Why’s it so Hard for Colleges to Cut Costs?

There’s a widespread understanding in policy circles that college is becoming too expensive. But one puzzling aspect of college pricing is why, really, colleges charge what they do. While there are differences by sector (private colleges are more expensive than public ones) one of the hard things colleges have to explain is why the costs of two very similar colleges can be so much different. Because there’s really no good reason.

And the fact that colleges can’t explain why they charge what they do is a big barrier to ever getting those costs down.

As Eric Kelderman explains in an article in the Chronicle of Higher Education:

The University of Connecticut at Storrs and the University of North Carolina at Chapel Hill look a lot alike. Both are public flagship institutions, research universities that enroll about the same number of undergraduates (around 18,000), and both have popular and successful basketball teams for men and women.

Notably, they get roughly the same amount of money from their respective state legislatures, according to the most recent federal data—about $486-million each in the 2011-12 academic year.

[But] …the average in-state, full-time student at UConn paid about $5,000 more per year in the 2012 academic year than a similar student paid at Chapel Hill, according to federal figures.

The average in-state net price, what students actually pay, to attend UNC, Chapel Hill was $11,092. At UConn the total was more than $16,000.

When the writer asked officials why he didn’t get any terribly useful answers: “There’s not one answer, as far as I can tell you,’ said Lysa D. Teal, associate vice president for budget and finance at Connecticut.”

And no one else seemed to have an answer, either. Colleges don’t really know what it costs to educate students. They don’t set pricing based on the cost of delivering the education; they set it based on “what colleges think they can charge in their markets.”

Without better accounting, it’s hard to tell where colleges are wasting money or targeting resources appropriately.

Then again, at least as higher education is set up currently, colleges don’t have to worry about this much.

That’s because there is, in fact, no high school student who is contemplating spending $11,092 to go to UNC or $16,000 to go to go to UConn. UNC is a better deal here, but it’s not a “deal” available to anyone. The in-state price is available to someone who lives in-state. Someone who’s contemplating spending $16,000 for UConn is probably only comparing it, price-wise, to other state schools in Connecticut (where it actually probably is the best deal); $11,092 for UNC isn’t an option to the kid graduating from high school is West Hartford.

But this makes is very hard to try to really save money. Because colleges don’t compete based on service cost, they mostly compete just on reputation, it’s hard to know where to make cuts.

People talk about college costs all the time, but they don’t talk about these costs, how much a college needs to spend in order to deliver services.

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