Universities have many problems, and are constantly in the news. They are a major part of public policy. Higher education is among the largest “industries” in the U.S., and linked to sectors like pharmaceuticals, defense, and technology. Universities also include major labor unions, and are used by political parties to organize voters. But at the end of the day, their most prominent feature is a lack of internal cost control.
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At a practical level, university cost issues are close to home because parents are “customers” as much as their student offspring are. Families go to great lengths to finance their sons and daughters so they can get a leg up. Many families take out significant loans, and even second mortgages in order to pay for it.
College costs a lot. The University of Chicago has the highest tuition in the country. The all-in bill is $80K a year, but that doesn’t include the full costs of attendance such as travel, personal supplies, and other expenditures. The cost after four years can reach nearly half a million dollars for an undergraduate degree. The state schools are less, but still cost upwards of a quarter of a million dollars.
To make matters worse, it costs even more for graduate professional schools like business, law and medicine. At many universities that can double the total cost of a university education.
While families are closest to the college finance problem, with total student debt nearing $2 trillion, everyone else is paying as well. That means taxpayers. They pay in several ways including through state and federal income taxes, business costs, and more. Financing education (and health care) are the single greatest costs in state budgets across the nation. Universities are also tax-exempt which means that someone else is subsidizing them.
As operating businesses, universities would never survive in a competitive market with shareholders who demand financial transparency.
Their cost structure is like government: overhead is so high that what goes in must be literally 100 times higher than what comes out; that is, like government, university overhead waste eats up so much capital that it can take a hundred dollars to make one dollar of measurable benefit. They both are net destroyers of wealth at an institutional level (I’m not suggesting that an education does not have value; I refer to how much institutional resources are used by universities in order to create it). That is why universities never have enough money, and are always looking for donors, political favors, grants and anything else they can get their hands on, in order to feed the university cost machine.
That includes getting as many paying students as they can, every year, and charging them as much as the market will bear. And like the government, universities rely on convincing the public that they are indispensable. Universities claim their research is “cutting edge,” and “world-class,” and represents vital public welfare, and public safety. They don’t bother to think through how all their costs could pass a basic cost-benefit test.
Indeed, universities can create more harm than good. Universities were at the center of COVOD corruption, and they hope everyone has a short memory. They took in billions in grants, medical insurance premiums, and COVID relief payments through Biden’s nearly $2 trillion relief bill. COVID was a major contributor to masking university cost distortions, while many university administrations profiteered. Some argue for universities to be ranked under a “corruption index.” Other researchers assert that university bureaucracy resembles organized crime.
One thing universities don’t resemble is a lean, efficient business enterprise, and students and families are paying the price for it.
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Not surprisingly, universities are spinning the tuition cost problem in social class terms. They disingenuously claim that they are forced to make financial aid awards to “rich kids” in order to get them in the door, so they can then pay higher net tuition. By doing so, universities claim they are being forced to neglect “poor” students who can’t pay the same higher net price — so they have to give them a bigger financial aid award, or discount, and lose revenue. Rich students means more revenue; poor students means less. But who do they ultimately blame? Taxpayers.
In university mathematics and accounting, it is the taxpayer’s fault because states and the federal government aren’t funding our colleges enough. The university system therefore has to favor wealthier students to make up the difference, and poor students suffer. This is a social class excuse for a cost control problem.
What is the university business solution? Raise taxes of course. Higher taxes is the “equitable” thing to do because without that, it means that college favors the wealthy, and wealth, and the rich, are naturally the cause of injustice in their view.
The one thing that universities and colleges will never admit, however, is that their own traditions are the source of that injustice: their own internal costs are spiraling out of control, and everyone else — rich, poor, and middle class — is paying for it. It has created a fundamental trust problem.
The reality is that everything a university does can be done in half the time for half the cost, but that means the taxpayer gravy train will be lightened. That includes the university president “millionaire’s club.”
I started by saying that the biggest issue in higher education isn’t racial quotas, political ideology or tuition prices: it’s their bloated internal costs. But it’s the bloated cost structure itself that is behind the racial preferences, political opportunism and bloated tuition prices. Protecting university cost structure — which means protecting their internal reward structure — means exploiting social and political disorder in order to advantage their institutional economics. If that means lowering standards to attract marginal students, accommodating the DNC’s corrupt programs, or doing whatever they’re told from other institutions like the CDC and NIH, they will eagerly do so, and without question.
Universities are prostitutes of the finest pedigree, but prostitutes still: in that line of work, you don’t pay them for the favors, you pay them to go away. Unfortunately, alma mater has a tendency to keep coming back.
Matthew G. Andersson is a former CEO, author and college parent. He has been featured in the New York Times, Wall Street Journal, Washington Post, Financial Times, and the Chronicle of Higher Education concerning university policy. He is a contributor to the National Association of Scholars publication Minding the Campus, and the James G. Martin Center for Academic Renewal. He has testified before the US Senate, and is a graduate of the University of Chicago.
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