Higher education.

• Author: Clotfelter, Charles T.
• Position: Increasing costs - Research Summaries

Higher education in the United States is a costly enterprise. Measured by aggregate statistics, the expenditures by all of the 3400 colleges and universities amounted to some $164 billion in academic year 1992 (1991/2), or about 2.9 percent of the gross domestic product.

From the perspective of a family sending a child to college, it is no longer uncommon for the financial burden of a four-year program to reach six digits, making college the second biggest lifetime expense for many families, after the purchase of a house. Beginning around 1980 these costs, measured in real, inflation-adjusted dollars, began to rise rapidly, especially at private institutions. Between 1980 and 1990 general educational spending per student in all colleges and universities grew at an annual real rate of 2.4 percent above inflation, and at a 3.4 percent rate in private institutions alone.

Tuitions rose sharply as well during the 1980s, with especially steep increases in the private sector. Between 1960 and 1980 the average real tuition and fees rose at a scant 0.3 percent average annual rate in public universities and a 1.3 percent rate in the private ones. But after 1980 the growth rate for the public universities increased to 2.8 percent; among the private universities it jumped even more, to 4.5 percent a year. Even after accounting for growth in financial aid, the rates of growth in tuition and fees were high, about 2.7 percent annual real growth in the public sector and 3.9 percent in the private sector. For private universities between 1976 and 1992, the net-of-aid cost to students exceeded not only the overall rate of inflation but also the much-heralded inflation in medical costs.

The rapid rise in costs and tuitions during the 1980s became a flash point that intensified an ongoing debate over the direction of higher education itself, serving for critics as evidence of the inefficiency, misdirection, and even greed of those institutions. Some critics viewed the run-up in costs as a direct result of an increasing emphasis on research at the expense of teaching. Others pointed to what they saw as excessive spending on frills and bloated bureaucracies. One very visible group of private institutions came in for particular attention: the handful of nationally known private "elite" research universities and liberal arts colleges. The Justice Department's antitrust case against several groups of institutions also focused on the elite institutions.

The Skyrocketing Costs

From the early 1980s to the early 1990s, internally funded expenditures grew at a 5.4 percent real annual rate at Harvard, 5.7 percent at Carleton, 6.6 percent at Chicago, and 6.8 percent at Duke. Faculty salaries, which accounted for a large portion of arts...