UPDATE. In the 15 years since I wrote this, college tuition continues to rise faster than the overall price index, admin costs continue to go up, and full-time faculty number are going down. But the most outrageous change is that as state and federal aid goes down, students are assuming much of the cost of college in the form of student loans. Many were from private colleges that were frauds; some have been closed down. Total student debt is around $1.8 trillion, more than credit card debt. About an average of $40,000 per borrower. A high percent are in arrears or default. And, unlike credit card debt, student debt does not disappear in a personal bankruptcy. Students learn a new, scary lesson – about compound interest.
A report published on August 16, 2010, using the largest database of information on higher education (IPEDS), has concluded that a major reason for the rapid increase in the cost of higher education has been the increase in the number and cost of administration. The report is Jay Greene, Administrative Bloat at American Universities: The Real Reason for High Costs in Higher Education and can be accessed at goldwaterinstitute.org. Commentary on this site mentions three books and four other studies that reach similar conclusions.
To quote from the executive summary of this report:
But unlike almost every other growing industry, higher education has not become more efficient. Instead, universities now have more administrative employees and spend more on administration to educate each student. In short, universities are suffering from “administrative bloat,” expanding the resources devoted to administration significantly faster than spending on instruction, research and service.
Between 1993 and 2007, the number of full-time administrators per 100 students at America’s leading universities grew by 39 percent, while the number of employees engaged in teaching, research or service only grew by 18 percent. Inflation-adjusted spending on administration per student increased by 61 percent during the same period, while instructional spending per student rose 39 percent.
How can colleges get away with the large, long-run increase in real (after inflation) prices? One reason is that they are part of a shared monopoly, a self-regulating shared monopoly (oxymoronic) on granting degrees. As long as most families believe their children must get a college degree, demand will be about as price inelastic as demand for drugs (both kinds). Maybe there is now more price sensitivity but – you can trade down but still have to buy it. And there is a lot less innovation and price competition than in either drug industry.
My former college is an example of the general trends documented in this report.
Much of the growth in administrative overhead has occurred at the top of the administrative hierarchy, combined with title inflation and higher salaries. When I retired two years ago, there were more administrators with the titles Director, Dean or Vice-President than full-time faculty members who taught more than one course per semester. I facetiously suggested we set up a one-on-one admin/faculty mentoring program so they could explain to us how to manage our departments and courses less efficiently.
As per Parkinson’s Law, more administrators generated more administrative work for everyone else. More reports, more demands for data, more meetings, more “coordination,” more conferences. Less time for teaching, research and tutoring.
The increase in administrators and their staff has occurred even though many support services have been outsourced. Over the past 20 years, our college outsourced the dining hall, building maintenance, the bookstore, health insurance, campus security and payroll processing.
The large increase in administrative cost per student is surprising since most of the growth in enrollment over the last 20 years has been adult students seeking professional degrees. Adult students need far less administrative and support services than full-time day students. The increased adult enrollment has been matched by an increase in adjuncts; the number of full-time professors is almost the same as 20 years ago.
Almost none of the increase in administrative overhead benefits adult students, who now account for close to half of all college students. The marginal cost of an adult student is very low – the cost of an adjunct spread over the average number of students in a course (about $150/student). Adult students and their employers pay more per course than day students because most do not receive tuition discounts and have little access to “scholarships.” The increasing numbers of adult students are subsidizing day students (and their non-academic activities) and covering the rising administrative costs of the college.
No sane person would pay $3,000 for a course taught by a graduate student or a mediocre professor when better and cheaper alternatives exist, such as the wonderful lecture series of the Teaching Company (less than $100/course), are available. Even my local lifetime learning courses ($65/course) are at least as good as the average college course. The current thinking and reading for most courses are free at my county library network or on the Internet. But they can’t offer college credits or degrees.
So the difference between the $100 charged by the Teaching Company and the tuition per course charged by a college is a monopoly profit. This may be an overstatement. Colleges offer a variety of additional services – exercise rooms, pools, sports, psychological counseling, free access to the Internet, cultural activities and social activities. But most colleges add on a variety of student fees in addition to tuition to pay for part of the cost of these activities.
Our college, like almost all colleges, uses an average cost-plus pricing mechanism, with the same disincentives as military cost-plus contracts. This works as long as most of the money comes from third parties with growing revenue or from subsidized borrowing. It will be interesting to see what changes occur in colleges when state aid and third party reimbursement is cut. Will colleges buy out tenured faculty? Fire untenured full-time faculty and replace them with adjuncts or graduate students? Cut library budgets? Defer investment in lab equipment and building maintenance? Cut the number of administrative positions?
Almost no one would object that tax money should be used to further the goal of equal opportunity to receive a college education. Like health care, tax dollars have been a major source of the tremendous growth in revenue. But there is no accountability. College administrators have economized on the cost of teaching and spent the money on administration. No surprise that GRE scores have been going down.
As a first step, a simple metric might help. All third party payers – the federal government, state government, public and private employers – should start to cut back on tuition reimbursement to a college unless education expenses (teaching, labs, library) rise faster than administrative expenses. Maybe, just maybe, the ratio of professors, researchers and tutors to administrators and their staffs might go up. Maybe, just maybe, colleges will remember that their mission is to provide quality education rather than create more and more highly-paid administrative positions.