Episode 1

The Problem of High Tuition

Why do we pay so much for college?  Why is it so much more expensive than it used to be? Where does all that money go?  Join me as I answer these questions by exploring all aspects of how colleges charge, collect, and spend money.  In today’s episode, we introduce the problem of high tuition and the personal and societal issues associated with it.  I am Larry Bernstein and welcome to Charging U.

My father went to college for free. Tuition for four years of medical school cost me $15,200.  So why will it cost over a quarter of a million dollars for my youngest son to get his bachelor’s degree?  

My father attended tuition-free City College of New York just prior to World War II.  Had he been born a few years later, he could have attended college for free under the G.I. Bill, after completing his military service.  I attended a public medical school where tuition was supported by the taxpayers of New York State.  Thank you to everyone who paid taxes at that time.

Saving to pay for college for my three sons has been a major burden, something that I pondered almost daily.  I would think about it driving home at 7 PM in my 20 year old Toyota Camry realizing I had worked 13 hours nonstop because I had tuitions to save for and pay.  I would remember my father-in-law saying he was able to go to college because, “It cost $700 and I made $500 over the summer." Heck, today if you can earn five-sevenths of the cost of college over three months with a summer job, you don't need to go to college.  When reading The Boys In the Boat, about the University of Washington crew that won an Olympic gold medal in 1936 in Berlin, I marveled how the dirt poor rowers could afford to attend college without scholarships or financial aid.  I was amazed that Felix Zandman, founder of the Vishay Intertechnology, could go to college in a blighted, broken post World War II Europe after hiding from the Nazis for 18 months in a hole in the floor and losing his entire family.  It seemed that in the past, almost anyone who wanted to go to college could.

This podcast is my attempt to share the results of my investigation with all of you who are also wondering why college is so much less affordable now.  The real trigger which pushed me to pursue this project occurred when I was taking my middle son to college. He was about to attend the same college as his older brother so we had done the move-in before and knew the drill … or so we thought. 

On a warm late August morning with much anticipation and a sense of impending loss, we packed up the minivan and drove to the campus.  Upon arrival, we had to wait to get a parking spot to unload, so I started talking to the man directing traffic. He told us that he was from out-of-town and that the university had flown him and many others in and put them up in a hotel for a few days to facilitate move-in.  That was not the case two years earlier. When I got to park my car near the dorm, I was ordered to remain in the driver’s seat. Outside employees paid by the university unloaded the minivan and brought everything to the dorm. Now, my older two boys were almost 6’2” and my youngest son was a swimmer.  Do you know how much they ate and how much it cost to feed them? And here the one time they could have earned their keep, they were denied the opportunity. If teenage boys were not put on this earth to carry boxes, I'm not sure what function they serve. So, I was charged for a service we could have easily done ourselves. I thought back to how hard I've worked and all the inconveniences our family put up with to save a few dollars here and there and now the university was thoughtlessly spending it.  And classes hadn’t even started yet!  It was like being on a diet for 18 years and then being forced to eat chocolate cake.  On the one hand, today, most people think, “Oh I‘m glad I dieted for 18 years so I won't be as bad off after eating chocolate cake for four years,” but the question I am asking is, “Why are you making me eat chocolate cake?“

I know some of you may be thinking there are people who are physically unable to carry heavy objects. Let me assure you that during the previous move-in, the football team, lacrosse team, and wrestlers were present wearing shirts with cut off sleeves more than eager to help and display their strength.

When we speak about the cost of college, we are referring to listed tuition charges and mandatory fees. I will usually refer to this simply as “tuition.” Overall, fees are about 20% as high as tuition.  Colleges have been increasing mandatory student fees so they can increase revenue while claiming that they haven’t raised tuition, or at least not as much. It is a matter of semantics and sometimes a question of who gets to hold the money, but there is no difference in what the total cost is to the student, the student’s family, or whoever else if paying the bill.

Over the past 50 years, tuition sticker price and mandatory fees have been rising faster than inflation, faster than wages, and even faster than the cost of medical care.  In 1989, a year of college cost 22% of the median annual income of a family in the United States.  In 2016, that jumped to 45% of the median family income.  Let’s look at it another way.  In 1970, a person could work 246 hours at a minimum wage job to afford one year of the average tuition at a public college.  That means that a student could earn enough money during the first half of the summer to pay his or her tuition and during the second half of the summer to cover living expenses. Fifty years later, a student’s entire summer earnings from working a job for the federal minimum wage would cover only one-third of his or her annual average public college tuition and no living costs.  A student would have to work an additional 24 hours per week during the academic year just to pay the remainder of his or her tuition and even more hours to cover books, housing, and food.  Multiply all those hours by four to pay for the average listed private college tuition. This more rapid rise in tuition relative to wages and inflation has made college less affordable for not only those with low income, but also those in the middle to upper middle income brackets. Adjusted for inflation, the medical degree that cost me $15,200 from 1979-1983 should have cost about $53,000 in 2022, but, in fact, the same medical school’s actual tuition charges for four years were nearly $175,000 or more than three times what could be explained just by inflation.  And that’s provided there were no further tuition increases.

Prior to World War II, for many Americans, economic and social mobility was determined by ambition.  One could start a business, join a union, or work hard and rise through the ranks to improve one’s standing, all of which could be done without a high level of education. Now, in the vast majority of cases, upward mobility cannot take place without at least a college degree and, in many cases, an advanced degree is necessary.

