The Dismal Science

Why Tuition Continues To Rise

By Nathan Davis


Bill Clinton tends to avoid the lectern when he campaigns. As he took the stage on February 21 at an event for Hillary, he pulled his mic from the stand and walked across the platform. With a single, subtle movement, he had gone from 42nd President of the United States to Uncle Bill. He oozed familiarity, and as he strolled the stage, each and every student who filled the rafters of Cornerstone Arts Center was one of “us,” and a part of “we.” He drew big applause for comments like, “We replaced ‘Trickle-Down Economics’ with ‘Inclusive Economics,’” “We need to tear down all the barriers keeping us from sharing the future” and “We need the whole country to share prosperity.”

The rhetoric of the speech bared more than a passing similarity to one that President Jill Tiefenthaler gave in November of last year. On the heels of a string of viciously racist posts on the anonymous social media app Yik Yak, the school held a campus-wide assembly regarding racism on campus. In a decidedly more somber atmosphere, Tiefenthaler held her podium and admitted, “The words of a few cowardly bigots was magnified by our national and campus climate, and we still have much, much work to do to achieve our goal of becoming an inclusive community.”

The word “inclusive” appeared seven times in that three minute speech. In one particularly expressive section, Tiefenthaler said, “I talk a lot about inclusion and some criticize it as a higher education buzzword. They say it is used so much that it has no meaning. Let me tell you exactly what it means to me. In an inclusive community, student engagement does not vary by race, religion, gender identity, political affiliation or socioeconomic status. Every student feels like this is their CC.” And later: “I am committed to helping to build such a learning community—it is essential to delivering on our mission of providing the finest liberal arts education.”

Clinton’s speech was, naturally, buoyant by comparison. At one point, however, the issue of college costs arose. He decried the increasingly inaccessible nature of higher education. Still, playing to his audience, he threw Colorado College a bone, saying, “You’ve got a lot of people backed up in the system who aren’t as fortunate as you are to go to a place where the endowment and other resources are used to help people who can’t afford it get through college without being crippled by debt.”

The day before Clinton’s speech, the CC Board of Trustees held their regular February meeting. Among the items on the agenda was to set tuition and fees for the upcoming school year. The day after Clinton’s speech, CC students received an all-campus email. Tuition and fees for the 2016-17 school year had been set at $50,892. The comprehensive fee, tuition plus room and board, will be $62,560.

Next year will be the first year that tuition eclipses $50,000. A year at CC in 2016-17 will cost nearly $10,000 more than it did five years ago (2011-12 was the first year for which tuition was set higher than $40,000). For each of those four intervening years, CC tuition has increased between 4 to 6 percent—a total increase of 23 percent. The same has been true at most comparable institutions.

In a very basic sense, tuition increases each year because the cost of educating a CC student increases. The operating expense—the total amount the school spends in a given year—has increased at approximately the same rate tuition has. Since tuition covers about half of the school’s operating expense, an average of 50 cents must be passed on to the students for every 1 dollar increase in the budget. Next year’s budget will be $6.8 million higher than last year’s, of which the tuition increase will cover about $3.5 million.

The question on the mind of many CC students—or, more likely, parents—is why? The answer, as one might expect, is complicated.

For Tiefenthaler, this question is not just one of practical concern, but also theoretical inquiry. She received a PhD in Economics from Duke, was hired to teach economics at Colgate University and then moved to Wake Forest, where she served as provost and taught, you guessed it, economics.

She has now been CC’s president since July 2011, where, on occasion, she teaches economics. (In fact, she taught, “The Economics of Higher Education,” in January of this year.)

As her career has progressed, she has narrowed her focus from labor and development economics to the titular topic of her class. She has published on the issue several times and delivered speeches on it countless more. She has delivered one talk, also titled, “The Economics of Higher Education,” at least six times.

Sitting in a conference room next to her office, she outlined the theory for me.

The first, most predictable culprit driving up college costs is inflation, which pushes up the costs of expenses like utilities and debt obligations year-to-year.

The second is also a macroeconomic one. Technological change has caused the demand for highly-educated labor to increase faster than supply and, subsequently, wages have risen. Colleges employ more highly-educated labor than any other industry. Even without adding any new positions, CC would have to increase salaries each year to stay competitive.

