Episode 10

Do Campus Luxuries And Amenities Make Higher Education More Expensive?

Many college campuses today resemble spas with leisure facilities and opulent housing. They have also been the site of a construction boom.  How much does all this cost and how does it affect what students pay?  We will answer these questions on today’s episode.  I am Larry Bernstein and welcome to Charging U.

 It is safe to say that many colleges do a good job of creating school spirit.  Apparel advertising the school name is worn by students and alumni near and far.  Distinctive logos which brand the school are seen everywhere on campus and in the community .  But there is no larger than life example of this than the 536 foot long lazy river pool built in the shape of the letters LSU at Louisiana State University.  

A lot of attention and press have been devoted to luxuries on college campuses, things such as lazy river pools, climbing walls, and opulent dorms. Like the move-in service described in the first episode, they are examples of conspicuous consumption which are not necessary for learning.

In 2017, LSU built a lazy river pool as part of its $85 million campus leisure project.  The increase in mandatory fees instituted to cover the construction costs was approved by the student government of the university.  No breakout of the cost of the pool alone is available.  We can conservatively estimate the pool cost to be approximately $8.5 million, in line with what Texas Tech spent on a larger pool.  So the pool cost 10% of the total. The overall project’s price tag is financed by a $150 per semester increase in student fees. If 10% of the total cost went to the pool, then that's $15 per semester per student. Again, this is an unnecessary expense, but it alone does not break the bank. This is why it is important to quantify how much each factor costs.  One can say, “Look at that frivolous spending.” But when you look at the actual cost, it is not so high as to tip the scale.

Climbing walls also attract a lot of attention, and one is present at LSU.  A climbing wall costs about $100,000.  There are 37,000 students at LSU.  That comes to a one-time cost of $2.70 per student or, if amortized over 10 years, 27 cents per student per year. Just as paying employees to move new students into the dorm is an irritating and unnecessary but not too large expense, each individual amenity in itself does not cost that much, but it is just one of the many small charges that add up over the course of the college experience. The really significant cost was the sum of the many individual campus leisure projects at LSU as a whole, which adds $1200 to the cost of four years there, and $1500 if it takes 5 years to graduate.  

New or upgraded social and recreational facilities are common on many campuses in addition to LSU.  At public colleges and universities in Virginia, the total mandatory student union and recreational fees vary from $420 per student per year at George Mason University to $2295 per student per year at the College of William and Mary and $2442 at Virginia Military Institute.  So, again, we are at over $9,000 for four years for amenities and noninstructional costs.

Studies show that prospective students desire these luxuries and are more attracted to colleges that have them, even if it means that the student has to pay more.  A Bureau of Economic Research study concluded that these amenities, such as plush dorms and state-of-the-art leisure facilities, lead to higher ratings of campus life and do attract many students willing to pay more, including out-of-state students to public universities. This is especially true at some colleges and universities that have admissions which are not highly selective.  They attempt to distinguish themselves from the competition by having a nonacademic attraction.  Then the competitors are forced to offer attractions and a race ensues.  The revenue from these students can partially offset the cost of the amenities.  If the lazy river pool can attract a full paying out-of-state resident to LSU, the university will get an extra $17,000 per year, or $68,000 over 4 years, or $85,000 over 5 years.  A pleasant undergraduate experience may lead to an increase in future alumni giving.  So is this a case of the college giving its customers what they want?  To some degree, the answer to the this question may be, “Yes.”  Is it an investment that pays dividends for the university? The answer to this question is, “Maybe.”

But there is another way of looking at this issue.  One can ask, “If you were a student, would you rather pay $30 a year for a lazy river pool that you can enjoy or $1000 a year so someone else can compete in NCAA intercollegiate sports, including Swimming and Diving?”  You may not want to spend money on either, but if you had to choose one extravagance, it may as well be the one that costs less and brings you more pleasure. It may be the lesser of two evils.

I should point out that while luxuries such as lazy river pools are lightning rods for negative publicity, not many colleges have them.

While the monuments that enhance student life garner a lot of attention, the construction of more classroom buildings, administration buildings, and labs seem to go undetected by the radar of public scrutiny. Overall, these are more numerous and more costly than a few conspicuous enhancements to student life. According to the Urban Institute, in 2018, 11% of the $311 billion that state and local government spent on higher education, or $34 billion, went to capital outlays.  About half of that was for new construction without a corresponding increase in the number of students. According to Sasaki and Associates, a Boston architectural firm, the amount of space per college student has tripled since the 1970s. 

The presence of modern, cutting edge buildings on a campus gives off a sense of financial security and academic health.  In the absence of objective measures of quality, this enhances a school’s reputation and makes it more desirable.

The push for expanded space does not come from the institution alone. Large donors frequently want tangible and conspicuous acknowledgment of their donation, such as seeing their names attached to a building.  Students and faculty do not want to have early morning classes or classes on Fridays. If there are no classes one day a week, then you need more space to accommodate that same number of classes in four days. 

Many states set their own utilization standards for room use on public college campuses.  In 2015, only three of the 50 large public universities looked at (University of California at Santa Cruz, University of Maryland, and University of Washington) met those standards. But, on average, the amount of classroom space is only 5% of total space on college campuses. Dorms and offices take up about 50% and research 12%. The increase in faculty and, especially, the increase in administrators, also contribute to the need to increase office space and, therefore, construction costs.  When we talked about administrative bloat, we concentrated on the salaries and benefits of administrators, but they also need offices so more buildings are constructed to accommodate them and it is costly.  

