7 ms·

Why Top Colleges Squeeze You Dry

63 points by grellas 17y ago

carbocation 17y ago
Forgive me for my bitter cynicism (or don't), but I couldn't help but feel that the thesis of this article boiled down to the following quote: "My alma mater, Oberlin College, provides financial aid for as many as 70% of its students." I have a sneaking suspicion that the author wrote this entire article to assert that Oberlin is a "top college." (I am agnostic / do not care at all on this matter.) He does claim to answer the question of what your tuition money is really spent on: (a) he notes that salaries for tenured professors has increased, and (b) he addresses the fact that colleges are building fancy new dorms/athletic facilities/etc to increase student demand. Without evidence, asserts that your tuition pays for these. Without evidence, I would be inclined to believe that these are more likely to be funded by named endowments from private donors. Again, I feel that this thesis is merely ostensible, to justify his assertions about his alma mater.
BigZaphod 17y ago
And the reason is.... drumroll Supply and demand! Wow. Insightful.
- anonjon 17y ago
  But it isn't supply and demand. and the powerlessness of the market to control higher-education costs due to limited supply One of the biggest problems for a young academic is that there is an oversupply of young academics and grad students. That fact, and the way that they set their tuition prices (based not only on what the families will pay, but in conjunction with a price-fixing arms race), leads me to think that this article is indicating a higher education bubble, not a case of basic supply and demand.
- philwelch 17y ago
  Tempered with a big fat dose of price discrimination (oh, wait, I meant "financial aid").
  - jimbokun 17y ago
    Or you could call it "price segmentation" like Joel does: "All from the power of segmentation: separating your customers into different groups according to how much they are willing to pay, and extracting the maximal consumer surplus from each customer." http://www.joelonsoftware.com/articles/CamelsandRubberDuckies.html http://www.joelonsoftware.com/articles/CamelsandRubberDuckie...
    - philwelch 17y ago
      No, they're separate things. Price segmentation is selling marginally different products, but making each product available to everyone. So you have Windows 7 Ultimate and Windows 7 Professional and Windows 7 Home and Windows 7 Home Professional and Windows 7 Ultimate Home Datacenter Server at separate prices, and even though the only difference is that you run a different build script, it's not the same as price discrimination because you let the consumer choose. I interviewed at a company once that made a home-architecture CAD tool. They sell about 20 different versions of the same software, all at different price points, each generated by different build settings from the same codebase. Price discrimination is when you sell the same thing to different people for different prices. It's technically illegal, so universities get around it by sending you a $50,000 tuition bill and a $40,000 need-based scholarship instead of just sending you a $10,000 bill. Other forms of price discrimination include student discounts and senior discounts. Health care in the US thrives on price discrimination--the simple words "I don't have insurance, can we talk about arranging payment" can knock off 50% or better of your bills with some doctors. Price discrimination at elite colleges means "rising tuition costs" are really much ado about nothing. The nominal tuition only represents what they charge rich people, which is often independent of what they charge not-rich people.
      - nazgulnarsil 17y ago
        if you regard effort on the part of the student as part of the pay, then colleges are segmented. hard sciences and humanities educations don't really resemble each other much.
- barnaby 17y ago
  "Given the nonprofit, tax-exempt status of colleges and universities, and the powerlessness of the market to control higher-education costs due to limited supply".. Sounds like sub-optimal supply/demand to me. If we dropped the charade that universities are anything other than for-profit corporations then we might get more supply and/or less demand. If there were more market _competition_ then I suspect we'd see prices drop significantly.
  - albertsun 17y ago
    Why do you think that's a charade?
  - wallflower 17y ago
    > If we dropped the charade that universities are anything other than for-profit corporations Is Harvard really a big hedge fund? However, even if they were a Corporation, they might still dodge corporate taxes. http://www.theamericanscene.com/2008/05/12/is-harvard-just-a-tax-free-hedge-fund http://www.theamericanscene.com/2008/05/12/is-harvard-just-a...
- roc 17y ago
  "Supply and demand" doesn't explain anything until you recognize that what universities sell, is prestige. That's the key point of the article.
  - nazgulnarsil 17y ago
    I'd generalize this further: economics doesn't explain anything until you realize that money is only one sort of accounting of wealth and status transfer.
  - kokofoo 17y ago
    I can see the opposite side too. Prestige isn't worth much if nobody willing to pay for it. But the fact is there are people willing to pay for it. EDIT: I guess that's what you're saying as well.
