Priced Out: What a College Education Is Costing America

In a recently published research paper, “Priced Out: What College Costs America,” National Association of Scholars Research Fellow Neetu Arnold examines three issues in U.S. higher education: inflated tuition, continuously expanding administrative positions, and increasing levels of student debt. She also shows how they join and reinforce each other to the detriment of America.

Ms. Arnold frames her work through an analysis of 50 colleges and universities across the United States. While the mix of colleges includes public and private four-year institutions, it does not include community colleges and for-profit institutions.

Ms. Arnold justifies her exclusion of community colleges because approximately 60 percent of community college students do not borrow funds for their education. She justifies her exclusion of for-profit institutions because they educate such a small percentage of U.S. college students.

However, Ms. Arnold states that it’s time that someone applied the same critical analysis to public and private non-profit institutions that is applied to for-profit institutions. These institutions “deserve extra scrutiny precisely because of the greater degree of public support they receive. Tax breaks and direct federal and state funding should come with the expectation of greater accountability to the public.”

The analysis in the report begins in the 1980s and is due to two events. Event number one was the passage of the Bayh-Dole Act in 1980. Bayh-Dole allowed American universities to acquire the rights to any intellectual property they created using federally funded research. It successfully refocused universities’ goals away from classroom instruction toward research commercialization.

Event number two was the colleges’ focus on marketing in the 1980s. With the annual ranking system established by U.S. News & World Report in 1983, colleges focused on expanding their brand, particularly to improve their placement in the U.S. News annual rankings. Ms. Arnold writes that it’s vital to understand these shifts in university priorities in order to understand rising student debt and administrative growth.

There are 14 recommendations in this report, and Ms. Arnold organized them into five categories.

Category 1 is to “Cut down on administrative costs and use funds effectively.” There are four recommendations in this category:

• Universities should consolidate offices and departments to reduce duplicate roles.
• Universities should reduce international student admissions and recruitment.
• University budget cuts should target programs and departments centered around transitorily fashionable concepts such as “innovation, entrepreneurship, or transdisciplinarity.”
• Federal and state governments should cut funding to 4-year universities that provide remedial education and related services.

Category 2 is to “Empower students to make smart financial decisions.” The three recommendations in this category are:

• Congress should amend Title VII of the 1964 Civil Rights Act to allow employers to use alternates to a college credential as a way to assess job applicants’ work preparedness.
• Universities, particularly public institutions, should create two- to three-year vocational tracks, with classes staffed by industry veterans.
• Federal and state governments should provide students information about their eligibility for grants/aid significantly earlier in the application process.

Category 3 is to “Create incentives to make schools spend responsibly.” This category has two recommendations:

• Federal and state governments should cut funding to institutions that fund ideological activism in areas such as globalism, social justice, and sustainability.
• Federal and state governments should make higher education institutions financially responsible for a portion of the debt incurred by students who fail to graduate.

Category 4 is to “Increase information transparency.” The three recommendations in this category are:

• The Integrated Postsecondary Education Data System (IPEDS) should redefine its expenditure categories to provide more accurate and relevant information for policymakers.
• Congress should rescind the 2008 ban on the creation of a federal student unit record data system and create such a data system.
• State governments should make public university employee salary and benefits information publicly available and easily accessible.

Category 5 is to “Reform college quality evaluations.” The two recommendations are:

• College rankings should be divided into two separate parts, which provide disaggregated assessments of a school’s educational quality and its financial health.
• The federal government should replace the existing accreditation system as a way to determine eligibility to receive federal funds.

Ms. Arnold writes that the coronavirus pandemic has left American colleges at a crossroads where their wasteful spending habits can no longer be concealed from students and parents. Students will no longer go into lifelong debt for a shoddy education. Universities can’t ignore their administrative bloat and the average amount of debt incurred by students attending their institution.

In a chapter entitled “Student Debt,” Ms. Arnold provides an example of a typical middle-class student. He gains admission to the college of his choice, but the college determined that his family was too rich to qualify for financial aid. According to Ms. Arnold, 54 percent of families earning between $50,000-$99,000 pay the full cost of college, even though they are unable to because the average cost of a four-year school was $28,123 in 2018-2019.

Middle-class students have 60 percent more debt than low-income students and 280 percent more debt than upper-middle-class students (families earning between $100k-$149k per year). If you wanted a rule of thumb about what separates the haves from the have-nots in America, the dividing line runs between those who don’t need to borrow to go to college and those who do.

Job prospects for today’s college graduates are bleaker than they were for previous generations. Employers now offer college graduates jobs that high school graduates used to do. More than 40 percent of recent college graduates are underemployed and receive lower wages than they expected when they signed their student loan papers.

The large percent of underemployed college graduates compounds the student debt crisis. It hits middle-class graduates harder than most. We cannot begin to solve underemployment, writes Ms. Arnold, until we solve student debt.

At the median age of 35, Baby Boomers owned about 20 percent of America’s wealth. Gen Xers owned less than 10 percent at the same age, and Millennials currently own 5 percent. Our younger generations are poorer than their parents with no prospect of making up the gap.