We have also noted how government and institutional spending for research has increased faster than inflation.  Some universities have invested in building expensive, state-of-the-art laboratories in order to win those grants for its researchers.  The University of Pennsylvania spent $92 million to build a nanotechnology center.  $20 million of the cost came from the donation of one alumnus and a substantial portion of the rest likely came from other donations and the endowment so that the entire cost was not borne by students.  Some universities are also building modern academic training facilities.  Auburn built a new small animal teaching hospital at a cost of $74 million. As you can see, just one of these buildings costs on the order of ten times the cost of the lazy river pool.  They are very expensive, but at least their function is to further the university missions of research and education.  They are examples of the facilities arms race going on to attract the best researchers and students.  Universities that are skilled in fundraising, have large endowments, and can collect the most tuition dollars are the ones that are best positioned to absorb much of the cost and compete in this contest. 

However, the cost of construction is not the total cost of the building. It is estimated that during the lifetime of the building, maintenance costs, utilities, and other expenses will equal the cost of construction itself. Therefore, even if a building is paid for by an external contribution, the institution will still need to come up with the funds to pay for its maintenance.  An American Council of Trustees and Alumni/Mississippi Center for Public Policy report called this "the gift that keeps on taking.”

New dormitories combine some aspects of luxurious amenities and buildings.  The Wall Street Journal looked at residence hall costs over two decades, from 2000 to 2023, at 12 public universities.  It found that dorms are being built or renovated to make them more posh than they were in the past.  In inflation adjusted dollars the median price of the least expensive on-campus housing option increased 70% and the most expensive option increased 114% while the housing costs in the community surrounding each school went up much less.  In many cases, the cost of the least expensive option in 2023 was greater than the inflation adjusted cost of the most expensive option in 2000.

Remember back to the second episode where we gave an example of luxurious hotels charging a lot more for a jump in perceived quality.  A similar phenomenon is happening with dorms.  Some students are willing to pay a lot more for a jump in perceived quality and so the school can charge a lot more for larger, more upscale dorm rooms just as luxury hotels charge a lot more for their product.  To some extent, having spacious, well-appointed dorms attracts students and allows some colleges to remain competitive to applicants.  Again, to some degree it is giving the customer what she wants but the Wall Street Journal investigation shows that even those who want to remain frugal, do not have the option to do so.

Here’s a question I have on college housing costs:  Have you ever wondered why dorm rooms, even at peer universities, are priced similarly even when the cost of housing in one location is more than twice that of another?  Why does a dorm room in Ithaca, New York and Hanover, New Hampshire cost about the same or more as a room in Manhattan or Cambridge, Massachusetts? The average rate for a one bedroom community rental in January, 2020 in Ithaca, New York and Hanover, New Hampshire was a little over $1000 per month and in New York City and Cambridge it was more than twice as high at over $2400 per month.  Yet the average listed dorm costs were all fairly similar at Cornell in Ithaca, Dartmouth in Hanover, Columbia in Manhattan, and Harvard in Cambridge.  It is possible that the quality of housing may not be equivalent, but clearly charges are not related to market rates. Is it that students and their families expect to pay a ballpark figure for housing and the colleges oblige them by charging that amount,  allowing some colleges to pocket more of the economic surplus from the transaction?  Is it that students are a captive audience, especially at colleges which require them to live on campus for a specified amount of time and they have no other recourse but to pay the high rents?  Is it that colleges are reluctant to raise tuition so that they generate more income by raising room costs, similar to how they raise mandatory fees instead of raising tuition?  All these are possibilities but there is no hard evidence to say conclusively that they are true.

According to the Center For Studies of Higher Education at the University of California Berkeley, the annual cost of paying just the interest on the debt of higher education, not even the principal, is equivalent to $750 per student at public universities and $1289 at private colleges. In the case of some public universities, the construction cost is borne by state residents in the form of municipal bonds, putting it outside of the university budget. In these states, it is the taxpayer, not the student, who pays the tab.  The use of endowment funds partially offsets the cost at wealthy private colleges. It's the less affluent institutions that get hit the hardest.  Fitchburg State University in Massachusetts charges in-state residents $970 a year in tuition, but $1471 per year just for a capital projects fee.

The state of Mississippi calculated in 2016–2017 the debt service per FTE student at its public campuses, that is, the amount of long-term debt (principal and interest) that requires current assets to pay or liquidate in the next year. That number ranged from $60 to $1127 per student per year depending on the campus.  Their average of $436 was below the nationwide average calculated at Berkeley but double what it was 10 years earlier.  With rising interest rates, the cost of financing debt will surely climb steeply.  That money has to come from somewhere and, surely, the debt will be borne by the current and future students, especially since most schools do not have large endowments to help offset the cost. It is true that current students are benefitting from the construction paid for by previous generations and that current students should be contributing to ensure that future students have proper facilities, but that doesn’t mean that colleges should have a blank check to spend as they desire.

Winston Churchill said, "We shape our buildings, thereafter, they shape us." Even if buildings don't shape students, they certainly shape their financial futures.  Students become burdened with paying for and maintaining the construction of new dormitories, research labs, offices, and athletic facilities. This adds thousands of dollars to the cost of a student’s higher education.

Thank you for listening to Charging U.  In this episode we discussed how luxuries and amenities have made college more expensive and how the building boom adds to the price paid by current and future students.  In the next episode we will discuss philanthropy and endowments.

If you enjoyed this episode of Charging U, please leave a rating and review and tell your friends to listen.  Let me know your thoughts. Send any questions or feedback to larry@chargingupodcast.com   Until next time, be well and be safe.