Twelve Inconvenient Truths About American Higher Education
American universities, we are often told, are the best in the world. Rankings of schools worldwide done by organizations in both China and Great Britain consistently are dominated by U.S. institutions. More than half of the top 100 schools (and eight of the top 10) in the Shanghai rankings, for example, are American schools. A huge portion of Nobel Prize award winners are individuals with close associations with American universities. Foreign students flock to America to derive the benefits of U.S. institutions of higher education. College graduates, on average, command significant pay premiums over those with lesser education. On the surface, it seems like we have a great high education system that works beautifully. But below the surface, there are a large number of flaws in the system, so I would like to address what can be called the “12 inconvenient truths about American higher education.”
By Richard Vedder | March 2012
Download the entire report (pdf, 18 pp.)
Inconvenient Truth #1: High Costs
By any measure, American colleges are expensive and growing more so all the time. Tuition fees have risen at well over double the rate of inflation, and adjusting for inflation, tuition charges are over double what they were a generation ago. Indeed, tuition fees are rising faster than family incomes. While it is possible for the price of something to rise indefinitely even adjusting for overall inflation –witness the price of tickets to Shakespeare’s plays in London, which no doubt has been rising for 400 years – price increases greater than income are not indefinitely sustainable. For example, students attending four year public universities in 2010-11 paid 7.9 percent more (for in-state students), and 6.0 percent more (for out-of-state students) than the previous year. The following year, average in-state tuition went up 8.3 percent while average out-of-state rate rose 5.7 percent, at least double the inflation rate for those two years.
Defenders of higher education say the true price of college has grown less because of rapidly growing student financial aid, and has, in any case, been offset by the substantial earnings advantage that college graduates have. Yet much of the increased student financial aid is financed by taxpayers, imposing a cost on society. The burden of rising college costs remains, but the incidence has shifted somewhat. Over the long run, the reality is that even after allowing for financial aid, the cost of college has increased dramatically for society as a whole, and some for students as well (and not all students get financial aid). A half century ago, say when John F. Kennedy was president in 1962, a penny of every dollar of resources spent in America went for higher education, and now it is well over triple that.
Space does not allow for a detailed discussion of why this is so, although some economists have tried. A large part of college costs are paid, at least initially, by third parties –government grants, private scholarships, other endowment funds and gifts, and federal student loans. When someone else is paying the bills, the customer is less sensitive to price –for similar reasons health care costs have gone up a lot. Also, most of higher education is non-profit in nature, and the discipline and incentives markets impose to be efficient and cut costs are missing. Similarly, there is no well-defined “bottom line” in higher education: it is hard to improve productivity and efficiency if the “output” is ill-defined and poorly measured. Many have noted that the quest for high magazine rankings (the closest thing there is to a bottom line in American higher education today) leads to an academic arms race that emphasizes spending more and more funds.
Download the entire report (pdf, 18 pp.)
 Sandy Baum and Jennifer Ma, “Trends in College Pricing: 2010” (College Board, 2011), available at: http://advocacy.collegeboard.org/sites/default/files/2010_Trends_College_Pricing_Final_Web.pdf.
 For example, see Ronald Ehrenberg, Tuition Rising: Why College Costs So Much (Cambridge, MA: Harvard University, 2002; Richard Vedder, Going Broke By Degree: Why College Costs Too Much (Washington, D.C.: AEI Press, 2004), and Robert B. Archibald and David H. Feldman, Why Does College Cost So Much? (New York: Oxford University Press, 2011).
 For a more detailed explanation of rising costs, see Richard Vedder, “Over Invested and Over Priced: American Higher Education Today” (Washington, D.C.: Center for College Affordability and Productivity, November 2007), available at: http://www.centerforcollegeaffordability.org/uploads/Over_Invested_Final.pdf.
Richard Vedder is Distinguished Professor Emeritus of Economics at Ohio University, Director of the Center for College Affordability and Productivity and an adjunct scholar at the American Enterprise Institute. He served as a member of Secretary Margaret Spelling’s “Commission of the Future of Higher Education,” and is the author of Going Broke by Degree: Why College Costs Too Much as well as numerous scholarly papers for journals in economics and public policy, as well as shorter pieces for the popular press including the Wall Street Journal, Washington Post, Christian Science Monitor, CATO Journal and Forbes. He received a BA from Northwestern University and a MA and PhD from the University of Illinois.