Runaway higher ed spending gains little except endless student debt

Our colleges and universities, once widely called “the envy of the world,” are doing a fine job of engineering their own breakdown. As Pogo famously said, “We have met the enemy and he is us.”

The collective $1.7 trillion price tag of student debt is crippling an entire generation of young people. Tax-and-spend liberals now see the opportunity to substitute a nanny state handout in the place of responsible policy reforms. But the $10,000 giveaway President Joe Biden contemplates, or even the $50,000 per student borrower version that Sens. Charles Schumer (D-N.Y.) and Elizabeth Warren (D.Mass.) want, is merely an expensive sandbag on top of a dam about to give way. The student debt crisis has been decades in the making because of steadily rising tuition, and the tipping point is inevitable. The average inflation-adjusted sticker price to attend a public four-year college or university has nearly tripled since 1990—outpacing even the cost of health care—with no signs of abating. Parents of college-bound children now stare at a total bill approaching (or in some cases exceeding) six figures and understandably question whether the burden outweighs the benefit.

The higher education industry often complains that cutbacks in state funding forces them, reluctantly, to collect more money from students. But the beast is hardly starving. The U.S. trails only Luxembourg in higher education spending per student.
In fact, the real culprit is the unwillingness of higher education leaders to control spending. The American Council of Trustees and Alumni (ACTA) examined publicly available data from over 1,500 four-year colleges and universities and found that even when state money is generous, tuition prices rise. Even worse, those dollars increasingly support a sprawling campus bureaucracy that does little to improve the nation’s anemic four-year graduation rates of 41 percent at four-year public institutions and 56 percent at four-year private, nonprofit institutions. 

From 2010 to 2018, public institutions spent a total of $112 billion (adjusted for inflation) on student services—a category with a multitude of programs, including recreation, counseling, and diversity and inclusion initiatives—even though such expenditures do little to improve graduation rates. For example, in Illinois, per-student spending on student services went up 26 percent, while four-year graduation rates rose only three percentage points. And the price tag can be hefty: The University of California–Berkeley’s Office of Communications and Public Affairs confirmed that the annual expenses of its Division of Equity and Inclusion total over $34 million. The University of Michigan states that it earmarks “$40 million in annual funding for nearly 20 university-wide programs that address the broadly defined aspects of diversity.” Nationally, funding for student services at public institutions grew faster than funding for teaching, and graduation rates remained largely flat.

Who benefited most from this post-Great Recession higher education spending spree? Highly compensated senior administrators did—the ones overseeing the spending. “According to the National Center for Education Statistics’ database, from 2012 to 2018, from 2012 to 2018, salary outlays for business and financial operations staff rose by 33%, compared to only 10% for full-time professors. Lower-level administrative support staff saw a decline in total salaries and the overall number of positions. These findings reflect higher education’s continuing shift toward reliance on less-credentialed instructional staff and the expanding footprint of specialized (read: expensive) non-academic offices.

Meanwhile, students are left to foot the bill. Controlling for levels of state appropriations to public colleges, ACTA’s study found that across the country, the growth in spending on student services and administration has directly contributed to increased in-state tuition each year since the Great Recession. At the average public institution (including average tuition, enrollment, student services per-student spending, and annual growth in student services spending), every additional dollar spent on student services per student is associated with 40 cents more in tuition.

Moreover, the excuse that most students don’t pay full price doesn’t stand up to scrutiny. Increases in tuition were correlated with higher average net price, suggesting that tuition discounting has not kept pace with increases and serving as a reminder that sticker price still represents real dollars out of the pockets of students and families—especially those in the middle class, who get little or no scholarship money.

It doesn’t have to be this way. Baylor University spends less on administration per student today than it did in 2016, as does the University of Tennessee–Knoxville, Ohio State University, and Purdue University. Reform isn’t easy, but it isn’t rocket science, either.

The results of ACTA’s investigation will be unwelcome news for those college leaders accustomed to blaming the government for revenue shortfalls. It is also evidence that instead of making smart budgetary choices during the last major economic downturn, universities chose to finance unnecessary growth. 

Higher education’s reckless spending over several decades has thrown millions of Americans into debt. The impending catastrophe of educational debt will pummel an economy working hard to recover from the impact of the COVID-19 pandemic. The victims will not only be the millions of Americans holding loan debt, but a nation that can no longer find the educational opportunities on which its progress depends. 

Michael B. Poliakoff, Ph.D., President of the American Council of Trustees and Alumni (ACTA). This piece features independent research collected for ACTA’s report titled The Cost of Excess.