10 Reasons College Costs So Much

Stepping onto a modern college campus can feel like wandering into a luxury resort. It starts with the dorms. Gone are the Soviet-era concrete towers and broom-closet rooms. Modern dorms ("residence halls," please) are architecturally appealing and organized into suite-style layouts with shared study areas and bathrooms. They feature cushy common spaces and all-night cafes, and every square inch is WiFi-accessible.

Then there's the food. If you graduated from college pre-2000, you probably subsisted on room-temperature pizza and burgers, a limp salad bar, and if you were really lucky, a self-serve frozen yogurt machine. The menus at today's campus dining facilities more closely resemble a trendy health-conscious restaurant than a college cafeteria. Campus eateries source fresh local produce, offer vegetarian (and even vegan) options, and feature flavorful international fare. On a typical Monday night at Michigan State University, students can choose between dinner options like coconut chicken curry and green bean tomato tagine.

Other expensive amenities include professional-grade athletic and fitness facilities — just try to attract students without a yogalates class —fully wired lecture halls and state-of-the-art labs. All of these high-ticket amenities add up, and somebody has to pick up the tab. Might as well be you.

A 21st century college education means so much more than just taking classes and getting a degree. Today, college is a full-service "experience" backed by unprecedented levels of student support, from extensive career services to psychological counseling to heightened campus security. Students benefit greatly from all of the extra support, but it requires scores of additional paid staff positions. Schools also hire more deans and associate deans for student affairs and research, more admissions officers to recruit top applicants, and more communications and marketing staff to craft the college's public image. Back in 1987, colleges employed an equal number of tenure-track professors and administrative staff. By 2008, most colleges employed twice as many administrative staff as full-time faculty [source: Martin].

For colleges trying to keep costs down, one popular option is to cut back on full-time faculty and increase the use of adjunct or part-time professors. While part-time teachers are less expensive — usually paid by the course with no health care coverage or other benefits — some faculty and students worry about sacrificing the quality of the education. As long as students and parents expect a full-service college experience, something has to give or else tuition will keep going up and up.

The annual college rankings published by U.S. News & World Report are a very big deal. Every time a college moves up in the rankings, it experiences a significant bump in applications, which means it can be more selective, which translates into higher average SAT scores for incoming freshmen, less money spent on financial aid and more money spent on student services [source: Ehrenberg]. Even better, all of those factors are part of the formula that the publication uses to determine its rankings, so the school is even more likely to climb higher the next year.

The problem is that college deans have that formula memorized and are constantly trying to game the system to get a better ranking. If U.S. News rewards colleges for spending more and more per student, then it behooves the school to add that new $200-million, LEED-certified student union. Somebody has to pay for that upgrade, of course, so tuitions go up. While that might deter some students, others will be attracted even more by the school's high ranking.

To counter the negative effects of traditional college rankings, President Barack Obama proposed an alternative rating system — to be available by 2015 — that uses "access, affordability and outcomes" as the chief criteria [source: Dept. of Education]. That new system will have a long way to go, however, to unseat U.S. News.

For the elite colleges that routinely occupy the top 10 spots in the U.S. News rankings and are tattooed on the American psyche as synonyms for excellence and exclusivity, price no longer matters. In the minds of most of the country's top-performing high school students (and more importantly, their parents), the prestige of attending an Ivy League institution more than outweighs the extra cost [source: Ulrich]. In fact, the excessive cost only adds to the prestige.

It's not all perception, either. That gold-plated name translates into larger paychecks. Several long-term studies have shown that graduates from elite universities make considerably more money than alumni from less prestigious schools — 20 percent more according to one study that tracked the high school class of 1980 [source: Weissman].

The result is a winner takes all college admissions culture. In their quest for the very best education, students and their parents do whatever is necessary to get that name-brand degree, including going into massive debt. The top colleges get richer, get better applicants and don't have to make any concessions to improve efficiency or cut costs because there is no market pressure to do so [source: Ehrenberg]. It's good to be the king; it's rough to be everyone else.

Even before grants and scholarships kick in, state governments provide subsidies to make public colleges more affordable for their citizens. But those education subsidies began to dry up in the wake of the Great Recession. In 48 of 50 states, higher-education funding was reduced to rein in budget deficits. In 15 of those states, public funding for full-time college students was cut more than 30 percent from 2007 to 2012 [source: Malcolm]. In Washington, for example, the state only covered about 35 percent of the cost of college in 2012, down from 66 percent in 2008 [source: Kohl-Wells and Frockt].

When public funding dries up, colleges have some very difficult choices to make. They can cut operating costs by dropping faculty, reducing enrollment or skimping on some of their much-loved amenities, or they can raise tuition to make up the difference. Back in 1987, only 23 percent of revenue at U.S. colleges came from tuition and fees. By 2012, that number had more than doubled [source: Lewin].

