Effects Of Financial Crisis Ripple To Campus Life

This story was written by Jessica Lichter, The Duke Chronicle


Typically, when the price of a good gets too high, people cut back consumption and seek an alternative-what happened when gasoline prices peaked this summer.

But a college education might be an exception to this rule.

"Apparently, there is a sufficient level of demand for tertiary education so the price will go up to what the market will bear," said Emma Rasiel, Duke University associate director of undergraduate studies and assistant professor of economics. "If people will pay that amount, why should the market not bear that amount?"

Even with the recent financial crisis, families can expect at least a modest increase in next year's tuition, as is typical every year, Provost Peter Lange said.

"How big the increase will be, we don't know," he said. "But it won't be zero."

Lange added that the economic climate is volatile and may change significantly next Fall. As of now, University administrators are acting prudently about new expenditures and are not in a situation where they have to make new commitments, Lange said. Discussions with the Board of Trustees concerning tuition will begin in February.

In the past quarter-century, the cost of a college education has increased more rapidly than that of every other major product or service, CNN Money reported in August. When financial aid is taken into account, college costs have jumped 439 percent since 1982, the magazine reported.

Tuition and fees-the largest portion of college costs-have increased the most among public institutions on a percentage basis, but the largest dollar increases in tuition have occurred at private research institutions.

At Duke for instance, tuition and fees for the 2007-2008 school year totaled $35,512-more than a $13,000 increase from the 1997-1998 school year, when tuition and fees were $22,173, according to a February 2008 letter Duke sent to the U.S. Senate Finance Committee.

Despite this jump, The Chronicle calculated that Duke's tuition has increased about 4.9 percent annually, which is lower than the 5.6 percent average increase for private four-year universities.

Curbing the increase

Some members of Congress, however, are trying to curb rising college costs. Rep. Peter Welch, D-Vt., said earlier this month that he would introduce legislation requiring universities to spend 5 percent of their endowments over a given number of years to make college more accessible to middle- and low-income families.

Administrators, however, said a fixed payout as Welch suggests does not provide the long-term stability and predictability that higher education needs to have rational budget planning.

"I don't think that a formulaic spending rule is advisable," Lange said. "We spend at a rate that allows us to spend out an appropriate amount of funds in the good years and the bad years. And that requires balance.... I think that the way we address endowment spending is more complicated than the representative may fully understand."

James Roberts, executive vice provost for finance and administration, also noted that the amount of money institutions of higher education invest per student is higher than the price a student actually pays.

In addition, administrators argue that a college education is an atypical good that changes on a yearly basis. Thus, indices that measure the average price of consumer goods, like the Consumer Price Index, do not factor in aspects crucial to a college education, Roberts said.

"One thing to keep in mind is that CPI is designed to measure the price of a market basket of goods and services at constant quantity and quality-[it] doesn't account for imprvements in program scope in quantity or quality," he said. "So, I think that the institutions that Duke compares itself to have seen significant improvements in [these areas.]"

These improvements, however, do not come without a hefty price tag. Along with increases in general operational costs such as energy and health care, expansions in student services and special programs, as well as advancements in technology, have driven up the cost of tuition.

Another large category of expenditures for most universities is the personnel they employ, said Connel Fullenkamp, associate professor of economics. To attract and maintain top-notch faculty, institutions like Duke have to offer optimal salaries that are competitive with the private industry.

Accompanying the increase in price is an increase in the University's financial aid commitment. Since the creation of the Financial Aid Initiative in 2005, financial aid has doubled, Roberts said.

Ironically, Duke's expenditure on financial aid is another significant cost driver for tuition for some students, Roberts said.

"What institutions of higher education are trying to do is make sure they are remaining accessible with their aid programs," said Matt Owens, associate vice president for federal relations for the Association of American Universities. "So students that have the ability to pay wind up paying close to the sticker price or the full sticker price."

Worth the price tag?

Increases in operational and maintenance costs as well as financial aid commitments, however, are not solely responsible for increases in college tuition. Duke competes for top resources, faculty and students, in what some have called an "arms race" for excellence. The University's increased spending to remain competitive translates into higher tuition for students, but less directly to furthering students' education.

"There is competition for quality at the top end," said Jane Wellman, executive director for the Delta Project, a nonprofit organization that evaluates postsecondary education costs, productivity and accountability. "Duke is competing to be in the top top top, so it's competing for amenities.... Some of the money doesn't pay off in quality of education, but pays off in quality of life."

Studies have shown that students with a college education-whether public or private-do gain tangible benefits. In a survey by the Brookings Institution and reported in CNN Money, students from families at every income bracket had a greater chance of earning a salary in the top 20 percent if they had received a college degree. The question remains, though, whether the selectivity of the institution makes a difference.

In a 1999 study conducted by Princeton economist Alan Krueger and researcher Stacy Berg Dale at the Andrew W. Mellon Foundation, the researchers compared the salaries of graduates from elite institutions with those who had been accepted to these schools but elected to attend less prestigious schools. Aside from low-income students who benefited from attending the elite institutions, the researchers found no differences between the salaries of the two groups of graduates.

"If you control for quality, aptitude and motivation, [students] do just as well in entry jobs or salaries if they come from public or private schools," Wellman said.

Administrators, on the other hand, said the Duke experience is unique in the opportunities it provides to students, both inside and outside the classroom as well as abroad.

"Since [Duke represents] a smaller slice of education it obviously is not for most people," said Michael Schoenfeld, vice president for public affairs and government relations. "If you want to be in an environment that fosters excellence and that will challengeyou intellectually, culturally and socially... then Duke is a place that few if any others can compare to."

Besides, some aspects of an elite education are inherently inefficient and costly, Schoenfeld said.

"A faculty member and 10 students in a seminar is a faculty member and 10 students in a seminar," he added. "Things we do are by their nature less susceptible to changes in improvements in efficiency."
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