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.
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.
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.
He suggests that part of the reason for the sharp increase in administrators is the way universities are funded. "As universities become more reliant on government funding, more administrators are required to deal with bureaucracy."
From 1993 to 2007, the number of full-time administrators per 100 students at America's leading public universities grew by 39 percent. By contrast, the number of employees engaged in teaching increased by 18 percent.
Arizona State University is a particularly dramatic example of the trend. During the period in question, it increased the number of administrators per 100 students by 94 percent while reducing the number of employees engaged in instruction, research and student services by 2 percent, explains Greene. Currently almost half of all full-time employees at ASU are administrators.
The sheer number of administrators and the amount spent on them is shocking, critics say. At Berkeley, for example, the university spends more then $700 million annually on administrators. Berkeley has 11 layers of management, while comparable private for-profit organizations average seven layers of management, according to a report by Jeff Denneen and Michael Mankins for the National Association of College and University Business Officers.
They calculate that Berkeley could save $40 million to $55 million just by simplifying organizational structure. "This might include eliminating some administrators and having supervisors oversee more subordinates." Passing these savings on to its 26,000 undergraduates would reduce tuition by at least $1,500 per student.
For many Americans, health insurance costs represent a significant part of their monthly budget. The situation is not much different for university students. Since 2006 the number of schools requiring their students to purchase health insurance has gone up dramatically. Today almost 40 percent of public colleges require their students to purchase health insurance, according to the American College Health Association.
Mandates that require students to purchase health insurance are designed to limit students' financial responsibility and keep them in school when faced with health emergencies.
"There are occasions where students drop out because they have to go work to pay their medical bills," says Dr. Gail Lee, a clinical director at the University of Maryland Health Center. "People without health insurance tend to let problems get really serious before they see someone. Now, if patients are sick and they really need a specialist, we know that they can see one."
Health insurance costs vary by school, but the average is about $1,000 per student per school year. At the University of Maryland student health insurance is mandatory and students are automatically enrolled into the University's health insurance program. Students who have coverage from other sources, for example through their parents, can opt out. The program costs about $1,200 per year. An instate undergraduate student at the University of Maryland pays about $8,700 in tuition and fees which means that health insurance about 14 percent of the total cost to attend the school.
Universities could reduce costs to students by simply not requiring health insurance. The Obama administration's proposal to allow children to stay on their parent's health coverage until age 26 could mitigate concerns about the impact of uninsured students getting sick while at university. The new rules will "help secure affordable coverage for college students and other young adults" looking for jobs, said Aaron B. Smith, executive director of Young Invincables, a youth advocacy organization based in Washington, D.C.
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