    - Qz 17y ago
      And why are people willing to pay for it? Because universities have marketed said prestige as something that is absolutely essential to success in the modern world. So of course people will buy it.
  - bradbeattie 17y ago
    I won't deny that prestige is part of the package, but I feel I got my money's worth out of the education portion. YMMV.
dantheman 17y ago
Universities need to be conservative and guard their wealth. They outlast countries. It's important they be stable, many schools aim for cheap and fast which is fine but at the first bump in the road they hit serious problems.
- nfnaaron 17y ago
  Why do they need to outlast countries? At that point the only relationship between University("today") and University("100 years ago") is the bricks in the building. None of the professors or students that made a university whatever it was 100 years ago remains; "greatness" is then a happy coincidence. Why not have throw-away universities?
  - lincolnq 17y ago
    Because prestige is what they are selling, and prestige takes lots of time to produce. The greater the prestige, the more good professors want to teach and do research there, and the more good students want to learn there. This does influence the next generation, and so on. If the quality of people stays consistently high, the prestige remains.
pw0ncakes 17y ago
But senior, tenured faculty at elite schools are firmly entrenched in the well-compensated professional class (top salaries at elite schools often exceed $150,000; and for scholars in economics, business and law schools, earnings can be substantially in excess of that) with superior benefits, such as university-subsided housing, lifetime heath care and seven-figure retirement accounts. Once tenure has been achieved, generally after less than ten years of work, top college teachers face no professional risk and, by and large, teach three or fewer courses a semester. 3 courses per semester is a lot of work if you're doing it right, especially when you consider the amount of time research can take. 8-10 hours per week is a good estimate of the amount of time each class takes. Also, very few professors make $150k-- those are the stars-- and they tend to be in their late 30s if not 40s. Academic pay is 1/5 to 1/10 of what it is in other industries (and yes, it's harder to become a tenured professor than to make $1 million/year on Wall Street). American tuition is ridiculous, but overcompensation of teaching staff is not the problem. With tuition at $40,000/year for 10 classes, that's $4000 per class. If average class size is 25, that's $100k for 150 hours of the professor's work ($667/hour). So a professor is bringing in $500+k through teaching alone. For that professor to be making $65k (more realistic than the $150k figure) is not overcompensation.
- tokenadult 17y ago
  Your source to show the accuracy of any of these estimates is?
  - sigstoat 17y ago
    which estimates are you contesting? as someone involved tangentially in academia, none of these even raise an eye brow. you might as well be asking for sources that the sun will rise tomorrow. if you really want hard numbers, pick your favorite public university. poke around. their faculty salaries will be public record. also, the student feedback on faculty will be public record. you should be able to figure out the average number of courses taught, and the average salary in about 10 minutes after you find the relevant excel spreadsheets. a 3 credit hour course will involve at least 3 hours of work per week (you've got to transport your body to the room the students are in). a minimum of 1 office hour per week. you've got to come up with homeworks, and grade them. even if you look at 25 students' homework for only 1 minute each, that'll take about half an hour. so it takes 4.5 hours each just to do the bare minimum possible work for a class. google for "average college tuition" to cover that part. what's left?
glen 17y ago
How long will it be until recommendations from trusted others and work examples are accepted as better predictors of competency and success over degrees from elite schools? I love that some fields have already overcome this bias. I'm also glad that our globalized world is quickly making this more and more of a reality.
- marciovm123 17y ago
  Exactly...my startup has some funding from a great seed program to work on this. Any suggestions on what a great social recruiting web app would look like?
  - cj 17y ago
    http://www.groupereye.com/ http://www.groupereye.com/
    - marciovm123 17y ago
      Thanks, this service seems to be more for one time projects then for recruiting though. Is there anyone trying to replace/supplant resumes (not just upload them, like LinkedIn)?
      - glen 17y ago
        We are in the form of eportfolios.
orborde 17y ago
This article reminds me once again why I am determined never to donate any money to the school I went to.
blahedo 17y ago
