The Rising Expenses of Higher Education Explained
By Harman Dhillon
The U.S. Department of Education counted over 4,000 colleges in the United States as of 2018. These consisted of public and private institutions, but regardless of their categorization, college tuition has increased over time for various reasons. Students and their families have been paying more to a point where they may begin to wonder if in addition to inflation, other factors are impacting the price of higher education.
To understand where all of this tuition money goes, we need to break down the expenses of a college. According to Business Insider, the reasons colleges are so expensive are straightforward: “a surge in demand, an increase in financial aid, a lack of state funding, a need for more faculty members and money to pay them, and ballooning student services” (Hoffower, 2019).
Understanding Supply and Demand
The concept of supply and demand is relatively simple to understand: It is the “relationship between the quantity of a commodity that producers wish to sell at various prices and the quantity that consumers wish to buy” (Britannica, 2019). The relationship between supply and demand is commonly used as a model to calculate price. If supply stays constant, the price will rise and fall with the demand. This relationship can be seen with the supply and demand of a college education. A graph by Statista shows that the number of college students in the United States had nearly doubled since 1970. The U.S. Department of Education found that college tuition prices over the years have followed a similar trend; the price, in constant dollars, rose from $11,138 in 1985 to $23,835 in 2017.
Financial Aid for Students, Federal Aid for Institutions
Despite the correlation in trends, supply and demand is not the only factor attributed to increasing tuition. Ironically, the amount of financial aid a college supplies can increase the overall sticker price of education. This idea was proposed by Former United States Secretary of Education, William J. Bennett. In an opinion piece for the New York Times, he claimed that “increases in financial aid in recent years have enabled colleges and universities blithely to raise their tuitions, confident that Federal loan subsidies would help cushion the increase” (1987). Though this was written decades ago, modern studies are finding the “Bennett Hypothesis” to hold true. The New York Federal Reserve Bank found the relationship between average tuition increase and increasing student loans could go up to 65 cents per dollar (Forbes). In the end, higher tuition is beneficial for the institutions, so they have no reason to not raise prices.
Student tuition is not the sole revenue stream for colleges — most public universities also use federal and state aid. Oftentimes, the government funds are not enough to meet the college’s expenses. A report from the Center on Budget and Policy Priorities sums up the result: “Public colleges and universities across the country have increased tuition to compensate for declining state funding and rising costs. Annual published tuition at four-year public colleges has risen by $2,333, or 33 percent, since the 2007–08 school year” (2016). In short, there is a tuition increase because colleges still need the money after budget cuts, so they look towards students and families to provide a larger percentage of it.
Hiring Better Professors
Again, because more people want to attend college, colleges need to hire more professors to meet these demands. The Bureau of Labor Statistics (BLS) has predicted that the job outlook for professors will increase at a rate of 9% from 2019 to 2029 because colleges need more professors as the demand for a college education increases. In a statement for Business Insider article, Terry Hartle, senior vice president of the American Council on Education, summarized it in a straightforward manner: “Acquiring and recruiting highly educated faculty and staff costs money, especially in jobs with significant demand outside academia” (2019). The article went on to explain that additional costs can be avoided with increasing the student to faculty ratio, but that was unpopular with the public. In a way, it is the preferences of the students to have a low student to faculty ratio that is resulting in their own raised tuition.
Making College Comfortable
Student preferences and comfort are important for colleges to consider — even if it may raise costs. Colleges now offer more student services that were not as popular in the past. To afford extra staff and resources, colleges again needed to turn to student tuition. Some services offered by colleges and universities include career counseling, campus healthcare, student counselors, language centers, student gyms, and events and workshops (Quacquarelli Symonds, 2016). According to the Lumina Foundation, over $10,000 of student tuition usually goes towards student services. This means that when students pay their tuition, it goes towards a college lifestyle, not only an education.
In Short…
Colleges and business have many similarities. Educational institutions have to take into account supply and demand, funding, employee salaries, and customer (or in this case — student) satisfaction. To meet these demands, colleges must raise tuition. As these institutions try to maintain the quality of education while meeting public demands, they find the easiest way to do so by raising tuition fees. Going to college today does cost a lot of money, but it is necessary to spend some money to get a degree. Once students understand why colleges raise tuition prices and where their tuition money goes, it can become easier to make educated decisions about a post-secondary education.
