Archived: Frequently Asked Questions About College Costs, Robert C. Dickeson Report, Secretary of Education's Commission on the Future of Higher Education (PDF)

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1 A NATIONAL DIALOGUE: The Secretary of Education’s Commission on the Future of Higher Education ISSUE PAPER Sixth in a series of Issue Papers released at the request of Chairm an Charles Miller to inform the work of the Commission Frequently Asked Questions About College Costs Robert C. Dickeson ng college costs and the impact this phenomenon has Summary: A great deal is written about risi cost drivers – the major factors that induce institutions to spend on accessibility. Yet the specific (and charge) more are often neglected. Such factors are usually hidden from public view. This ivers in higher education and responds to typical questions about paper identifies the major cost dr what’s being done – and can be done – about managing college costs and improving affordability. 1. Why does college cost so much? • Colleges are labor-intensive . a. On average, 75 percent of the costs to run a college are related to personnel expenses, including benefits. Thus, all the costs that any enterprise has to recruit and retain staff, pay cost-of-living increases and keep up with rising health care rsities as a part of doing business. expenses also are paid by colleges and unive Faculty salaries are especially expensive, particularly in high-demand subject- b. matter areas, like business and engineering. Colleges compete with each other (and sometimes with the private sector) for “top” faculty, and occasionally make financial commitments to faculty beyond sa lary: for time off from teaching to conduct research; for graduate assistants to help with research; and for laboratories or other expensive equipment to facilitate research. Decisions about who to add as a faculty member can cost significant dollars. Colleges do not always have control over their personnel expenses. Some states c. require that public institutional employees be covered by the state’s civil service system and its wage rates, administrative r egulations and dismissal policies. In some public systems, faculty union contracts are negotiated at the state or system levels, and are not controlled by individual institutions. d. The time-honored practice of tenure is cost ly. Tenure was originally conceived as a means to protect “academic freedom.” It has evolved into a system to protect job security. A combination of institut ional practice and emerging case law has resulted in a situation where institutional flexibility is reduced in two key ways. First, if student demand for academic programs shifts, faculty capacity to deliver it cannot. Tenured faculty members are not interchangeable parts (a physics professor can’t usually teach journalism, and vice versa). Second, it has become increasingly difficult for college administrators to remove a tenured faculty member

2 Frequently Asked Questions About College Costs 2 he decision to tenure has an accompanying who is no longer effective. Thus, t long-term price tag that easily exceeds $1 million per person. Colleges are subject to some expenses beyond their control . • a. As with all enterprises that mainta in buildings, colleges are subject to increases in utility costs that often e xceed budget plans. For campuses with expanded physical facilities and buildings t hat may not be energy-efficient, this factor can be fiscally crippling. Some states require their public colle ges to use state agency services, such b. as central purchasing, that may not be cost-effective. In other cases, contracting-out for non-mission-critical services (outsourcing) is impermissible. • Colleges are highly regulated. l costs on college budgets. These Federal regulations impose additiona a. penses in administering federal unfunded mandates include significant ex financial aid, admission of foreign students, and conduct of research. There are also extensive reporting requirement s. As many as 12 different federal agencies impose regulations on colleges, and most of the requirements are neither coordinated nor paid for. b. but may impose costs on public and – where State regulations vary by state, independent colleges receive state support – private institutions. These rules range from travel policies to teacher education certification to preferred contractor mandates, and usually incl ude extensive, and often redundant or overlapping, repor ting requirements. c. Many universities are like small-to-medium cities in size and scope. They may be involved with delivering health care, food service, child care, housing, police and fire protection, and other services that are subject to local ure requirements. regulations and licens • Colleges are not managed with efficiency as the primary value. Colleges maintain large physical infras tructures that often include libraries, a. computing centers, academic and student -oriented buildings, power plants, research facilities, theatres and stadiums. This infrastructure is rarely used to capacity. Typically facilities are used only eight-to-twelve hours a day, five days a week, for less than 52 weeks per year. The necessary repairs and maintenance costs to keep the infrastructure sound is usually deferred as too costly for current-year budgets, and the re sulting cumulative impact across all institutions of higher education nationally is in the multiple-billions of dollars. b. To understand the management of a college one must understand the unique culture and extraordinary power of the fa are the culty. To many faculty, they university. This tenet explains a number of practices that distinguish college management from most ot her forms of management. Among these practices are: the keen importance of process in undertaking decision-making on campus, a factor that explains the slow-moving pace of change that characterizes most institutions; the assumption that the faculty “own” all curricular decisions, and the concomitant reluctance to challenge that authority