Even if these things are mostly "obvious", it's good to hear them said and it's good that it's in something other than, say, the Chronicle of Higher Ed. But he draws some odd conclusions from his supply-and-demand argument. People grumble about the high cost as if it's greedy, overpaid professors (sometimes explicitly blaming tenure), but many if not most could make a lot more money elsewhere. I hold a PhD in computer science, have been teaching computer science at a four-year college (non-US read: "small undergraduate university") for 7 years, and my salary is $52,000 a year. I don't need to tell anyone here that I could make a lot more than that working in industry. It's plenty to live by and I have no complaints, because I'm certainly not in it for the money; I'm stating an actual number because I want to be quite clear that tuition rates that have gone up faster than inflation for most of my lifetime are not due to professorial salaries. In fact, it's hard to get a clear answer on what they are going to, although my money's on ballooning administrations that perform tasks once performed by members of the faculty but are much better-paid.
- cdr 17y ago
  One thing a lot of it may go towards is infrastructure and expansion. I know my alma mater has always had to constantly come up with big new construction projects (new stadium, new academic buildings, new apartments, etc) because they needed something to do with all the money they were taking in. The construction seemed very clearly driven by the need to spend money, rather than the tuition being driven by the need for buildings. Providing value to students was definitely not a concern, because whatever tuition is it'll get paid - plenty of applicants were being rejected.
  - gamble 17y ago
    This may not apply to private institutions, but public schools are subject to boom-and-bust cycle of generous government funding in economic booms and budget cuts during recessions. It's easy to justify almost any project when you know that leaving money on the table means it may not be there when you do need it.
    - jwhitlark 17y ago
LiveTheDream 17y ago
For most universities over the last 20 years, the number of "staff" has doubled or tripled while the number of "faculty" has remained about the same. (source: a tenured professor at a big state university). Whether this is just bloat or not is another question, but does support the argument that most tenured professors are not fat cats raking in cash from exploited college students' families.
korch 17y ago
You can't talk about college costs and not also mention the enormous impact the college sports industry has had on transforming colleges from their academic role in society to that of being prestigious "mini-corporations." Where is all the money going? Who's the top paid guy at university X? Oh, it's the football coach. Well why does he get to make $3 million a year while we just raised tuition 8% across the board, and cut financial aid by 20%? And that fat new sports arena which the university board of regents approved and just built for $100 million? Well, it doesn't count, because free market capitalism still applies to academic institutions—our true revenue source is selling and catering to sports fans. Professors, students, research, those are of course net losses, we just pay to keep them around in order to justify the existence of the sports team. In a way, a University's brand, physical grounds, and costumed staff is a Disneyesque facade for the real money maker: football. Or perhaps I've just been reading too much into my Jean Baudrillard...
- pw0ncakes 17y ago
  Maybe one day, instead of college football being run and supported by universities, people will take courses at football teams. Speaking of which, I want my CostCo law degree.
- philwelch 17y ago
  Football coaches are paid well because college football is a net money maker for the university--especially since they don't have to pay the athletes. If you want universities to be even more broke, by all means cut the athletic programs.
  - korch 17y ago
    Is it a good thing that universities, who hold an implicitly benevolent, non-profit societal role, should also have such high profit margins on their "student"-players? If the football team is bringing in the dough to fund a big chunk of the operating expenses, but aren't being fairly compensated, then the universities are exploiting those students for profit. What I don't see is how universities can use this same logic to justify using their sports teams to fund their academic operations. This pattern sounds familiar, where else have I seen it, oh yeah: the rich should pay for the poor, because they are lucky enough to have more. (I actually believe this, and I'm just using parallel logic). A few student athletes will win the lottery moving into the pro's, so colleges "tax" athletes by not paying them, and substitute the incentive of "you might be the next Lebron." (Do s/Lebron/Google/ and doesn't it sounds eerily similar to VC startup logic?!) Then the rest of the student body benefits because the football team just paid the salary of the Poetry professor. It might work this way, but I doubt it, although I'd love to see a study confirming how much money trickles back into colleges from their sports teams. We can just look at the larger macroscopic view for how efficient trickle down economics really is: of all the hundreds of billions given to the rich elites, how much of it trickles down to the poor? I bet the football team is keeping most of its profit, and in fact on average is a net loss to its attached college.

