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Why does college cost too much?  As President of Woodbury University, I am particularly interested in tracking the financial evolution of higher education, including changing tuitions, the role of endowments, and how they relate to delivering excellence.  Harvard, Yale, and the University of Pennsylvania have recently reported double-digit endowment returns this past year, leading to colossal reserves of wealth at these Ivy League institutions. While Harvard and Yale are the country’s richest schools, there are 69 other higher education institutions in the United States with endowments over $1 billion.

In the face of this spiraling endowment growth, the cost of a college degree has continued to rise.  Between 2002-03 and 2012-13, tuition/fees, room/board rose by an annual average of 5.2% for public institutions and 2.4% for private not-for-profit institutions.  That average annual rate of increase has been declining for privates but increasing for the publics, creating the fear that most Americans may find public higher education unaffordable.

What are the drivers behind the rising costs of a college diploma?  Let me share two schools of thought, each perspective having its own merits.  The first line of reasoning points to wasteful education spending that is akin to an “arms race” among universities.  The second perspective argues that much of the contributors to cost increases are largely external to or imposed on the university.  Let me briefly explain each one.

Faculty tenure—the practice of virtually lifetime employment in many universities—has been portrayed as the bogeyman of higher education expenses.  Evidence provided by the American Association of University Professors, however, does not support this.  Since 1975, the proportion of instruction delivered by tenured and tenure-track professors have gone from roughly 45% of all teaching staff to less than a quarter.  Rising costs and fading tenure do not support tenure as the cause.

In their efforts to improve rankings in the US News & World Report and other publications, many colleges and universities have resorted to “gold-plating” their campuses to offer their prospective students a resort-like experience.  They are also engaging the “best and brightest” students by offering the carrot of merit-based financial aid.  Shifting the balance from “need-based” aid to “merit-based” aid exacerbates the college affordability problem faced by students from working-class families, many of whom are the first to enter college.  These practices are tantamount to a higher education “arms race,” the classic prisoner’s dilemma that the United States and the Soviet Union faced at the height of the Cold War.  Unfortunately, antitrust laws do not give college and university presidents the option to enter a period of détente and negotiation.

An additional argument attributes cost increases to external forces imposed on higher education institutions, and nowhere is this more evident than in the state of California.  Due to  competing capital needs for education, health care, and the prison system, the State’s funding of public institutions has declined, forcing these institutions to rely more on tuition, gifts, grants, and contracts to generate revenue.

Should technology help reduce educational costs?  Not necessarily.  The impact of technology on manufacturing (via automation of repetitive processes) does not readily translate to education where the impact of technology is similar to that in health care—it elevates the “standard of care.”  To be competitive in the future workplace, students expect to be instructed in these new game-changing technologies.  Instruction in these technologies requires capital for installation and continual upgrades.  During the period 1811 and 1816, a group of British textile workers (the Luddites) rioted and destroyed machinery in the belief that such technological change would diminish employment.  If I were to adopt the Luddite argument and insist that all instruction at my university be carried out on the chalkboard and with pencil and paper, that would be tantamount to “educational malpractice.”   While technology might lead to operational efficiencies, it has increased the real “cost of doing business” in colleges and universities.

Since so many universities have endowments, how would you allocate resources to foster academic excellence?  In my next blog, I will share with you some of the solutions that have been proposed to reform higher education in America and refocus it back to its core mission:  to produce graduates with highly-valued degrees.

I am Woodbury University President, Dr. Luis Calingo. Thank you for letting me share Reflections on Excellence.

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