Why are Universities Spending So Much?

The Academic Arms Race and You

Spending at “flagship” public universities has been on a tear, with the costs being passed onto students. As reported by The Wall Street Journal, which does an excellent job of higher education reporting, the average flagship spending, adjusted for inflation, rose 38% between 2002 and 2022.

Every university or president, or chancellor will insist that their institution is unique and that there are solid reasons for the spending increases.

“Public university leaders often blame stingier state funding for the need to raise tuition revenue. And three-fourths of states did cut their support, undermining a longstanding principle that schools educated the populace with government backing. But universities generally didn’t tighten their belts as a result. Rather, they raised prices far beyond what was needed to fill the hole.”

The schools paid for it in part by pulling in tuition dollars. The median flagship received more than double the revenue from undergraduate and graduate tuition and fees it did 20 years prior. Even accounting for enrollment gains, that amounted to a 64% price increase for the average student, far outpacing the growth in most big household expenses.”

There are two major problems behind these increases: mission and complicity.

We, the unwashed masses, think the mission of a public college or university is to serve students by providing an education. The fact is, there are many masters that university leaders are trying to keep happy, and students and their families are not at the top of the list. For “flagships” (a self-aggrandizing term if ever there was one), their first and last master is reputation.

Yet we, the unwashed masses with a degree, two, or three in our households, don’t like acknowledging our complicity in this system. Employers use higher education as their first HR screen. Parents know this, so they go nuts to get their offspring into the schools with the best—say it with me—reputation.  

When the focus is institutional reputation building over a passion for meeting the needs of students and the community, spending that kind of money makes all the sense in the world. We pretend we hate it while lavishly rewarding the system that keeps it in place.

Let’s face it, people will pay what it costs as long as it is seen as the ticket to punch to get into a good life.

State “Flagship” Universities Source: Oglethorpe University

Drivers of Spending/Lack of Cost Cutting

Mission and complicity are the high-level reasons for the spending increases. Here are some more nuanced thoughts and observations:  

·      Only 15% of college or university board members have any background in higher education. That means, when it comes to budget, trustees trust what is told to them by administrators about what is necessary to "maintain quality" and remain "competitive." Board members—and most of the university community—are clueless to how the budget works.

·      Board members often want their school—their alma matter—to be the "best" without ever defining what that means or how much it will cost.

·      Board members that do want to hold costs to zero or reduce spending are treated as pariah and are quickly frozen out of major discussions. The administration thinks they are being completely unreasonable and they make that clear.

As much as we like to honor people that stand on principle, if that’s a hill someone is willing to die on, they won’t be able to get anything done because everyone will think they are a jerk. So, they often capitulate or become quiet about the cost issue.

·      There isn’t a lot of original thinking when it comes to university operations. There is one Platonic ideal; they all want to be that, which is why they all tend to do the same thing the same way in different places.

As there is a herd mentality—because no college president, provost, or dean gets rewarded for being truly cutting edge—they tend to have the same ideas on how to deal with budget shortfalls.

That means every state “flagship” thinks they can balance their budget by enrolling more out-of-state rich kids or international students that pay huge out-of-state tuition to boost their bottom line. Some schools do this spectacularly well.

To attract those students, institutions need to build shiny objects to impress 17-year-olds. That gets expensive. This strategy blew up in the face of West Virginia University, which is now dealing with a major budget shortfall. They built it, and students didn’t come.

·      Higher education is a commodity. To best way to distinguish one “flagship” from the others is by reputation. Reputation usually means exclusivity and research. Everyone loses money on research, but no one talks about it, resulting in higher tuition bills and less access to tenured professors.

·      State funding has decreased, but as the story points out, the tuition increases have outpaced what the state would have given—generally. While state funding is not what it used to be, universities think they are entitled to operate as they always have.

·      Schools use fees as a back-door tuition increase that usually gets overlooked in the numbers reported by the press.

·      The external reward systems (rankings, donors, employers, government, accreditation agencies, academic societies, professional organizations, alumni, media, etc.) support the status quo. While complaining about costs, none of the enablers are doing anything about it. There is no external incentive for “flagships” to change. Shaming them isn’t working.  

·      Almost all of the people that write about this at the Wall Street Journal, The Atlantic, The New York Times, The New Republic, and The Washington Post all went to an Ivy League school or small private liberal arts college. Only hiring from a few select colleges helps drive the reputation game that “flagships” play. That makes these publications part of the overall problem, and they are hypocritical for not calling themselves out on the issue. 

·      When a recession comes, businesses tend to correct and cut the bloat they have taken on. (This is a horrible system that is a failure of leadership and management to make hard decisions in good times, but that’s how it works.) There are rarely cuts in higher education (which, overall, is great). However, institutions grow, grow, grow, and never address their bloat. When cuts do come, they are usually at the margins and not strategic. 

·      Tenured faculty tend to fight every measure of reform or change at every step. If I were in their shoes, I would too. The changes rarely make their lives better or easier. But that often slows or kills possible reforms or cost-cutting.  

The Near Term

So, what’s next?

·      Students and families will continue to pay and borrow if they think the best opportunities only come from earning a credential from a "flagship" school.

·      With no policy measures to stop it and with a massive external reward system in place, the academic arms race won't stop, and costs will continue to outpace inflation.

·      With a national decline in the number of high school graduates, most universities will experience cuts and have some re-focusing of efforts.

·      Outside of culture war issues, the general public will continue to resent higher education because more of them feel excluded. University leaders will respond by saying that “if the public only knew our story, they would love us” and spend money on PR and marketing accordingly. It will have a negligible impact, as it has for decades.

·      Non-flagship state colleges and universities—generally the ones that do the most to provide access, affordability, and social mobility—will begin to experiment because they have to. They don't have the financial resources the bigger campuses do, their students are more price sensitive, so they will need to adapt. Some will innovate to keep costs in check and to find new ways to generate revenue. Best practices will eventually make their way to “flagship” institutions.

·      As costs continue to rise, more students will choose alternative options to a traditional four-year college, such as coding boot camps and specialized coursework providing employer-recognized credentials. That will cause an increasing number of small private colleges to close and pressure public institutions to “right-size.”

One major caveat to all of this: no one can predict the impact that AI, machine learning, virtual reality, and the continued expansion of online education will have on the higher education sector. Someone could figure out how to deliver a quality college education (without the college experience) at a greatly reduced cost. It wouldn’t impact “flagship” prices or operations—at first.