Greedy Colleges

A basic line of thinking embraced by many liberals with relation to higher education (myself included) is that the reason college costs are increasing is that states are simply not funding their institutions as generously as they once did.

According to a piece by Neal McCluskey at Cato, however, maybe it doesn’t really work like that. Looking at recent data from the American Council on Education he points out something interesting:

There are only two academic years in which colleges’ per-capita tuition increase simply made up for state-subsidy losses: 2004-05 and 2010-11. Every other year tuition rose well in excess of subsidy losses, ranging from a 1 percentage point net gain in 1992-93 to 7 points in 2007-08.

So even by ACE numbers, our supposedly beleaguered public colleges actually look pretty greedy. And what likely enables that greed? The ability of students to cover price increases with aid.

Here’s the chart he’s referencing:

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What’s often implied in the “state cuts are responsible for all tuition increases” line is that that if we just give public colleges a lot more money, tuition will fall back to the manageable levels where they were in the 1960s. It probably wouldn’t really work like that.

That being said, it’s still likely state cuts really do promote and encourage these increases in the real prices families pay for college. McCluskey writes that “efficiency is something colleges—even, it seems, public ones!—almost certainly don’t want. They love making money, and do it most easily when government gives out dollars like water.”

Well perhaps. What’s really going on here is probably something more like this. The state cuts the funding and so colleges, attempting to try and operate the way they did before, increase tuition. Students pay for a lot of these tuition increases with loans. What colleges discover, however, is that if students are willing to take out loans, rather than skip college, to pay for education, well, why not have them take out more loans? If a $10 million state cut can be addressed by a $1000 tuition hike per student, well, by raising tuition $1200 a student the institution can perhaps both address the state’s cuts and build a new science center. While this is very, very burdensome for students, it makes a lot of sense financially for college administrators.

But McCluskey seems to suggest that it’s likely to be ineffective to give colleges more government money because they might just raise tuition anyway. They’ll take both the government aid and then add a lot of tuition in to increase the total annual take. Because they’re so greedy.

Well of course they are. They want to enjoy the highest operating budgets that they can obtain. That’s just economically rational. If the goal is to reduce students’ loan burden, however, there’s no need to worry about the troubles of college greed; just tie the aid to the price of college. If colleges make no effort to keep costs down, if they increase tuition, just cut them off from the aid. They’ll pretty quickly figure out how to operate efficiently then, won’t they?

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Daniel Luzer

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer