Last term we found out that (surprise!) Dartmouth tuition will increase next year. A less than five percent increase sounds like a reasonable figure; a little inflation, a little price increase. But is inflation sufficient to explain the drastic price rises that have taken place in American colleges' and universities' tuitions over the last several years? A recent Time article says no, as the author examines the case at Ivy League and other wealthy schools.
In the last 20 years, the cost of college tuition has grown at nearly double the rate of the inflationary Consumer Price Index, with the gap beginning to widen noticeably as the '80s began. The endowments of many of the wealthiest schools have also multiplied by an incredible amount. Clearly, this situation begs some explanation other than the gradual erosion of our dollar's domestic purchasing power.
The main effect underlying the skyrocketing prices is identified by the author as the "Chivas Regal effect." Basically, in the '80s "a new ethos evolved among university officials -- and parents -- that equated price with quality." Many people came to believe that expensive schools must generally be better than others, and so our darling educational institutions decided to artificially raise their prices in order to raise their status in the eyes of applicants (this became even more pronounced among very wealthy families, who saw an expensive education as a "luxury good"). Artificially, because the new prices were quite unrelated to the colleges' operating costs and endowments. Yet lo and behold, more applicants came knocking even as tuition went up. (And Reagan came to power in the Chivas Regal '80s; connection? You make the call).
The complementary effect to this, which I will call the "Ivy League (and M.I.T) Collusive Quasi-Oligopolistic Effect" (a pretentious mouthful, I know; is it that obvious I'm an Econ major?), goes as follows: the Ivies (and M.I.T) conspired (or, to use a kinder term, "collectively decided") to eliminate tuition cost as a significant factor used by applicants to differentiate between the Ivies, both by regulating tuition and financial aid (this is the collusive part). So, coupled with Chivas Regal, this meant that the tuitions of all Ivy League schools would become high, and reach the same levels from year to year. Now the "quasi-oligopoly" part: This isn't the same as a market oligopoly, because the Ivies certainly aren't the only suppliers of post-high school education. Still, these green-wreathed institutions are some of the most highly-respected schools in the nation, so they predominate in college rankings, while not in supply of the "education good." Since many schools take their cues, so to speak, from the Ivies, their tuitions went up as well.
So education has become a non-conventional good in the late 20th century; the higher the price, the more education we have bought. Strengthened by an increased belief that "a college education was a necessity, a direct conduit to a high-paying job" (again, you make the call), these effects have sent both tuitions and applicant pools skyrocketing. Prices became less related to costs; at Penn and Columbia, tuitions were "within $36 to $110 of each other -- even though the costs of doing business in Manhattan are far higher." Endowments didn't dictate much either, not only because different schools charged the same prices, but also because schools didn't really feel like tapping their vast piles of cash to alleviate price pressures. Schools generally set a spending rule "which typically requires that they transfer 5% of the total value of the endowment. In practice ... schools often don't contribute even that much." Harvard, as it often does, provides the extreme case here: "a 1-percentage-point increase in endowment spending" is "enough to cut its base undergraduate tuition nearly in half." But alas, there were high tuitions to be maintained.
So, will exorbitant price spikes persist? I'd say we're coming down off the Chivas Regal excess of the '80s. For instance, the "Overlap Group," as the Ivy collusive operation was known, was "dismantled in 1991 after a two-year federal antitrust investigation." Apparently, the government considered this an oligopoly worthy of extinction. And according to that article in The Dartmouth last term, the rate of tuition increase was the lowest in a long time, a tentative sign of future decreases. Additionally, so many '80s phenomena (as well as Reagan himself) are now considered passe by many discerning members of society (note to my supply-side friends: just kidding!), and perhaps this will be one of them. Still, the specter of high tuitions remains, and will loom for a long time while institutional status maintains a firm grip on our priorities.