3 Frequently Asked Questions About College Costs 3 he crucial importance of tenure to the when meaningful reform is indicated; t academy, and the corresponding result that many academic departments across the country are “tenured up,” with all faculty members tenured, thus ee-fourths of the oper ational management limiting institutional flexibility; thr decisions of a campus are made by academic department chairs, who are neither trained in nor committed to m anagement, and who typically rotate in research and out of these key posts from t he faculty ranks; the primacy of over as the key to the internal reward systems (hiring, salary, promotion instruction and tenure); the continuing pressures fo r faculty members to teach less and research more, resulting in a growi ng trend toward more “released time” (one is released teaching) that becomes a grow ing college cost issue; and the from common practice of making necessary budget cuts “across-the-board,” since lly feasible than identifying relative that approach is seen as more politica budget priorities. c. It is typical for colleges to add new programs – academic, administrative, and student – without corresponding cuts in existing programs. This additive institutional budget approach has profound implications for s: each program receives relatively less as the size of the overall budget pi e stays essentially the same; each program seeks out additional financial resources to supplement institutional bud gets; and institutions do not regularly reallocate scarce resources among programs from lower to higher priorities. d. There is little relationship between t he costs of offering a program and the price charged for it. Through a system of internal cross-subsidies, students pay the same amount for a high-cost as a low-cost program; and freshmen pay the same amount as seniors, al though there are significant cost differences among these choices. e. No program receives more internal subsidization than intercollegiate athletics. Almost all athletic programs across the country are not self-supporting, and thus add to college costs. Internal mistakes are expensive. Across the country are hundreds of f. ds and countless other out-of-court examples annually of judicial awar settlements to compensate for administrati ve errors in personnel cases such as breach of contract, invidious di scrimination, and sexual harassment. Colleges measure “quality” by purchasing expensive inputs . • a. Colleges compete with each other for students with high academic characteristics so as to raise the institution’s academic profile, and, by rapidly-growing porti on of the budget of inference, its reputation. The most private colleges is , as schools increasingly Scholarships and Fellowships discount tuition at great cost so as to attract students. Ironically, this aid is paid for by cutting the Instruction portion of the college’s budget. Colleges spend far more to recruit a st udent than to retain a student. b. Colleges compete with each other fo r faculty members with distinguished research records so as to raise the institution’s academic profile and, by inference, its reputation. Bidding wars to attract and retain high profile faculty members add to college costs.

4 Frequently Asked Questions About College Costs 4 Colleges often seek specialized accreditation in select academic fields as c. another proxy for quality so as to improve institutional reput ation. Achieving specialized accreditation is always costly. • of sources for their funding. Colleges rely on a limited set a. The primary sources of revenue for co lleges are: government support; tuition and fees; gifts, grants, and contracts; auxiliary income; endowment income; and other income. To the extent that any of the other sources shrink or contract, the difference is b. met by increasing tuition and fees. • Student demand can be expensive. a. ee programs that are costlier than ever before Students are seeking degr d of study than speech, for example, (engineering costs more as a major fiel likely to prefer engineering to and incoming students are 83 times more speech). Students demand more services and ameni ties (parking garages, computer b. network access, e.g.) and colleges respond by offering them. The sheer number of students attending college has increased dramatically c. and therefore the costs of meeting that demand have increased. This increase affects institutional, feder al and state investments in higher education. The percentage increase in full -time-equivalent enrollment in public postsecondary institutions since 2001 ha s already outstripped that of the previous two decades. Other factors affect costs . • Student and family willingness to pay sometimes exceeds ability a. to pay. Many institutions factor this market demand element into their price-setting practices. b. Many institutions admit students who have scant promise of collegiate success. The resultant costs for rem ediating these students is significant and the dropout rates are high. Some institutions use revenues generated from tuition and fees to pay for c. expenses that are not related to direct educational expenses. d. Some four-year institutions make it difficult for students transferring in from edits earned. This practice costs both two-year colleges to use college-level cr students (who sometimes pay twice for the same course) and the state and federal governments (which subsidize the course work twice). 2. Why do community colleges cost so much less than traditional four-year colleges? • Community college instructors are typically not tenured, nor are they full-time. Over 60 percent of the instruction at community colleges is conducted by part-time instructors, who cost less.

