• Written by Edward J. O’Boyle

August 31, 2015. Is college an investment or a luxury? Tuition that at many colleges and university is approaching $50,000 per year, not to mention other out-of-pocket expenses such as automobile, cell phone, clothing, furnishings, membership in Greek organizations paid by parents, point to luxury. The low jobless rate for college graduates suggests investment.

Tuition and college costs are rising for several reasons. For instance, virtually every college and university has plans for expansion that will enhance its greatness as an institution of higher learning. A private college in Louisiana with fewer than 2000 students recently had plans to add a law school and a medical school. The president with those grandiose plans has been replaced.

Colleges and universities add programs especially at the graduate level that are costly because enrollment is small and highly-paid heavily-credentialed senior faculty are required. Their course load is lightened so they can prepare properly for those courses. This in turn leads to larger enrollments in required introductory courses to help pay those additional costs. Entry-level instructors, many of whom are graduate students with English as a second language, are the university’s cash cows.

New programs subject to accreditation are expensive. Loss of accreditation is disastrous.

With faculty resources stretched to cover the new graduate courses, colleges and universities reduce the number of times a course necessary for graduation is offered from two or three times a year to once. This complicates scheduling for juniors and seniors who increasingly must stay an extra semester or longer in order to graduate, thereby driving their costs even higher.

Colleges and universities offer courses for credit that are expressly intended to boost GPA and student retention, such as ballroom dancing, tree climbing, bowling, rafting.

They switch from dormitories to more expensive apartments to assure that students have all the comforts of home.

They build indoor swimming facilities with a deck for sunbathing and other state-of-the-art facilities for physical wellness.

In addition to football stadiums and basketball arenas, they maintain tennis, volleyball, and handball courts, baseball diamonds, softball fields, and golf courses.

They manicure the grounds to assure the parents of incoming freshmen are duly impressed.

They acquire land to provide additional parking for students and hire additional police to ticket student violators.

They upgrade intercollegiate athletics and provide tutoring services to those athletes who need special instruction to remain eligible. They call them “student athletes” at a time when “one and done” in basketball is becoming commonplace. Only elite intercollegiate programs generate enough revenues to cover their costs. Most universities tax students to pay for those programs. The tax is called an activity or event fee.

They hire additional assistant coaches to snatch the best high-school and community college athletes available.

They maintain large and costly library facilities based on the old model of housing printed matter on shelves at a time when increasingly the materials students and faculty need are available on line.

They operate bookstores that are filled with over-priced apparel and knick-knacks bearing the university logo and required textbooks that are grossly inflated in price.

In order to get around the appearance of raising tuition, they create other student fees to support computer labs, building use, academic enhancement, and academic excellence.

Grade inflation, which has the effect of dumbing-down courses to improve graduation rates, suggests that college is not quite the investment it once was. That the stock of human capital it produces in today’s graduate compares unfavorably with the human capital stock of graduates from years gone by. Low jobless rates for graduates suggest that many are successful not because of their college degree but for other reasons including personal maturity, intelligence, charm, integrity, work ethic, grooming, and family connections. For those graduates a college degree is a credential -- the key that opens the door to a job interview -- rather than an investment.

If, however, college is an authentic investment, who should pay for it?  Is it a private good or public good? To the extent that the human capital resides in the graduate and the return on that capital belongs to that graduate it is a private good. Insofar as a well-educated workforce is an important factor in economic development and in generating more public revenue it is a public good. It follows that college as an investment should be paid by both the student and the public. How that cost is split between the two is addressed primarily by state legislatures because public universities are supported mainly through state tax revenues.  Wealthier states can afford to be more generous. 

If, instead, college is a luxury that has the effect of delaying adolescence, parents and students should bear the entire cost. A luxury is a private good. In principle, the taxpayer ought not be forced to pay for it. In practice, it is difficult to determine for any given college student when it is a luxury and when an investment. For that reason, efforts to restrict support to the investment dimension present serious problems and, though well-intentioned, sometimes miss the mark. Difficult, however, is not impossible.

The state could help repay the student loans of graduates up to some dollar limit that is determined in the legislature in order to reduce the risk that the taxpayer is paying for a luxury. The limit could be set higher for needy graduates. Such a scheme can be limited to graduates of public universities or extended to graduates of instate private universities. The limit tells students entering college that the state is prepared to help with a portion of their loans upon completion of their degree programs. Students who drop out of college are excluded and must deal with student-loan debt on their own.

Cash-strapped colleges and universities can help contain rising costs by restraining their empire-building ambitions. Even when those schemes are presented as sound investment opportunities, someone has to pay. There is no such thing as a free education.

Edward J. O’Boyle is Senior Research Associate with Mayo Research Institute

Dr. O’Boyle has taught college students in Poland, Ireland, Italy and for 30 years at a public university in the United States.