In the 1970s, the college wage premium or the extra amount that college graduates earned compared to non college graduates was 40%.  Now, that number is 70 to 80% with bigger increases going to those with advanced or professional degrees. I should point out that those numbers do not take into account the cost of college itself which is substantial and may significantly reduce the difference in the future net worth between college graduates and high school graduates.  All of this is not to say that getting a college degree necessarily boosts your standard of living. Earnings of most college graduates have not gone up much more than inflation,  It's just that the income of those without a college degree has lagged even further behind inflation, so they are even worse off. It's a question of going to college and working hard just so you don’t fall further behind.  We’re not talking about getting ahead, but rather, just staying even.

To paraphrase columnist William E. Vaughn, “Economists report that a college education adds many thousands of dollars to peoples’ lifetime income which they then spend sending their children to college."

In the past, only low income students had to borrow to pay for college. Now even middle income students need to take out loans and the low income student must borrow even more than before.  The average debt burden for the 65% of students that borrow for college is over $39,000.  Total debt from education surpassed total credit card debt over a decade ago.  Repayment of those loans is particularly problematic for the roughly 40% of students who start college, but do not graduate within 6 years and do not have the income boost provided by the college wage premium.  We will cover the role loans play in the price of college in a future episode. 

The increased cost of college affects all areas of life and forces families to pick options they would not have chosen otherwise: When and how many children do they have?  Do both parents work?  Do they work longer hours leaving less time for family, social, and community activities?  How much do they save for retirement?  How much do they give to charity?  Graduates must also consider different choices because of the cost incurred.  Do they delay moving out of their family’s home after they graduate? Do they choose their job based primarily on pay rather than passion? When do they get married?  Can they buy a house and, if so, when and where?  When can they start saving for retirement?  When and how much do they give to charity? 

Another societal question is: How does all this impact social mobility?  Various studies from the past showed that enrollment declined between 2.5 and 5% for every $1,000 increase in public college tuition, especially at large public research universities. Now, admittedly, 20 or 30 years ago a $1000 increase hurt more than it does today, but the fact remains that higher costs drive away potential students.  Though there are glaring instances where it has fallen short, American society has prided itself on being a meritocracy which allowed newcomers and those less affluent to have a chance at improving their standing.  If those groups have large barriers to accessing college, and college is the way to improve their status, how are they supposed to improve their status? 

What I don’t understand is why businesses have been silent on the matter of high college cost which has allowed much money to be shunted to higher education, so that there is less discretionary income available for the public to spend on the products and services of those businesses.  55% of graduates report delaying or not buying a house because of college costs.  That has to have a profound and negative impact on many stakeholders in that area of the economy, including those that provide the construction materials, transport the materials, and build the house as well as those that furnish the home and finance the operation.  When more money is spent on higher education, there is less available to spend in all other areas of the economy. So all businesses not directly servicing colleges and college students suffer.  Society in general suffers when money is shunted from efficient areas to less efficient areas.

It is interesting that the current debate centers around how we can make higher education more affordable by getting someone else to pay for it: increased government support, tax breaks, and loan forgiveness.  The Gates Foundation reports, “Americans on both sides of the political spectrum believe that colleges are not addressing the financial need of the students.  Inadequate financial aid and student debt are limiting students’ opportunity.”  What about reducing cost?  In most other sectors, the argument has been, “It costs too much, make it cheaper!”  “Reduce inefficiency!”  “Work harder and do more!”  I am puzzled as to why the debate over the high cost of college doesn’t center on the need for colleges to decrease their expenditures. This goes back to my original story about move-in and my question, “Why are you making me eat chocolate cake?”  Why are you making me pay for something that is not necessary AND not even related to instruction or education.  This is what we will be examining in future episodes.  

The discussion about college tuition can become passionate.  This podcast has no political agenda other than to rein in the cost of college.  To be quite frank, neither political party as a whole can claim the high ground on this issue.  

My goal is to be objective.  I try to avoid the use of anecdotal evidence, but I will use real world examples to illustrate various points which are backed by facts.  Obtaining clear information about the expenditures of universities is not easy.  An earlier national commission noted how colleges have “permitted a veil of obscurity to settle over their financial operations.”  This may not be surprising behavior for private colleges, but it is even the case for public institutions, which you would think should be transparent to the citizens that finance them. 

I am attempting to quantify costs when possible and not just make general statements without regard to how much each factor contributes to the problem.  

I will cover only four-year public and four-year private nonprofit institutions of higher education.  I will not address 2 year community colleges or for profit institutions.

My aim is to act impartially as a controller might in presenting the financial facts of an organization leaving others to judge the merits of how the money is spent, unless it is in a grossly irresponsible manner.  An accountant may dispassionately list the cost of one option compared to another, but she will voice a strong opinion if her client decides to withdraw all his retirement funds to gamble in Las Vegas.

Thank you for listening to Charging U …In this episode, we discussed how students in past generations could more easily afford a college education and some of the societal problems associated with runaway tuition costs. I hope you enjoyed it and will listen to future episodes. 

Please let your friends know that in the coming episodes of Charging U, we will explore the reasons for the meteoric rise in college tuition including causes such as government funding, loans, individual pricing, administrative bloat, luxurious amenities, and rankings. Some of the reasons for the high price may amaze you. They certainly surprised me.  I look forward to sharing them with you.  Until then, …be well and be safe.