5 Frequently Asked Questions About College Costs 5 If there are insufficient numbers of students to financially justify • a class being offered, it is usually cancelled. Community colleges typically do not engage in re • search. Thus there is no expectation that faculty conduct, or get released time aw ay from teaching to conduct, research. • Community colleges typically prioritize their programs more readily, and are more likely to operate on a business model: conducting market research to determine consumer demand, and dropping programs that don’t pr ove to be efficient or effective. primarily focused on de livering instruction, Physical infrastructure at community colleges is • and is less likely to include research facilities , residence halls, and large athletic facilities. • Community colleges are more likely to make fuller use of their teaching and physical them, not when faculty want to teach capacities: offering courses when students need them; and offering courses and services at nights and on weekends, in order to appeal to non-traditional students. Many community colleges generate additional c • ontract revenue by delivering specialized courses needed by business and industry. 3. What are colleges doing about th e problem of high college costs? Most institutions have shifted their teaching fa culty resources from fewer full-time to more • ime instructors cost the institution less as salary and benefits part-time instructors. Part-t expenses are materially reduced. There is a debate about whether this approach affects the quality of instructional delivery and student advising. • A few institutions have reduced their reliance on tenured faculty by offering multiple-year contracts in lieu of tenure, and by instituting post-tenure revi ew policies to weed out what some faculty call “dead wood.” Most institutions make cuts in several bud get expense lines (travel, equipment, library • materials are typical categories), defer certain expenses, defer program additions, or make other adjustments to balance expense expectations with revenue realities. • cal functions in order to save money (food Some institutions outsource non-mission-criti service, security, health care, etc.). • rvice delivery agreements or joint purchasing Some institutions enter into cooperative se contracts with other institut ions in their geographic area. • Some institutions prioritize their academic and service programs, and reallocate resources from lower to higher priorities. • Some institutions undertake reviews of cost ly administrative processes and thus reduce expenses by gaining efficiencies and benefiti ng from more sophisticated cost-accounting systems. • Some institutions increase class size s, particularly at the lower-division (Freshman/Sophomore) levels so as to pr ovide smaller class sizes for upper division (Junior/Senior) and, in some cases, graduate and professional school levels. • Some institutions try to generate additional revenues from other sources instead of – or in addition to – tuition and fee increases. These sources include increased user fees, fund- raising, and other income-generating activities. Some institutions try to build on their endowments, but in tight fiscal times there is increasing pressure to spend gift dollars on current-year needs. Most of the money raised by colleges and universities is restricted by

