Buying the Best: Cost Escalation in Elite Higher Education
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Buying the Best: Cost Escalation in Elite Higher Education
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Overview
In Clotfelter's view, spiraling costs arise from the institutions' lofty ambitions and are made possible by steadily intensifying demand for places in the country's elite colleges and universities. Only if this demand slackens will universities be pressured to make cuts or pursue efficiencies. Buying the Best is the first study to make use of the internal historical records of specific institutions, as opposed to the frequently unreliable aggregate records made available by the federal government for the use of survey researchers. As such, it has the virtue of allowing Clotfelter to draw much more realistic comparative conclusions than have hitherto been reported. While acknowledging the obvious drawbacks of a small sample, Clotfelter notes that the institutions studied are significant for the disproportionate influence they, and comparable elite institutions, exercise upon research and upon the training of future leaders. The book contains a foreword by William G. Bowen, President of the Mellon Foundation, and Harold T. Shapiro, President of Princeton University.
"Concern about ever-rising costs runs like a thread through the myriad critiques of higher education that have been published in recent years. . . . One of the great contributions of Clotfelter's work is to dismiss easy explanations for the problems that worry us. With some of the scales removed from their eyes, both those with responsibility for the future of higher education and observers who continue to expect an ever-wider scope of effort from particular colleges and universities, can now adjust their focus. Armed with this original and extremely useful analysis, we can confront more directly (and with less romanticism) the real choices before us as we seek to employ limited resources most effectively in the service of teaching and research."-William G. Bowen, President, Mellon Foundation, Harold T. Shapiro, President, Princeton University, from the foreword
Originally published in 1996.
The Princeton Legacy Library uses the latest print-on-demand technology to again make available previously out-of-print books from the distinguished backlist of Princeton University Press. These editions preserve the original texts of these important books while presenting them in durable paperback and hardcover editions. The goal of the Princeton Legacy Library is to vastly increase access to the rich scholarly heritage found in the thousands of books published by Princeton University Press since its founding in 1905.
Product Details
| ISBN-13: | 9780691601366 |
|---|---|
| Publisher: | Princeton University Press |
| Publication date: | 07/14/2014 |
| Series: | National Bureau of Economic Research Publications , #329 |
| Pages: | 334 |
| Sales rank: | 747,342 |
| Product dimensions: | 6.10(w) x 9.10(h) x 0.80(d) |
Read an Excerpt
Buying the Best
Cost Escalation in Elite Higher Education
By Charles T. Clotfelter
PRINCETON UNIVERSITY PRESS
Copyright © 1996 Princeton University PressAll rights reserved.
ISBN: 978-0-691-02642-8
CHAPTER 1
The Problem of Rising Costs
Simply put, the cost of what we are doing at universities is rising quickly. Harold Shapiro, 1993
Expenditures by American colleges and universities increased rapidly during the 1980s, markedly so among private institutions. Tuition charges rose sharply as well, making the rate of inflation in private college tuition even worse than the much-heralded run-up in medical costs. The aim of this study is to examine these increases, particularly as they have affected private research universities, and to consider their possible causes. This initial chapter begins by providing some background on the increases, describing the increases in spending and tuition and noting how they came to play a central role in the larger debate on the direction of and policy toward higher education. It then presents an overview of the book, by addressing the general importance of rising costs, previewing the book's conclusions, and outlining the organization of chapters.
AN EXPLOSION IN SPENDING AND TUITIONS
Higher education in the United States is a costly enterprise. Measured by aggregate statistics, the expenditures by all 3,400 colleges and universities amounted to some $164 billion in the 1991/92 academic year, or about 2.9 percent of the gross domestic product (GDP). From the perspective of a family sending a child to college, it no longer is uncommon for the financial burden of a four-year program to reach six digits, making college the second largest lifetime expense for many families, after the purchase of a house.
