College costs: the old eat the young.

It is always worth asking whether a consumer is getting value for money. Is a college education today worth the higher price than that paid by earlier generations?

Everyone knows that inflation-adjusted college tuition has more than doubled since 1992. Except that it hasn’t. Everyone knows that it can cost $60,000 a year for college. Except that it hardly ever does.

The real price of college has to include the financial aid (other than loans) supplied to the student. This gives the net price. Since 1992, the net price for community college has fallen; the net price at a private four-year college has risen 22 percent; and the net price for a four-year public college has risen 60 percent. The average of the two falls into a range between a 40 percent and 50 percent increase in net tuition. This puts college tuition in the same ball-park as medical costs (35 percent) or day care (44 percent).

The “sticker shock” tuitions beloved of the media and the politicians only apply to people from affluent families who are not eligible for financial aid attending elite schools that can charge what the market will bear for a prestigious degree.

Taking lower costs and higher aid into account, the average price for a student attending a four-year public college was $3,120 a year in 2013; the average price for a student attending a four-year private college was $12,460.[1]

Why has the net cost of a four-year public college risen so much more than the cost of a four-year private college? In the United States, about eighty percent of college students attend public colleges. Between 1988 and 2013, nominal tuition at these institutions more than doubled. This has created a terrible problem of debt for parents and students when most incomes have been stagnant. However, the revenue earned by these colleges stayed flat. In 1988 colleges earned an average of $11,300 per student; in 2013 they earned an average of $11,500 per student. If colleges aren’t getting rich, then where did the additional tuition go? To tax-payers, that’s where.

Traditionally, public colleges were subsidized by state legislatures. In 1988, each student at a public college received an average of $8,600 a year to subsidize his/her studies. The student and his/her family kicked in the additional $2,700 a year. In 2013, each student at a public college received an average of $6,100 a year to subsidize his/her studies. The student and his/her family now have to kick in $5,400 a year. A four year BA went from costing the state $34,600 to costing $24,400. That same four year BA went from costing students and parents $10,800 to costing $20,800. People who got a cheap BA paid for by others, now want to pay lower taxes.

The Obama administration has the idea that introducing ratings for colleges will help “education consumers.” They want to consider factors like affordability, drop-out rates, and the earnings of graduates. Federal subsidies—“Jump, boy, jump” versus “Bad dog, no biscuit”—would reward colleges which score well on the standardized test.[2]   People push back, saying that there is too much difference among students to make a single standard meaningful. The economist Susan Dynarski has suggested that the “risk adjusted” rating system used for hospitals might offer a useful means of adapting any rating system.[3] Better still, restore the state aid.

[1] David Leonhardt, “How Government Exaggerates College’s Cost,” New York Times, 29 July 2014.

[2] I can foresee the criticism that this will lead colleges to “admit to the test” just as schools “teach to the test.”

[3] Susan Dynarski, “Where College Ratings Hit the Wall,” New York Times, 21 September 2014.