Tuition increases are leaving students in a financial strain

Students are forced to get student loans and grants from the federal government and get personal loans and/or credit cards to cover living expenses and books.  According to Nellie Mae's 2002 national student loan survey, those who used credit cards to pay for part of their education reported a median credit card balance of $3,400, but the average undergraduate debt is $21,200 after all four years.  Students attending graduate school borrow, on average, an additional $31,700 beyond their undergraduate borrowing.  Law and medical student borrowers report an average accumulated debt from all years (undergraduate and graduate study) of $91,700.  Graduates with a median credit card balance of $1,600 at an interest rate of 15 percent -- not unheard-of for young people with a limited credit history -- would have to pay $78 every month for two years in order to retire the balance.  If the $78 monthly payments were instead invested in a money market account yielding 2 percent, a savings cushion of $1,900 would result after two years.


Jules said...

First of all, I don't think students are "forced" to create debt in order to pay for school. Some students choose to do this, others choose to work a lot harder to pay for it on their own or through scholarships, still others (myself among them) choose to take twice as long to get a degree by working full time and going to school part time.

However, I agree that tuition is absolutely too high. I don't know what exactly this is paying for but I think most students don't get as much out of their tuition as is intended. I, for example, don't need library services because most of the research required for my classes can be done on the internet. I wouldn't need the computer labs because I have the exact same computer at home except that I can't afford the internet because I pay so much for school. I don't get any use out of the p.e. building, I don't even know what's in it, and I couldn't care less about the way the campus is landscaped. I think that school costs should be adjusted more to individual student needs. People who will be using all of the vast resources of the campus would pay more than people who just need a classroom and a teacher. More people would be willing to pursue higher education if they felt they were getting everything they're paying for. And you could trick them into thinking they're getting their money's worth if they choose the things they pay for.

Senator Miller said...

I think tuition is a tough subject to handle. I can see both perspectives. Keeping it low to attract students, or raising tuition to improve the universities facilities, faculty and overall experience. While I feel that most of the tuition spent at SUU is spent necessarily, there is some, I feel that it is wasted on unnecessary programs and things that while they appear appealing to the administration, or basically worthless to the students. Within the next two years, students in student government should have more of a say on what happens to the money. Professor Baker told me that he helped determine that the demand for higher education here at SUU was mostly inelastic, and that tuition could increase, with little change in demand. The result was true.

Boris said...

Honestly, I think we are in pretty good shape as far as tuition goes. Here at SUU, we should be the last people to complain about tuition. Hundreds of other schools cost thousands more than SUU, and I feel that we are getting every bit as much for our dollar as they are. Sure not everyone agrees on where all the money should be spent, but they never will.

College education is no longer an option in our society. College attendance has increase dramatically in the past decade. With the increasing student body, there also comes a need for and increase in facilities, services, and faculty. Couple that with the ever changing technical world and the need to upgrade, and it's easy to see why costs are rising.

If you ask me, we are getting a heck of a deal. The value of a college education far outweighs what we are paying for it.

Dr. Tufte said...

What Micah said in his post is correct. But again, no one is holding a gun to someone's head saying "charge this". In fact, I think the whole tone of the post could be changed if every where you saw the word debt you substituted the word investment.

My reply to Jules is really long (and informative), so let me get Jack's comment out of the way first.
1) Jack's comment points out that there are opportunity costs associated with how school's spend their money. Personally I agree with what he says about most school services not benefitting most students, but I'll be the devil's advocate and point out that no one said that they should benefit the majority at all. One of the reasons organizations exist is to pool resources so that items that benefit smaller groups become possible.
2) I am very dubious of the idea that students will spend money better than administration does. Nothing against the students, but I think the critical factor is which group has rules and institutions that govern its behavior more efficiently. My experience is that student governments usually don't have a lot of checks and balances. University administrations sometimes don't either, but I've worked at 5 different universities, and this is hands down the best managed.
3) Lastly, Jack is exactly right about Dr. Baker and Craft's work, its implications, and the results.

