Buying the Professor a BMW

In a casual conversation between an upper-middle-class parent and a senior faculty member at a four-year institution of higher education, the parent bemoaned the steep increase in the cost of sending his youngest daughter to college, compared to that of her eldest sibling.  Clearly intimating that the substantial monetary difference went into the faculty member’s pocket, the parent quipped, “I hope you are enjoying the car that I bought for you.”

This parent’s conclusion raises two questions -- one about rising costs and the other about faculty salaries.  Addressing these questions must take into consideration various factors.  First, for example, institutions of higher education vary widely.  The answers here are limited to four-year public and private, nonprofit colleges and universities.  Second, the sources of data vary in their objectivity and in their time periods.  These answers identify the sources, which are reputable as not particularly skewed.  Similarly, although not uniformly available for the same long-term period, the cited data cover at least 8-10 years so as not to rely on short-term changes.

Question 1: Have college prices to parents really risen steeply, when inflation, institutional financial aid grants, and other sources of “tuition discounting” are taken into account? 

Answer: Yes, parents’ costs of college have risen, after adjusting for inflation, rather dramatically on a sticker price basis and much more moderately on a discounted basis.  For example, the College Board reported the following average published (i.e., non-discounted) totals for tuition and room/board in constant 2011 dollars for full-time students during the 15-year period that ended in the most recent academic year:

However, the real cost to the parent or student is the net price after various forms of what the College Board explained as “tuition discounting,” including institutional grant aid, tuition waivers, such as military personnel or employees’ children based on state law or institutional policy, and athletic scholarships.  As a result, accounting for all sources of grant aid and federal tax benefits, here are the corresponding net price totals for full-time students during the same period, with the impact being in the tuition portion of these totals.
 

Thus, the increase, which is higher for the public colleges and universities, is clearly less pronounced for this 15-year period, but still -- as a matter of constant dollars -- notable rather than negligible.

Various other studies have found that college prices, whether viewed in terms of tuition alone or with room and board included, have outpaced inflation for the past several decades, but most of them have examined only the published, not net, prices.  Moreover, the news media across the country have fueled the exaggerated public perception with recurrent stories reinforcing the theme of “Runaway Tuition.”
          
Relevant to the parent in the opening scenario, this tuition discounting also includes “cross subsidization,” or cost shifting from the full-paying students to those with financial need or who meet other institutional priorities, such as those with outstanding athletic or academic abilities. Similarly pertinent is that various studies have found that the biggest burden for these rising costs falls on the poorest parents. For example, according to the same College Board report, from 1979 to 2009 average family income in constant dollars declined 7 percent for the bottom quintile of families while it rose 11 percent for the middle quintile and 73 percent for the top 20^th of families.

Question 2: Is the increase attributable to the compensation of full-time faculty members? 

Answer: In limited part, but not primarily.  Faculty compensation has increased in constant dollars, but it is only one of several factors that contribute to the complex story of increased parental outlays.  First, despite the common perception in academia, the salary of full-time faculty has outpaced inflation during recent decades.  For example, the U.S. Education Department's National Center for Education Statistics (NCES) found that the average salary of full-time (i.e., 9-10 month) faculty at four-year colleges and universities for the period 1993-2003 increased 10.7 percent in constant dollars.

However, the corresponding increase was higher, 17.7 percent, for the executive/administrative/managerial category, for example. Similarly, the Higher Education Price Index, which is an inflation metric customized to institutions of higher education, showed a significantly higher increase for administrative salaries than for faculty salaries from 2002 to 2010. 

For the parent, the compensation cost is a longitudinal matter of not only average salary but also the total size of full-time faculty.  According to the NCES, the size of the full-time faculty has increased, but at a lesser rate than the student body. Specifically, the number of full-time faculty at four-year private and public institutions of higher education rose 16 percent from 1993 to 2003, while the colleges’ student enrollments increased 19 percent. 

In comparison, during this same period the corresponding growth rate for part-time faculty was 54.8 percent, and for the executive/administrative/managerial category, it was 29.8 percent. Thus, part of what the parent paid went into the pockets of college and university personnel other than those of us full-timers on the faculty. 

Multiplying the growth rate in the number of administrators by the growth rate in their salaries shows that “administrative bloat” is another contributing factor to rising college prices.  Moreover, because, on average, administrators’ salaries are higher than those of faculty members and because connected fringe benefits, including health care costs, and “perks,” such as travel and entertainment discretionary accounts, tend to be higher for administrators, their combined percentage increases have added impact.  Yet, because the slice of the expenditures pie for full-time faculty members’ salaries is approximately three times larger than that for administrators’ salaries, the faculty factor is undeniable.

However, the college cost drivers are multiple and complex, extending well beyond faculty and administrator salaries and benefits.  One the other side of the ledger, as detailed in the Delta Project on Postsecondary Education Costs, Productivity, and Accountability, the various sources of college revenue extend well beyond tuition, including private gifts, investment returns, and endowment income; state and local appropriations; federal grants and contracts, and auxiliary enterprises.  The expenditure side includes, for example, salary and benefits of the disproportionately increased segments of part-time faculty and support specialists and the similarly fast-growing expenses for high-tech facilities and equipment. 

Moreover, as part of the “keeping up with the Joneses” competition for students, college expenditures go well beyond direct instruction, including, for example, campus beautification projects; the latest in fitness centers; increasingly diverse extracurricular activities; campus security in the post-Virginia Tech era; and regulatory compliance costs. 

Thus, the relationship between parental costs and faculty compensation is far from direct or one-for-one.  In analyzing the complex picture, most experts have concluded that the biggest driver of spiraling tuition costs for public colleges and universities has been the decline in state appropriations.  Of course, there is a wide variation of higher ed institutions within and among the Carnegie classifications, which include cost-related differences not only in state support but also institutional region, size, scope, and clientele.

In general, the parental costs of college are spiraling upward, but the increases are largely not going into the pocket of the full-time faculty member. We drive a Honda Accord and  a VW Jetta, respectively, and most of my colleagues drive similar cars. 

The BMWs, the Lexuses, the Infinitis, and the sports cars belong to the students, at least those whose high-end parents most typically bemoan the costs of sending their students to us.