Beginning around 1980, these costs, measured in real, inflation-adjusted dollars, began to rise rapidly. Growth was especially rapid at private institutions. Figure 1.1 shows trends in spending over time in colleges and universities, using information on educational and general expenditures per full-time-equivalent (FTE) student and adjusted for inflation. After holding steady between 1929/30 and 1949/50, average cost rose rapidly after 1950, exhibiting the sharpest increases during the 1950s and the 1980s. Between 1979/80 and 1989/90, spending per student in all institutions grew at an annual real rate of 2.4 percent, and at a 3.4 percent rate in private institutions alone. In their study of costs in higher education during the period 1979 to 1988, Getz and Siegfried (1991) found that costs per student rose especially fast in private research universities and private liberal arts colleges.
Tuitions rose sharply as well, with particularly steep increases in the private sector. Throughout most of the past three decades, the average tuition and fees charged by colleges and universities in the United States tended to increase faster than the overall rate of inflation. While the rise was modest for state-supported institutions, it was more rapid among private institutions, accelerating dramatically during the 1980s. Figure 1.2 charts average tuition, room, and board in constant dollars for public and private universities over the last three decades. During the 20 years from 1959/60 to 1979/80, average real tuition and fees rose at a scant 0.3 percent average annual rate in public universities and at a 1.3 percent rate in private universities. After 1979/80, however, the growth rate in the public universities increased to 2.8 percent; among the private universities, it jumped even more, to 4.5 percent per year.
To be sure, the tuition figures cited here refer to the "sticker price," before financial aid is netted out. In fact, during the 1980s, institutions devoted a growing share of their own funds to pay for scholarships, in effect giving students a larger discount from the stated tuition rates. These effective discounts moderated the growth in net tuition slightly, by an average of 0.6 percent per year in private institutions and 0.1 percent per year in public institutions. Nevertheless, even correcting for this expansion of aid, the rates of growth in net tuition remained high—about 2.7 percent annual real growth in the public sector and 3.9 in the private sector. In fact, during the period between 1975/76 and 1991/92, the inflation in the net-of-aid cost of attending private universities exceeded not only the overall rate of inflation but also inflation in medical costs.
Increases such as these attracted particular attention in one very visible group of private institutions: the handful of nationally known private "elite" research universities and liberal arts colleges. Enrolling only a tiny fraction of all undergraduates, this group of institutions is distinguished by its disproportionate share of the nation's top students, most-prominent scholars and scientists, and basic and applied research. As measured by the percentage of applicants accepted for undergraduate admission and the qualifications of those admitted, these colleges and universities boast the most competitive admissions standards in all of higher education. The very names of the research universities in this group—Columbia, Johns Hopkins, Stanford, and Yale, among others—bespeak world-class research, academic selectivity, and social prestige. These names also have come to be associated with high tuitions and, in the view of many critics, excessive spending.
To illustrate how the increase in costs has manifested itself in the tuition at one of these prestigious institutions, consider the case of the University of Chicago, whose impressive gothic campus in Hyde Park was built near the end of the 19th century. Imagine a student preparing to enroll for a year's study in the year 1900. This student would have faced a bill for the year's tuition and fees that is laughably small by today's standards: $120. When translated into dollars corresponding to the 1991/92 academic year, the bill still would be a downright cheap $2,340. Eight decades later, in the fall of 1980, a student beginning a year at Chicago would face a bill for tuition and fees of $5,100, or $8,090 in 1991/92 dollars. Over this 80-year span, tuition had grown an average of 1.6 percent per year faster than had overall price inflation. But during just the next 11 years, Chicago's tuition and fees would double again in constant dollars, rising to $15,945. The average annual growth rate during this most recent period was a breathtaking 6.2 percent over inflation. As dramatic as this escalation in tuition and fees at the University of Chicago was during the 1980s, however, it was by no means unusual among America's most prestigious private colleges and universities. In Figure 1.3, the century-long rise in Chicago's tuition is compared in graphical form with that of Duke's. Although Duke's tuition remained below that of Chicago's for most of the period, it is clear that tuition at both institutions followed almost the same trajectory.
COSTS AND CONTROVERSY
A headline on page 1 of the New York Times in May 1987 announced, "Tuitions Hit New Peak, Igniting a Bitter Debate." The rapid rise in costs and tuitions during the 1980s became a flash point that intensified an ongoing debate over the direction of higher education itself, serving as evidence for critics of the inefficiency, misdirection, and even greed of institutions of higher education. Some critics viewed the run-up in costs as a direct result of an increasing emphasis on research at the expense of teaching. Others pointed to what they saw as excessive spending on frills and bloated bureaucracies.
