[NOTE: This is an update of an old Facebook rant of mine I decided to exhume because the New York Times has gone in on the state of higher education costs, and because my oldest child starts college in the fall.]
I've seen many people in my feed complain about the rising cost of college and what to do about student loan debt. Before we can fix the problem, we have to acknowledge the causes.
The reason college tuition went up is inelasticity of demand -- no matter how much the cost went up, the demand didn't really fall.
(There has been a mild decline in total college enrollment since the 2008 financial crisis, but there is a mix of likely causes here, including a shrinking number of colleges and shrinking number of potential students.)
This rising demand wasn't because the quality of the college product continued to increase -- the majority of tuition increases have gone to increases in administrative staff and to dorm, student life, and athletic facilities, while faculty has shifted to low-paid adjuncts rather than fulltime tenure-track professors -- as colleges invest in "quality of life" amenities and fundraising/recruiting staff rather than labs and teachers.
This is because, culturally, we raised generations on the notion that college was a tollgate through which one must pass to live a middle class or better life, and thus whatever the cost of college, it would pay for itself. This led colleges to invest in "customer service" items like nicer dorms, better sports teams and similar niceties with no consideration of cost. Demand was assumed to be infinitely inelastic; anyone would pay whatever it cost to go to college. Thus, colleges became country clubs competing for members, constantly building better amenities to poach cost-blind customers.
Similarly, because demand was inelastic, private loan-issuers and (reprehensibly) the federal government saw a profit opportunity and offered high-interest, inescapable loans to students who took them out fully believing that no cost was too high -- college always pays for itself, and without it you're doomed to working-class poverty.
But now we've reached the breaking point where degrees are commodities (excepting a small handful of institutions) and student loan debt no longer has an ROI timeline below 20+ years, if ever.
We see this breaking down on the employment side with software developers, where coding boot camps claim to make individuals without a computer science degree into pro developers (even though the data doesn't support that working).
Small-enrollment "lifestyle" colleges (St. Catharine in KY, Antioch in OH, Newbury in MA, Birmingham Southern in AL) are drying up as the infinite inelastic demand breaks down. But these are just fringe effects and don't address the core problem.
Colleges have no real incentive to lower costs when the demand remains inelastic.
One answer is to adopt the German cultural appreciation of vocational labor, such that a master welder or electrician is seen as just as socially mobile and accomplished as a Masters Degree-holding teacher or engineer or nurse. That will take generations, however.
The other angle is to put a hard cap on college costs, which is the preferred economic answer when demand is inelastic.
First, I'd cap the rate of student loan interest that anyone can offer a resident of Kentucky at the state's own borrowing rate. Whatever rate the Commonwealth can borrow money, students should be offered the same rate or lower. No profit can be had here by the state. Federal lenders can back the loans, but they'll have to conform their interest rates with the Commonwealth's.
Second, I'd cap tuition such that loan repayments cannot and will not exceed 8% of gross income for graduates over 10 years (the recommended "8% Rule" amount of debt students *should* max out at according to the College Board). To reach this figure, schools will be granted access to aggregate state income tax data for past graduates, such that they can model the aggregate income of persons who graduate with degrees from each state institution. Essentially, we're forcing an ROI calculation here.
Recent college graduates of the University of Kentucky earn about $44,000 six years after graduation. Assuming that works out to the rough annual average income for the ten years post-graduation, that means annual loan payments (8% of gross income) would be $2,640, or about $27,000 over 10 years.
Currently, total in-state cost of attendance for UK is $36,640 per year, so a four-year degree would cost $146,560 if costs don't increase in the next four years. This assumes, however, that you're putting discretionary expenses (travel and "fun money") on your student loans. Take that bad decision out, and the price drops to $30,800. Since most college costs go up 7% per year, we're looking at a 4-year cost track of $30,800 + $32,956 + $35,263 + $37,732 or $136,751 for a four-year in-state degree.
That's absurdly more than $27,000 -- which illustrates the problem.
Now, a small portion of this price is inflated -- tuition is a "mark up to mark down" marketing ploy so colleges can brag about how much aid they provide. In general, colleges discount tuition about 40%. However, tuition is less than half the total cost of attendance. On-campus room and board is higher than in-state tuition, and books & fees add to this total. Tuition only makes up $13,502 of the $30,800 it costs to attend UK next year. Discounting that 40% knocks $5,400 off the cost, which isn't trivial but still makes the first year $25,400 and a four-year degree $112,775, including projected yearly increases.
A a debt cap of $27,000 means we're talking about cutting the cost of in-state college by more than 75% even after current tuition discounts. We'd be capping total cost of attendance at about a quarter the current rate, because the ROI on the degree isn't acceptable at current rates.
(I'm amenable to actually calculating ROI differently for different degrees, as it likely costs more to spec out an engineering lab than a literature seminar, and the engineering degrees pay more, so they should likely charge different prices. This will prevent schools from eliminating "unprofitable" majors.)
In response to tuition caps, colleges will of course 1) double down on cheap adjuncts to lower costs and 2) aggressively recruit out-of-state students whom they could charge more, accelerating the ills of the system in place. So we need protections against this.
First, I'd cap the percentage of courses that can be taught by adjunct faculty. About a third of collegiate faculty are adjuncts, and 47% are non-tenure-track part-timers. I'd mandate that no more than 25% of faculty can be part-time (I won't wade into the tenure-track debate). This forces universities to hire real professors rather than cut costs with underpaid/under-experienced adjuncts.
Only 29% of Kentucky residents have a four-year college degree vs. the national average of 38%. Only about 22% of Kentucky high school graduates that attend college go out of state. Several states have guaranteed admissions to state schools for qualifying students (minimum GPA/standardized test scores). If Kentucky mandates that in-state public colleges must offer admissions to the top 30% of Kentucky high school graduates (and thus the top ~25% attend) we'll prevent colleges from over-investing in out-of-state students and increase the percentage of Kentuckians with college degrees.
Still, even with these caps in place, Kentucky colleges likely can't fundraise or cost-cut enough to survive a 75% tuition decrease and a mandate to hire more full-time staff.
Thus, the state must guarantee stable investment in post-secondary education. Benchmark per-student state funding in 2025 to the needed levels, guarantee that it can never go lower, and further guarantee that this funding will increase by inflation+1% every year. Take college defunding off the table as a budget/political football and give Kentucky colleges a foreseeable, stable level of funding they can count on.
Now is a great time to do this, as 2025 will produce the peak number of high school graduates for the foreseeable future. Thus, even accounting for rising per-student costs, the absolute dollars needed should gradually decline along with the size of student cohorts.
Colleges will thus know what they can expect from both the state and the student body, and if they want to spend more, they must fundraise. That will deeply incentivize them to hire better professors that create more successful graduates, both because they'll have higher incomes that allow schools to increase tuition, but also because richer graduates become better donors. That's a much smarter investment than more administrators and nicer dorms -- if we change the incentives.
Until we get the incentives right, college won't get any cheaper.
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