College Costs & a Gallon of Milk

If the cost of milk had risen as fast as college tuition since 1980, you’d now be paying $15 for a gallon of milk.

That was one of the depressing facts that a Congressional Committee groused about this week during a hearing that focused on why colleges are so ridiculously expensive.

In noting that tuition has been increasing at a pace far beyond the rate of inflation, Rep. Peter Welch (D-Vermont), wondered why some of the richest schools only tap a tiny percentage of their bloated endowments each year. Harvard and Yale, for instance, have a combined endowment of $60 billion, which is far greater than the gross domestic product of many nations.

So why is a bachelor’s degree so expensive?

At the hearing, the president of Princeton University suggested that it’s because of the expensive of keeping up with the explosion of technology. That’s no doubt a factor, but there are plenty of less honorable reasons too.

Here is the biggest reason: Schools raise tuition because they can.

Colleges and universities are in the opposite position of Ford and General Motors, which are stuck with car lots clogged with SUV and trucks that nobody wants. The demand for spots in freshmen classes across the country has steadily increased as the Baby Boomers’ kids have worked through the system. Consequently, raising prices hasn’t deterred families.

Perversely some schools have jacked up their tuitions because some famiies don’t take a college seriously without high prices.

Here’s another reason why tuition keeps rising beyond parents’ ability to pay. Many schools are profligate spenders. Caught up in the admissions arms race, they continue to funnel money into building ever better student unions, sports facilities, academic buildings and flashier cafeterias to impress high school kids and their families.

In the past, Sen. Charles Grassley (R-Iowa) has threatened rich schools by suggesting that they should all be compelled to spend at least 5% of their endowments annually. This is the rule the private foundations must observe. But at the Congressional hearing this week, there was no talk of that happening.

The good news is that the number of high school graduates peaked this past spring. If the supply and demand equation begins to change maybe schools will have to become more price conscience. At least let’s hope so.

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  1. Oh, you are an optimist. The selective colleges where so many kids want to go will still have plenty of applicants, so it is very unlikely that they’ll feel any price pressure.

    I love your book, BTW. It is a wonderful resource.