College: What Are You Paying For?

Randall Smith on the explosion of college tuition costs. Education is very expensive, and it’s important for parents and students to know exactly what they’re paying for.

It’s late August, and young adults across the country are headed to college, and parents across the country are writing large tuition checks.

Americans worry incessantly about the inflation in medical costs – and with good reason. But over the past fifteen years, the inflation in college and university costs has been even greater.  Colleges and universities across the country have been raising tuition at a rate four times faster than the overall inflation rate.

What does that money pay for? A little thought experiment may help. Let’s imagine, for a moment, educational institutions in which the buildings are modest and fully financed so that, not only are the costs of their construction paid off, but their financing has been sufficient to cover depreciation and maintenance. Since such financing is rarely included in the costs of new buildings. When they are opened (to great fanfare and praise for administrators), what should be an asset becomes a liability, and a further drain on general operating expenses.

But let’s say the buildings are fully financed and that the endowment has been developed sufficiently to cover operating expenses. What, then, on our little ideally financed campus, would the basic costs of instruction be? Let’s say we set the salary for faculty at $75,000 per year, which is near the current average. To that rather generous salary, we’ll add another 20 percent to pay for benefits – also generous, but this is what private contractors are required by the government to put aside. The total would be $90,000 dollars per year. Let’s say that we asked our professors to teach three classes per semester, with an average of twenty students per class (a low number for many college classes). In that case, faculty members would be teaching roughly 120 students per year.

Here’s where it gets interesting. To make the $90,000 we need to pay our faculty – and remember, we’ve got the lights and electricity and all the rest taken care of – we would only need to charge each student $750 per course. If each student took five courses per semester, tuition per student would be $3,750 per semester or $7,500 per year. That’s it.

Now if you’re paying more than $7,500 per year in tuition – and everyone is – what, you might wonder, is all the rest of the money being used for? I teach at a university, and I don’t know. Nor do any of my colleagues. We regularly ask to inspect the budget figures, but they are not forthcoming.

Click here to read the rest of Professor Smith’s column . . .


1 reply
  1. Phil Wilson
    Phil Wilson says:

    There are more staff than faculty at universities. Administrators eat up quite a bit, and many institutions are arguably top-heavy. Add in insurance, student health (if the University offers such, most big ones do), and I’m sure many expenses I’m missing. There would be considerable cost you haven’t covered.

    On the other hand, at least at research universities, Profs generally don’t teach more than a course or two a year. Most courses are taught by instructors, who get paid considerably less (many, on an hourly basis, probably less than the baristas at the campus coffee shop). Also at research universities, faculty are hired almost exclusively on their ability to bring in grants, which not only pay most of a Prof’s salary and benefits, but also come with very juicy overhead (F&A). Often, salaries and benefits on NIH grants for instance come with an additional 80% or more over and above the nominal award that the institution pockets (which is why, of course, that grants are given highest priority in selecting faculty at research universities).

    So, it’s a pretty complicated equation. I would like to see the books as well.

    Regardless, if one looks at trends in costs of higher ed over time vs. general inflation, it’s quite clear that tuition and fees have far outpaced general inflation, and this has gotten worse with the expansion of federal subsidized loans and grants. When costs get out of whack relative to the market, one can usually trace at least part of it back to interference (i.e., “unintended consequences”).

    On a personal note, when my older daughter started getting letters from private colleges promising to set her up with a package that would allow her to attend, it took me a while to explain to her that of course they will be happy to help her sign herself into indentured servitude to help pay the lavish salaries of the faculty and and admins. They don’t care what it will take for students to pay back those loans, or whether default on loans increases the public debt.


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