We don’t use state tax revenue to support higher education the way we once did.
When I teach my macroeconomics students how to adjust for inflation using the consumer price index, I haul out my fee statement from my first quarter at the University of Minnesota. In January 1971, I paid $122 per quarter for 18 credits of coursework and all student fees, including access to athletic facilities and Boynton Health Service. Adjust by the CPI and the cost of one academic year at the U in 1971 comes to $2,028 today.
Actual tuition and fees for the College of Liberal Arts are now $12,088 a year. That $10,060 difference is a good chunk of change for most people.
Some of that tuition increase is due to the lower level of state support for higher education. The state supplied 36 percent of the university’s total funding four decades ago; today, it supplies 18 percent.
Couple that with declining federal subsidies for post-secondary students — more loans and fewer grants — and it is clear that going to college is harder than it used to be.
So I am sympathetic with University President Robert Bruinincks and representatives from MnSCU when they plead with the Legislature for smaller cuts.
It is also clear, however, that virtually all colleges and universities, private as well as public, have not served society well in terms of cost control. Their cost increases have outrun inflation for decades now. Only medicine rivals higher education when it come to rising costs.
Over the past two decades, college tuition has risen about twice as fast as general inflation. In many states, tuition has increased at state schools at a faster pace than at private schools as the relative level of government support for state colleges and universities has declined, although this varies greatly from one state to another.
But tuition increases have outpaced inflation at private institutions as well, and these generally remain more expensive than state schools.
If one looks at per-student costs rather than at tuition, the pattern is similar. Both state and private universities have become more aggressive in their fundraising efforts. Contributions generally have risen faster than general inflation. So tuition increases need not fund all rising costs. But in many cases tuition bears the brunt.
The key question then is why higher education costs have risen so rapidly over such an extended period.
Increasing ratios of faculty and of administrative staff to students is one factor. At both private and public schools, faculty teaching loads are at least somewhat lower than they were when I was a student. And the number of non-faculty administrators at most schools has risen relative to student counts.
Much of this increase is in the form of student services and ancillary programs. Some also is in the form of student facilities like shiny fitness centers or posh dormitories.
Talk to college administrators about this and you learn that they face what economists call “imperfect competition.” This is a market structure, like consumer retailing, that is highly competitive but not “perfect competition” like crops, where there are myriad buyers and sellers of a completely undifferentiated product like No. 2 yellow corn.
Imperfect competition includes brand identities and identifiable competitors whose actions affect how one’s own decisions turn out. One of the features of imperfect competition is “apparent excess capacity.” An example might be a supermarket with 24 checkout lines even if only five registers are open most of the time. In imperfect competition, sellers often feel forced to compete on factors other than price, such as convenience or ambience. For college administrators, not having a sleek fitness center could mean you lose top students to a school that does have one.
Moreover, schools feel competitive pressures to offer evening and weekend programs for nontraditional students. In 1971, the University was the only school in the Twin Cities that offered an MBA. Now there are at least 12 MBA programs.
From the point of view of a single institution, offering weekend and evening degrees is a way to spread the fixed costs of existing physical and administrative infrastructure over more students.
But from the point of view of society as a whole, we end up with excess capacity in virtually indistinguishable, overlapping programs and administrative costs that take on a life of their own.
The costs and benefits of a major research university like the University merit a column in their own right. Minnesota owes a great deal of its economic vitality to the U, both because of the people it educated and because of the research done there that spilled over into the computing and medical technology sectors that are cornerstones of our modern economy.
We owe a debt to leaders like former Gov. Elmer Anderson for supporting the level of funding a half-century ago that made such accomplishments possible. But conditions have changed, including lower levels of federal support for basic research and a reduced willingness of taxpayers to fund such institutions. I personally hate to see further reductions in state support of the University and of MnSCU. But the voters ultimately must speak and their most recent expression does not support my preference.
© 2011 Edward Lotterman
Chanarambie Consulting, Inc.