Tuesday, December 19, 2017

Hyperinflation in Higher Education

This week I decided to follow up on a graph I saw in the Wall Street Journal that compared college tuition and out-of-pocket costs to the costs of medical care and overall living costs. See the graph at the bottom. All I can say is, Wow. The red line in the chart goes from the year 2000 to 2016. It shows that costs of higher education increased by just short of 150%. Imagine if your waistline increased by 150%. 

We all complain about the rising costs of medical care. It is the yellow line in the chart, and it rose by about 75% over those same years. Apparently a nice course in the liberal arts is worth a lot more than a course in biology. Okay that's a distortion, but what the graph says is that the costs of college education went up twice as fast as medical care costs from 2000 to 2016. And then there is all that other stuff you buy -- all those silly aged steaks, lovely cars, and ovens. The overall Consumer Price Index increased by under 50%. 

It is pretty clear from the pretty graph that higher ed spending is the winner. As a former professor, I resent that. Where was all that money when I was sweating it out in my office without electricity and running water? 

Mean conservatives have looked at all this and have come to some conclusions. They see a connection between the ease of getting loans for college, tax benefits, and the expansion of grants and scholarships. Some of these big meanies are proposing a crazy thing. Maybe if the government quit favoring higher ed so much, the price might not go up another 150% in the next years. Crazy idea, eh?

But Junior has to go to school, right? School? Are you kidding? Don't scream at me but I remember what it was like to go to school. Jim and I roomed together for three years in what might now be considered a Georgia prison. Back in those olden days there was no student union, there was not even an espresso maker or a StairMaster in our dorm's break room. Basically there was nothing in the break room except for a couch. No TV. No beer. No JD. No computer games. The entire floor of our dorm shared one pay telephone and one bathroom. We had to pass 18 hours per quarter to graduate in four years and therefore the lack of almost all amenities was necessary since we actually had to study. Study, really?

Today, universities are not spending the money on the faculty -- or at least not on most of them. In fact, the new wave in higher ed is to minimize the use of regular tenure-track faculty. But they do seem to have plenty of money for planting and replanting all the flower beds each season and for building walls, monuments, and other things of architectural beauty. We have more trees on the IU campus than Redwood Park. We build new academic and other campus buildings faster than the NFL can build domed stadiums. Clearly we want the alumni to be comfy when they go to sporting events and we want helicopter parents to enjoy their spring strolls around campus when they come to harass their lovely children's professors. We build luxurious dorms faster than Starbuck's builds coffee shops. Why would a student want to graduate if she could stay in these palaces located within meters of favorite student watering holes?

The kids do not get jobs and the ones who run out of courses to take leave campus and move in with their parents. Meanwhile, the nation has a shortage of plumbers and programmers. Luckily many of these unemployed students are excellent at creativity activities and learning how to discover themselves as they go on their graduation trips to Luxembourg. 

Sorry folks, but this old codger does not like this brand of change. I'd rather see our country surging ahead as a model of innovation and technological progress. I'd like to see adults worrying less about the creature comforts of their kids and helping them better understand the values of things like history, economics, accounting, hard work, patience, and so on. Removing some of the government support might lead to more demanding consumers who require that universities get back to doing what they should be doing. In the meantime, if college is too expensive, young people might try going to a local community college where they might learn something and also gain a marketable skill. They can go to Luxembourg later on their own own dimes. 


  1. Larry, interesting post. Couple of observations that started back in my 5 years as the associate dean in charge of our school's finances:

    1. Capacity plays a huge role in the relentless march of tuition increases. Starting back in the Nam era when college draft deferments were popular, demand for higher ed grew dramatically. With the advent of distributed ed via technology in the 90s, capacity grew dramatically. Finally, it is estimated that about 2/3 of all jobs now require or soon will some sort of post-high-school ed, so you see all the vocational ed providers getting into the game at the fringe. Look at the growth of Ivy Tech in IN which is now the largest college in the state. All this capacity means ed institutions compete for students. This means spending on beautiful campuses, career services support, various amenities (e.g., rec centers), etc. For example, if memory serves by 2005 we were spending 2/3 of every MBA tuition dollar on tuition assistance.

    2. For state institutions, state appropriations have diminished greatly and continue to do so as a % of total revenues. This means even more reliance on tuition dollars.

