“Is My School Worth The Price I’m Paying?”
Entirely the wrong question.
by Nathaniel Haas
I submitted the following response for the launch of an online news and debate platform at USC, which will debut in September. The prompt: “Is USC worth $55,000 per year?”
In an incredible outpouring of school spirit and pride in the Trojan family, one could make a compelling case for taking out a substantial student loan to attend the University of Southern California. I hear this every time I walk past a tour of prospective students, and I know this because come May 15, I too will be the product of a fantastic USC experience, one I wouldn’t trade for anything else.
USC is unlike any other school in the country, but I’ll let others make the more elaborate version of that argument. What I’m concerned about is not whether USC is worth $55,000 per year. Instead, I have two bigger questions in mind (and you should, too). First, is the cost of any college education worth the price? Second, if the answer to question one is “no,” is the price fixable?
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According to College Board statistics, the average price tag for a private college during the 2014–2015 school year (housing excluded) was $31,231 per year. Out-of-state tuition at public universities also approached this number, averaging $22,958. According to economists at the New York Federal Reserve, Americans now hold more student loan debt ($870 billion) than they do credit card debt ($693 billion) and auto loans ($730 billion). 7 in 10 graduating seniors in the class of 2013 had loans that averaged close to $30,000 per student, according to the Institute for College Access and Affordability. Those loans usually take 10 years and 120 monthly payments before students pay them off.
All things considered, the piece of paper I and a few million other students are going to receive in four weeks’ time is an awfully expensive one. Why?
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Explaining the cost, and particularly the rise (three times as fast as the consumer price index and twice as fast as medical care in the last ten years) in tuition at certain universities is a complicated task. While the boost at most public universities, including community colleges, can be attributed to a decrease in state and local funding, this article will focus on tuition increases at private and large public research universities, for which public funding is a very small part of the problem. In a ten part series geezerly titled “The Tuition is Too Damn High,” the Washington Post laid out a pretty clear picture, basically concluding that large public research universities and their private counterparts are increasing spending in record amounts and increasing tuition to fund it.
It still might be worth it for some students to take on a loan of epic proportions to attend USC, but it by no means indicates they should have to do that, and it especially does not mean they will. In economics, we call this opportunity cost: if I hadn’t gotten a substantial amount of financial aid from USC, for example, I would have gone to the University of Nevada at Reno and paid in-state tuition, costing a fraction of what it would have required to attend USC out-of-pocket. As much as I’d like to believe that someone deep in the USC admissions department might shed a tear at my choice, they would never consider altering tuition because of it. They know someone is lined up to take my spot as soon as I step out.
Therein lies the problem. The price of a good, whether it is a pencil or a college education, is determined by the willingness of consumers to pay for it. If no one is buying pencils at $10 a pop, the company selling them will either go out of business or lower its price. The Washington Post devoted three installments of its series to make recommendations for private and large public research universities to save money and reduce tuition, but in doing so it missed an important point: perhaps the reason tuition is too damn high is because no one will “git off mah lawn.” Translation: there is always someone willing to pay full price for a college education, and private universities and their large public counterparts know it.
Or, as the Post put it in an earlier installment:
“Consumers aren’t being dumb here. They’re being rational. While the upfront price of college was increasing, so were the benefits. The result is that college is pretty much as good a deal today as it was in the past.”
This lines up nicely with recent data. In Education Economics, Katharina Best and Justin Keppo developed a model that measured the change in enrollment for higher education as it relates to the benefits of a college education, credit factors and financial aid. They found that when it comes to higher tuition, the demand for college doesn’t change if that upped price tag is tied to better appeal of the university. Similarly, they found that students don’t respond to higher tuition by going somewhere else, or not going at all: they respond by borrowing.
As early as 1987, people like Secretary of Education William Bennet, Jr. were suggesting that more federal financial aid, in the form of grants and easily accessible student loans, was creating a cycle of increased tuition prices. In line with the so-called “Bennet Hypothesis,” perhaps universities don’t charge so much because they have to. They do it because they can.
In his state of USC address this year, President C.L. Max Nikias defended USC and others from critics who have taken a stand against rising tuition. He noted that while USC’s tuition has doubled since 1984, so has its prestige as a research university. Sure, with some belt tightening, USC could knock down the cost of tuition a little bit, but by Nikias-logic, that would accompany a loss in prestige from research work — and with a loss of prestige comes a loss of demand in students willing to pay enormous loans to go here. Do you see the cycle?
The short answer: USC, and any other college, is worth the sticker price because the price is determined by what people are willing to pay (either out of pocket or through loans). When we graduate college, the wages for certain jobs will go up or down based on how many people will work for a certain salary. If everyone wants to be a garbage worker for $20 an hour (this example is dedicated to graduates of UCLA), the garbage company will lower the wage (and save money) until it meets its employment targets. Similarly, once colleges determine their enrollment targets, they adjust (read: raise) the price of tuition over the years to capture just enough students who are willing to pay.
The only way college is going to become more “worth it” is if the price goes down, which is unlikely, or if student loans become easier to pay back. That’s why politicians have dedicated so much energy to the latter and not the former. It’s also why college prices won’t really go down unless a massive movement (that won’t happen anytime soon) to boycott colleges forces administrations’ hands. But maybe it will happen in the long run. The rapidly increasing price of traditional college, combined with the rise of online learning technology and the headlines generated by famous college dropouts like Mark Zuckerberg, might convince many folks that their college dreams are becoming obsolete.
In the short term, the USC administration is painfully aware that our needle with US News and World Report’s rankings seems to be stuck in the mid 20s. To move it, the theory goes, attract better students — and hence, USC offers huge amounts of financial aid every year, a fact Nikias reminded listeners totals up to the largest in the nation. Even more impressive: more than 56 percent of USC students receive merit- or need-based financial aid directly from the University. Moreover, the number of USC students who have to take out federal, private or parent loans has gone down six percent from 2010 numbers (from 34.2 percent to 28.2 percent).
Those stats are something to be proud of, but they are also some rubber that will meet the road when (I don’t dare say, ‘if’) USC cracks the ranking’s top ten list. Admissions demand will skyrocket, and many students from around the world will line up to pay high prices. The USC administration will undoubtedly experience temptation to nourish the positive feedback loop and funnel some of that huge financial aid budget to more lavish amenities and more expansive research buildings, and to encourage future donors to do the same. Bye bye financial aid, hello more tuition revenue.
This absolutely cannot happen. USC, and other private universities in the same boat, can’t forget where they came from and what they currently stand for, which is making college affordable with huge, merit-based financial aid programs. If those programs go away or are reduced dramatically following a corresponding ascent in national rankings, USC will be just like any other school in the country. And being just like any other school isn’t worth $55,000 a year.
Nathaniel Haas is a junior studying Political Science and Economics at the University of Southern California. He enjoys sitting on the beach (long walks are too strenuous), eating Panda Express, wearing bowties, and doing crossword puzzles. You can follow him on Twitter here, and send him an angry email here.
