Good Question – Why Is College So Expensive?

By George Leef

The cost of going to college keeps rising at a pace well above general inflation. Americans have been seeking explanations for that fact for years, and a recent article in The Atlantic tries to provide one. Amanda Ripley’s “Why Is College in America So Expensive?” gets some things right, but misses the big picture.

Ripley begins with a comparison between the U.S. and the rest of the developed world when it comes to college expenses. She cites data from the Organization for Economic Cooperation and Development showing that, on average, we spend roughly twice as much per student as in other developed nations. That comparison is accentuated because, Ripley notes, a third of those countries offer “free” college to citizens – but that just means that students don’t pay their tuition; the taxpayers do.

Rather than focusing on who pays the costs, we should focus on why costs are higher in America than elsewhere.

Ripley then makes the standard liberal argument that our higher education costs are rising because state governments have been cutting financial support for their colleges and universities. “Bewitched by the ideology of small government… states have been leaving once-world-class public universities begging for money,” she writes.

The problem with that explanation is two-fold. First, shifting some of the obligation to pay for higher education from the taxpayers to the students (and their families) does not mean that the cost in total has changed. If anything, that shift creates stronger incentives for school officials to watch their expenses closely since students who bear more of the costs themselves will be more careful in making college choices.

Second, the degree to which states have cut their higher education appropriations has been greatly exaggerated. Cato Institute scholar Neal McCluskey demonstrated that in this paper published last year. After analyzing the data, he concluded, “In the aggregate, state and local support for higher education has risen over the last 25 years, and “cuts” mainly appear on a per pupil basis because enrollment has increased significantly. Even then, for the average state only around 57 percent of annual increases in per-pupil tuition and fee revenue covered per-student drops in state and local appropriations—a far cry from the notion that colleges have had to raise prices just to keep their heads above water.”

And, further weakening the argument that tight-fisted state legislators (whether “bewitched” by small government or not) are responsible for rising tuition, McCluskey notes that tuition has also been increasing in states where higher education spending has not been cut.

Ripley finally hits some solid ground when she points out that American colleges and universities have much higher administrative expenditures than do schools elsewhere. She is right that we spend “a startling amount of money on nonteaching staff….” She even risks alienating some liberal readers by including “diversity and inclusion managers” — high paying non-essential jobs found on almost every campus these days. Europeans and Asians see no need for such jobs. Burgeoning administrative costs account for a substantial percentage of our higher education cost spiral. Ripley is right about that.

She is also right that the American mania for higher rankings and prestige drives up costs. Our college officials ladle out lots of money for “star” faculty who do little teaching but whose research publications bring luster to the school’s reputation. That also helps explain our rising costs.

But in the end, Ripley’s analysis falls on its face when she declares that the root of our problem is insufficient governmental control. Comparing college with health care, she writes, “Ultimately, college is expensive in the U.S. for the same reason MRIs are expensive: There is no central mechanism to control price increases.”

No, that’s not the problem.

If Ripley had looked a bit more at health care, she would have found that prices have fallen in those fields where government has allowed market competition to work, such as in laser eye surgery. Many economists have observed that prices tend to fall where the government does not subsidize services. That applies just as much to education as to health care.

The elephant in the room that Ripley manages to ignore is the fact that, through its various student loans and grants, the federal government greatly pumps up the demand for higher education. It puts billions in the pockets of students – billions that can only be spent on approved college programs. Naturally, the people who run those programs have chosen to raise their prices to capture those dollars.

What I’m talking about has been known as “The Bennett Hypothesis” ever since then-Secretary of Education Bill Bennett in 1987 wrote an article in which he argued that the key reason for the rising cost of higher education was the government’s ever-increasing generosity in subsidizing it. (Andrew Gillen’s 2012 paper “Introducing Bennett Hypothesis 2.0” substantially sharpened Secretary Bennett’s original insight.)

The gusher of federal money is what makes it possible for schools to spend so much and charge so much.

Anyone who wants to be taken seriously when discussing the rising cost of college must take the government’s mammoth subsidies for students into account. Ripley’s analysis is fatally undermined by her failure to do that.