The next portion of the increase is a more nuanced one. Technically, $3 million of next year’s budget increase will go toward financial aid. This is to keep up with previous commitments to students—i.e. raising aid to account for the increased price—as well as to offer competitive packages to incoming students.

However, considering financial aid as a cost is misleading. To be more precise, financial aid is a discount. The school doesn’t spend on aid exactly, rather it chooses to forgo certain revenue it would have otherwise received had it charged everyone full price.

The school looks at it as a cost because financial aid means that the school will pay a higher portion of that student’s costs. Even the full, “sticker-price,” of tuition doesn’t cover the total cost of keeping a student on campus. It covers about 75 percent. The rest of the cost is primarily taken care of by donor contributions and dividends made on the endowment. When the school discounts tuition, they are, in effect, assuming a greater amount of the cost of keeping a student on campus.

Still, this isn’t spending money, per se. The $6.8 million budget increase is more accurately referred to as a $3.8 million budget increase. Costs driven by inflation and wage premiums will account for $2.75 million of that.

The remaining $1.05 million goes towards, increasing “quality.”

In one iteration of “The Economics of Higher Education” talk that she gave at an Associated Colleges of the Midwest (ACM) conference, Tiefenthaler drew the comparison of a for-profit firm. These firms try to maximize profit, the difference between their total revenue and total cost. A college, on the other hand, is (typically) a non-profit, and thus has to spend all of its revenue. But, much like a firm, a college is in a competitive market, and a prestigious liberal-arts college like CC is in a highly competitive one. So they have to be maximizing something. But what, exactly?

“Quality, right? Excellence—however you want to define it,” Tiefenthaler says to the room full of college administrators and professionals at the ACM conference.

“If you could all just take a second and think about how you’re going to measure that for me. Write it down on your paper. How would you measure quality? Anyone tell me how you’re going to measure that,” she adds, almost with a wink.

The comment was met with knowing laughter—her audience was a room full of people whose job it is to try to approximate the solution to this unanswerable question—but, otherwise, no serious attempts were made to provide the silver-bullet.

“Here is the fundamental problem in our market,” she continued, “we are in an industry where we know what we’re maximizing, kind of, but we really can’t measure it very well.”

“If you can’t measure it, and you’re in Scott’s [an audience member] position or my position, and you’re trying to figure out how to move the institution forward, what are you going to do? My incentive is to maximize quality, right? Or excellence. That’s our incentive. Is cost-cutting a good strategy for me? No.”

“Quality” has become a higher education catch-all phrase. Or a buzzword, depending on where you sit. Increasing quality might mean building a new facility one year, adding counselling resources the next and expanding study-abroad programming the year after. It’s an intentionally vague term, subject only to the constraints the speaker puts on it. One shorthand Tiefenthaler used for it when we met was “doing more and new things.”

When CC talks about quality, it means the “Strategic Plan,” a five-step plan billed as the answer to the question of “how to educate the next generation of students in this era of global change, technological innovations, new approaches to engaged learning, continued economic challenges and increased economic competition for the very best students and teachers.” It was developed by Tiefenthaler during her “Year of Listening,” her phrase for the one-year period after her commencement in which she heard from students, faculty,  community members and alumni about CC’s strengths, and was ratified by the board in 2013.

Students have taken to affectionately calling Tiefenthaler, “Chief Tief,” a playful allusion to Chicago drill rapper Chief Keef. The impersonal, quasi-corporate language of the Strategic Plan (not to mention the phrase “Strategic Plan” itself) is emblematic of another, slightly less affectionate, student colloquialism—“Jill-speak.”

Some recommendations in the plan are specific, like “Create an Innovation Institute,” or “Build Nationally Recognized Summer and Half Block Programs,” which boast tangible goals and hold the prospect of completion. Others are almost entirely plastic. “Provide Additional Support to Realize the Potential of Our Pioneering Block Plan,” covers initiatives as seemingly disparate as developing the Journalist-in-Residence program, building a new library and launching the Butler Center for Diversity and Inclusion. Another, “Enhance our distinctive place of learning—our campus—to support our engaged, globally connected academic community and embody our regional and historical identity,” is even less restrictive.