6 Frequently Asked Questions About College Costs 6 not give the institution the latitude to use the donor to specific purposes which may or may the funds to reduce tuition and fees. secondary schools to offer dual enrollment • Some institutions are cooperating with ternational Baccalaur eate and College Level programs, accept Advanced Placement, In Examination Program credits, and work with schools and community colleges to facilitate ams save students significant dollars in ease-of-transition to college. These progr achieving a college education. • Some institutions permit scholarship donors to use their gifts as last-dollar, rather than help lower college prices for students. first-dollar awards, thus encouraging donors to • Some institutions are making their pricing structures and award patterns available for public scrutiny, thus reduci ng the mystique associated wi th college price and thereby increasing public credibility. that campuses should take a look at? 4. What are some “hidden costs” • Institutions The minimum number of faculty mem bers that constitutes a “department.” A department is an often confuse an academic “discipline” with a “department.” does not have to be populated exclusively by administrative unit of the organization, and one academic discipline. S eparate departments can be costly: administrative support, space, printed materials and other expenses two-person departments can add up. One- or can hardly be justified in times of scarce res ources. Many institut ions across the country combine two or more academic disciplines into one department. • The minimum number of graduates to sustain a major. Institutions often list in their catalog offerings a wide range of academic majo rs for marketing purposes. There is little justification for some of these listings. A candid review of actual program graduates will reveal that the college is keeping on the boo ks certain major offerings with few- or no taining faculty, space, equipment and library participants. This practice is costly: main holdings to sustain a shaky program diverts precious resources away from more viable . programs that are key to the institution’s future The number of credit hours for a major, for general education, and for electives. In a time • of scarce resources, offering departments will o of hours required for ften inflate the number a major, in order to attract more credit h ours generated, thus “justi fying” the number of faculty positions required to be sustained. Such departments often use supposedly “academic” arguments to support these ploys. With the exceptions of accountancy and engineering, there is no academic justification for extending the baccalaureate into a fifth year. A review of college catalogs nationally will reveal the political ly successful programs, where “major creep” has expanded to approximately half of a four-year degree program. constituted of one-third major, one-third The baccalaureate degree program typically is general education, leaving one-thir d for a minor and electives. Abuse of released-time. In general, and for all types of in stitutions, faculty teaching loads • have diminished over the years. When we calculate a “full-time-equivalent student” or FTE student, we count students taking 15 credits per semester (or the proportionate numbers on a quarter system). The same approach is us ed for calculating an FTE faculty member, i.e., one who teaches 15 credits per semester . In the past, most teaching faculty indeed taught that amount per seme ster, and 15 credits was cons idered the standard “faculty load.” Over the years, and fo r a variety of reasons, the c oncept of “released time” was

7 Frequently Asked Questions About College Costs 7 reducing the teaching load of an individual faculty member in instituted: the practice of eges and universities order to be released to perform other instit utional duties. Coll negotiate and then grant released time to faculty members for such things as: advising students and student organizations; planning curricu lum projects, such as new courses or new programs; conducting research; and taking on administrative duties, such as chairing a department or chairing the fa culty senate, or other projects and duties that can be negotiated. By so doing, faculty teaching loads are reduced to 12, or nine, or six, or, in responsibilities. The widespread phenomenon some cases, three or even zero credit-hour of released time has led to situations on m any campuses that are indeed costly. In all cases, the use of released time results in: (a ) larger class sizes for students; (b) increased costs to the institution; and (c ) identification of teaching as a lower institutional priority, lative released time on any campus would something to be “released from.” The cumu equate to a significant number of FTE faculty positions, adding up to a sizable cost. The ratio of full-time to part-t Not every position needs to • ime faculty and staff members. be filled with a full-time person. Campuses s hould evaluate their ratios of full-time to part- time faculty and staff member s, balancing the multiple fact ors of quality, student demand, and efficiency. Redundancy of courses offered in competing programs. Thorough program review across • the institution may reveal several redundancie s in course offerings. Typical examples include writing or mathem atics courses offered in departments outside English or Mathematics. The reasoning behind these redundancies is often more historical/political than logical, and results in unnecessary costs. Institutions should review the incidence of unjustified redundancies and eliminate this practice. aditional college deliver 5. What are some alternative models to tr y that are available? • Proprietary, for-profit schools, sometime s called “career colleges,” are gaining in popularity, particularly among adult learners. For-profit schools use a business model to y are part-time, thus lowering costs. Only deliver higher education. Almost all facult demonstrated demand are offered, and they are offered at programs for which there is times and places convenient to the students. T here is little capital outlay for high-expense items, such as libraries or football stadiums. There is no research function or public service function. The curriculum is fixed, the out comes are measurable, and teachers are held responsible for results. The reward structure fo r these institutions is directly related to student success. There is a fundamental model shift in organizational expectations to “What’s it going to take to satisfy students?” from the traditional, “What’s it going to take to satisfy faculty?” • Rio Salado College (Arizona) is a community college that offers an alternative model of promise: A college setting “without walls,” as all instruction is delivered on line; a small core faculty who do not teach students, but instead develop a fixed curriculum and teach part-time instructors to teach on line; a student-friendly scheduling system with 26 start- times per year and go-at-your-own-learni ng pace options; 24-hour student services available on-line and through pagers; rigorous content demands and te sting for learning outcomes; and unlimited growth potential for expanding the model world-wide. • More and more institutions are getting involv ed in distance-learning opportunities. Some of the best distance-learning options appear to be quite promising in terms of expanding

