THE GREAT AMERICAN COLLEGE TUITION RIP-OFF
By Paul Streitz
Published by Oxford Institute Press at Smashwords
Copyright © 2005 Paul Streitz
All rights reserved
Printed in the United States
Print: ISBN 0971349827
Print: LCCN 2004094278
Oxford Institute Press
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Cover photography & design: Paul Streitz
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For my daughter, Natasha
Table of Contents
Hamilton vs. Alfred University
Social Costs of Higher College Debt
Hamilton Lacks a Core Identity
Hamilton Parent-Student-Alumni Association
Tables & Charts
Hamilton Tuition vs. Inflation
Hamilton Tuition vs. Median Income
Changes in Wages 1958 vs. 2003
Hamilton Room, Board and Tuition
Educational Costs vs. Alfred University
Cumulative Tuition Increase over Four Years at 5%
Hamilton Clubs and Organizations
Williams College Financial Aid
The financial tactics of modern private education are akin to the rape and run tactics of U.S. mining companies. These companies have historically stripped the land of all the valuable ore and then run from the environmental damage left behind. The citizens of the state and federal funds pay for their short-term horizon and their denial of the secondary effects of their policies.
In a similar fashion, tuitions are set by the colleges based on how much money they can extract from parents and students. There is absolutely no thought about the long-run consequences to the students, the parents or the society. Colleges and universities regularly expect parents will go into long-term debt, such as a second mortgage, to finance their children’s education. This is asset stripping at its worst.
This book will show that the tuitions are not set by the actual cost of an education. Tuitions are set by how much money a college can charge.
Eventually, enraged environmentalists ended the rapacious policies of the mining companies by gaining public support and passing stringent environmental laws. The world of higher education needs a similar correction.
In addition to the financial plundering of parents and students, Boards of Trustees promote a multicultural ideology that is anti-American and distasteful to the majority of parents and students. This ideology is not something demanded by a radical student body. Instead, it is foisted on students by educational and financial elites, despite the objections of parents, students and alumni.
In order to correct the financial, social and educational faults of modern education, the boards of trustees must be removed from operational and financial control of private colleges and universities. Without the later, the former is impossible
Control of colleges and universities must go into the hands of Parent-Student-Alumni Associations. Tuition would go into an escrow account. The associations would then collectively bargain with the administration as to levels of tuition, staffing, social and academic issues. Eventually a new form of governing colleges will emerge and the Board of Trustees will disappear.
Parents and students pay million dollars a year in tuition, alumni contribute thousands, but they have no voice in the decisions of the colleges and universities. This is tuition without representation.
That must change.
Deeper Pockets
Few people remember when universities such as Princeton or Harvard set their standards and admitted any who qualified. This often meant that there were unfilled beds in college dorms, as some freshman did not appear in September.
Increases in higher education enrollment started with the G.I. Bill that enabled thousands to enter college. Government scholarships and student loans increased the amount of money available for college. With growing real income, private education and college education became affordable for thousands of families. However, this was short lived and starting in the 1980’s all colleges in the nation began raising tuition at about twice the rate of inflation. Higher education became less affordable.
As can be seen in the following chart, Hamilton has consistently raised its tuition above the rate of inflation for the past forty years. From 1961-1969, it raised tuitions at a steady 8% per year. From 1971-1978, it raised tuition at 10% per year. From 1979 to 1991, the raises were erratic but hovered around 10%. The highest tuition was in 1979 with an increase of 20%. From 1991 until present, Hamilton has raised tuitions at about 5% per year, or at approximately twice the rate of inflation.
To a degree, one can expect increases in personal services such as education to be larger than increases for manufactured goods, or the general rise in prices. If an economy is expanding by increased productivity then general wages will rise. A class of English students cannot be more than twenty, but the professor is now more highly paid even though he is not more productive. One would expect, therefore, college tuitions to rise at a rate greater than the general rate of inflation. Nevertheless, the increases in college tuition are astronomical and greater in absolute terms.
Hamilton raised its tuition less than the rate of inflation in only three years since 1961. In 1974, Hamilton only raised its tuition, 10%, when inflation was raging at 11%. In 1981 Hamilton raised its 5.9% versus inflation of 13.6% and in 1982, 4.8% versus 10.2%. It was never again lower than inflation.