If goals are as vague as supporting the potential of the Block Plan, enhancing our place of learning or “focusing on workplace excellence,” an argument could be made for almost any proposal for increased spending on the grounds that it aligns with the strategic plan. While the efforts to narrow down and specify “quality” are admirable, the Strategic Plan is far from a budgetary restraint. If anything, it provides a more official sanction to spending measures—it’s hard to call something “frivolous” when it’s part of a “Strategic Plan.”

Of course, everything beneath the Strategic Plan’s umbrella is desirable. Nicer amenities, more highly-talented faculty and staff, new facilities—they all enhance a school’s quality, without a doubt. Unfortunately, they all cost money too. Any “increase in quality” necessitates an increase in spending (which requires an increase in revenue, which means higher tuition). Sometimes, the two can feel like they’re equated. The causal chain—whether quality requires spending or spending automatically means higher quality—is unclear.

With the strategic plan, CC has taken a stab at defining the types of spending it deems “quality-enhancing,” but the extent to which the definition actually reigns in spending is murky at best.

“Could we go through and get rid of some things? Yeah. Would it hurt our yield]?”—the percent of students accepted who enroll—“It’s hard to know. So there is a problem, and a lot of that problem fundamentally comes down to measurement,” says Tiefenthaler. “We’re not selling a bag of chips where you decide if you like it when you eat it and it tastes good. You know there’s a quality there and a lot of things will contribute to that quality. And institutions, because you can’t measure it very well, or the bang for your buck very well, your incentive is to try to build quality in as many ways as you can.”

As the liberal-arts market becomes more and more saturated and competition for students intensifies, the incentive to maximize quality, and with that, revenue, is higher than ever before. A quality arms-race between schools has meant that lofty commitments to make the school “the best it can be” have had to give way to concrete proposals about how a school can stay relevant right now.  Rather than keeping up with Joneses, it’s keeping up with the Davidsons, Bateses, Oberlins, et al.

“Say we freeze our price for 10 years. Salaries wouldn’t go up, financial aid packages wouldn’t be as sweet, we wouldn’t renovate anything,” says Tiefenthaler. “Meanwhile, that would all be fine if everyone else was doing the same thing, maybe. We would be holding things constant. But everybody else is going to be moving forward, raising money in the endowment, getting gifts, increasing price to meet that growing quality.”

If revenue doesn’t increase year-to-year and CC can’t point to measurable improvements in quality for prospective students, the theory is that these students will turn to other institutions. Prospective students are expecting more out of their college experience each year, and they want a school that has demonstrated a commitment to meeting these demands. CC is stuck in the Prisoners Dilemma: If we don’t, they will.

More than that, there are actually disincentives to lowering price. Treasurer and VP for Finance Robert Moore points to “the Chivas Regal Effect,” an economic theory based on the whiskey company of the same name that saw a 100 percent increase in sales after it doubled its price without changing its product at all. The theory posits that, for certain high-end luxury items, like whiskey or a liberal arts college, a customer unfamiliar with the inner-workings of the industry will tend to equate quality with price. If CC cost less than its peer institutions, applicants considering schools in that range might raise their eyebrows.

As long as that disincentive exists, the school is better off setting the sticker price as high as it can without standing out amongst its peers and ending up on what Tiefenethaler called, “the Wall of Shame on CNN,” in the ACM speech.

“The only way I know to do is to look at peers and say, ‘If we’re kind of in the middle of our peer group, that’s probably about as good a place as you can figure out to be,’” Moore told me. “We’re not a leader at all.”

The school then goes about discounting tuition so that, for students receiving aid, the price they saw in their inbox a few weeks ago is not the price they pay. At CC, the “tuition discount rate,” the average mark down on tuition, is 32 percent, meaning the average student pays 68 cents on the dollar.

However, the 32 percent rate doesn’t quite tell the whole story. Very few students, if any, receive a 32 percent discount or any approximation thereof. This year, about 58 percent of the school, 1,203 students, paid full price. Another 159 received merit-based financial aid, for which the average award was around $9,000, a 15 percent discount.