The criticism of rising costs came from many quarters. For example, in editorials, the Washington Post called higher education "a machine with no brakes" and criticized in particular "the reckless escalation of tuition" and the "outsized demands of the richest and most famous universities." Business Week described higher education as "a huge, sprawling enterprise with sclerotic bureaucracies." One op-ed piece in the Wall Street Journal charged that "productivity is a dirty word when it comes to higher education." Highly critical books denounced various aspects of higher education. One book described faculty as "overpaid, grotesquely underworked, and the architects of academia's vast empires of waste" (Sykes 1988, p. 5). Another stated, "As increasingly vast sums of money have poured into colleges and universities over the past half-century, one of the most striking results has been that professors have taught fewer and fewer classes, and have done more and more research." Critics also blamed rising costs on new spending for recruitment and student amenities, a proliferation of courses and departments, and increases in administrative bureaucracies. Professors themselves criticized the growth of administration, with the president of the American Association of University Professors (AAUP) claiming, "Huge amounts have been devoted to funding administrative positions that a few years ago would have been thought unnecessary" (Bergmann 1991, p. 12).
This critical attitude also found a home in Washington's corridors of power. Ronald Reagan's Secretary of Education, William Bennett, was outspoken in his criticism of higher education, citing among other faults its "greedy" pricing policies. In a widely noted speech during Harvard's 350th anniversary celebration, he stated, "American higher education simply refuses to acknowledge the obvious fact that, in general, it is rich." He went on to criticize, among other things, what he saw as decreased attention to undergraduate education (Bennett 1986, p. 29). Similar ideas were expressed on Capitol Hill as well. One House subcommittee held hearings entitled, "College Education: Paying More and Getting Less" (U.S. House of Representatives 1992b). Not only was new funding for university research receiving careful scrutiny, there appeared to be a growing inclination to take some action to restrain cost increases, such as conditioning federal aid on cost containment. In 1992, the President's Council of Advisors on Science and Technology (1992, p. 19) summarized the situation in this way:
Public confidence in universities is eroding. Although studies show that the economic value of an advanced education has increased substantially in the last decade, there is nevertheless a growing concern that tuition and related costs are rising too quickly and that the teaching programs of the research-intensive universities should receive more attention.
Because of their prominence as well as their high cost, the elite private research universities were subject to a large share of this critical scrutiny. One defining moment was the chilly reception given to Stanford president Donald Kennedy in hearings about overhead rates on federal grants; the hearings produced embarrassing disclosures about Stanford's financial practices, one of which was the inclusion of a yacht and other luxuries in the base used to calculate the amount the university charged for indirect costs on its federal grants and contracts expenditures. Even more attention was focused on the elite institutions by the Justice Department's antitrust case against several groups of institutions, the most prominent of which was the "Overlap Group," an informal consortium that included MIT and the Ivy League schools. The Overlap Group held annual meetings to share information about the financial need of individual students, which had the effect of removing price differentials among schools for most recipients of aid and, therefore, the further effect of preventing a bidding war among institutions for prized applicants.
Beyond the very serious implication that these institutions were running a cartel for the purpose of fixing prices, the Justice Department case also focused attention on the role of financial aid in the cost escalation. Conceived in large part by these institutions during the 1960s, the financial aid system, operated by institutions and supported by federal aid programs, was based on a definition of a student's financial need as the difference between the cost of attendance and an amount supposedly indicating what that student's family reasonably could pay. This system had two effects: (1) to entitle students at the most expensive institutions to the largest amounts of government aid, and (2) to create within each institution an apparent "Robin Hood" transfer from rich students to poor students. Thus, not only were the prestigious institutions being accused of running a cartel to fix prices, they were receiving a disproportionate share of government student aid funds and were viewed by their more affluent customers as running redistribution programs among their own students. That their tuitions were rising at breakneck speed simply poured gasoline on this firestorm of criticism.