8 Frequently Asked Questions About College Costs 8 y that quality issues are as yet unresolved, access and reducing price. It is also safe to sa program development costs are quite high, and accreditation issues remain. Currently- n distance learning credits than any other enrolled college students are more likely to ear group. However, as such students take a full l oad of credits at one institution, and enroll for additional credits on-line from ot her institutions, they are able to reduce the time (and cost) of completing their degree goals. [I met a student recently in North Carolina who was simultaneously enrolled, on-line, in four different institutions] nts to complete a four-year degree? 6. Why is it taking longer for stude • Courses that students need for degree completion are not always offered in the sequence or at the times that students can take them. Some institutions do not schedule courses on a student-demand basis, retaining inste ad a faculty-driven scheduling system. • e admitted who are not academ ically prepared for college. A large number of students ar ediating them can be extensive. Thus the time – and costs – of rem Most students work part time to help pay for t he high costs of college. As more and more • time is spent working, less time is availabl e to take courses, and student load averages per term are dropping. • their academic departments to add to the degree Some institutions have permitted some of requirements beyond what can reasonably be accomplished in four years. • Many students, due to bad advising or simply changing their minds, switch majors mid- stream and discover that some credits already ac hieved will not count in a different major. A few students seek dual majors, and this adds to the total number of credits required to satisfy the total requirements. • some intern programs have evolved over A few majors – engineering, accountancy – and time into five-year degree programs. that affect the states’ role in supporting higher education? 7. What are some factors All public budgets are subjec t to the impact of economic cycles. State government • budgets are directly related to revenues the state can generate. To the extent that a state’s economy suffers or flourishes, the st ate’s budget for any state service (including public higher education) suffers or flourishes. • Budgeting is about values . Higher education is but one of many allocational rivals seeking state budget support. Rivals incl ude K-12 education, correcti ons, health, welfare, highway construction and maintenance, government serv ices, and state payments to Medicaid, among others. Higher education generally has slipped in the relative priorities among allocational rivals for the past 20 years. There are several theories about why this has happened: (a) operating on the principle of who benefits/who pays, states may have passed along a greater share of cost to students on the “user-fee” assumption that it is the student who will benefit from the education and therefore the student should pay more for it; (b) state officials are increasingly fr ustrated about institutional performance and the perceived lack of institutional accountability (“What are we getting for our dollars?”) and may have penalized institutions accordingly; (c ) there may be a percepti on that institutions don’t need the money, based on the success that so me institutions have had in generating additional non-government resour ces and the headlines that r eport successful billion-dollar