Just 35 percent, 734 students, received need-based financial aid. On average, these students were given a $46,707 award—an 80 percent discount. Compared to 14 peer institutions, CC provided need-based financial aid to a smaller percentage of students than all but one of the schools, Colgate.

CC isn’t a $63,000 institution that costs $43,000 for all. It’s an institution that costs $63,000 for most, and significantly less for a few.

“We’re getting barbells,” Moore says, referring to the way that school’s population bulges at the extremeties of the socioeconomic spectrum, “those who really can afford it and those who really need [aid].”

He attributes it to a low volume of middle-class applicants who, seeing the prohibitively high sticker price, choose not to apply to the college thinking they can’t afford it.

At first glance, this business of tuition discounting seems to complicate the picture of the school as a quality maximizer. The school is choosing to admit students who can’t pay in full, thus forgoing revenue they would be capable of bringing in otherwise. Why?

Besides keeping CC off of an even ickier Wall of Shame, these students’ presence on campus factors into the schools “quality” calculation. In the words of economists, students are an example of a “customer-input technology.” Unlike the street-vendor who sells to anyone indiscriminately, a college cares about who buys its product.

“To your education here, your peers make a huge difference. Not only in the classroom but in the dining hall, in the residence halls, at parties and everywhere else, the people you’re surrounded by are going to enrich the quality. Their quality and diversity enriches everybody,” says Tiefenthaler.

Moore further illustrates the point, saying, “You want to spend your financial aid because you want to give every student access to a student with a different background. So, I’m not discounting tuition to save Student A money, I’m discounting tuition to get a greater diversity of students in the classroom.”

Need-sensitive students may not pay full cost, but they make up for the discount by adding quality to the school.

Still, there are barriers to raising financial aid too aggressively.

“If all of a sudden I said, ‘Over the next four years, we’re going to freeze faculty salaries so that we can put all of our money into financial aid,’ not only am I going to have a hard time hiring new faculty, I may lose some great faculty and morale will be low,” says Tiefenthaler. “Now all of a sudden, it’s not just about attracting new students, it’s really about real quality. Because now what you’re going to get in the classroom is not going to be as great.”

When you invest in financial aid at an above-average rate, you risk losing the legitimacy of being able to charge full-pay students increased prices, because you give yourself less to spend on other types of quality that benefit all students equally. All the while, your peer institutions may be spending less on aid, taking in more in revenue and then spending more in other categories. Full-pay students will naturally be more attracted to those schools who spend on aid, but also spend aggressively on other projects. Then it becomes harder to be as selective, then harder to bring in revenue, then harder to keep up even current spending, then programs start getting cut, and on and on and on.

“Every student has to benefit from the [budget] increase,” says Moore. “Institutions that have to say to somebody, ‘You’re full-pay but we have to take some of your money to spend on another student,’—that’s not a sustainable economic model. There are some, but not many, parents who would pay an extra $10,000 in tuition just so that somebody else could have aid.”

Fortunately for low-income students, demand for diversity and competition between schools has made financial aid a growing part of quality. However, it would be naïve to think that a college gives financial aid out of some benevolent sense of noblesse oblige. That isn’t to say that the administration isn’t dedicated to making the school accessible—they do genuinely care. But the socially beneficial aspect of financial aid is not the prime mover in the decision to provide it. It is a part of the amorphous calculation of “quality,” and is pursued to the extent that the market demands it, but not past the point where it too strongly influences the capacity to spend elsewhere.

“We are in a market. The thing I just say over and over and over again is ‘We are a non-profit, but we are still in a very competitive market.’ It’s still a business and it’s still a market. And so it’s not like we can just decide ‘OK, we’re going to offer really higher salaries or really lower salaries or have a very different price than everybody else,’ because we’re in a competitive market and have peers who are very much competing, ” says Tiefenthaler.

From this, the school feels the need to stay risk averse. For a school like CC, risk aversion means raising as much revenue as possible, since that’s the only surefire way to increase quality. For the administration, the incentive has to be to bring in the dollars first and find the most effective (or “strategic”) ways to spend second.

If this is the case, can anyone ever expect an end to budget increases?

“I don’t know,” said Moore. “Jill and I talk about that, cause she’s an economist. And I think we think, we don’t know for this little narrow part [of the higher-ed sector] that we’re in. I don’t know. I don’t. We’re not setting the agenda. And we can’t control that.”

