College costs skyrocketing since 1970s

Published: Sunday, Jan. 8 2012 11:46 p.m. MST

Utah Valley University students walk through campus in Orem Wednesday, Oct. 12, 2011.

Jeffrey D. Allred, Deseret News

In 1970, a University of Utah student spent about $390 a year on tuition. Today that number has ballooned to $6,000. This trend is not limited to Utah. Across the country tuition rates are skyrocketing. From 1982 to 2007, the national average increase at America's universities was 400 percent.

It's a puzzling trend, especially considering the dramatic increase in colleges and universities around the country. Economic theory suggests that when the number of schools increase, tuition should go down, says Richard Vedder, economics professor at Ohio State University. But what is true in free markets is not true in higher education. "Higher education is different than virtually any other sector in the American economy. Everything is different," Vedder says.

If attending university is prohibitively expensive, Americans' ability to compete in a global, knowledge-based economy will be limited, says Robert Dickeson, of the Lumina Foundation, a higher education advocacy group. When trying to understand why university costs have increased so dramatically, it is useful to examine three categories: inefficiency, administration and health care.

Inefficiency

When the employees of Olin Center, Harvard Law School's economics office, were told they needed to find ways to cut costs, their solution was simple: limit photocopy privileges. In the wake of the 2008 economic downturn, the school's endowment had taken an $8 billion hit. The Olin Center's way of tightening its belt was to save $200 a month on paper.

Not that this sort of facile attempt to cut cost is the exclusive domain of the Ivy League. University departments around the country don't have the incentive to be efficient because their existence isn't contingent on being fiscally responsible, experts say.

This isn't a new concern. In 1971 Eric Walker, president of Penn State University, worried about financial inefficiency at universities. "The first and major goal of a university is to teach and I offer the opinion that universities have not yet learned to do this effectively and efficiently." Walker believed that schools were not effective because they were not required to be efficient.

Universities lack a profit motive, others say, and don't have to answer to anyone for the money they spend. When "departments are not held to account for their profits," says education blogger Andrew Fisher, "the institutional pressure to maximize the resources they control is unconstrained."

Some of this inefficiency is because spending is not consolidated. At many public universities, each department is responsible for buying their own paper, computer equipment and office supplies. "We work with, and buy from, thousands more vendors than we need to, raising costs and increasing complexity," said Frank Yeary, UC-Berkley vice chancellor in an interview with the National Association of College and University Business Officers.

Simply consolidating spending would mean that universities could negotiate better deals with fewer vendors. The National Association of College and University Business Officers reported that the University of North Carolina at Chapel Hill could save $45 million just by streamlining the purchase of office supplies and equipment. Another $19 million would be saved by consolidating IT operations.

If the university used those savings to lower the cost of tuition for its 18,000 undergraduate students, each student could receive a $3,500 credit, cutting yearly tuition in half for North Carolina natives, making higher education more accessible and reducing the debt-burden of graduating students.

Administration

Perhaps the biggest culprit for rising tuition costs is the proliferation of university administrators. "The lion's share of expansion of higher education costs comes from the expansion of administrators," says Jay Greene in a report for the Goldwater Institute.

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