63 points by grellas 17y ago

Forgive me for my bitter cynicism (or don't), but I couldn't help but feel that the thesis of this article boiled down to the following quote: "My alma mater, Oberlin College, provides financial aid for as many as 70% of its students." I have a sneaking suspicion that the author wrote this entire article to assert that Oberlin is a "top college." (I am agnostic / do not care at all on this matter.) He does claim to answer the question of what your tuition money is really spent on: (a) he notes that salaries for tenured professors has increased, and (b) he addresses the fact that colleges are building fancy new dorms/athletic facilities/etc to increase student demand. Without evidence, asserts that your tuition pays for these. Without evidence, I would be inclined to believe that these are more likely to be funded by named endowments from private donors. Again, I feel that this thesis is merely ostensible, to justify his assertions about his alma mater.

BigZaphod 17y ago

And the reason is.... drumroll Supply and demand! Wow. Insightful.

anonjon 17y ago
But it isn't supply and demand. and the powerlessness of the market to control higher-education costs due to limited supply One of the biggest problems for a young academic is that there is an oversupply of young academics and grad students. That fact, and the way that they set their tuition prices (based not only on what the families will pay, but in conjunction with a price-fixing arms race), leads me to think that this article is indicating a higher education bubble, not a case of basic supply and demand.
philwelch 17y ago
Tempered with a big fat dose of price discrimination (oh, wait, I meant "financial aid").
- jimbokun 17y ago
  Or you could call it "price segmentation" like Joel does: "All from the power of segmentation: separating your customers into different groups according to how much they are willing to pay, and extracting the maximal consumer surplus from each customer." http://www.joelonsoftware.com/articles/CamelsandRubberDuckies.html http://www.joelonsoftware.com/articles/CamelsandRubberDuckie...
  - philwelch 17y ago
    No, they're separate things. Price segmentation is selling marginally different products, but making each product available to everyone. So you have Windows 7 Ultimate and Windows 7 Professional and Windows 7 Home and Windows 7 Home Professional and Windows 7 Ultimate Home Datacenter Server at separate prices, and even though the only difference is that you run a different build script, it's not the same as price discrimination because you let the consumer choose. I interviewed at a company once that made a home-architecture CAD tool. They sell about 20 different versions of the same software, all at different price points, each generated by different build settings from the same codebase. Price discrimination is when you sell the same thing to different people for different prices. It's technically illegal, so universities get around it by sending you a $50,000 tuition bill and a $40,000 need-based scholarship instead of just sending you a $10,000 bill. Other forms of price discrimination include student discounts and senior discounts. Health care in the US thrives on price discrimination--the simple words "I don't have insurance, can we talk about arranging payment" can knock off 50% or better of your bills with some doctors. Price discrimination at elite colleges means "rising tuition costs" are really much ado about nothing. The nominal tuition only represents what they charge rich people, which is often independent of what they charge not-rich people.
    - nazgulnarsil 17y ago
      if you regard effort on the part of the student as part of the pay, then colleges are segmented. hard sciences and humanities educations don't really resemble each other much.
barnaby 17y ago
"Given the nonprofit, tax-exempt status of colleges and universities, and the powerlessness of the market to control higher-education costs due to limited supply".. Sounds like sub-optimal supply/demand to me. If we dropped the charade that universities are anything other than for-profit corporations then we might get more supply and/or less demand. If there were more market _competition_ then I suspect we'd see prices drop significantly.
- albertsun 17y ago
  Why do you think that's a charade?
- wallflower 17y ago
  > If we dropped the charade that universities are anything other than for-profit corporations Is Harvard really a big hedge fund? However, even if they were a Corporation, they might still dodge corporate taxes. http://www.theamericanscene.com/2008/05/12/is-harvard-just-a-tax-free-hedge-fund http://www.theamericanscene.com/2008/05/12/is-harvard-just-a...
roc 17y ago
"Supply and demand" doesn't explain anything until you recognize that what universities sell, is prestige. That's the key point of the article.
- nazgulnarsil 17y ago
  I'd generalize this further: economics doesn't explain anything until you realize that money is only one sort of accounting of wealth and status transfer.
- kokofoo 17y ago
  I can see the opposite side too. Prestige isn't worth much if nobody willing to pay for it. But the fact is there are people willing to pay for it. EDIT: I guess that's what you're saying as well.
  - Qz 17y ago
    And why are people willing to pay for it? Because universities have marketed said prestige as something that is absolutely essential to success in the modern world. So of course people will buy it.
- bradbeattie 17y ago
  I won't deny that prestige is part of the package, but I feel I got my money's worth out of the education portion. YMMV.

