The Real Cost Of A College Education - Why Is It So High?

The Real Cost Of A College Education - Why Is It So High?

This is another one of those blog posts that has nothing to do with real estate. As a father of 2 kids in/ graduated from college at great personal cost I have always been mystified by why college tuition is so damn high. It just doesn't seem right that it should cost $60,000 to educate a kid for 8 months - that's $7500/ month or around $143/ hour of classroom time. If we take out $1750/ month for room and board (I got the number from the story I'm about to reference) then that number drops to $110/ hour. Still seems like a lot of money to spend close to 1/4 million dollars for a kid to get a college education.

So I've always wanted to know what is behind the numbers. I figured something had to be wrong with the higher education model and I've had a number of theories about what might be driving it. For one, it seems really inefficient to ship kids across the country for 8 months and then have them sit in various buildings to get this education. And I'm sure that's a huge part of what is driving the costs. But I've always suspected that colleges waste a lot of money on non-educational efforts but I just didn't have the data to support that theory.

Then on Friday I heard a great NPR story that begins to scratch the surface on this thorny subject and it's the first time that I at least have heard someone tackle some of the more controversial aspects of the problem: Duke: $60,000 A Year For College Is Actually A Discount. If you go to this page be sure to listen to the audio, as it goes into a lot more depth than what' s written on the page.

The broadcast answered some of my questions but raised several others along the way. The underlying case that Duke tries to make, and the basis for the story's headline, is that the real cost of a college education there is $90,000. Well, I and others take issue with that, though I appreciate the insight into what their financial picture looks like.

Let's start with financial aid. They bring up financial aid as a cost but that type of accounting adds a ton of confusion - especially when the vast majority of your costs are fixed. Not getting revenue is not a cost. It's a reduction of revenue. If I run an airline and I start giving away 10% of my seats to needy passengers my costs do not go up. Rather, my revenue goes down. So right there is 24% of their costs that aren't really costs that should be attributed to paying students.

The really cool issue dealt with in the story is something that I've always wondered about - all that research that the professors spend their time doing instead of teaching. Regardless of the case made by colleges research does NOT advance my kid's education. They give a great example of the millions of dollars that Duke spent stealing a researcher from Rice University. Charles Schwartz, a retired professor that studies university finances, also makes the case in the story that this shouldn't be attributed to the cost of a college education. Research should be accounted for independently in the financials with its own profit and loss - revenue from grants and licenses offsetting the costs of the research.

Then there are the facilities. Coincidentally, I went to Duke a while ago, when tuition was much lower and since then tuition at Duke has gone up at much higher than the rate of inflation. I've been back on campus since then and it sure looks to me like the physical infrastructure is much larger and much nicer than when I went there, yet as far as I know they have roughly the same number of students. So I'm sure the  infrastructure cost per student is way higher now then back when I went there. Yeah, I understand the need to remain "competitive" along that dimension but is that really necessary? Last I heard they are turning down students right and left. Right there you have another 8 - 9% of the costs.

Another coincidence is that last week another story broke about Duke University's high tuition. It was revealed that a Duke Freshman is paying for her tuition as a pornstar. So that gives you an idea of the extremes that some students go to in order to pay the high cost of college.

If you have followed this blog much you know that I have this sick compulsion to make the world more rational (which is why we started a non-traditional real estate brokerage in the first place). I'd really like to see more dialogue on this topic with some in depth analysis of the real cost of a college education. Only then can we start to whittle away at it, which must happen if we are to cost effectively educate a much larger population than we are now.

Back to real estate tomorrow when the latest Case Shiller index is released.

If you want to keep up to date on the Chicago real estate market, get an insider's view of the seamy underbelly of the real estate industry, or you just think I'm the next Kurt Vonnegut you can Subscribe to Getting Real by Email. Please be sure to verify your email address when you receive the verification notice.

Filed under: Not Real Estate

Tags: Not real estate

Leave a comment