Jules comment this time around is rich with economic ideas.
1) Students are not forced to incur debt, and there is a laundry list of possible alternatives. Economists would argue that the choice between these alternatives is made optimally and rationally by each student, depending on their constraints.
2) Is tuition too high? Compared to what? The appropriate metric is whether students are leaving because tuition is too high. There just isn't any evidence to support this. Students will go where tuition is cheaper, but they are still choosing education.
3) Do students get out of tuition what is intended? This is harder to debate, but remember that the majority of the costs of a school like SUU is picked up by the state. So, you are already buying a product that is heavily subsidized. You can actually see this by looking around a typical class at the people who really are not taking it seriously. Very few of them are working outside jobs. They are consuming extra education because it is cheap.
4) We get into more of a micro topic when we start asking questions about whether we get our money's worth out the library or some other facility. A library has big fixed costs (e.g.,buying the books) and low marginal costs (e.g.,checking out the books). This isn't the sort of operation that can typically be supported by buyers paying the going price. This is why there are no university sized libraries outside of universities. So, the choice is really between paying a price higher than your marginal benefit, or not having a library at all.
5) There is always talk on college campuses of students being charged in proportion to their use of services. This doesn't happen because of politics. There are certain units that would not be able to support themselves this way, and others that would (business schools and their faculty are often unpopular on college campuses precisely because they are flush with cash from offering a high quality product at low prices). Many would argue, and I tend to agree, that the idea of a university (from the root word universe) implies some cross-subsidization from units that make money to those that don't.
6) Lastly, it is true that people don't think they are getting good value from their purchases of higher education. But, this is one of those bizarre urban myths that won't die. There are two defenses for my argument. First, there is a ton of evidence that the lifetime value of a higher education is considerably higher than the cost. Second, people are not flocking to some other better alternative than going to college. What makes this even more surprising is that almost no one anywhere is paying the full cost of their college education. The vast majority are paying something that is discounted 75% or more. So, someone is picking up the tab and yet people are dissatisfied. What gives?

Having said all of this, there are alternatives to the conventional college. There have always been vocational schools and now there are places like the University of Phoenix. These places are thriving. And they do that by cutting out all of the things that universities "waste" money on: libraries, computer labs, athletics, landscaping, and degrees that don't lead to jobs (e.g., dance or sociology). On the other hand, none of those alternative schools exist in a vacuum. The students who go there end up being heavy users of those money wasting efforts put forth by conventional schools. Did you ever notice that University of Phoenix never sets up shop far away conventional schools? They could be really cheap if they were in Kanab or Beaver. Bigger cities, that are thick with higher educational choices, usually have a whole lot more places like University of Phoenix.

The bottom line is that a university education is a big product, with a whole lot of inputs, whose production isn't solved perfectly by the market. But it is addressed in a way that is adequate.

Kid said...

What is wrong with getting through school with loans and grants? I personally feel that the Government helping students get through college is a good thing. It not only benefits those who can’t afford to go to school but the Government reps the rewards in the long-run. How does funding under privileged people benefit the Government? When people have a higher education they pay more taxes. The more money one makes the higher tax bracket they’ll be put in. It’s a proven fact that most business students will make anywhere from $45-$80 thousand dollars a year. This puts them in the group that pays 60% of our countries taxes. I’d say the Government was “thinking” the day they decided to help lower income student get through school.

C-Dizzle said...

I wrote a blog earlier this month about nearly the same idea. However, the information I found seemed to conflict a little in that the price of college has supposedly dropped.


The article “The Price of a College Education” highlights the fact that the cost of public college tuition has dropped 32% in the last five years (considering inflation and all other factors I’m sure). That’s not too bad considering all the headlines lately about the rising costs of education.

Lizzie said...

I had so many great things to say until I read Dr. Tufte’s comment, where I found all of my ideas already in print. I actually don’t mind paying a little more for landscaping, libraries, and even the PE building. We are paying for an experience and an education. Your college experience is what you make of it; the University is offering some help to make the overall experience better.

I have two jobs right now so I can pay for school with as little borrowing as possible, so for all of you who are “paying for the facilities (i.e. computer labs, PE building, landscaping, and the library) that you don’t feel you are getting any use out of”…thank you, because if they divided the cost amongst those who use them I would be paying a lot more than I am.

Anonymous said...

Well if you have such a problim with tuition, join the Nation Gaurd. On top of my school being paid for, I end up making 7000 dollars a year. If you join the R.O.T.C. program they pay you 1200 dollers a month, and pay for your school. So instead of complaining maby you should be all you can be and join the army.

Rolf Tiblin said...

I hope that after Dr. Tufte wrote a book for his comment that there won’t be a test on it! I must admit that I agree with everything he says. To further his thoughts I would like to add the fact that some of the increased costs of education are coming students that are taking far longer than the standard four years to finish college. With each additional semester comes not only the cost of tuition and books, but also housing costs, transportation costs, living expenses etc.
Credit cards are clearly not the way to finance anything, especially a college education when the interest rates are so outrageous. Working through school isn’t that much of a sacrifice. I will graduate from school in a 4 year time span and to date I have worked full time while doing so. Having no debt when you’re done is a great way to begin one’s life once you’re finished. Then you get to market yourself in a market that financially rewards college educations and get to keep all your earnings for yourself to invest. I consider myself one of the luckiest students on campus. Having the opportunity to gain an education and use the monetary benefits that will come from it to better the rest of my life is worth the cost and sacrifice.

Dr. Tufte said...

Sorry Lizzie. Your grousing will still get you credit though.

Just to clear up C-Dizzle's comment, it is true that both college costs have risen and that students are paying less. What's happened is that the list price of tuition has been rising, but not as quickly as sources of alternative funding.