Are Lavish Facilities Responsible for Tuition Inflation?

Richard PallardyBy Richard PallardyBy Savingforcollege.com

Higher education is expensive. Startled baby boomers and their matriculating offspring alike are frequently floored by the price of even an undergraduate education, never mind graduate work. It’s no wonder. Since the 1970s, when many boomers could attend school by merely working for the summer, tuition has gone through the roof, outpacing inflation by a significant margin.

In the 1969-70 school year, the average attendee of a four-year institution could expect to pay a modest $1,674 in current dollars for tuition, room and board, and fees per the National Center for Education Statistics. Rates began rising appreciably every year since 1980—close to 7% a year. By 2017-18, they were looking at $27,357. That’s a total increase of more than 1,500%.

Flabbergasted economists and other observers have attempted to pin the cause on any number of factors: the increasing availability of student loans, reductions in state funding, rising numbers of highly paid administrators, and increases in enrollment.

One pet theory in the popular press is the proclivity for some larger institutions to invest in lavish, state-of-the-art housing and recreational facilities. Sleek new gyms, posh dormitories, and glossy administrative facilities, which supposedly attract new students and staff, are an obvious target for those looking to explain the astronomical costs facing today’s students.

After all, these features don’t come cheap and the money has to come from somewhere. And their sometimes-absurd decadence — a lazy river in the shape of the school’s initials, really? — makes for good clickbait.

Such complaints aren’t new: an 1875 New York Times editorial made essentially the same argument. As conspicuous (and expensive) as these new luxuries are, however, recent analyses suggest that they don’t even begin to account for the eye-watering sticker prices confronting the modern college kid.


Riding the Lazy River into Debt?

Per the OECD’s most recent Education at a Glance report, the United States far outstrips any other country in its spending on what are referred to as “ancillary services,” which includes room and board and healthcare, as well as other perquisites, such as recreational facilities paid for by student fees.

Some of this may simply be attributable to the American preference for on-campus living, which is not necessarily the case for other countries. Still, college spending on amenities is certainly eyebrow-raising. Even if it isn’t the root cause of tuition inflation, it’s not hard to see why publications such as the Wall Street Journal have printed headlines like “Resort Living Comes to College Campuses.”

“Some colleges have doubled down in a competition for students that involves fancy dorms, high-end student centers, climbing walls and lazy rivers — paying for those amenities with still higher tuition and fees,” claimed Massachusetts Senator Elizabeth Warren in 2015.

Climbing walls, lazy rivers, and enormous hot tubs create an atmosphere of opulence that has little if anything to do with the attainment of higher education. These features are certainly costly. Climbing walls run around $100,000 to install. And Louisiana State University — where a lazy river in the shape of the school’s initials was in fact installed — spent $85 million on what was essentially a vanity project.

And yet, many larger universities appear to prioritize them. In an economic sense, at least, they appear to have good reason for doing so. Surveys have demonstrated that these features are highly attractive to prospective students. New dorms have correlated to increased enrollments and even student retention at numerous universities. Campus appearance, whether or not it affects the quality of education, is a major draw.

A 2012 Delta Cost Project paper cites numerous studies at individual universities that corroborate this notion. The Louisiana State project was approved by the student government by a significant margin. The value of these “consumptive preferences” was also validated by a 2013 paper from the National Bureau of Economic Research.

The Delta Cost paper also cites research by Sightlines, a management firm specializing in higher education that employs one of the authors, that found that only 15% of newly constructed buildings since 2005 were purposed for recreation and dining.

On top of that, college infrastructure as a whole is crumbling in the United States. Many buildings constructed in the middle portion of the 20th century are in dire need of maintenance and replacement. So, when money is available, it often goes toward modernization or a one-for-one replacement. These are ultimately necessary expenses, not indulgences.

The cost of total college construction, including new construction, additions and retrofits, is a very small percentage of college costs. Even at its peak, $15 billion in 2006, it was just a few percent of total annual college budgets.

All of this combines to suggest that popular conclusions about the role that the erection of conspicuous new facilities plays in tuition inflation is at best overstated and at worst, entirely inaccurate.


Other Theories About Tuition Inflation?

A number of other myths and oversimplifications have attempted to diagnose the root cause of tuition inflation. While they often assert an impressive array of statistics that ostensibly support their conclusions, most make the mistake of conflating correlation and causality. The correlations may be intriguing, and may indicate problems in higher education, but most do not sufficiently explain tuition inflation.

State Funding

Many analysts have looked to drops in state funding to explain tuition inflation. A 2018 report alleges that it fell by $7 billion since 2008. According to this theory, recent funding cuts are made up in student tuition and fees.

Per capita spending has certainly fallen, in part due to enrollment increases and in part due to the recession. A 2015 report from the Center on Budget and Policy Priorities found that states spent 20% less on each student that year than they did prior to the recession. For the most part, spending has now returned to pre-recession levels.

