Why Does College Cost So Much?
As a university president, one of the questions I am most frequently asked is “Why does a college education cost so much?”
There are really two questions at play here. The first is the actual cost of providing a high-quality transformative educational experience for our students. The second is the differences between price and cost. Over the past few decades, these questions have become progressively more interdependent.
The real cost of an excellent baccalaureate education is primarily an investment in staff. Residential liberal-arts colleges are personnel intensive. We maintain low student-faculty ratios, which allow us to provide numerous seminars, writing-intensive classes, meaningful laboratory and studio experiences, out-of-class educational activities, independent research with a faculty member, and robust one-on-one academic advising.
Within the Annapolis Group (the leading liberal-arts colleges in the U.S. including Susquehanna), there are approximately 2 additional staff members for every member of the faculty. These are administrative assistants, technicians, carpenters, electricians, health-care professionals, coaches, gardeners, chaplains, safety officers, student-affairs professionals, administrators, etc. Residential colleges are small cities. We are the “academical villages” of Thomas Jefferson’s dreams.
We are true living-learning communities. We equip laboratories with state-of-the-art equipment; we maintain technologically sophisticated theaters, concert and rehearsal facilities, multi-media art studios, and radio and television production facilities; and we support athletic facilities and equipment for all students. This allows us to provide the best collegiate educational experience available to young people today. The broad-based intellectual experiences to which students are exposed on our campuses is what differentiates them in the workplace and in their communities. It is why our graduates hold disproportionately high percentages of leadership positions and why the financial return on investment of a residential liberal-arts education is so compelling.
The difference between price (published tuition and fees) and cost (amount actually paid after grants and scholarships) has been increasing on a percentage basis over time.
Most of our institutions provide scholarship support in 2 forms: need-based aid and merit scholarships.
· Need-based aid consists of grant and loan assistance to help make the aforementioned necessarily expensive education attainable to students whose socio-economic circumstances would otherwise keep it out of reach.
· Merit aid extends financial enticements to recruit students of higher academic ability or special talents. Outside of Division-III athletics, those talents may include athletic ability.
The percentage of the price covered by aid is referred to as the discount rate. Discount rates have been climbing steadily over time. As a result, when adjusted for inflation, the net tuition revenue of many private colleges and universities has not increased, and at many of those institutions, there has been little if any change in real (non-adjusted) revenue resulting in decreased buying power. As middle- and lower-income families have found the amount they can contribute to the cost of their children’s tuition stagnant or decreasing, financial aid budgets have increased to make attendance possible.
Very few institutions have endowments capable of fully funding their financial aid packages, so operational budgets are developed anticipating net revenue reflecting discounts in aid and an endowment draw that is a fraction of the awarded aid. Historically, most institutions balanced their budgets by enrolling more students with an ability to pay, which yielded higher net tuition rates. The haves buoyed up the have nots. Competition for talented students of means has mitigated the practice of “balancing” the socio-economic character of an enrolling class, because nationally, institutions apply more and more merit aid to enroll those students, which affects the recruiting ability of institutions whose financial aid policies are more need focused.
The cost of college continues to rise for the reasons mention in Part I, but the price of college appears to rise faster because of the accelerated growth of financial aid packaging.
The important thing to remember is that the return on investment remains very real: on average, college graduates receive more than $1 million in lifetime income above those who do not complete college degrees; college graduates are more likely to remain employed in times of high unemployment; and a good college education prepares its graduates to be informed and engaged citizens, which benefits all of us.