For the first time in our conversation, he broke eye contact with me and stared across the wooden conference table we were sitting at.

“Is there ever an endgame?” he quietly asked himself, restating my question. 

“I don’t know. Hmm. Because, if we’re really good at this, and 500 educated, thoughtful people are leaving here…that is going to impact the world over the next 40 years. But I don’t know how. So I think we’re going to keep investing. I think that’s right. I don’t think we ever say that salaries are too high or something.”

So far, the trend of increasing costs has proven resilient. Though tuition increased at lower rates for a few years in the aftermath of the economic downturn of 2008, it has generally followed a steady trajectory.

This has been as true elsewhere as it has been at CC. And as long as the market continues the way it does, it doesn’t seem like other colleges will be lowering their expenditures any time soon. CC will have to bring in more and more revenue each year. For now, tuition dollars continue to account for more than half of the needed revenue, even if far down the line the dividend made on the endowment may begin to play a bigger part. No matter how you slice it, higher operating costs will require an always-increasing influx of tuition dollars for decades to come.

In the long run, this won’t mean that the school will become any less accessible to low-income students than it already is. The tuition discount rate should stay at about 32 percent for the next couple years (and may begin to crawl up thereafter, Moore hinted). The way that CC distributes that discount is by heavily discounting a few students’ tuition and offsetting the forgone revenue by maintaining a high percentage of full pay students, and it will continue to have to.

The more likely outcome is an increasingly stratified campus. The growing appetite for revenue will require the school to charge full-pay students more and more to offset revenue forgone on aid-assisted ones. Going forward, the wealthiest echelon of CC students may be occupied by the even wealthier.

The Yik Yak debacle of last semester reminded CC of a sinister racial division on campus. But there are also tinges of a secondary fracture: the distinct, but related, socioeconomic one. From campus sanctioned analyses about the inequities in block break programming, to knowing glances between friends who overhear other students gab about Vail and Steamboat, this division further complicates the mission of “inclusivity.” What happens to that divide 10 years down the line if full-pay students pay $80,000? Or 10 more, when the sticker-price could hit six figures?

In the opinion of Tiefenthaler, Moore and the rest of the administration, the path the school has taken is the only one open to it. Their hands are tied. While there may be some unsavory aspects of playing the game by these rules, the alternative is to spend less on services, amenities, faculty and facilities, and then lose the competitive edge for top students. As the administration paints it, the market response would be swift: fewer applications, lost revenue, further across-the-board cuts. Eventually, the school crashes and burns.

Certain challenges to the community are posed by continuing to play the game by the rules of the market—existential ones begin to arise when you choose to play by your own.

Just before the trustees arrived at CC, Student Body President Jacob Walden penned a letter to the board, which concluded with: “We in the Student Government believe that this institution should strive to be not only the college of the Block Plan, but also the college where the potentiality of the Block Plan is forever present. We wholeheartedly hope you do as well, and act to ensure it.”

In his capacity as the voice of the student body, Walden articulated the sense of idealism and exceptionalism that marks the CC student with impressive precision. Among the students, there’s a feeling of, We go to CC and we do things differently.

The presence of this sentiment hasn’t been lost on the administration. In a 2015 speech, Tiefenthaler said the characteristic that distinguished CC was, “a spirit of adventure and a willingness to take risks.”

In the minds of the students and the words of the administration, CC is almost like the institutional embodiment of the American Dream: independent, unique, by-its-own-rules. The optimistic rhetoric of Clinton’s speech emphasized over and over that qualities like these are the ones the country will need if it has any hope of fufilling the inclusive future he outlined.

But while CC may be the college of the Block Plan, in economic terms, the distinctiveness of the institution seems to end there. Adventure and risk-taking are not adjectives that describe CC’s financial agenda. That agenda is set by market forces just like everywhere else. As schools like Hamilton, Macalester andKenyon evolve, so will CC—and largely in the same ways. None of them are following a program, they are just competing. Problems of access and inclusivity loom in the not too distant future. Maybe it’s the invisible hand, maybe it’s the blind leading the blind.

June Sassnathan davisComment