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Sunday, January 13, 2013

The High Cost of Higher Education

The fiscal cliff resolution has created an economic news void. While earnings season has begun, nothing of significance has occurred. I’m not yet prepared to offer my predictions for the year - which leaves recapping last year’s predictions as a topic. The only problem: that requires me to review a year’s worth of columns. If there’s anything more tedious than reading a summary of my record, it’s compiling a summary of my record. Maybe by next week, I will have slogged through 2012.

Fortunately, the Wall Street Journal bailed me out with an article about higher education titled “Colleges Lose Pricing Power.” Given that the inefficiencies at academic institutions are rivaled only by that of government institutions, I knew the article would be good for a few laughs. ...

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The fiscal cliff resolution has created an economic news void. While earnings season has begun, nothing of significance has occurred. I’m not yet prepared to offer my predictions for the year - which leaves recapping last year’s predictions as a topic. The only problem: that requires me to review a year’s worth of columns. If there’s anything more tedious than reading a summary of my record, it’s compiling a summary of my record. Maybe by next week, I will have slogged through 2012.

Fortunately, the Wall Street Journal bailed me out with an article about higher education titled “Colleges Lose Pricing Power.” Given that the inefficiencies at academic institutions are rivaled only by that of government institutions, I knew the article would be good for a few laughs.

And it was.

The foundation for the article was a survey conducted by Moody’s Investor Services. Moody’s does a crackerjack job of rating securities so why not expand their expertise for belatedly stating the obvious to the university system.

What Moody’s found is that a combination of adverse demographics and unfriendly economic conditions has softened demand for four-year degrees. The result: tuition revenues have not kept up with rising expenses. Startling.

This is a common problem in the business world, particularly of late. Successful companies manage to survive this challenge by doing the obvious: they reduce expenses. But academia seems to adhere to the Democrats’ fiscal philosophy so it doesn’t believe it has a spending problem but a revenue problem.

Some of the comments in the article were classic. Here’s a sample.

College officials said they need to increase net tuition revenue to keep up with rising expenses.

As I said, spending cuts, we don’t need no stinkin spending cuts.

The declines in net revenue could portend cuts to academic programs and a search for alternative sources of revenue such as more online courses and recruiting wealthy students from overseas who can pay full tuition.

That’s the answer – foreign academic whales whom we can train so they can go back to their countries and beat the tar out of us.

“If colleges do not adapt to shifting demographics and the weak economy making families more price sensitive, there will be fewer institutions,” Wittenberg College President Laurie Joyner said in an interview.

Now that’s why Laurie is a college president. She doesn’t miss a trick.

A companion article recounting the experience of Eric Kaler, the new president of the University of Minnesota, shed more light on the problem of out-of-control tuition.

Mr. Kaler pledged to curb rising tuition by cutting administrative costs but quickly found that no one could tell him exactly what those costs were.

Being ignorant of your costs is usually reserved to companies who don’t survive. And these people are responsible for educating the next generation of leaders?

In the past, flush with state money and cash from increased tuition, the University of Minnesota kept spending. The school’s payroll ballooned to 19,000 or nearly one employee for every 3½ students. You might think this resulted in very small class sizes. Nope. Over the last decade, the ranks of administrators grew by 37 percent, more than twice as fast as the growth in teachers and nearly twice as fast as student growth.

And the University of Minnesota is not unique in this regard. U.S. Department of Education data indicate that from 2001-11, the number of administrative employees hired by universities increased 50 percent faster than the number of instructors.

The good news is that if their salaries are any indication, these administrators are very talented. Minnesota has 353 employees who earn more than $200,000, up 57 percent from the inflation-adjusted pay equivalent in 2001. Eighty-one of the 353 high-earners have administrative titles, twice as many as in 2001.

The end result: tuition has risen even faster than health-care costs. According to the Bureau of Labor Statistics since 2001 public and private college tuition has increased 92 percent. By comparison, medical costs have only risen 47 percent. And to put it all in perspective, the consumer price index rose a mere 27 percent.

Let me share one final story told by Dr. Kaler that perfectly sums up academia. Taking about 33 words inscribed on the auditorium in 1936, Kaler said it took an inscription committee, the hiring of an “inscription consultant” – and 12 years – before chisel met stone.

Out-of-control administrative costs are not the sole reason for rising tuition. Increasing regulatory and compliance requirements also have added to costs. Some also would cite heightened competition which has led to fancier facilities and student perks. The irony of this latter rationale is that many if not most of the added expenses have little to do with improving the quality of education, which, unless I’m mistaken, is or should be the primary goal.

Author, professor, entrepreneur, radio and TV commentator, Tony Paradiso can be reached at tparadiso@tds.net.