$17,000 a Year… Scary as Hell!

By Watson Scott Swail, President and CEO of Educational Policy Institute and EPI International

My friends and colleagues at The College Board (dot.com, no less), led by the industrious Sandy Baum, released the annual Trends in College Pricing report yesterday. As many of our readers know, I am quite familiar with the Trends reports, having co-directed that series in the late 1990s. In fact, I had dinner with Larry Gladieux two nights ago in DC, and it is quite an alumni that have worked for Larry and created the Trends reports, including Jamie Merisotis (Lumina Foundation for Education), Jaci King (ACE), Janet Hansen (National Academy of Sciences), Laura Green-Knapp (Independent Consultant), and me (and I apologize if I have forgotten anyone).

The Trends reports are powerful and important guides for policymakers. Even with the data-prowess of the National Center for Education Statistics at ED, The College Board reports are value added to the discussion. The companion report, Trends in Student Aid, provides a current and historic perspective on the aid available to help students and parents pay for postsecondary education.

The College Board has long tried to keep the rising costs of higher education under the radar; it is, first and foremost, a membership organization of hundreds of institutions of higher education, and now, school districts, across the United States. Thus, members aren’t necessarily too pleased to see the large annual increased in the prices of college. Because of this, I often feel that the real issue and question about college affordability is often left out of the reports and into the hands of analysts like us at EPI and other like organizations. With that responsibility in hand, I’d like to wish everyone a Happy Halloween, because this year’s report is particularly scary! Roll the tape…

Much to the chagrin of economists, I took this year’s data, released yesterday, and created an excel projection of tuition and fee costs for two-year public institutions and four-year public and private institutions. Using data from the past 25 years, I created an annual percentage change based on the constant dollar figures from The College Board. Thus, I used data between the years 1983-84 and 2008-09. With these multipliers, I then created an estimate for the next 25 years. The term of 25 years was used because it is widely considered the length of a “generation” today. The data are reported in the graphic below (if you click on the graphic, an excel download is available of the graphic and corresponding data).

What we find is that, over the past 25 years, tuition and fee charges have well over doubled for each sector in real dollars (read: today’s dollar). Specifically, four-year private institutions have risen from $10,985 to $25,143, or 129 percent, in that time, compared with a 166 percent increase for four-year publics ($2,476 to $6,585) and 111 percent for two-year public institutions ($1,139 to $2,402). These are phenomenally large increases.

CLICK HERE to download the corresponding excel workbook

The dollar changes are, of course, highest at the private four-year level and lowest at the two-year level. But it is the four-year public prices that should scare the ghoul out of everyone. This 166 percent increase is a massive blow to affordability of the level of education that many higher education analysts and other snobs might say is the bottom floor of economic prosperity in America. This is truly hideous in light that the two-year sector is where the growth is in postsecondary enrollments, and where most of the less-affluent students are directed due to fiscal necessity rather than educational equivalency.

In a projection analysis, the past is necessarily prologue. Using the average annual increase in tuition and fee charges for the past generation, let’s look 25 years into the future, or 2033-34. While that seems like a long way away, it isn’t. I hope to still be around, but I really hope I’m not paying for college.

In 2033-34, our estimate is that public tuition and fee charges at a four-year institution will average over $17,000 in today’s dollars. That’s right. Going to college in that year will be equivalent to spending $17,000 in today’s market. Tack on about another $17,000 in room and board for residential students, and we’re looking at $34k for one year of education at a state school. Four year privates will top $58k a year, or approximately $75k with room and board, and two-year public institutions will cost users $5,152. THIS IS FOR ONE YEAR OF COLLEGE. Multiply by four years (or maybe 5 or 6), and a four-year public is $140k in total, and a private $300k. This is the average, not the top level institutions–just the average. Also let me remind readers that this is in TODAY’S DOLLARS. Put another way, the next generation will pay almost four-year public prices for a two-year education. Similarly, students attending a four-year public institution will pay 70 percent more than four-year private students did a generation ago. That’s quite a sea change in educational opportunity.

Noticeably absent from this conversation is an equivalent conversation about student aid available to help students and families pay for college. The College Board noted that aid in 2007-08 topped $143 billion. That’s a lot of dough, but I must admit that I smirked CNN reported that college aid was “at a record high.” Well, no joke. When has it “not” been a record high? The problem is that college prices rise at higher rates. In short, aid has done a reasonable job in keeping up, but reasonable at these rates is not close to sufficient. As the cost (sorry, price) increases, so does the burden on college students.

Interesting enough, the Board, in a parallel report called “What Every Parent Should Know About Paying for College,” said this:

“Over a working life, the typical full-time year-round worker with a four-year college degree earns more than 60 percent more than a worker with only a high school diploma.” (p. 2).

Fine enough. But this figure has deteriorated from 100 percent only a decade ago, or 0.4 of a generation ago. The returns to higher education are clearly diminishing. True, this should not be a directive not to go to higher education, but we have some serious problems here, one being higher education marketing. But the other is that students now have to weigh the costs of higher education more than any other generation, because, for many, it may not be worth the cost, depending on the career destination they choose. Joe the Plumber (will he go away?) makes more money than many college graduates.

This discussion has a number of policy-related perspectives. First, we have to get a handle on the cost drivers in higher education. Bruno Manno’s report in the late 1990s alluded to this, although we all knew it, but we have to reduce the costs of higher education to keep it in line. Can we? Tough one, because most economists will point out that higher education is one of those commodities that is more costly than most other items in the CPI basket of goods, similar to health care in many ways. However, that doesn’t lessen the importance of containing costs. In a sector where 80 percent of college costs are somewhat related to staffing (salaries and benefits, mostly), it seems that the only real way of containing costs is further massification and economies of scale. We need more 300-person classes, to be honest. And more distributed learning.

Second, we need to continue to improve, in a rationale rather than incremental fashion, our elementary and secondary schools. Higher education spends far too much money on remedial or developmental learning. When students come into higher ed and have to take 2-3 developmental classes, we really should re-assess their enrollment status. If they aren’t ready, they aren’t ready. A diploma, unfortunately, does not say they are ready for college. It just means they finished.

Third, we need to ensure that students who enter higher education complete higher education. Neither the student nor society needs more people with the burden of student debt and no degree to be able to sell themselves on the global market. This will continue to serve as the albatross of higher education and society. Huge student debt with lower returns from education means that these citizens will have less to spend in other areas, including mortgages and philanthropy. The US economy will suffer as a result.

With the Presidential election upon us, readers should fully understand: this is not a partisan issue. Both presidential candidates, McCain and Obama, have talked about college prices and the need to help students. Whoever becomes the next President will have to deal with college prices and costs to some degree. With consideration of this fabulous economy bestowed upon us, I don’t think much will happen in the next term aside from new tax breaks, which I’ve never been a big fan of. Until we get a handle on the cost side of higher education, most of this discussion is moot. It’s akin to containing a powerful tiger, like the one envisioned in Life of Pi: We can tinker with the nets and tools we use to keep the tiger at bay, or we start dealing with the tiger itself. And yes, I have an Iraq and Iran analogy, too, but I’ll leave that alone this close to November 4.

Ladies and gentlemen, the clock continues to tick on this time bomb. We should be afraid–very afraid. If we’re not careful, higher education may become the bridge to nowhere…

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