In my mind, the way to start getting at the crux of the problem of why higher education costs keep going up is to try to put yourself in the shoes of the President of the University of Miami* in Coral Gables, Florida. Currently you’re ranked 47th on US News and World Report‘s “national universities” rankings. Naturally, you know that this is a highly imperfect methodology. But in a broad general sense you accept the judgment that your school is a lot better than a lot of other schools, but also that there are many better universities in America. Nevertheless in the 2010-2011 academic year, you’re able to charge $37,836 in tuition. That’s more than Princeton ($36,640) and only slightly less than the comparably sized University of Pennsylvania ($40,514).**
Now along comes a clever faculty member who figures out a way to teach a lot of your large introductory courses just as well at a small fraction of the cost. You implement the changes, and now your cost structure is lower. What happens next?
Well what doesn’t happen next is that you cut tuition. Maybe you use the extra money to pay yourself more and to hire more staff. But you probably don’t do that either. If you want to get paid more, you need to deliver results. But results in this case don’t mean cutting tuition. Results mean getting higher in the rankings. And you don’t move up the rankings by getting more cost-effective at educating the kinds of students you’re currently getting at the University of Miami. You move up the rankings, roughly speaking, by increasing the average SAT scores of your freshman class and/or by poaching faculty stars from other schools. To accomplish the latter, you need to spend more money. And to accomplish the former, you need to do two things. One is spending more money on fancier facilities to make more kids want to apply to your school (thus allowing you to be more selective) and the other is through very targeted financial aid to try to bribe some kids with high SAT scores into going to the University of Miami instead of to Princeton. If you do those things, the school will get more selective so your rankings will go up. Alumni will like that, faculty will like that, and your new cohorts of graduates will probably earn more money than your previous ones did and so all things considered your personal earnings will increase.
To change the trend, you need to change that dynamic.
If you look at Freddie de Boer’s ideas about how university administrators could control tuition costs they seem very sensible from a managerial perspective. But from the policy perspective the issue isn’t so much “what are some cost-reducing management practices?” as it is “why don’t university managers want to implement cost-reducing practices?” The answer is that the structure of the system gives them very little incentive to. When Wal-Mart cuts costs, it lowers prices to gain market share and make even more money. When universities cut costs, they plow the savings back into fancier facilities to move up the league tables.
* I use this is an example for two reasons. One is that I’ve visited their lovely campus. The other is that when I visited their lovely campus, someone stole the GPS devise that came with my rental car and I’m bitter.
** I why Princeton is cheaper than the other Ivy League schools.