In 1962, Hamilton raised its tuition from $1,100 to $1,188, which is an increase of exactly 8%. That $88 dollar increase would be $536 in 2004 dollars. The increase in tuition for Hamilton from 2003 to 2004 was from $30,200 to $31,700, which is an increase of $1,500. Thus, on an absolute basis, tuitions rise faster than in earlier decades because percentages are off a higher base tuition.
College is not simply becoming more expensive, it is becoming more expensive relative to the income of the average American family. Academia makes a great commotion about being liberal and having affirmative action programs, but empathy for the underprivileged and working classes is rather limited. Their liberalism is confined to campus rhetoric and not to the financial policies of the institution. Hamilton, as other elite institutions, has made private education considerably less affordable.
Table 1
An article in USA TODAY entitled “Low-income students scarce at elite colleges:”
Thomas Jefferson believed that democracy wouldn’t work unless poor but worthy students had access to a quality education. So, what would he think today about all those SUVs or that shiny black Saab turbo convertible parked near student hangouts at the campus he founded 185 years ago? [Mary Beth Marklein, “Low-Income Students Scare at Elite Colleges,” USA TODAY, September 20, 2004, pg. 1.]
USA TODAY cites the Century Foundation:
The nation’s 146 most selective institutions primarily enroll students from the top quarter of the socioeconomic scale, a measure that includes family income and the education and occupations of a student’s parents. (74% of students at elite institutions come from families in the top quarter of incomes, above $87,000). [Ibid, pg. 11a.]
The mean income in the United States has risen dramatically compared to the median income. This indicates that those above the median have become a good deal wealthier and better able to afford a private college, while those at or under the median income are less able to afford such an education than they were ten or twenty years ago. In short, the rich are getting richer and the middle and lower income families are losing ground. This is due to the destruction of working class families by shipping manufacturing overseas, the importation of high-skilled technical workers such as computer programmers and the mass migration of low skill Mexicans into the country. Upper income families and professional families are above this competition and tend to dismiss it, but it has very real impact on the vast majority of Americans.
Increases in government aid, did not lower tuitions. The money was simply absorbed by higher education.
The last decade has been marked by rapidly increasing federal aid and ballooning tuition. In current dollars, money for Pell grants—federal grants to less affluent students—rose from less than $5 billion in 1996 to more than $12.8 billion in 2005.
In addition, federal Perkins loans—low interest federally guaranteed loans to roughly the same group that is eligible for Pell grants—rose in current dollars from $892 million in 1993 to $1.3 billion in 2004. The Federal Direct Student Loan Program and Federal Family Educational Loans went from a combined $12.5 billion in 1993 to $52.2 billion in 2004. Tax credits and deductions will add another $9 billion in 2005.
Not surprisingly, this massive influx of student aid has been accompanied by a substantial increase in tuition. In the 10-year period ending in 2004, tuition and fees at public colleges and universities rose 47 percent, adjusting for inflation. At private colleges, they rose 42 percent. [Ibid, pg. 11a.]
Colleges and universities do not set their tuitions by any elaborate budgeting method. They estimate their income from government and private sources such as grants, alumni contributions and endowment income. Next, they plan what programs and increases they would like to have over the coming year and what the costs will be. They make up any difference by increasing tuition. The whole process could be done on the back of an envelope. The assumption is that they can raise tuitions as much as they want without having any decline in applications. Plus, they ignore the negative effects of high tuitions on their students and parents.
In 1983, the U.S. News and World Report (USNWR) rankings of colleges, universities and graduate schools appeared. These rankings gave colleges and universities a positive incentive to increase spending. USNWR includes in its formula two financial measures: faculty compensation and educational expenditures on a per student basis. Colleges and universities could rise in the rankings simply by spending more. If there is one single factor that is influencing the dramatic year-after-year, wildly out of control tuition increases, it is the USNWR rankings. U.S News and World Report would serve the country, students and families well by dropping the expenditures from their ratings.
The competitive race for USNWR rankings removed all barriers to spending restraint and discouraged colleges and universities that did so. The new motto of private institutions was “raise and spend, and then raise and spend some more.” Increases in loans, government grants and alumni contributions disappeared down the rabbit hole of “increasing costs of higher education.
