3 ms·

I never understood it before, but I’m on the board of a small private college, and I finally understand that actually to balance the budget each year they need

I never understood it before, but I’m on the board of a small private college, and I finally understand that actually to balance the budget each year they need the revenue from tuition, annual gifts, AND a 4-5% distribution from their endowment. To be competitive, a school has to maximize their revenue, and that includes all sources. Then they have to spend it all each year.

impendia 6y ago
Interesting. Do you have any insight as to why college expenses are so high, and continuing to skyrocket? Tuition at private colleges in the US is typically around $50,000-60,000 a year, exclusive of room and board. This seems absurd to me. And yet apparently it's not even enough to cover expenses. Where is the money going?
- jjk166 6y ago
  After medicine, education is the most labor intensive industry. Both are very high for the same reason. Whereas in most industries improving technology allows the same number of people to be more productive, or the same amount of productivity to be achieved with fewer people, in med/ed people are specifically paying to keep the labor efficiency as low as possible. When people pay extra to go to a school with a student-faculty ratio of 12 instead of 15, the labor cost is going up by about 20% (you need both more faculty and more support staff for those faculty). Does a 20% reduction in the number of people in a classroom allow the teacher to produce a 20% better education in the remaining students? Probably not. Especially for large intro lectures where there is little meaningful interaction between an individual student and the faculty and the lectures are generally recorded already (even pre-covid), you could easily distribute the costs over thousands of students instead of dozens without lowering quality. While the value of small class sizes would be critically evaluated if people were paying for them on the spot and out of pocket, subsidized debt financing allows for the price to grow quickly - a person with no money who can take out a 100k student loan can now afford to go to a 25k school, and the person who could afford that 25k school can now afford to go to a 50k school, and suddenly the person with no money needs 200k to get the same education. The same happens with medicine and real estate and any other market where conventional wisdom is that you should get as much as you can afford and what you can afford is not limited by the amount of money you actually have. Once people stop viewing class size or tuition price as useful proxies for education quality, the rapid tuition price inflation will stop and the labor costs will go down dramatically.

impendia 6y ago

Interesting. Do you have any insight as to why college expenses are so high, and continuing to skyrocket? Tuition at private colleges in the US is typically around $50,000-60,000 a year, exclusive of room and board. This seems absurd to me. And yet apparently it's not even enough to cover expenses. Where is the money going?

jjk166 6y ago
After medicine, education is the most labor intensive industry. Both are very high for the same reason. Whereas in most industries improving technology allows the same number of people to be more productive, or the same amount of productivity to be achieved with fewer people, in med/ed people are specifically paying to keep the labor efficiency as low as possible. When people pay extra to go to a school with a student-faculty ratio of 12 instead of 15, the labor cost is going up by about 20% (you need both more faculty and more support staff for those faculty). Does a 20% reduction in the number of people in a classroom allow the teacher to produce a 20% better education in the remaining students? Probably not. Especially for large intro lectures where there is little meaningful interaction between an individual student and the faculty and the lectures are generally recorded already (even pre-covid), you could easily distribute the costs over thousands of students instead of dozens without lowering quality. While the value of small class sizes would be critically evaluated if people were paying for them on the spot and out of pocket, subsidized debt financing allows for the price to grow quickly - a person with no money who can take out a 100k student loan can now afford to go to a 25k school, and the person who could afford that 25k school can now afford to go to a 50k school, and suddenly the person with no money needs 200k to get the same education. The same happens with medicine and real estate and any other market where conventional wisdom is that you should get as much as you can afford and what you can afford is not limited by the amount of money you actually have. Once people stop viewing class size or tuition price as useful proxies for education quality, the rapid tuition price inflation will stop and the labor costs will go down dramatically.