Wednesday, April 30, 2008

Keeping Up With the Joneses --University Style

By Richard Vedder

My indefatigable Whiz Kid (and soon to be full-time CCAP colleague) Jim Coleman shared with me an interesting article from Wednesday's Chronicle. A survey of chief financial officers of universities revealed the obvious (they think tuition fees will rise faster than inflation). But it is interesting why they think costs are rising so much.

A major cost driver is the increasing cost of delivering amenities to students to stay ahead of the competition. I have talked many times about the fact that every school these days seems to have a "climbing wall." Most have very, very nice recreational centers. Many are building fancy student union buildings. Dormitories are being remodeled and rebuilt --with fewer, bigger rooms, better facilities, etc. Instead of competing on price, they are competing on amenities --making the schools more upscale in terms of the living experience, if not the education. My university has a building, ostensibly a lecture hall, with a huge $5 million party room that has virtually no true academic purpose. I call all of this the "country-clubization" of American universities.

As a society becomes more affluent, it is natural to expect some improvement in the way students live. When I attended an elite private school decades ago, dorm rooms had no telephones (much less televisions), air conditioning was not universal, you had to go down the hall to a communal bathroom affording no privacy, etc. Classroom buildings are somewhat nicer, better ventilated, nicer lighting, etc. than the buildings of the past. Just as housing for families has improved over the years, you would expect some improvement in housing for our progeny attending college. However, one senses this wave of the amenities arms race is getting out of hand --largely because it is subsidized by public funds. Kids borrow more cheap federally provided or guaranteed money to pay the higher tuition required to pay for the amenities. Donors get tax breaks to build fancy new football stadiums or rec centers. The taxpayers are subsidizing not education, but upscale consumption.

Why don't colleges compete instead on price? The elite schools do not price services at the equilibrium price --more kids want in than the schools want to admit, meaning that they are already lowering price below the revenue maximizing amount. The bottom line for schools is prestige as measured by US News and World Report. So increasing the number of student applicants is critical to improving rankings --even if there are plenty of students demanding the school already. With third party payers forking up much of the funds, the country-clubization of colleges is one way to try to gain an advantage over rival schools. What are colleges producing? Increased knowledge --which the schools don't want to measure --is one thing. But a good social life is another. As my friend Jim Duderstadt puts it, the socialization dimensions of higher education are a big part of the rise in costs. I do not object to that in principle, but I do think it is terribly unwise and wrong to use taxpayer dollars to subsidize it.

No comments: