Unpacking the expense of American higher education

With the United States spending twice as much per student as the average developed country, an article in The Atlantic attempts to answer the question, “why is American higher education so expensive?” The answer turns out to be a complex set of interconnected factors related to the services U.S. colleges provide, staffing costs, funding inconsistency within and among states, and lack of government price controls—a situation similar to the one driving U.S. health care costs, the author concludes.

U.S. spends more on student support services

U.S. college students are more likely to live on campus than other students around the world, which translates into triple the spending on “ancillary services”: housing, meals, health care, and transportation. This isn’t necessarily a sign of inefficiency, one expert notes; it just means that U.S. colleges are different from their counterparts in other parts of the world.

And, ultimately, ancillary services account for only $3,370 of the $30,000 in cost per U.S. student per year.

Research, small classes, and non-academic staff drive up U.S. costs

Most of American college spending covers routine educational operations, such as paying staff and faculty, totaling around $23,000 per student a year—twice what Finnish, Swedish or German universities spend on core services. Lower faculty-to-student ratios and employment of star researchers—both prized in university rankings but not necessarily correlated with better student outcomes—account for some of this discrepancy.

But U.S. universities also spend significantly more on non-teaching staff to support students living on campus, as well as administrative and operational staff related to athletics, fundraising, security, and other non-academic functions.

Root cause: 50 states with three education systems each

The article suggests that a key driver of the cost discrepancy is the existence of three different higher education systems in every state: public colleges; private, nonprofit colleges; and for-profit colleges. Over the past three decades—but most acutely in the wake of the 2008 financial crisis—many state legislatures balancing budgets have cut major funding for public colleges.

In response to funding cuts, universities become more “entrepreneurial” by shifting some of their funding needs to students, seeking out more out-of-state and international students who pay high tuition. That competition for students in turn has created a “spending arms race” for the other two types of colleges in each state.

“Once that sustainable public funding was taken out from under these schools, they started acting more like businesses,” says Maggie Thompson, the executive director of Generation Progress, a nonprofit education-advocacy group. “They moved away from working to educate people in their region to competing for the most elite and wealthy students.”

Echoes of the U.S. health care cost crisis

The author notes the strong similarities between higher education cost discrepancies and those in health care: “In both spaces, Americans pay twice as much as people in other developed countries—and get very uneven results,” she writes. This is attributable in part to the challenge of navigating complex and inconsistent systems, especially for lower-income individuals.

And without a “central mechanism to control price increases,” American consumers pay more for medical procedures and for higher education, the author notes. Market-driven pricing unique to the United States makes higher education “more innovative—but also less coherent and more exploitative.” By contrast, many systems in other developed countries have central mechanisms to control price increases and cap tuition.

Students caught in a “diabolical cycle”

Ultimately, the author notes, U.S. students are caught in a catch-22: they need a college degree to earn more money, but getting that degree is expensive in large part because it is administered primarily by college-educated employees who earn higher salaries. This makes degrees less affordable for low-income students, who face a disadvantage in earning potential without a degree and end up heavily indebted if forced to drop out because of cost.

And even though college graduates on average earn 75 percent more than those who finish high school only, there’s variability there, as well. Students graduating with associates degrees from for-profit universities see a smaller salary increase than their peers graduating from community colleges—but pay more for their degrees, the article states. The author concludes that U.S. higher education doesn’t have to be so complex and costly, adding that “almost everywhere else, it isn’t.”

The Atlantic
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