The Pros And Cons Of Raising Tuition Rates

Every year schools have a big dilemma and that’s want to if they can or should raise their tuition. The discussion is often heated and slanted. Concerns range from whether parents can afford an increase to whether what they provide is actually worth that much. However, the bottom line is really this: will the increase in tuition rates have a negative impact on enrollment? For at least a century, tuition at certain public and private institutions has risen annually by two to three percent more than the rate of inflation. It wasn’t untill the 1980s, though, that tuittion growth began to regularly outstrip growth in median family income. During the 1990s, donations grew enormously as a result of the rising stock market, leading many

But this isn’t the result of something we have made up in our head. Instead, it comes from the peculiar economics of education, which have a lot in common with the trends of health care, another industry with a huge cost problem. (Indeed, in recent decades the cost of both college education and health care has sharply risen in most developed countries, not just the U.S.) Both industries suffer from what economist William Baumol called Baumol’s cost disease, which he discovered, back in the sixties. Baumol recognized that some sectors of the economy, like manufacturing, have rising productivity—they regularly produce more with less, which leads to higher wages and rising living standards. But other sectors, like education, have a harder time increasing productivity. Ford, after all, can make more cars with fewer workers

In widget factories, wage inflation is offset by productivity growth. In education, it isn’t. So while the cost of a widget can stay the same or go down over time even as the widget makers get paid more, the same isn’t true of tuition costs (Ehrenberg). In reality, however, the numbers show that wage inflation is — literally — the least of the problems when it comes to university cost inflation. Overall, if we exclude for-profit schools, which were a tiny part of the landscape in 1999, we have seen tuition fees rise by 32% between 2005 and 2014. Over the same period, instruction costs rose just 5.6% — the lowest rate of inflation of any of the components of education services (Ahmed & Ghosh, 2012). (“Student services costs” and “operations and maintenance costs” saw the greatest inflation, at 15.2% and 18.1% respectively, but even that is only half the rate that tuition increased.) In other words, tuition costs are going up just because state subsidies are going down. Every time there’s a state fiscal crisis, subsidies get cut; once cut, they never get reinstated. And so the proportion of the cost of college which is borne by the student has been rising steadily for decades. This is especially true in Alabama which has seen a 60% cut in state funds to education in last 10