and the many costs associated with them. That money could, hopefully, be used to pay for things that would improve teacher quality.

    Colleges can get teacher quality by
    hiring teachers full-time at professional pay with benefits and tenure or 5-10 year contracts
    favoring teaching experience more heavily than now when hiring faculty
    requiring peers to observe how the profs teach on a regular basis and giving them feedback
    requiring all professors to be exposed every few years to the teaching and techniques of great teachers in their discipline

    My experience (adjunct) teaching at public and private colleges in the last six years tells me that college presidents and deans are have not and will not put necessary the resources into doing those things.

    Foundations focused on making grants to improve the quality of education know this. That’s why they’ve been trying to help some with the last item. But that alone is not going to do it. Especially with colleges shifting away from full-time and tenured professors to part-time adjuncts and short-contract professors in order to gain flexibility for the deans and save on salary and benefits.

    It’s that unstable and underpaid work environment for people who don’t get one of the scarce full-time jobs teaching that’s driving me out of academia.

    But for a while at least the money will go into buying the video and collaboration software and hardware that will let teachers keep using the real-time audio and visual communication that is available in any classroom teaching and which they depend on.

    Finally, (American’s dislike of science and math not withstanding) colleges’ increased focus on teaching advanced natural science and technology courses will continue to draw budget money into hardware and facilities. Administrators see natural science and technology as critical sources of research grants and international students and those disciplines’ equipment and facilities become obsolete fairly quickly.

    –Shayne Weyker

  10. ben commented on Feb 23

    i have a project for class, and one of the questions is to discuss what the relationships between student fee increases and the stock market. NE one care to shed some light? please let me know.

    americanmistake@yahoo.com

  11. John Doe commented on Nov 6

    I am also working on a school project, and cant find any thing on senators or reps talking about their view on this.

    Any help?

    post please.

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