Why Does College Cost So Much?

Armed with an alternate economic view of the current rhetoric surrounding the college cost debate, Robert B. Archibald and David H. Feldman—Chancellor Professor and Professor of Economics and Public Policy, respectively, at the College of William and Mary—present an aerial depiction of higher education as an industry in Why Does College Cost So Much? The authors embarked on a collaborative research effort spanning ten years to explain the economic condition of higher education in general, culminating in this publication. Noting that many public universities are slowly becoming privatized as costs grow faster than state support, the authors use evidence to support their story of why higher education costs consistently rise faster than the inflation rate.

The book is broken down into four parts: (1) Introduction, (2) Costs, (3) Tuition and Fees, and (4) Policy. To begin, the authors illustrate the landscape of higher education by telling the readers "where you sit affects what you see." The landscape looks different to a college president as compared to a congressman, and is different for small liberal arts colleges, public institutions, and well-endowed private institutions. The authors concentrate on what they believe are the connections between higher education and similar industries, explaining historical cost and price trends, while making key distinctions over time related to standards of living and income distribution. They argue that higher education costs and prices follow a time path that is similar to that of other service industries that employ a highly educated workforce, such as physicians, dentists, and lawyers, and these industries react to economic changes in similar ways.

The authors identify three major forces in the broader economic context that explain the path of increasing costs in higher education and similar industries. First, they note that cost savings provided through technological progress impacts industries differently, typically lagging in most service providing industries including higher education. Second, the growth of educational attainment in the U.S. in the last 30 years has not been able to keep pace with the demand for skilled workers, thus inflating wages offered to the highly educated. Third, advances in technology can actually increase costs for higher education, driven by needs and wants of students and employers. Their theory posits that innovation itself is a major driver of increased costs in higher education and that these increasing costs are not reflective of dysfunction or inefficiency within the industry, but rather, they are reflective of a cost disease process inherent in personal-service industries.

In part three of the book, the authors shift gears to discuss how changes in costs of higher education affect what students and their families pay. Higher education is a highly subsidized industry in the U.S., thus many colleges and universities can set tuition and fees at a price less than the actual costs to provide the service. The authors continue, "the vast majority of students pay much less than one-half of the cost of the education they receive." Policies on setting list-price tuition (mandatory tuition and fees) at public schools vary by state. The authors focus solely on institutions that have the authority to determine these prices in order to remove any political influences from the data. They present the mechanics of tuition setting in a way that allows the reader to understand the role of subsidies in the pricing of higher education and how this role evolves over time. The share of costs covered by state appropriations reflects a declining trend with ebbs and flows over time, contingent upon the economic condition and political priorities of the time. When the economy is doing well, typically state subsidies grow and increases in list-price tuition are moderate. When the economy is not doing well, state subsidies typically fall and list-price tuition rates increase, thus making public institutions more reliant on tuition revenue to meet their needs.

The authors proceed with a discussion of "List-Price Tuition and Institutional Grants" in Chapter 10 and detail the increased use of tuition discounting (institutional grants) among institutions in order to recruit desirable students with financial need to their campus. This "Financial Aid Arms Race" analogy allows the authors to explain the growth in usage of institutional grants due to the expansion of the market from which students hail and shed light on the potential for transformation across American higher education in terms of shifting institutional need-based aid to merit-based aid in many instances. Questions of diversity and social mobility are included in the discussion and the authors carry this discussion into part four of the book on Policy.

Background and historical perspective on current policy related to college tuition and federal financial aid is presented in Chapters 13-15. Discussions of the Bennett Hypothesis, that suggests additional financial aid causes increases in list-price tuition, and its reverse process known as the "Congressional Squeeze," where increases in list-price tuition create the need for increased financial aid, provide the reader with insight into the recent sentiments resonating within state, federal, and institutional politics, and the discussion of affordability of higher education. In this light, the authors call for financial aid reform as a way to coordinate the many efforts of federal and state governments, private entities, and institutions to provide increased access to higher education. By simplifying the process and making it universal, college prepared, low-income students would have greater expectations of degree attainment. Among the problems, the current financial aid system is flawed in that many low-income students and families may not make it to the financial aid application process. Even if they do, they may be unwilling to contribute the Expected Family Contribution as determined by the federal government.

The current complexity of the financial aid process is a deterrent that contributes to the low enrollment rates of college-qualified students at the bottom of the income distribution. Reform proposed by the authors eliminates the means testing and income sensitivity of the current process and increases transparency by universalizing access to financial aid. They believe this will encourage more students and families to pursue higher education as it has been shown to do so on the state level with some merit-based programs, such as Georgia's HOPE Scholarship Program. With the authors' call for radical change, higher education priorities within America need to be defined as a national priority and supported financially.

Robert Archibald and David Feldman present a many-pronged picture of higher education in contemporary American society. They support their claims of what drives costs in the industry and how these costs impact pricing and access to Americans with evidence of data over the better part of the last century into the 21^st century. While public opinion may disagree with the interpretation of their findings and the way in which they approached this subject matter, as they do not align with outspoken claims of inefficiency, they make a strong argument that opposes the current rhetorical confusion that permeates the politics of higher education. However, politics aside, the authors present their findings in a neutral manner and offer ways to find solutions to the future of educational attainment in the U.S. higher education industry. They, appropriately, are reluctant to use the term "crisis" in the college cost debate. Instead, they urge readers to "fix what can be fixed" as a university education is being pushed further out of reach for Americans at the bottom of the income distribution. Anyone interested in the complexities of higher education as an industry would benefit from reading this book. It not only informs the reader of the current college cost debate, but also provides a framework for understanding the complexities of a major public policy issue.