Faculty research is one of the most powerful drivers of college prestige. A major scientific discovery can make national or even international headlines, drawing the attention of prospective students and parents. While much of the funding for scientific research is from public sources like the National Science Foundation and the National Institutes of Health, it still costs colleges money to attract and retain the most talented research faculty.

In fact, the cost of high-quality research is a double- or triple-edged sword (patent pending). First, colleges pay a salary premium to attract and keep a top-notch researcher. Second, the researcher's work often requires facility upgrades or costly equipment that may or may not be covered by grant money. Third, research-focused faculty spend less than a third of their time actually teaching or working directly with undergraduates [source: Ulrich]. This leads some parents to wonder: How much of their child's tuition goes toward subsidizing research that has no direct impact on his or her education?

Back in 1984, the original Apple Macintosh sold for $2,495, which is more than $5,000 in 2014 dollars [source: Smith]. Today, a hugely more powerful and sleek MacBook Air retails for $999. That's a testament to the broad technological leaps in manufacturing efficiency achieved over the past 30 years.

Now compare the efficiency gains of manufacturing to the task of educating a single college student. In 1984, a college student taking five classes a semester required five professors, two paid teaching assistants and a smattering of administrative support staff. In 2014, that same college student requires five professors, two paid teaching assistants and even more administrative support. Teaching remains a time-consuming, labor-intensive profession. The only thing that's changed is how much faculty and staff are paid.

Economists have a name for this: cost disease. The term was coined by economist William Baumol to explain why the cost of education has risen so much faster than the average prices of other goods and services [source: The Economist]. Here's how it works:

This reason for why college is so expensive goes hand in hand with No. 4. Even as colleges make huge investments in their technological infrastructure, the productivity of the institutions remain basically unchanged.

Let's use some examples. One of the promises of a modern college education is to give students the skills to thrive in a high-tech workforce. To learn those skills, students need access to the latest technologies at school: computer-aided drafting software, powerful workstations to run advanced calculations, videoconferencing suites for collaborating with international students and faculty and so on [source: Archibald]. Those technologies not only require investments in expensive equipment, but also the IT staff to install and maintain them.

Again, while these investments greatly enhance the student learning experience, they do not improve the efficiency of the teaching process. It simply costs more money to educate the same number of people. This inefficiency problem is driving the push toward low-cost online education, particularly the advent of MOOCs (Massive Open Online Courses), in which entire college courses are video recorded and uploaded for free to a worldwide audience.

Colleges and universities have dozens of academic departments, often across several schools, plus multimillion-dollar athletic programs, student services, research divisions and much more. Can you imagine what it takes to govern such a sprawling modern institution?

The typical American college operates under the principle of shared governance, under which the various schools and departments each have their own deans and department heads that coordinate with a central authority of top-level deans, the president and the board of trustees. But often those separate entities don't share the same priorities. The board of trustees might want to cut an expensive program, but the faculty and academic deans will argue the importance of the program to research and attracting grant money. The faculty might want to cut back on expensive athletic programs, but the president relies on donations from alumni who love the football team. The result: Nothing gets cut.

When it comes to the tuition crisis, it also appears that the folks in charge aren't getting the message. According to a 2012 report by the Association of Governing Boards of Universities and Colleges, most board members (55 percent) recognized that college was becoming too expensive, but 62 percent also believed that the price of their particular institution was just fine [source: AGB]. Oh, the irony.

Believe it or not, there are prominent economists who argue that there is no affordability crisis in higher education. First, let's define "affordable." Technically, college is affordable if the money left over after you pay tuition and fees is enough to cover your other expenses.

Let's look at net price, the amount students actually pay after scholarships, grants and tuition discounts reduce the sticker price seen on the college's Web site. If you look at the net price of a year at a public, four-year college during two different periods — 1990-92 and 2003-05 — the true cost rose 37 percent. That's a monster increase, but the numbers themselves are shockingly low: a modest bump from $1,529 to $2,089 [source: Archibald].

Now let's look at the rise in household income over that same time period. A family in the 40th percentile of American households — solidly middle class — saw their incomes rise from $41,072 to $44,834, only a 9 percent increase. At first, that looks like an affordability crisis: the cost of college outpacing income 37 percent to 9 percent. But when you apply the affordability formula, you get a surprising result.

In the 1990-92 time period, a family could pay for college and have $39,543 left over. In 2003-05, they would have $42,754 left over. By the standard of affordability, the modest rise in income more than covered the seemingly dramatic increase in college costs [source: Archibald].

Fine, but on what planet is the net price of a college education only $2,000 a year? Surprisingly, the average public college for 2011-2012 had a net price of $2,490, not including room and board. (The average private school's net price was $13,000) [source: Goldstein]. Maybe college is not so out of reach, after all.