dantheman 17y ago

Universities need to be conservative and guard their wealth. They outlast countries. It's important they be stable, many schools aim for cheap and fast which is fine but at the first bump in the road they hit serious problems.

nfnaaron 17y ago
Why do they need to outlast countries? At that point the only relationship between University("today") and University("100 years ago") is the bricks in the building. None of the professors or students that made a university whatever it was 100 years ago remains; "greatness" is then a happy coincidence. Why not have throw-away universities?
- lincolnq 17y ago
  Because prestige is what they are selling, and prestige takes lots of time to produce. The greater the prestige, the more good professors want to teach and do research there, and the more good students want to learn there. This does influence the next generation, and so on. If the quality of people stays consistently high, the prestige remains.

pw0ncakes 17y ago

But senior, tenured faculty at elite schools are firmly entrenched in the well-compensated professional class (top salaries at elite schools often exceed $150,000; and for scholars in economics, business and law schools, earnings can be substantially in excess of that) with superior benefits, such as university-subsided housing, lifetime heath care and seven-figure retirement accounts. Once tenure has been achieved, generally after less than ten years of work, top college teachers face no professional risk and, by and large, teach three or fewer courses a semester. 3 courses per semester is a lot of work if you're doing it right, especially when you consider the amount of time research can take. 8-10 hours per week is a good estimate of the amount of time each class takes. Also, very few professors make $150k-- those are the stars-- and they tend to be in their late 30s if not 40s. Academic pay is 1/5 to 1/10 of what it is in other industries (and yes, it's harder to become a tenured professor than to make $1 million/year on Wall Street). American tuition is ridiculous, but overcompensation of teaching staff is not the problem. With tuition at $40,000/year for 10 classes, that's $4000 per class. If average class size is 25, that's $100k for 150 hours of the professor's work ($667/hour). So a professor is bringing in $500+k through teaching alone. For that professor to be making $65k (more realistic than the $150k figure) is not overcompensation.

tokenadult 17y ago
Your source to show the accuracy of any of these estimates is?
- sigstoat 17y ago
  which estimates are you contesting? as someone involved tangentially in academia, none of these even raise an eye brow. you might as well be asking for sources that the sun will rise tomorrow. if you really want hard numbers, pick your favorite public university. poke around. their faculty salaries will be public record. also, the student feedback on faculty will be public record. you should be able to figure out the average number of courses taught, and the average salary in about 10 minutes after you find the relevant excel spreadsheets. a 3 credit hour course will involve at least 3 hours of work per week (you've got to transport your body to the room the students are in). a minimum of 1 office hour per week. you've got to come up with homeworks, and grade them. even if you look at 25 students' homework for only 1 minute each, that'll take about half an hour. so it takes 4.5 hours each just to do the bare minimum possible work for a class. google for "average college tuition" to cover that part. what's left?

glen 17y ago

How long will it be until recommendations from trusted others and work examples are accepted as better predictors of competency and success over degrees from elite schools? I love that some fields have already overcome this bias. I'm also glad that our globalized world is quickly making this more and more of a reality.

marciovm123 17y ago
Exactly...my startup has some funding from a great seed program to work on this. Any suggestions on what a great social recruiting web app would look like?
- cj 17y ago
  http://www.groupereye.com/ http://www.groupereye.com/
  - marciovm123 17y ago
    Thanks, this service seems to be more for one time projects then for recruiting though. Is there anyone trying to replace/supplant resumes (not just upload them, like LinkedIn)?
    - glen 17y ago
      We are in the form of eportfolios.

orborde 17y ago

This article reminds me once again why I am determined never to donate any money to the school I went to.

