Why are college costs so high?

I get asked this question a lot--by students, friends at church, relatives struggling to get their kids through college,... So, here is my attempt to explain it.

The first thing to understand is that colleges cost a lot of money to operate.  They also cost a lot of money to build.  A friend of mine and I once figured out that it would cost $225 million to build a very basic college that could have 900 students.  Then you have to operate the whole thing.  Most colleges are in debt due to the costs of building.  They have to pay back building loans and such.  So, in addition to paying all the bills (electric, water, sewer, internet) and paying a significant amount of people to run all the operations (including teaching), colleges have to make payments on their loans.  There are wide variations in costs from school to school, but for a college of 900 students, without paying back building loans, you are looking at, on the low end, $7500 per year per student to operate.  If there are loans to be paid back, then the number goes up.  This also assumes a relatively low faculty salary.  You have to think of that $7500 as the very low end, which would leave you with substandard science, music, and sports programs; as well as very little in the student resources that most colleges offer.

Now, take into consideration the state schools.  Historically, tuition for in-state students was considerably lower than $7500 per year (even adjusted for inflation).  State schools were able to do that because the states were subsidizing them.  But, in the last few years, states have been cutting back on the subsidies due to larger budgetary issues.  As state funding has gone down, either tuition needed to go up or cuts needed to be made. Generally both took place.

Tuition could get closer to the baseline $7500 per year if students (and parents) didn't demand as much.  The things students and parents demand cost money--and that money has to come from somewhere.  For example, most  prospective students shun any institution that does not have fancy dorms, an extravagant student union, and a top-of-the-line cafeteria.  You would be correct to note that most of these are supposed to come out of "room and board" fees, but they don't always.

Next, students rightly prefer smaller class sizes.  But that means you have to pay for more faculty.  Let's run a little math.  Let's assume you are at a super thrifty institution and that your typical assistant professor teaches 4 classes a semester (which I can tell you from much experience is hard) and makes $50k per year.  If you want small class sizes, to be competitive with other institutions wanting the same thing, you would need to average 15 students per class.  That means that any given semester, a professor is teaching 60 students per semester, or 120 students per year.  That means for each class, each professor gets $416 for each student.  Each student takes an average of 5 classes per semester for two semesters and $4167 in tuition goes just to pay for faculty.  Now, if you double the class size, the amount paid to faculty salary is cut in half.  But let's say you are at one of those elite private schools where the professors are expected to publish a lot, and can only teach 2 classes per semester.  The assistant professor at these institutions will be paid at least $70k (on the low end).  Assuming a class size of 15, each student pays $1167 of their tuition per class.  Multiply that out by 5 classes for 2 semesters, and you get $11,670 per student in tuition just for faculty salary. You can see how this could add up quickly.

The cost of teaching has also gone up a lot due to technology.  If you are going to have a decent science program, you have to spend millions of dollars in equipment.  To have decent computing, you have to spend money on computer labs and campus-wide wifi networks.  Modern students are expecting technology in the classroom, which means you have to retrofit older classrooms or build new buildings.  All the software costs a lot of money.  The more technology you have, the more money it will cost.

The reality is that schools are competing with each other for students, so they have to do things like have nicer facilities and smaller class sizes.  If they don't, then they lose out on potential students.  State schools have something of an advantage here.  Since tuition is lower due to state subsidies, they don't have to compete as much for students and they generally save money with larger class sizes.  If they are Ph.D. granting institutions, they can have cheap graduate student labor.  (I remember one summer class I taught at the large state school where I got my Ph.D.  I had one graduate student to help with grading and I was given 350 students in my Intro. to American Government course.  The combined salary for my grading assistant and myself for that class was $2100, so the cost of salary per student was $6 per student.  The school made a killing on that one.)  But, why do so many students want to go to these giant schools?  Because of the programs, and the nice facilities, and the sports teams.  All of these cost money, so schools have to get creative in finding ways to cut costs (usually at the cost of the quality of the education).

The problems mentioned above are self-perpetuating.  The cycle of increasing tuition just keeps going because students keep demanding more and schools keep giving them more so that they can attract the students.  Eventually one would expect the bubble to burst, students would stop demanding so much and tuition would go down.  But there is one big problem: financial aid.  Federal financial aid programs enable schools to keep having high tuition.  There is no real incentive to control costs because students can just borrow more money to cover the costs.  Students borrow without really thinking about the long-term costs of the loans.  While it's true that student loans are a good deal as far as loans go, too many students rack up unreasonable debt.  (My fiancee is currently a Ph.D. student.  I won't tell you how much student loan debt she has, but my jaw literally dropped when I calculated the total.  But, every year she has borrowed at least $10k and she had been in school for a long time.  As a result of having this extra money, she lived a lifestyle not conducive to someone who is actually making a graduate student stipend.  When I calculated out for her the amount of money she would have to be paying every month  for the next 25 years to pay off the student loans, she was astounded.  She has been more frugal since.)  Schools, to keep up with student demands for stuff, have increased tuition repeatedly to provide more stuff.  The schools can't afford to not offer the stuff because then students would choose to go to a different school that does have the stuff.  Their cost/benefit analysis concludes that, due to student borrowing, it is more cost effective to offer the stuff and charge more in tuition than to lower tuition and lose students.

Some costs are outside the control of both the students and the institution.  One recent (last 15 years) phenomenon is the dramatic increases in the number of support staff at colleges and universities.  These are largely because the government instructs the schools to collect certain data.  You need people to collect, consolidate, and report on that data.  Many of these people have relatively high salaries because they have specialized skills in statistical analysis and programming.  Yet another additional cost.

Finally, and I know this one will sound weird, tuition keeps going up because schools are trying to recruit lower income students.  Let me try to explain.  In their push for diversity, most colleges and universities actively recruit low-income students.  These students, because they are more nervous about money, are less eager to take out large student loans.  So, in order to attract these students, schools must offer very generous student aid packages, basically paying their tuition, room and board for them.  Where does the money come from to cover the costs of these students?  Part of it comes from external donations for scholarship funds.  But, most of has to come from the tuition of those families "who can afford it".  So, to attract low income students, tuition for everyone else has to go up.

So, there you have it.  The vicious cycle of ever-increasing student tuition. I would love to hear your opinions on how to break the cycle.