9 Frequently Asked Questions About College Costs 9 (d) state officials may also believe that fund-raising campaigns for a handful of schools; students and families are willing to pay a higher price for a desired commodity and the market rate for college should therefore float to a market leve l; and (e) some state officials believe government is involved in too many enterprises and – public higher education – should therefore be privatized. being seen as a part of government • The states face “structural” revenue problems t hat require fixing if the state is to continue e in question, these or increase its level of public services. Depending upon the stat he fundamental shift in the liance on the property tax; t problems may include: an over-re economy from the production of goods to the production of services (without corresponding changes in sales or income tax structures); increased longevity and aging demographics, with profound changes in income tax revenues (fewer people working; penses (more people on Social Security, more income sheltered past age 65) and ex x base as consumption shifts from taxable Medicare and Medicaid); a diminished sales ta goods to untaxed services; and policy decisions to cut taxes and avoid collecting sales taxes on mail order and Internet sales. • There are substantial differences among the states as to the role higher education plays in overall plans for state economic development and quality of life issues. Among the many factors that affect a state’s role, five key ones emerge: (a) the relative in-migration or out- economic base of the state and the relative migration of college-educated talent; (b) the perceived need for a college-educated labor force; (c) the cultural values of the state and the historic emphasis on education generally and higher educat ion in particular; (d) the structure of higher education in t he state, including the relative role of private institutions, the configuration of state- supported institutions (two-year, four-year, research), and the degree of coordination within the state; and (e) the relative wealth and tax capacity of the state. • ons do not systematically take into account When setting tuition rates, states and instituti families’ ability to pay. Most states do not provide student aid in amounts proximate to filling unmet needs. States do not routinely align • higher education appropriations, decisions about fiscal policy, tuition-setting and student financial aid. 8. What are some factors th at affect the federal government’s role in supporting higher education? • The federal government’s role in supporting hi gher education is historically tied to broad, national social purposes that were seen as s. The creation and important to the time support of the military academies were designed to produce an elite corps of officers to meet Department of War needs. The Morre ll and Land Grant Acts were designed to improve, through land-grant colleges, the agricultural and mechanization needs of the economy and to supplement the production of college-educated officers through the ROTC program. Federally-sponsored research at uni versities was designed to serve public health, military and other national purposes. Training and research in the sciences to respond to the Russian Sputnik threat were justified for national defense reasons. The Higher Education Act of 1965, designed to provide access to higher education for low- income students was justified as part of the “Great Society” of Lyndon Johnson.

10 Frequently Asked Questions About College Costs 10 Two key shifts in federal policy have occu rred since 1965: The shift from predominantly • grants to predominantly loans in meeting student need; and using the tax code to benefit middle-and upper-income students through ta x credits, Hope and Lifelong Learning programs and Coverdell and 529 plans. al government can be translated into two • New demands for “accountability” by the feder major areas of concern: (a) institutions need to do a better job at assessing and reporting on proof-of-performance; and (b) institutions need to do a better job of making price, cost and accreditation (or other quality validat ions) more transparent to the public. Federal support for higher educat ion now comes primarily in three ways: direct support to • programs, and Congressionally successful pork institutions for research, some student aid support to states as incentives for aid programs; and (especially earmarks); matching istered through institutions. direct support to students, admin • Higher education has allocational rivals at the federal level, includi ng current demands for saster relief and homeland security. increasing expenditures for defense, di 9. Why can’t higher education costs stay within inflation? • The Consumer Price Index (CPI) is based on the proverbial “market basket” of goods and services used by consumers. It is composed of housing, transportation, food and beverages, apparel and upkeep, medical ca re, entertainment and other goods and services. Colleges and universities argue that it is inappropriate to use this index to e institutions buy different things. The evaluate the growth of tuition and fees becaus market basket does not contain faculty members or library books or chemical laboratory equipment, for example. • To rectify this situation, the Higher Education Price Index (H EPI) was created. HEPI tries eges buy. It includes an analysis of faculty to approximate the market basket for what coll salaries, based on AAUP salary data and a representation of several price indexes for other commodities that institutions purchase. The HEPI has lost favor recently, primarily because the salary portion – the AAUP survey – was self-referential. • A new index has been introduced in 2004 by SH EEO to correct past deficiencies and to offer a more valid tool for measuring higher education inflation: the Higher Education Cost Adjustment (HECA). HECA is composed of 75 percent salary data, generated by the federal Employment Cost Index (ECI), and 25 percent from the federal Gross Domestic Price Deflator (GDP-IPD) that reflects general inflation in the U.S. economy. HECA will probably emerge as the tool-of-art in the future. ct remains that tuition and Despite the increasing sophisti cation of the measures, the fa • fees have far exceeded all three of the indexes for the past 20 years.

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