The Cato Institute

Why is College Increasingly Expensive?

Colleges take in more tuition revenue than necessary — and federal student aid may play a big role…

In his new study, Not Just Treading Water, Cato’s director of the Center for Educational Freedom, Neal McCluskey, shows that contrary to oft-heard assertions, colleges and universities have often raised tuition revenue well beyond what has been needed to make up for lost state appropriations. He also looks at several alternative explanations for rising prices, and determines that while all likely play parts, federal student aid—coupled with colleges’ limitless desires for resources—may be the primary culprit, not only enabling colleges to increase their tuition and fees, but also encouraging states to limit their appropriations.

Total state and local appropriations to higher education were not cut over the 25-year period examined, rather rising roughly $10 billion using a higher-education specific index of inflation.

On a per-pupil basis, looking at a 25-year smoothed trend, 6 states saw both appropriation and tuition and fee revenue rise, 31 saw appropriations drop but increases in tuition and fees more than make up for the loss, 11 states saw per-pupil appropriation cuts that were not fully covered by increases in tuition revenue, and 2 states—Louisiana and Wyoming—saw the ideal situation from a student perspective: appropriations rose while tuition and fee revenue declined.

Delaware, North Dakota, Alabama, Nebraska, and Alaska experienced the highest gains in net per pupil revenue trends while Idaho, Wisconsin, Georgia, California, and Iowa were the biggest net losers.

Because many of the per-pupil “cuts” were a result not of cuts to overall funding, but big enrollment increases, no state failed to see significant increasing trends in total revenue from appropriations and tuition and fees.

After examining state appropriations and tuition revenue, McCluskey looks at some alternative explanations for skyrocketing prices, all of which, he concludes, likely play parts in price inflation.

One is the hypothesis that increasing costs are due to higher education’s necessary reliance on human power. McCluskey notes that this “disease” would largely be accounted for in the higher education inflation adjustment he uses, while it tends to ignore colleges’ ability to increase efficiency.

More fundamental to college pricing, McCluskey argues, is that colleges naturally have a desire for evermore resources, and federal student aid enables them to raise prices well in excess of what they could charge in its absence. Federal student aid may also encourage state legislators to restrain their appropriations to schools.

“By all indications, the state of higher education financing over the last quarter-century is not how it has been portrayed: institutions treading water just to stay financially afloat as state and local governments have withdrawn their support,” argues McCluskey. “What may well be enabling much of this is federal student aid, and colleges taking not just whatever they need, but whatever they want.”

Read the research….

Are Apprenticeships an Option for America’s Youth?

A college education is not everyone’s cup of tea. The United States needs other ways to instill job skills in the younger generation. Could apprenticeships be the answer?

The German apprenticeship system is sometimes viewed as an appealing alternative to the U.S. focus on higher education as a pathway to jobs. But replicating the German model in the United States would require huge — and, for some, hugely unpopular — changes to the structure of the economy, and may not be such a good idea.

 In her new study for the Cato Institute, Apprenticeships: Useful Alternative, Tough to Implement, Gail Heriot, a professor at the University of San Diego School of Law and a member of the U.S. Commission on Civil Rights, encourages apprenticeships in America, and suggests solutions to pitfalls new apprenticeship programs may face. With the belief that, while difficult to implement, apprenticeships could be useful in a rapidly changing labor market, Herlot outlines various ways to encourage apprenticeships and successfully build an American-style apprenticeship model.

Heriot goes on to contend that traditional colleges and universities are ill-suited to predict future job trends and prepare its students for rising job demands, suggesting instead that alternatives such as apprenticeships may help students succeed in a changing labor market.

Traditional higher education curriculum is catered more toward what faculty members are interested in teaching rather than what skills students may find most useful in a rapidly changing job market. Colleges and universities are designed to resist external and internal political pressure, through tenure, while public subsidies insulate them from market discipline, making such institutions unfit to respond to changes in the labor market.

Difficulty in predicting changes in the job market is less likely to occur with apprenticeships where students are working directly with teachers who are in-touch with the realities facing their profession.

While implementing apprenticeships, employers may face the problem of the ‘runaway apprentice’: an apprentice who quits after the employer invests in him, but before the apprentice is useful enough to make the employer’s investment worthwhile. One possible solution Heriot suggests to this problem is to ensure that apprentices can take out a loan to pay for their own instruction, thus creating the right incentives for both teachers and students to invest in an apprenticeship program. Other solutions include providing yearly bonuses or enacting non-compete agreements enforced by the courts.

Modest public subsidies could also mitigate the ‘runaway apprentice’ problem and avoid the need for a large bureaucracy. For example, a $5,000 voucher could be funded and administered at the state level for a two-year apprenticeship program where the employer substantially increases the apprentice’s salary from one year to the next. Both parties could split the $5,000 at the end of the program, creating incentives for the employer to impart valuable skills to the apprentice, and for the apprentice to complete the program.

“Creating apprenticeship opportunities is going to require some real thought,” concludes Heriot. “Encouraging apprenticeships as an alternative or supplement to higher education, which is clearly serving many people poorly or not at all, is certainly an idea worth pursuing.”

Read the study….