The dramatic rise in tuitions after 1983 was not mandated by heaven. It was the deliberate choice of the institutions to play the USNWR rankings game. Individually and collectively, colleges and universities took no actions to object to the financial impact of USNWR on tuitions. Administrators and faculty did not object because it meant the spigot had been turned on for increased funding, higher salaries and lower workloads. The trustees of the institutions did not object because they wanted to wave the flag of their alma mater and compete for higher rankings regardless of the cost to their students.
In a sense, USNWR did little more than confirm common knowledge, but gave it a patina of scientific and academic respectability. For example, that Harvard, Princeton and Yale were then, and are today, the most prestigious universities in the country. However, USNWR went beyond clustering top institutions, it attempted to rank them 1,2,3 by using various data such as faculty accomplishments, student achievements and rankings in their high schools, and finally, most importantly, financial resources devoted to education.
Rather than any precise formula or accepted scientific method, USNWR’s rankings are an imprecise black box:
I examine two common criticisms of the methodology that U.S. News uses to rank colleges and graduate schools. These are: (1) constant changes to the formula make it impossible to interpret year shifts in a school’s rank in terms of change in its relative academic quality (Levin. 199; Pellegrini, 1999), and (2) the score used to assign schools to its ranks is overly precise, creating a vertical column where a group might more properly exist (Machung, 1998; Smetanka, 1998). [Marguerite Clarke, “Quantifying Quality: What Can the U.S. News and World Report Rankings Tell Us About the Quality of Higher Education?" Educational Policy Analysis, 2002]
Going Broke by Degree, Why College Costs So Much, by Richard Vedder covers the rise in tuitions in some depth. He also blames USNWR for the rise in college tuitions.
Thus, the “output” (in the form of rankings of universities is positively correlated with the amount of money received. Success (a higher ranking) is gained by spending more money—almost the opposite of the way success is defined in market settings. The incentives for increasing efficiency and productivity are scarce indeed in the typical university community. [Richard Vedder, Going Broke by Degree, Why College Costs So Much, pg. 30.]
Mr. Vedder so discusses why a college won’t break ranks and charge a lower tuition. The advantages would be to raise SAT scores and other measures of good students. He discusses various reasons why this is not done. However, I believe that he omits that any school doing this would suffer in the “prestige” rankings of other academics and thus lose more in the rankings than gained by a more qualified student body.
Mr. Vedder’s analysis gives many other reasons why colleges differ from other social and corporate institutions that lead them to be less conscious about keeping costs down. However, these same factors existed before 1983 and there were not the great increases in tuition in the two prior decades. Therefore, my conclusion is that the competitive race to improve USNWR rankings is the single factor that unmoored college expenditures.
Another criticism comes from Ronald G. Ehrenberg, professor and administrator at Cornell University:
To the extent that the rankings are based partly on how much an institution spends on each student, as is the popular USNWR ranking of undergraduate institutions, no administrator in his or her right mind would take actions to cut costs unless he or she had to.[Ronald G. Ehrenberg, Tuition Rising: Why College Costs So Much, pg. 16.]
He goes on to comment:
If the selective private institutions cannot voluntarily agree to limit their tuition increases, or if the most selective and wealthiest of them do not lead the pack in doing so, then a slowdown in tuition growth is unlikely to occur. Without the discipline on holding down spending and tuition that is imposed externally at many public institutions, no senior administrator at a selective private institution wants to be blamed for his or her institution’s falling behind its competitors. [Ibid, pg. 279.]
At the same time, no college or university dares not to submit financial data to for fear of being invisible to thousands of potential applicants. If an institution does not submit data to USNWR, the report will simply impute data.
The whole idea of quantifying a college or university is absurd to begin with. Does anyone really believe that one can firmly say that one has received a better education at a number ten school as opposed to a number fifteen school? Further, the whole notion promoted by USNWR is that one “purchases” an education as one purchases a car. Certainly, some schools attract more top-flight students, but putting numerical rankings on this gives the USNWR ratings a patina of authority that they do not deserve.