    3. With expenditures outpacing revenue growth under the traditional research-institution model, the only way for institutions like IU to make ends meet is to teach more classes requiring more teachers. Problem is that this cannot be done economically for research faculty who are in short supply in some disciplines due to external competition. Dalton once asked me how we could balance the budget going forward when research faculty were demanding and getting higher compensation and reduced teaching loads and the campus was taking our net funds in continuously greater amounts. The numerical answer: Assuming steady state, replace only 2 out for 3 departing research faculty with 2 clinicals replacing the 3rd. Although the school has grown considerably (e.g., non-steady state) since, most of the faculty growth has come in the form or non-tenure track faculty who coast half as much and teach 2-3 times as many classes.

    One can lament the diminution of the numbers of research faculty model, but the macro forces that are behind it leave many institutions with little choice. There are also those who question the social value provided by the research faculty model. Dalton once asked me to calculate how much it cost us to produce A hits, and also all types of pubs. This obviously required some indirect cost assumptions, and I tried to make reasonable ones. My results indicated that - and keep in mind this was over a decade ago - each A hit (counting only A hits) cost about a quarter mil per. Counting all hits, each pub cost about $150K. Although the social value issue can be debated ad nauseum, those are somewhat staggering figures.

    Bottom line: Capacity issues, declines in state appropriations, and the high and growing cost of research faculty are some of the principal drivers of this phenomenon about which you write - all of which make me glad I am no longer trying to balance a school budget and fight with the campus and university continuously over ever-declining appropriations (campus assigned) and excessive and growing assessments (taxes) that put the unit with the highest net actual positive contribution on the campus (tuition revenues less actual costs)in the red.

    Merry Christmas! John

    1. Merry Christmas back to you and your family John. Thanks for the explanation of some of the factors affecting higher ed costs and quality. I can't argue with any of them. I think some of what you say presumes your business school background wherein bringing in lots of non-tenure track faculty made sense because we were pushing out students that were valued in the marketplace. My problem with higher ed is not so much with business schools. It is more aimed at other parts of the university that seem to grow despite job prospects for their students -- and the beauty elements. I'd love to be part of a university that bucked the trend and made blatant statements about putting money into things that directly impacted quality education and producing students that are highly valued in markets. I think the curve has peaked on having a pretty place to find ones self that costs a bundle of money. Ax the flowers and add a requirement for common sense. As a Marine I think you could value a place that tried to emulate a boot-camp atmosphere in education. Okay I am exaggerating but I think you know what I mean.

  2. Larry, over the years I have heard the boot camp wish on several occasions. One such occasion was when my high-school vice principal sister-in-law asked to attend a graduation ceremony at Paris Island at which I was the reviewing officer. She immediately decided that every high school student in America should be required to go through Marine boot camp. I told her mission impossible.

    Problem is what goes on at Marine boot camp is a transformation about first eliminating the hubris that far too many young people possess in overabundance and then replacing that with team attitudes. This requires a willingness to be transformed which most students lack. One only has to look at the myriad features of the new iPhone X to grasp the self-fascination of young people today. (I checked out the X only because my wife said she wanted a new phone for Christmas, but didn't know which one. In doing so, I was greatly disappointed because the face-programmable emoji that best reflected my personality was not one offered - to wit, a chainsaw.)

    At any rate, the Marines work very hard to still find "a few good youngsters" who are willing to become a band of brothers willing to risk their lives for their colleagues instead of a gang of brats whose problem of the day is how to cheat on the test they didn't study for and not get caught - or hope for a prof who is too big a wuss to deal with it if they do.

    1. Dear Chainsaw, Thanks for all the good words to think about. Wrapping a culture of teamwork around an education seems to work in business schools but I am not sure it is possible in the greater university. But I do think it is possible to create an environment in which we value and perhaps even struggle to learn complicated and difficult things. An environment where failures are as valued as successes and in which we learn to keep trying. It seems silly to say these things because to me they are common sense. But somehow the world seems to have been turned upsidedown.

  3. Dear LSD. A topic that has irritated me for some time. I think your intro and blog pretty much got to the heart of the matter—govomit subsidies have so altered the demand/supply/market place of higher ed as to render it a major strategic weakness and impending economic disaster. Another example of how liberal thinking/polices result in disastrous unintended consequences. Remember the housing/financial meltdown because liberals wanted everyone to have home ownership? Good job, LSD. I hope Santa puts a gallon jug of JD under your My Pillow.

    1. Tuna, Please give Santa my correct address. Sometimes he get confused. Hope you and the missus Tuna have a wonderful Christmas.