Spending in total, however, has increased massively. Per a 2015 New York Times analysis, spending is ten times higher than it was in 1960. (Admittedly, a dollar in 1960 has the same buying power as $8.50 today.) Even the military budget has not doubled in height, increasing by a factor of 1.8.

And even the drops in per capita spending are far exceeded by tuition increases — indicating the absence of a direct causal relationship. Further, a National Bureau of Economic Research publication from 2004 found that at best six cents on the dollar of state appropriation increases actually went to offset tuition — pre-dating the recession. A 2014 paper found a marginally higher ten cents on the dollar ratio.

However, this doesn’t preclude per capita spending cuts from contributing to increases in tuition and enrollment of out-of-state and international students, who pay higher tuition than state residents.

The Bennett Hypothesis

The Bennett hypothesis is another perennial, but flawed, explanation for tuition inflation.

Based on then-Secretary of Education William J. Bennett’s 1987 New York Times editorial, the theory claims that increases in federal student loans have allowed schools to inflate tuition knowing that students will borrow whatever they need to in order to pay it. Some later versions of the theory have interpreted it more broadly, including other forms of aid such as Pell grants.

There is certainly a correlation between increased federal aid and tuition. But the causal relationship between the two factors is dubious.

While some studies, such as this one from 2017, have asserted that increases in aid directly lead to inflation of tuition rates dollar-for dollars, others have poked holes in this somewhat facile notion. The National Bureau of Economic Research found no relationship between the two factors at all in 2003. (It’s worth noting that the bureau contradicted those findings in a 2016 paper.)

Most damningly for proponents of Bennett’s idea, periods during which federal loans did not increase nonetheless saw enormous tuition increases.

Administrative Bloat and Overpaid Faculty

The obscene salaries of some college administrators are another favored target. According to Benjamin Ginsberg, author of Administrators Ate My Tuition, from the middle to the end of the 20th century, administrative spending increased by 235%. The Bureau of Labor Statistics projects 10% growth in administrative positions between 2016 and 2026.

Data released by the Chronicle of Higher Education in 2018 found that the highest paid public college president made $4.3 million and the highest paid private college president made $4.9 million. The average hovered around the mid-six figures.

One can indeed wonder why college presidents are regularly paid such massive sums. But they are a drop in the bucket compared to the army of lower-level administrators required to run a modern college due to change in technology, finance, and student service expectations.

Most of these employees, however, are mid-level administrators who do not make exorbitant salaries per a Delta Cost Project report from 2014. This increase in administrative staffing is found in many industries, not just higher education, and is proportional to increases in student enrollment.

High salaries for actual faculty have also been scrutinized as a possible contributor to tuition inflation. Indeed, salaries for full time faculty are climbing. However, there is a coincident decline in the actual numbers of full-time faculty at most institutions. According to the American Association of University Professors, more than half of all professors are part-time.

Colleges increasingly rely on adjunct faculty to make up the shortfall. And these staff members are typically poorly compensated. A 2015 Pacific Standard survey found that most earned less than $20,000 a year — hardly in line with the narrative that professors earn extravagant sums.

That being the case, administrative and faculty salaries don’t seem to account for tuition inflation either.


So, What is Really Driving Up Tuition?

Tuition Discounting

Somewhat counterintuitively, tuition discounting may explain some of the inflation, at least in terms of sticker price. The idea is that because many students receive tuition discounts in the form of institutional aid, most don’t end up paying full price.

As explained in a 2015 New York Times piece, its high sticker prices represent a pricing strategy that allows room for negotiation, allowing colleges to capture a larger share of elite high school graduates. This price discrimination strategy sets a high sticker price, which some students may pay, especially wealthy students and out-of-state and international students for state universities. Others may then be offered much more affordable rates.

A 2012 Chronicle of Higher Education piece notes that this is in large part responsible for increases in institutional aid spending in the first decade of the 21st century.

The high-price/high-aid model may be responsible for a multiplier effect when comparing sticker price with net price.

Technology and Economic Change

Though many industries have become more efficient due to the use of technology, universities have generally not. Average class sizes are the same today as they were a century ago. Teaching and learning are fundamentally interactive processes. Thus, the cost savings that have allowed much of the economy to streamline have not materialized in the realm of higher education.

Conversely, colleges must invest in technological infrastructure that supports the education of students entering an economy of fast-paced technological change. This is costly.

Regulatory Costs

A Senate Task Force on Federal Regulation of Higher Education report from 2015 noted the increasing regulatory burden on institutions of higher learning. It also observed that while individual universities had reported the costs of regulatory compliance in excess of 10% of expenditures, no national average existed.

The fact is, no one phenomenon fully accounts for the tuition inflation crisis. In all probability, it is a combination of these factors, and perhaps some yet to be discovered. In the interim, beware of convenient and overly simplistic theories.


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