Under the USNWR formulas, the leading liberal arts college, Williams, can never be supplanted from the number one spot in the USNWR ratings because it’s endowment and consequent per student spending (wasteful or not) gives it such a large edge over all other schools. It would be interesting to see what Williams' ratings would be if financial information were dropped as criteria.
USNWR created a Mutual Assured Spending Pact among colleges. This may continue until all the major universities and colleges recognize the problem and force USNWR to drop financial data from its ranking formula. However, this is not in the colleges’ best financial interests because it keeps a rationale for high spending.
Despite this, college administrators, trustees and government officials have acted as if the “rising cost of college education” is some God given disaster caused by supernatural forces. They have been loath to examine its causes and craven in dealing with USNWR, the five hundred pound gorilla of the college entrance process. USNWR rankings drive the number of admissions to a school, its supposed selectivity and the willingness of alumni to give to a school that has “increased its ranking.”
The effect on colleges is that they often defer maintenance on buildings or other such mundane expenses to have more money to put in categories that USNWR considers educational expenses. Or, they increase faculty or faculty salaries far beyond what is needed to retain quality professors because they must keep up spending levels. In addition, one of the largest increases is fund-raising staff to raise funds to support the increased spending levels.
In addition, the 80’s were a decade when private colleges and universities abandoned their religious roots, dropped any requirements of religion and became secular institutions. Along with it, they acquired their new god, Mammon. The stodgy academics of Western civilization were replaced with multiculturalists. The academic cars of choice, shiny Volvos, replaced rusting Fords. The “me generation” of 1960’s scholars did not see being a poor, but honest and respected scholar as something to which they aspired. If all of society was going to be more money conscious, why shouldn’t colleges act like capitalistic institutions and make as much as possible?
Whatever the reasons, no business in the United States is more fraudulent than the college system. Wrapped in the mantle of scholarship and education, its pricing can only be considered the most discriminatory in the world. Can anyone imagine going into a car dealership to buy a new car, finding the car is $150,000 and then being told that if you completely bare your financial records, you may receive “financial aid?”
This and open collusion among colleges to fix prices is a disgrace and illegal. The U.S. Justice Department sued the Ivy League for collusive price fixing, which somehow did not get as much press as the Microsoft anti-trust case. Financial aid is a gimmick. The pricing policies are: 1) a plan to soak the ‘rich,’ and 2) a plan to enable those not quite able to pay (student and parent) to go deeply into debt for years; 3) a plan that gives a few exceptional students scholarships, which sanctifies 1) and 2).
Elite institutions justify their higher costs on the basis that students will their costs with higher earnings over their lifetimes. Such assumptions are based on the belief that a higher percentage of students attending the elite institutions later attend graduate schools. Whether that is true or not remains to be seen. For example, a higher percentage of students from Harvey Mudd College attain Ph.D.’s than students from Princeton. The promotional material of colleges and universities is vague concerning the actual income or professional success of their graduates compared to other institutions.
Further, the destructive policies of free trade and globalization are beginning to work their way up into the upper classes. Either high-tech workers are outsourced or cheaper educated workers brought in from India. Over two million manufacturing jobs have been lost in ten years and with them, the highly technical support jobs. Students of today face the bleakest possible economic future, but despite this, colleges and universities continue to raise tuitions. Never has any generation in America faced a government that willingly and knowingly impoverishes it through its trade and immigration policies, but this generation faces just that. The assumption that higher education will result in a lifetime of higher earnings is now a dubious proposition. Students of Hamilton might well brush up on the economic policies of Alexander Hamilton.
There seems to be a lack of quantitative data to support the notion that elite institutions produce students with higher lifetime incomes. Even so, the quality, motivation, intelligence and intensity of those applying to such schools may be more important than the education received at the school. How much does Harvard claim to have contributed to the success of Bill Gates who spent one year behind its ivy walls?
Even if this were true, that elite colleges produce higher income graduates and the college actually has something to do with it, does this justify the avaricious financial policies? Alternatively, if it does justify these policies, perhaps the world could do with a little less sanctimonious posturing by academia as to the virtue of scholars.
If a particular student has high grades and good test scores, but cannot afford to attend an elite institution, is the student therefore handicapped in admission to a graduate or professional school by going to a lesser school? The student may be an exceptional student at a less competitive school, whereas average in class ranking in the more competitive school.