Tuition Rising: Why College Costs So Much

Academe, Jan/Feb 2001 by Sattinger, Michael

Tuition Rising: Why College Costs So Much

Ronald G. Ehrenberg. Cambridge, Mass.: Harvard University Press, 2000, 320 pp., $39.95

THE COST OF ATTENDING PRIVATE institutions of higher education in the United State rose from about 1980 to the mid-1990s and then leveled off. The yearly increases substantially exceeded the rate of inflation and raised costs relative to median incomes. At public colleges and universities, costs of attendance, starting from much lower levels than those at private institutions, also rose in the 1990s, as those institutions substituted tuition revenues for reduced state support.

In his well-written account, Ronald Ehrenberg brings his experiences as a labor economist, faculty member, and senior administrator to bear on the question of what lies behind cost increases at selective private institutions. The specific focus of his attention is Cornell University, so much so that the book could have been subtitled "Ithaca Confidential" rather than "Why College Costs So Much."

Ehrenberg explains why tuition has risen by looking at the decisions that affect costs rather than by looking at a list of items that cost more. These decisions are motivated by the competition among institutions to seek the highest rankings (for example, a department that ranks ahead of all but ten in the country). In a winner-takeall economy, the best students seek admission to the institutions that are ranked the highest. Since the number of institutions in the top ten is obviously limited, one institution's expenditures to get into that top level require responding expenditures by other institutions to remain there. This can get very expensive. The irony of this explanation is that it is the willingness of families and students to pay for high rankings that generates cost increases, undercutting the complaint that tuition is rising too fast. The rising tuition, however, has important distributional implications. Ehrenberg shows that Cornell's tuition and fees fell relative to mean family income for families in the top 5 percent of the income distribution during the period 1987 to 1997, but rose relative to mean family income for families in at least the bottom 80 percent of the distribution.

The competition is exacerbated by the visibility of ratings systems, such as the rankings publicized by U.S. News & World Report. Ehrenberg analyzes the criteria and weights used in such rankings, and finds that faculty resources and expenditures per student play an important role. Since higher costs improve rankings, administrators have a reduced incentive to control those costs.

Tuition, of course, is only the list price paid by students for the academic part of attending college. Grant aid reduces the net costs of college attendance, while food, housing, and related expenditures raise the net costs. Declines in federal grant aid have had the effect of raising the grant aid that colleges must provide from other sources to maintain accessibility for needy students. Need-based grant aid has also been affected by a consent decree signed by Ivy League institutions and the Department ofJustice that requires the universities not to confer with one another about the financial needs of particular students. Preferred students can now extract better offers from competing institutions, leading many to depart from need-based financial aid policies.

Although Ehrenberg focuses on the reasons for rising tuition at selective private institutions, he also examines other major policy issues at both public and private colleges and universities. These include endowment and development policies, admissions, financial aid, indirect costs of grants, allocation of resources among academic departments, salaries, retirement, maintenance and infrastructure, enrollment management, parking and transportation, intercollegiate athletics and gender equality, and dining and housing. All of these issues are indirectly related to rising tuition through their effects on student applications or through the economic concept of opportunity costs, a point Ehrenberg repeatedly emphasizes.

Ehrenberg also considers economic conditions at public colleges and universities. Declines in state support from 1986 on led to salaries at public institutions that were 78 to 80 percent lower than corresponding levels at private institutions in the late 1990s. Ehrenberg argues that public universities have shown greater cost control because their boards of trustees must answer to the executive and legislative branches of state governments.

As an economist, I especially appreciated Ehrenberg's application of economic concepts to concrete university problems, such as the cost of office space, parking incentives, the distinction between average and marginal costs in the analysis of development expenditures, and the difference between the private and social costs of student recruitment. I also appreciated the episodes in which Ehrenberg's proposals derived from economic principles failed to persuade his colleagues at Cornell, as in the discussion of comparison groups for salary bargaining.