The escalation in costs did not go unnoticed, or undefended, by the institutions themselves. University presidents routinely expressed concerns about rising costs, particularly about those related to scientific research and instrumentation, and about how these increases might affect the ability of their institutions to conduct path-breaking research. In defense of the increases, universities pointed to outside pressures on budgets, including increases in needed purchases of scientific equipment, the rapid rise in the cost of books and academic journals, rising faculty salaries, a growing reliance on institutionally funded student financial aid, the need to attend to the physical deterioration of physical plants, and increasingly burdensome varieties of government regulation.
As is evident from its themes, much more is at stake in the controversy over the rise in costs than just the mechanics of financing a major college or university. Especially as it pertains to the group of elite colleges and universities, the issue of rising costs carries with it implications for several important functions in which these institutions are involved. One of the most important functions of research universities, and of the well-known private research universities in particular, is the creation, extension, and development of knowledge, both basic and applied. The research carried out in these institutions, some of which is financed by government, contributes materially to the economic well-being of the nation and the world, spurring economic growth and, in many different ways, enhancing human welfare. Although industry carries out research and development on a large scale, the research conducted in universities is recognized as having a special role, as it often is more basic or generalizable than research that can be justified by individual firms. Because of the economic usefulness of university research, anything that affects its cost to the nation is by definition a matter of some concern.
A second function that may feel the impact of rising costs is, of course, the education of students, a function that can be seen perhaps most clearly in the advanced training that universities offer. Not only is this training central to the continued economic growth of the United States, university education increasingly has become one of the country's major export industries, sending an ever-growing number of graduates back to their native countries. How the increases in costs will affect the ability of American universities to retain this preeminent position is unclear.
Still another reason for concern about increasing costs arises from the role of higher education, in particular, the role of the group of selective private institutions, in influencing the transmission of affluence and power from one generation to the next in this country. Although American higher education offers to the aspiring young person a larger number of avenues to success than is afforded in other countries, the fact remains that admission to one of the 50 most selective colleges and universities tends to confer on a young person the chance at a credential of enduring economic and social value. Given the importance in the American civic tradition of the principle of equal opportunity and its embodiment in discussions of higher education policy in the emphasis on "choice" as a primary goal of student financial aid, it should not be surprising that the affordability of college, especially of these elite institutions, is a question of no mean policy significance. Indeed, the ability of a talented young person to rise from the poverty of an urban neighborhood or depressed rural area to attend Harvard stands as something of a symbolic litmus test of equal opportunity in America. Thus, rising tuitions and their impact on the affordability of the best college education are significant for this reason as well.
(Continues...)
Excerpted from Buying the Best by Charles T. Clotfelter. Copyright © 1996 Princeton University Press. Excerpted by permission of PRINCETON UNIVERSITY PRESS.
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Table of Contents
List of FiguresList of Tables
Foreword
Preface
List of Abbreviations
Ch. 1 The Problem of Rising Costs
Ch. 2 A Peculiar Institution
Appendix 2.1 A Simple Financial Model of a University
Appendix 2.2 Decomposing Rates of Growth in Expenditures
Ch. 3 Boom Times for Selective Institutions
Appendix 3.1 Supplementary Tables for Chapter
Ch. 4 Patterns and Trends in Expenditures
Appendix 4.1 Dealing with Interdepartmental Transfers and Recharges
Appendix 4.2 Categories Used to Create Expenditure Tables
Appendix 4.3 Trends in Duke Expenditures from 1976/77 to 1983/
Ch. 5 The Sources of Rising Expenditures
Appendix 5.1 Supplementary Tables for Chapter 5159
Ch. 6 Administrative Functions
Ch. 7 The Allocation of Faculty Effort
Appendix 7.1 Options for Providing Classroom Instruction
Appendix 7.2 Calculation of Classroom Teaching Loads and Course Characteristics
Appendix 7.3 Data on Committee Membership
Ch. 8 Classes and Course Offerings
Appendix 8.1 Supplementary Tables for Chapter 8240
Ch. 9 Ambition Meets Opportunity
Notes to the Chapters
Bibliography
Index
What People are Saying About This
"Clotfelter breaks new ground in furthering our understanding of the "cost disease" afflicting American higher education over the past two decades. He accomplishes this by skillfully combining national and institutional data, along with detailed figures for a selected group of departments at four private universities."—W. Lee Hansen, University of Wisconsin