Introduction
Whether one is purchasing a pack a gum or buying a house, consumer decisions are assumed to be based upon simple economics – production cost and selling price, supply and demand. “What do I get for the money,” and “is it a good deal,” are quite possibly the consumer’s two most poignant questions. Consumers equate value with cost, so one wonders what would make the decision to purchase or invest in a college education any different.
The pursuit of education and the betterment of one’s place in life by such a pursuit has been a constant of history for thousands of years. “Youths of fifth century B.C Athens . . . were impelled mainly by a desire for preference and advantage, by a felt need to acquire skills in the marketplace,” and “. . . the medieval universitas was . . . at root a professional training facility,” are two examples of this presented by historian Christopher Lucas (Lucas, 2006). The idea that education is good for its own sake is overshadowed by the fact that education has been, and still is, a means to an end - the attainment of which comes at a price.
Students, parents, and what this author believes to be the vast majority of the American public are ill-informed as to what the phrase “the cost of a college education” truly means. While the rate of increase in tuition has outpaced inflation over the last four decades (Tution Inflation, n.d.), there are other factors that affect the cost of tuition that the tax payer, John Q. Public, is either not told about regarding the financing of higher education or cares to ignore. It is the author’s intent, herein, to demystify both the presumed cost of higher education as realized by a student and the actual cost as realized by an institution of higher education.
The Cost to the Student
There are various interpretations of student cost depending upon one’s perspective or understanding of it. Some view cost as the printed price of tuition, or the sticker price. Others view student cost as the cumulative cost of all expenses involved with paying for one’s higher education. Yet others understand student cost to be the cumulative cost of all expenses for higher education less any financial aid, or the net cost, which can be confusing to some if financial aid is not clearly defined or understood.
In fact, it seems that the confusion for students and parents that often surrounds the cost of higher education lies within the terminology used to describe it. For the purposes of this paper, the following definitions for common terms will be used:
Financial Aid: Subsidized and unsubsidized loans, grants, and scholarships. It should be
noted that loans, subsidized or not, do not decrease the net cost of higher
education, and therefore are not considered as part of its calculation. Of added
interest is the feeling that factoring loans into net cost becomes a function of
accessibility and not affordability.
Grants and Scholarships: Any money given, granted, or awarded to a student. This
money does not have to be repaid and decreases the net cost.
Higher Education: A two or four year, private or public non-profit college.
Net Cost: The final out of pocket cost to the student or the student’s family. This
includes tuition, fees, books and supplies, housing, and grants or scholarships.
This is the true monetary outlay or purchase price of a higher education.
Tuition: The printed cost of education including any institutional and/or course fees; also
considered as the “sticker price.”
Sentiments of woe and dismay surround the financing of a higher education. The cold, hard fact is that the students’ cost of higher education is rising. Tuition costs are certainly increasing. In 2004, 37% of America’s college students were enrolled at a community college where the average full-time tuition was $1905, compared to 40% at state colleges with tuition of $4694, and 22% at private colleges where tuition averaged $19,710. These amounts represent an average increase in tuitions of nearly 80% over a ten-year period (American Council on Higher Education, 2004). In 2000, the average percentage of family income required to pay for a college education had grown from 13% in 1988 to 27% (Finney, 2004). Another major financial factor to take into account when evaluating the student cost of a higher education is the potential of lost wages for the student. It is estimated that the typical full time student, one who treats his education as a full time job and is not working while in school, in a four-year bachelor’s degree program will acquire $110,000 in total costs including lost wages (Barrow, 2005). The cost of books has been increasing at an alarming rate of four times that of inflation for all finished goods (Markowitz, 2005). Finally, depending with whom one speaks on the subject, the amount of financial aid awarded to students is just not adequate. These financial concerns would surely be contentious points for anyone planning to pursue a college degree.
There are additional concerns that must be considered which are not ordinarily looked upon as costs but perhaps should be. Students in higher education are under a tremendous amount of stress, and one must take into account “. . . the importance of psychological problems, such as anxiety and depression, [related] to college adjustment,” which can have adverse impacts on health (Kerr et al, 2004). Students also devote a great amount of time to their education, and there are various time valuation calculations which can be used to estimate what an hour of one’s free-time is worth. It only makes sense that if one is going to focus on lost wages attributable to a college education, one must also take into consideration the cost of one’s lost time to demonstrate an accurate estimation of total cost.
As an aside, one might argue that the absolute amount of subsidized cost of a college education is of little concern depending on one’s socioeconomic status. While it is true that those who have more [financial resources], or more accurately those whose families have more, feel the sting of tuition less, it does not change the fact that no student pays for the total production cost of his college education. It is a shame that our governmental systems of taxation and appropriations do not do a better job of supporting low and very low income students and their families in the pursuit of higher education. This is a societal flaw and more a topic of accessibility that this author does not feel is an appropriate concern of the institution of higher education. The percentage of one’s or one’s family’s income that is required to pay for college is telling that there is disparity, but it is a disparity for policy makers and politicians.
The Benefit to the Student
So what can students who successfully complete a college education expect to get out of it? How long does it take to realize the benefit to the student? There are various studies that attribute at least some college education to increased wages, healthier lifestyles and reduced incarceration rates. While the list of benefits is not quite as long as the list of costs, their weight is impressive.
