WSJ Explains Why College is So Expensive…

From the WSJ — highlighting the business that is the campus…

Harvard University got some nice press this week by announcing it will reduce tuition for middle-class families. It already allows students whose parents earn less than $60,000 a year to attend Harvard free. Now it promises that families making up to $180,000 will pay no more than 10% of their annual income to finance the $45,600 that a year in Cambridge now costs.

Drew Gilpin Faust, the school’s new president, said the policy is designed to help families facing “increasing pressures as middle-class lives have become more stressed.” Before applauding Harvard’s altruism too loudly, however, readers should know that the school also had its back against a wall. In September, Republican Senator Chuck Grassley held hearings on whether colleges should be forced to spend a higher percentage of their endowments each year.

While private foundations have been required for decades to shell out 5% of their total assets annually, universities decide for themselves and average close to 4%. The difference may seem small, but the money at stake is very large. Harvard’s endowment is $35 billion, and growing, with implications that Fay Vincent illuminates nearby. Mr. Grassley wants to know why rich schools don’t spend more of their money to reduce ballooning tuition.

And later in the piece,

Ironically, these government handouts are creating the tuition problem. Tuition has risen about three percentage points faster than inflation every year for the past quarter-century. At the same time, the feds have put more and more money behind student loans and other financial aid. The government is slowly becoming a third-party tuition payer, with all the price distortions one would expect. Every time tuition rises, the government makes up the difference; colleges thus cheerfully raise tuition (and budgets), knowing the government will step in.

As a result, “colleges have little incentive to cut costs,” says economist Richard Vedder, the author of “Going Broke by Degree: Why College Costs Too Much.” Mr. Vedder explains that there are now twice as many university administrators per student as there were in the 1970s. Faculty members are paid more to teach fewer hours, and colleges have turned their campuses into “country clubs.” Princeton’s new $136 million dorm, according to BusinessWeek, has “triple-glazed mahogany casement windows made of leaded glass” and “the dining hall boasts a 35-foot ceiling gabled in oak and a ‘state of the art servery,’ ” whatever a servery is.

 

One thought on “WSJ Explains Why College is So Expensive…

  1. Pingback: TheCollegeFreeway.com « Campus Entrepreneurship

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