If you read popular coverage of higher ed, one of the biggest recurring questions is “why does college cost so much?” There’s no really good answer to this question, in part because it’s poorly phrased. Higher ed is a big field containing several different organizational populations that look very different when it comes to costs and revenues (and student bodies, etc.). The chapters by Scott and Ruef & Nag in this edited volume do a nice job of laying out some of the contours of that diversity. Applying that basic insight suggests that the question “why does college cost so much?” might have very different answers for public research universities, community colleges, private liberal arts schools, the elite research universities, for-profits, etc. The relative weight of the various popular explanations (including administrative bloat, Baumol’s cost disease, lavish expenditures on amenities, higher levels of federal financial aid, and declines in state support) may differ radically.
For example, a report from Demos released in May argues forcefully that for public 4-year schools, declines in state support account for almost all of the increase in tuition revenue in the 2000s. That is, schools are mostly replacing dollars of state support with tuition. These schools actually saw a decline in the ratio of upper-level administrators to students, and only small increases in staffing overall. At least when it comes to public universities, it’s hard to see administrative bloat in the data.
In contrast, a story from Market Watch this week highlights the role of increased federal financial aid in allowing small, private colleges and universities to increase tuition. They explain the argument:
William Bennett, the Secretary of Education from 1985 to 1988, is probably the public figure most associated with this theory, which came to be known as the “Bennett Hypothesis” after Bennett argued in 1987 that increases in federal financial aid “have enabled colleges and universities blithely to raise their tuitions, confident that Federal loan subsidies would help cushion the increase.”
Market Watch goes on to discuss recent research from the FRBNY showing that while the Bennett hypothesis may not explain most of the movements in costs at most schools, it may be particularly important at expensive, but not selective, private schools attempting to move up in prestige rankings: “These schools may be more likely to respond to changes in loan limits because unlike their wealthier, more selective counterparts, they can’t rely on their endowments for funding.”
All this to say, the question “why does college cost so much?” is actually a collection of related sub-questions. Public universities cost more than they did 20 year ago for different reasons than small private schools. And be careful with news coverage that tries to link the newest finding to “the cost of college” without clarifying what sort of institution the data actually address.