Wednesday, September 9, 2009

A longitudinal picture of College tuition

This is a follow up post to my earlier one about Zemsky's 3-Year College proposal. This table doesn't completely show the issue, as I'll explain below, but it gives you an idea. Note that these are inflation adjusted numbers so you can make comparisons across years. (Economists use the jargon, "in real terms" to indicate inflation adjustment.) The adjustments are never perfect but they do give you a ballpark for what is going on.

There is an economics theory called price discrimination, where the price of an item that can't be resold is individualized. If there were perfect price discrimination, the tuition rate number you'd see would be the price Warren Buffett's grandchildren (does he have any? I don't know) would pay. Everyone else who is less well off would pay an individualized price somewhat below that. So one explanation for the tuition increases that you observe in the table is to allow colleges a greater range of prices in which to price discriminate. What we'd really want to see then is the average of those individualized prices and how those vary over time. It's not in this table but the answer is that those too have gone up. In other words, financial aid has gone up, but not as fast as tuition. And of course the mix of financial aid between grant and loan has shifted - more toward loan.

In the public universities such as the U of I, I don't know if dollars from general tax revenues have increased or decreased in real terms, but what is definitely true is the share of the costs of your education that has been paid by tax revenues has gone down. (The University publishes an annual document, such as this one, that gives a breakdown of revenue sources and expenditure uses.) Tuition covers a greater share of that cost than it did in 1980 when I started to work here. Those costs, upward of 70% of which are the costs of personnel, have increased in a hyperinflationary way. So there is a similarity to the health care cost increase problem, but in education less of the explanation can be found in the analog of new technologies, treatments, and drugs, though certainly that is some of the explanation. On our campus there are many more academic professionals who support academic activity than there were 3 decades ago. (You can only see 10 years of data on the DMI site but that too is revealing. Click standard profile for the Campus to have a look.) Faculty salaries have also gone up in real terms as well.

When I started in 1980, U.S. News would classify the U of I as a "best buy," meaning the in state tuition was low compared to other Big Ten schools and comparable universities nationally. Now we are at the top end for in state tuition. Michigan has a much greater fraction of out of state students, so they get more tuition revenue that way. The U of I was upwards of 92% in state in 1980. I believe it is now in the mid 80s for in state. Overall enrollment is higher as is the number of international students at the undergraduate level.

Let me get to the punchline. The consequence of the real increase in tuition is to make College less accessible to low income people. Since college education has historically been viewed as the vehicle by which people improve their lot economically, this fact has become anathema to many. There is the related issue that even for those who do attend many borrow a lot in the process which offers one explanation for the decline of liberal education and might be thought of as a variable with the potential to create distortions in a lot of other decisions students make.

Until the recent economic downturn, this is how College was pictured in many public discussions about Higher Education. The experience was fine, but costs were spiraling out of control, limiting access. I believe the actual situation is quite complex - the experience likely has substantial issues too, but clearly the focus in public discussion has been on the costs and access question and as an industry sector, Higher Ed has done extraordinarily little to change those trends.

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