Cost Pressures on Tuition
Over 30 years ago, William Bowen, now president of the Andrew W. Mellon Foundation, attributed tuition rising faster than the rate of inflation primarily to the nature of the educational process, which did not permit academia to share in the productivity gains that caused earnings growth in the rest of society. Today, several additional forces continue to put upward pressure on tuition.
"Winner Take All" Society
The objective of selective academic institutions is to be the best they can in every aspectof their activities. They aggressively seek outall possible resources and put them to usefunding things they think will make thembetter. To look better than their competitors,the institutions wind up in an arms race ofspending to improve facilities, faculty, stu-dents, research, and instructional technology.Meanwhile, students and their familiesincreasingly want to buy the best: the fractionof our nation’s top students, as measured bytest scores, who choose to enroll in selectiveprivate institutions has increased substantiallyover time. Research suggests they are wise todo so, because the economic return to attending a selec-tive private institution is large, and increasing.chosen to maintain and increasequality largely by spending more,With long lines of high quality applicants flocking totheir doors, top institutions have chosen to maintain andincrease quality largely by spending more, not by increas-ing efficiency, reducing costs, or reallocating funds.
Shared Governance
The shared system of governance between trustees,administrators, and faculty almost guarantees that selec-tive private institutions will be slow to react to cost pres-sures. Trustees are often successful business people whoknow how to cut costs and meet budget constraints. Butif the president tells them that they need to spendmoney to maintain the strength of the university in aparticular field, or that they need funds to enhance the living and learning environment to attract students,they are likely to agree.At public institutions, trustees often do not have controlover tuition levels and state appropriations—the politicalprocess often makes such decisions. Administrators at thepublic institutions often can make hard decisions to bal-ance budgets because they can always blame the cuts onstate government. In contrast, administrators at privateinstitutions often find that all blame for cutbacks is assigned to them. Rather than risk the goodwill of thefaculty, whose support they need to effectively govern,they are more likely to agree to raise tuition than takeother actions to provide budget relief.
Federal Government Policies
The federal government has contributed to the cost pres-sure on selective private institutions in at least three ways.First, the Justice Department’s breakup of the collectiveagreement of several elite institutions to target theirfinancial aid to students with the greatest need has led tothe increased use of merit aid and more expensive finan-cial aid packages. Second, the value of the maximumBasic Educational Opportunity Grant (BEOG) has notkept pace with inflation. Viewed in 1997 constant dol-lars, in 1975, the maximum BEOG grant was $4,000; in 1997, it was $2,700. Private institutions have had tomake up the difference in the form of institutional finan-cial aid, putting more pressure on tuition. Finally, thecost of doing research has skyrocketed in recent years asthe government has put pressure on private research uni-versities to reduce their indirect costs rates, and, at thesame time, raised its expectations for matching funds ingrant applications.