blahedo 17y ago

Even if these things are mostly "obvious", it's good to hear them said and it's good that it's in something other than, say, the Chronicle of Higher Ed. But he draws some odd conclusions from his supply-and-demand argument. People grumble about the high cost as if it's greedy, overpaid professors (sometimes explicitly blaming tenure), but many if not most could make a lot more money elsewhere. I hold a PhD in computer science, have been teaching computer science at a four-year college (non-US read: "small undergraduate university") for 7 years, and my salary is $52,000 a year. I don't need to tell anyone here that I could make a lot more than that working in industry. It's plenty to live by and I have no complaints, because I'm certainly not in it for the money; I'm stating an actual number because I want to be quite clear that tuition rates that have gone up faster than inflation for most of my lifetime are not due to professorial salaries. In fact, it's hard to get a clear answer on what they are going to, although my money's on ballooning administrations that perform tasks once performed by members of the faculty but are much better-paid.

cdr 17y ago
One thing a lot of it may go towards is infrastructure and expansion. I know my alma mater has always had to constantly come up with big new construction projects (new stadium, new academic buildings, new apartments, etc) because they needed something to do with all the money they were taking in. The construction seemed very clearly driven by the need to spend money, rather than the tuition being driven by the need for buildings. Providing value to students was definitely not a concern, because whatever tuition is it'll get paid - plenty of applicants were being rejected.
- gamble 17y ago
  This may not apply to private institutions, but public schools are subject to boom-and-bust cycle of generous government funding in economic booms and budget cuts during recessions. It's easy to justify almost any project when you know that leaving money on the table means it may not be there when you do need it.
  - jwhitlark 17y ago

LiveTheDream 17y ago

For most universities over the last 20 years, the number of "staff" has doubled or tripled while the number of "faculty" has remained about the same. (source: a tenured professor at a big state university). Whether this is just bloat or not is another question, but does support the argument that most tenured professors are not fat cats raking in cash from exploited college students' families.

korch 17y ago

You can't talk about college costs and not also mention the enormous impact the college sports industry has had on transforming colleges from their academic role in society to that of being prestigious "mini-corporations." Where is all the money going? Who's the top paid guy at university X? Oh, it's the football coach. Well why does he get to make $3 million a year while we just raised tuition 8% across the board, and cut financial aid by 20%? And that fat new sports arena which the university board of regents approved and just built for $100 million? Well, it doesn't count, because free market capitalism still applies to academic institutions—our true revenue source is selling and catering to sports fans. Professors, students, research, those are of course net losses, we just pay to keep them around in order to justify the existence of the sports team. In a way, a University's brand, physical grounds, and costumed staff is a Disneyesque facade for the real money maker: football. Or perhaps I've just been reading too much into my Jean Baudrillard...

pw0ncakes 17y ago
Maybe one day, instead of college football being run and supported by universities, people will take courses at football teams. Speaking of which, I want my CostCo law degree.
philwelch 17y ago
Football coaches are paid well because college football is a net money maker for the university--especially since they don't have to pay the athletes. If you want universities to be even more broke, by all means cut the athletic programs.
- korch 17y ago
  Is it a good thing that universities, who hold an implicitly benevolent, non-profit societal role, should also have such high profit margins on their "student"-players? If the football team is bringing in the dough to fund a big chunk of the operating expenses, but aren't being fairly compensated, then the universities are exploiting those students for profit. What I don't see is how universities can use this same logic to justify using their sports teams to fund their academic operations. This pattern sounds familiar, where else have I seen it, oh yeah: the rich should pay for the poor, because they are lucky enough to have more. (I actually believe this, and I'm just using parallel logic). A few student athletes will win the lottery moving into the pro's, so colleges "tax" athletes by not paying them, and substitute the incentive of "you might be the next Lebron." (Do s/Lebron/Google/ and doesn't it sounds eerily similar to VC startup logic?!) Then the rest of the student body benefits because the football team just paid the salary of the Poetry professor. It might work this way, but I doubt it, although I'd love to see a study confirming how much money trickles back into colleges from their sports teams. We can just look at the larger macroscopic view for how efficient trickle down economics really is: of all the hundreds of billions given to the rich elites, how much of it trickles down to the poor? I bet the football team is keeping most of its profit, and in fact on average is a net loss to its attached college.