College Tuition Inflaters

By now, probably everyone has heard the righteous wailing from Washington, led by Sen. Charles Grassley (R-IA), over well‐​endowed institutions of higher education that don’t spend their cash to keep to tuition low.

“Parents and students have a right to expect these universities with big endowments to end the hoarding and start the helping with skyrocketing tuition costs,” Grassley declared last month.

Grassley’s assault on wealthy colleges has generated lots of press and made for great grandstanding, and there’s certainly something wrong when ivory‐​tower endowments, which are tax exempt because colleges supposedly serve the “public good,” lose hardly a tuppence in service of the public. But the fault lies with government for giving colleges favored status, and endowment hoarding is hardly driving tuition costs.

Just look at the number of schools with big endowments. A few weeks ago, Sen. Grassley and Sen. Max Baucus (D-MT) sent a letter requesting information to every college and university with an endowment over $500 million. How many schools was that? Just 136, or about 3 percent of the nation’s nearly 4,300 colleges and universities. That’s hardly enough to make much difference on overall average tuition levels.

Despite the small number of schools being directly harassed over their endowments, most higher education lobbyists are on high alert, especially against threats from Grassley and others to make colleges spend 5 percent of their endowments annually. Unfortunately, to protect themselves colleges and their Washington defenders are pointing at an even more popular scapegoat for rampant tuition inflation than Harvard and Yale: tight‐​fisted states.

“A primary reason that tuition has been rising is that state funding has been flat,” Sen. Lamar Alexander (R-TN) told a gathering of higher education officials in Washington last week, exhorting them to close the “communication gap” between themselves and politicians on Capitol Hill.

But Washington pols, as the HEA reauthorization bill proves, have been hearing that message loud and clear. If the bill passed yesterday is enacted, the federal government would withhold funds from any state that cut higher education spending below its previous five‐​year average. In other words, states would have to spend taxpayer money to make taxpayer money.

Sadly, just like the endowment blow‐​up, blaming tuition inflation on impecunious state spending is a dodge.

State financing of public institutions, for one thing, has no direct effect on the nation’s roughly 2,600 private colleges or their tuition prices. Moreover, state spending on higher education hasn’t actually been flat. According to the latest federal “Digest of Education Statistics,” after adjusting for inflation state higher‐​education expenditures rose from $46.8 billion in academic year 1990–91 to $53.9 billion in 2003-04, a 15 percent increase. Despite that, the average real cost of in‐​state tuition and fees at public four‐​year institutions rose 86 percent in that time, from $2,460 to $4,587.

So much for the cheap states theory. But what, then, is the real cause of the college cost crisis?

There are many cost‐​driving excesses in higher education — luxurious dorms, unused classroom space, growing bureaucracies, expensive academic journals, and the list goes on — that are intermediate causes of the college cost problem. They are all, however, undergirded by a single reality: You can’t charge an arm and a leg unless people can pay it, and to curry favor with colleges, kids, and parents Washington ensures that those limbs keep coming, taking them from taxpayers and giving them to students and schools.

The growth in federal student aid makes this clear. According to data from the College Board, real federal aid — including grants, loans, and tax credits — ballooned from $48.7 billion in the 1996–97 academic year to almost $86.3 billion in 2006-07, a 77 percent leap. On a per‐​pupil basis, aid per full‐​time equivalent student — most of which came through Washington — rose from $6,627 to $9,499, a 43 percent increase. Meanwhile the per‐​pupil cost of tuition, fees, room and board rose 29 percent at private four‐​year schools, from $25,031 to $32,307, and 41 percent at public four‐​year institutions, from $9,657 to $13,589. In other words, college prices kept rising because aid made sure they could.

So who are the real culprits behind higher education’s ever‐​higher price tag? Not endowment hoarders or cheap states, but the Washington politicians who blame everyone else for the problems that they themselves have caused.