Ms. Arnold writes that the Bennett Hypothesis is the only explanation for how colleges remain in business after continuing to increase tuition rates at levels much higher than the average family can afford. The Bennett Hypothesis postulates that colleges increase tuition in response to increases in federal financial aid.

Nearly 85 percent of students at four-year public universities and 90 percent of students at four-year private universities receive some type of financial aid, and more than 40 percent of students receive Pell Grants. Ms. Arnold writes that if federal financial aid disappeared tomorrow, a vast proportion of students would be unable to pay their tuition and enrollment would plummet.

Ms. Arnold’s research paper provides additional data on the psychology of shopping for a degree. From her interviews with students and parents, she provides the following generalizations:

1. Students and parents view college as an insurance policy.
2. Some parents see college attendance as a necessary rite of passage.
3. When students choose between colleges, they are willing to pay dearly for life opportunities.
4. When parents choose between colleges, they pay more attention to the financial costs of life opportunities.
5. Few people regret going to college or not going to college.
6. Greater numbers of students regret which college they chose, particularly as the price tag becomes clear.

The paper also provides an excellent review of college and university revenue sources. By reviewing funding between 1980 and 2018 at the 50 public and private universities included in the sample, Ms. Arnold and her researchers noted that:

1. Universities’ increasing reliance on government funds constitutes a major driver in both wasteful administrative spending and decreasing focus on student education.
2. A university’s reliance on government grants and contracts correlates strongly with the percentage of institutional expenditures devoted toward research.
3. Private donations and government grants and contracts increased as proportions of revenue sources for public universities while state appropriations as a proportion decreased.

Higher education expenditures are reviewed and analyzed in a chapter with the header: “The Anatomy of Bloat.” Besides the fact that expenditures increased over the 38-year period analyzed, the researchers found:

1. Tuition increases are used partially to compensate for the loss in state funding, but mostly to cover increases in university expenditures.
2. Not only has the total number of administrators and staff in the sample of 50 institutions grown over the past decades, but the growth has been heavily concentrated in executive and other professional hires.
3. Universities increasingly dedicate funding to external-facing departments such as University Relations.

Inflation-adjusted expenditures per full-time equivalent student roughly doubled over the past four decades from $33,000 to $67,300. The level of detailed account analysis as well as the specifics exhibits for expense increases by category at several of the 50 institutions is more than enlightening; the evidence provides a hint as to why Ms. Arnold and her colleagues chose to use the term “bloat.”

While a majority of the ballooning expenditures at the selected universities were used to pay for salaries and wages, those salaries and wages were not being used for faculty. Instead, they paid for a growing number of administrators and staff.

The National Association of Scholars admits that its philosophy leans more conservatively than most higher education organizations. That said, Ms. Arnold and her colleagues have provided an excellent paper. The paper is rich in facts and attempts to explain why we need more granularity in how expenditures are reported to IPEDS (the Department of Education’s operating statistics division). It’s clear that many institutions have used tuition increases to cover their increases in administrative positions and expenses, rather than funding increases in faculty and faculty compensation.

I agree with Ms. Arnold’s recommendation that public universities should offer a four-year, traditional bachelor’s degree education track along with a two- to-three-year vocational track. I note that many state university systems provide this education through their four-year universities and their two-year community colleges. Suggesting that they be provided at the same campus is an interesting recommendation that could most likely lead to institutional consolidation.

Ms. Arnold notes that universities have lobbied for government bailouts due to the decrease in revenues experienced through pandemic-related enrollment decreases. She postulates that maybe universities would cut their tuition in order to bring enrollment back up to former levels. She notes that the preliminary indications are that these tuition cuts will not happen.

The paper also notes that university administrators were not impacted by expense cuts at the level experienced by adjunct professors, lecturers, and others. In fact, Ms. Arnold points out that the hollowing out of part-time faculty ensures that the only people who have long-term interests and influence in universities are administrators.

The paper’s final conclusion is that a university will only return to its educational mission if it’s composed largely of faculty and students dedicated to education and not to imposing decades of debt repayment on its graduates in order to pay for administrative bloat.

Having spent the past two decades in higher education, I concur with Ms. Arnold’s recommendations that tuition and student debt need to decrease in order to provide more of our graduates a better life opportunity after graduation. I also concur that the ratio of administrators to faculty is too high. I doubt, however, that few institutions will embrace her recommendations, since the majority of those who make the budgetary decisions are administrators.

Even now, my observations of reports of university expenditure cuts indicates that universities tend to cut degrees and departments before they cut administrative positions. Ultimately, the market will likely push many universities to cut tuition unless federal and state governments increase their subsidies without requiring a matching reduction in tuition and other expenses.

It’s clear that the number of families capable and willing to borrow money to attend college is declining at a rate high enough to impact all but the 100 or so “elite” colleges and universities. Unless “free college for all” becomes a federal program, people will look for other affordable options, including vocational certificates.