Let’s begin with the “net cost” of the student. The reality here is that the student or the student’s family does not, even at schools with the highest tuition, on average, pay even close to the total production cost of the education. In fact, a recent study by the State Higher Education Executive Officers has shown that net tuition revenues only pay for 32% of the true cost of a college education (Gianneschi et al, 2007).
While the bargain of cost to the student v. production costs of an education is impressive, it is not the only financial benefit. Looking at the previously mentioned full-time baccalaureate student who has spent $110,000 to get his education, within ten years, that amount will be recovered, and over the remainder of his lifetime, he will recognize an additional $300,000 in earnings above what he might have earned with no college degree (Barrow, 2005). It is interesting to note that the average increase in lifetime earnings for some college or a two-year degree is not much greater than that of the high school graduate (Barrow, 2005).
There are additional private, non-economic benefits to the student that come along with the financial benefits attributed to college education. College graduates enjoy a better quality of life, better working conditions, and lower rates of unemployment. They are more socially aware and culturally adept, they have fewer unwanted children, and the children they do have are more likely to perform better in school (Mumper, 1995). Additionally, college graduates are less likely to be incarcerated than those who do not attend college (Lochner and Moretti, 2001).
As with the costs to the student, there are a couple intangible or unquantifiable benefits that the literature does not directly discuss. It is arguable that social status and happiness are additional benefits that can be accredited to an individual’s college education. Perhaps it is semantics or the whim of perception, but to say that the previously mentioned financial and social benefits related to a higher education do not attribute one’s ultimate success, happiness, and social status, would be naive. While these benefits are not financial, it is germane to offer all potentially viable benefits of acquiring a college education.
The Costs to the Institution
The costs that a college incurs over the course of a year are the same costs that any business incurs: salaries and benefits, upkeep and expansion of facilities, infrastructure and resources, utilities, and professional contracts. In a business setting, a cost per unit produced is determined and expenses - and profits – are based on supply and demand of that business’ product or products. In the case of higher education, however, about one third of the cost of the “product” falls on the consumer in the form of tuition and fees. The remaining dollars needed to be subsidized the rest of the bill come from national and state appropriations, local taxes, corporate partnerships, and/or other means (such as donations, gifts, fund raisers, etc.).
Unfortunately, for colleges and students alike, federal and state governments typically re-appropriate funding that was earmarked for higher education as a way to decrease debt and fund other programs that are not deemed self-sustainable or are considered a higher priority on the social welfare ladder (Jones, 2006). This is evidenced in the proposed 2007 U.S. Budget for Higher Education in which, “the overall federal education budget would be cut by $3.1 billion or 5.5 percent from 2006 levels. Much of the cuts would come from scrapping 42 education programs totaling $3.5 billion, including programs for the arts, state grants for vocational education, Perkins loans for low-income college students and the Even Start literacy program for poor families (Peterson, 2006). It would seem reasonable that there would be a way to make the funding that was once present available again from year to year. Regrettably, for U.S. citizens that means increasing taxes or doing without other governmentally funded services (Jones, 2006).
On average, institutions of higher education spend their budgets in the following general proportions in the following areas: 78% on general operations, 13% on research, 5% on public student aid, 3% on independent student aid, and 1% on independent institutions. The funding sources for higher education can be broken down into three main areas with the following average percentages of funding as follows: 32% from tuition, 6% from local taxes, and 62% from all other state sources. These percentages and funding sources are not absolute for every institution of higher education, but in general, it is obvious that tuition does not even cover half of an institution’s operational expenses, 60% to 75% of which are human resource related (Gianneschi et al, 2007).
Additionally, institutions of higher education fall prey to numerous legislative regulations, so much so, that colleges are considered one of the most regulated entities in the United States. In fact there are over 200 laws that affect higher education, and of all of the government agencies, only two have no influence over some aspect of higher education. A conservative estimate of cost of current regulations on the operations of an average college is 6.5% of the annual operating budget (Hunter and Gehring, 2003).
Final Thoughts
After combining the aforementioned financial aspects of student cost, it would seem that that there is, on the surface, a significant investment to be considered when making the decision to attain a college degree. If students and their families can overcome the initial sticker shock, accept that the road to a college degree will be stressful, and not overlook the lifelong benefits that this education brings, perhaps these consumers will be able to objectively view the situation for what it is – a choice, a transaction, and an investment. Combine the previous sentiment with an increase of federal, state, and college-based general education to the public, regarding the financial scope of higher education both from the perspective of the consumer and the college, perhaps the harsh notion that college is becoming less and less affordable will diminish.
Current students and potential students need to be savvy consumers. There is a sense of this beginning to emerge in higher education in as much as more and more students are choosing courses of study that have the greatest potential for high returns down the road (Cantor, 2003). Taxpayers as well as proponents of affordable and accessible higher education need to be savvy citizens. When tax revenues are deemed more important for healthcare, K-12, and public utilities and services than higher education, John Q. Public has two choices: accept an increase in tax rates or accept a decrease in public supported services. The debate is not over whether or not higher education is a good thing; the debate is over how America affords it.
References
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