The Cost of Higher Education

A federal education committee has released a report of rather mixed content. To its credit, it notices that the public universities are not being given sufficient support by the state—a fact obvious to everyone paying attention as well as a minority of any given legislative body. It also makes the criticism that increases in financial aid have been tilted towards merit aid, so that unmet demonstrated financial need has grown rapidly.

Now for the bad news—the report claims that the increase in the cost of higher education is a result of inefficiencies within the university. This seems largely incorrect. First, the substantial decrease in state funding is accountable for a portion of the increase in tuition costs, rather than an underlying change in the cost of educating a student. If you take money away from one source, the university has to get more from the source it has control of. Second, what real changes in the cost of educating a student have happened (and there have been substantial ones) can largely be attributed to a simple economic reality. Two of the sectors of the economy which have seen prices increases which substantially outpace inflation are health care and education. The reason is simple: both are labor-intensive fields which have limited room for increases in productivity. The general formula for increasing productivity is to have each person spend less time on any given task—dealing with a patient or teaching one class to one student. But in education and healthcare, this formula is rightly perceived not as an increase in productivity, but a tradeoff between increased quantity at some loss of quality. Just like not seeing the doctor for any length of time, teaching classes of 200 students is seen as a bad thing.

As overall productivity increases, the amount of compensation it takes to get skilled labor increases. Most industries can easily compensate for that by creating more of the product in the same amount of time. That's not possible in healthcare and education, so prices increase. Salaries also decrease to some extent, as attested to by the decline in salaries for educators relative to other professions. Blaming inefficiency is really missing the point: there's an important and largely unavoidable economic process involved which leads to rising prices for higher education.

There's also a lot of objectionable things in there about accountability standards similar to those that have been implemented in K–12. Did I mention that one of the leaders of the report came from the accountability movement in Texas? But that bit of the report is just a bad idea, and one I have nothing new to say about.