It’s a reasonable question. A previous article I’ve written outlined that college costs have increased 1,120% in the last 30 years. Taken from another perspective, college costs inflate twice as fast as the economy overall. This is ludicrous.

Is College is an “Asset” Bubble?

My first opinion on the matter is that college cost is a bubble, much like the housing crisis of 2007. Any time you have easy access to debt (i.e. federal and private student loans) it will inflate the asset price (in this case, a degree). You might be surprised to discover that student loan debt sits at 1.8 trillion dollars and has a high default rate (currently around 9-10% for federal loans, or 1 in 10 borrowers). The reality is when this bubble bursts, a correction will occur. Many small colleges maintain a year-to-year reliance on tuition dollars to remain solvent. A multitude of colleges across America will go away when the easy money dries up and students are no longer able to pay the high sticker price. This is one of the main reasons I don’t think my son’s post-secondary education will cost us $200,000+ in 20 years. At some point, the party has to end.

Why On-Campus Are Accommodations so Luxurious?

As second reason college is expensive is the increasing cost of auxiliary accommodations. The net price of attending a college considers room and board, transportation, personal expenses, and books in addition to tuition and fees. Have you toured a new residence hall recently? It will make clear that living on campus can be over-the-top, luxury living. This increases overall cost of attendance, particularly as many colleges require freshman to live on campus. 

States Have Stopped Sending Money to Colleges

Third, colleges have experienced shrinking federal and state support over the last 25 years. This is particularly cumbersome for public institutions which are no longer “state schools” in the financial sense. As a consequence, these colleges have to raise tuition or find other streams of revenue like philanthropic support.

Why are there so many administrators?

The fourth reason is a phenomenon called administrative bloat. Administrative bloat is the belief that staff headcount (vs. faculty headcount) has ballooned in modern times, leading to increased overhead cost. This idea is a point of tension between staff and faculty on campus, with some articles saying it exists and others offering rebuttals. Regardless of who is right or wrong, increasing cost of staff headcount can be a cause of tuition increases, particularly on specific campuses. 

Will higher education choose to innovate?

Before faculty members congratulate me for the insightful nature of my previous paragraph, I also believe faculty reluctance to change can be a contributing factor. All industries have to innovate to survive, and faculty are the “product” of a university. Unwillingness to cut academic programs that are no longer relevant and/or cost-effective can hurt the bottom line, and failing to innovate and develop relevant programs undermines the school’s ability to deliver a desirable product to families. Instead of phasing out these programs in a sensible way, sometimes campus leadership turns a blind eye to the fiscal realities of its portfolio.

Have other ideas or disagree? Leave me a comment below. 

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