Another Dead End in Bacon’s Never-Ending Quest to Explain Runaway College Tuition

This post gets a little wonkish, but hang in with me. Useful conclusions are reached by the end. The heart of the scientific method is to propose falsifiable hypotheses. You frame a hypothesis, make a prediction, and check the data to either verify or falsify the prediction. In my own clumsy, untutored way, that’s what I do when I can in the messy realm of public policy.

So, I’ve been working on a series of articles on the success, or lack of it, of higher education policy in Virginia since the enactment of the watershed 2005 Restructuring Act. I am asking whether Virginia’s system of higher education has met the goals articulated in that legislation — in particular, of primary interest to me, the goal of ensuring affordability and accessibility. What are the drivers of higher ed’s ever escalating costs?

One working theory is that the expansion of Virginia’s higher-ed system to accommodate increasing enrollment might have been a significant factor. Between the fall of 2005, the year the restructuring act went into effect, and the fall of 2016, the most recent year for which we have data, enrollment at Virginia’s public four-year colleges and universities increased 10.9% — reaching 215,700 students. By necessity, growing enrollment by more than 22,000 students over 11 years — roughly the equivalent of adding a James Madison University to the system — requires hiring more faculty, erecting new classrooms and dormitories, expanding student services, and hiring new administrators, all of which adds expense to the system. Have higher-ed institutions financed the expansion in part by aggressively raising tuition?

I expected the answer to be yes. I ran the numbers. It appears that I was wrong.

This chart, based on State Council for Higher Education in Virginia data, shows how enrollments surged between 2005 and 2001, then leveled off through 2016.

For each of Virginia’s public, four-year colleges and universities, I plotted the percentage increase in enrollment and percentage increase in annual tuition between 2005 and 2016, as can be seen in the scatter graph below.

The trend line shows virtually no correlation between the two. The R² of .0134 suggests that almost none of the variability in tuition increase over the time period is explained by enrollment increase.

Next, I observed that almost the entire enrollment increase occurred between 2005 and 2011. Could there have been a strong correlation during that period, which was washed out by subsequent years? To see, I plotted the data for enrollment and tuition increases between 2005 and 2011.

The data shows a marginally tighter correlation, with an R² of .0691, suggesting that about 7% of the tuition increase between 2005 and 2011 can be explained by the surge in enrollment. It would be hard to make the case from this data that expanding enrollment had more than a weak, secondary effect on tuition.

If enrollment didn’t drive tuition higher, what did? We know that declining state support per student put tremendous pressure on university administrations to boost tuitions, accounting for half or more of the increase. Everyone knows this to be the case, so there’s nothing new to uncover. Of greater interest is what internal university forces have been driving tuitions higher? One likely contributor has been a push to bolster financial aid for lower-income students. Another possibility I’ll examine is the imperative among research universities to win more external research contracts. One might hypothesize that universities have raised tuition in part to build the expensive labs, hire the star faculty and recruit the promising graduate students it takes to win more contracts.

I don’t know the answer to those questions yet. But I’ll keep digging.

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4 responses to “Another Dead End in Bacon’s Never-Ending Quest to Explain Runaway College Tuition

  1. The prices go up because they can. The product is in demand. Prices will continue to go up until the customers stop coming, when the price is perceived as too high for the value received. Nobody is competing with them on price, no legislator is putting in a bill that freezes or reduces tuition (which would be perfectly legal), no governor is appointing trustees who are on a mission to cut spending or really hike productivity so they can cut prices. No alternative method of receiving that magical piece of parchment is yet perceived to produce the same value with future employers. What is going to stop them, you and Helen Dragas?

    I would not disagree with those who say higher education was being under priced for a long time – but there were strong policy reasons for holding down the price and forcing some austerity on the institutions. Those goals have been abandoned. The taxpayers don’t want to do it any more and the politicians have figured out few if any voters are moved by this. Long term thinking is bad short term politics.

  2. Well it has been deregulation of public colleges about the time deregulation of Wall Street went bananas. Greed took over.
    In the early 1960s I while working on my doctorate I taught at a two year branch of VT in Wytheville. Va. At that time the tuition for a full time student was approximately $60 per year. And an engineering graduate of VT could earn about $6,000 the first year out of college. Now VT engineering graduates can earn $60,000 right out of college or ten times as much as they made some 57 years ago. However, Wytheville CC tuition and fees are now around $4,500 per year or 700+ times more than in 1963. So it costs a student/graduate more than ten times the rate of inflation now than it did then.
    This was done nationally because of the ease of getting student loans….leading to almost $2 trillion in student debt nationally today.
    State leaders saw this easy credit as a way to cut spending on colleges and in the process our state colleges and universities were deregulated. And, that left the door open with hedge fund people on boards for administrative and recreation costs to explode.
    In 2012 the Chronicle of Higher Education published a front page story on compensation of presidents and Virginia had 3 of the top ten paid public university presidents in the country.
    Now things are reversing across the country. Tennessee made community colleges free and so has New York. And many states have worked to make community colleges more affordable. Tennessee also gives all residents who attend an instate public or private institutions a scholarship of more than $5,000 per year. And Tennessee does not have an income tax on individuals.
    At Purdue, Indiana’s land grant university, Mitch Daniels has frozen fees for three years, instituted 3 year bachelor degrees (America is the only country in the world with four year bachelors degrees) and now they have bought the private on line Kaplan University which will be integrated into the new and innovative Purdue game plan.
    Times are changing and some are changing to meet the future challenges. But not all states are thinking ahead..

  3. I pretty much agree.. they charge more because they can and will continue to as long as demand remains.

    I’m pretty sure – internally – Higher Ed KNOWs which “product lines” have strong demand and which are “weak” but as long as overall demand is strong – they can and will cross-subsidize.

    I’m also of the view that 4yr on-campus residential is ONE OPTION of many for education.. and it’s no longer the best option for everyone. Some people still want it and are willing to take on a decade or more in debt while others are going to take a different path.

    The option of going into the military for a few years and coming out with GI benefits for school is still popular and is a direct conduit to a law enforcement job .. Federal, State and local.. which while not the best paying – are career jobs with health care and pensions.

    but in the end – as long as people are willing to pay premium prices for 4 yr on campus higher ed… there is no impetus to lower the cost….

    all this hooray over “more transparency” to hold them “accountable” is little more than a modern version of a parlor game..

    again – 4yr on campus higher ed is not the only game in town for higher ed these days. People pays their money and makes their choices.

    at some point , they may well price themselves out of the market but I’d not take that bet.

  4. Think of higher ed like pay-day lenders.. they provide a “needed” service for which there is “strong” demand… why mess with the market?

    I note Jim never makes the argument about payday loan folks that he does about college!…

    yeah, yeah.. there is that tax dollars angle.. but hey.. you reduce the tax dollars and it gets more “market- like”, right?

    why I bet if taxpayers subsidized payday loans.. they’d still charge high rates, right?

    maybe time for the govt to subsidize ONLY “good value for the money” higher Ed… restrict govt loans to only higher ed that meets financial and academic performance thresholds.. what a concept!

    or… get govt out of higher ed all together… like we hear we should do with health care!

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