Duke tuition expert: Middle class being squeezed by college costs

Last month, the University’s Board of Trustees approved a 3.8 percent increase in Duke’s 2016-17 tuition. The Chronicle’s Neelesh Moorthy spoke with Charles Clotfelter, Z. Smith Reynolds professor of public policy studies and professor of economics and law, to discuss why college is getting more expensive and Clotfelter’s book “Buying the Best: Cost Escalation in Elite Higher Education.”

The Chronicle: Why have costs at Duke and many peer private institutions been rising by around 4 percent recently?

Charles Clotfelter: What I did was look at the year-to-year increases in tuition and price inflation and compare those two. Inflation has been hopping along since about 2000 at around 2 or 3 percent a year. Since 1995 or so, the percentage increases of tuition in private and public four-year colleges are running at about two percentage points above inflation. It’s happening not only in private but also in public.

There was a period in the 1980s when the increases were a lot greater than inflation, but they were making up for a period earlier when they were getting hammered by inflation, when inflation was knocking the brains out of everybody. What you see is, hell or high water, colleges, public and private, are increasing their tuition rates faster than inflation.

TC: Why are tuition costs rising faster than inflation?

CC: There’s a classic economics example to that, and that is because of the technology of universities. They use a technology that doesn’t lend itself to technological progress or increases in productivity. You and I are talking, even as we have two machines running on the table, using a technology called speech that was going on hundreds of years ago. A lot of other businesses don’t operate that way—they have robots that are welding the fenders to the cars, whereas they used to have people doing that with tools in their hands.

The classic explanation is ‘think of an orchestra or a Mozart symphony.’ You use pretty much the same technology you used 150 or 200 years ago. If you want to conduct a symphony performance, you’re going to have to pay people who do the work in accordance with the rises in wages of people who are educated and can do other work. To get them to perform, you’ve got to pay them more and more because other competing jobs are benefiting from increased productivity. This is called the ‘cost disease.’

The other explanation is that universities do it because they can, and they want to get better. Places like Duke have leaders who have long lists of projects to make the University better. They are able to raise their prices relative to inflation, so why don’t they worry about poor people? They don’t have to as long as there is a robust financial aid system that can presumably make it feasible for people with less resources to attend college.

TC: Have rising tuition costs led to greater socioeconomic disparities at universities?

CC: Yes and no. Split up the number of students into percentages. Let’s say [family income] is less than 50,000 dollars, between 50,000 and 100,000, between 100,000 and 250,000 and then above 250,000. It turns out the percentage of students at selective colleges whose family income is 50,000 dollars or less hasn’t gone down, but the percentage of students with family incomes above 250,000 has gone up, so what you’re seeing is a squeezing of the middle.

There are fewer in the range of 50,000 to 100,000. The bottom is being protected by financial aid and the top, for whatever reason, is able to fit the bill without much sacrifice. People worry about the the middle class being squeezed out of higher education because for the middle class, financial aid is not making it possible for them to attend.

This is not a consequence of rising tuition so much as a consequence of changing income distribution. The income distribution since 1980 has changed markedly, with the incomes of the very richest going through the roof, so we’re seeing at universities some reflection of that.

TC: Going back to technology, how do Massive Open Online Courses and online lectures change the equation?

CC: When I was answering earlier, I said one answer is the symphony explanation. What you just said is higher education isn’t a symphony—it’s not all about lecturing in front of a blackboard. To an economist who worries about how things are produced and the cost of it, the MOOCs are very exciting. You have the opportunity to do something a lot like normal teaching for hoards and hoards of people. What does that do to the average cost? The denominator keeps getting bigger and bigger, so the average cost keeps getting smaller and smaller. The potential there is really quite astounding. That takes the symphony example and moves it aside. This is something quite different.

There is potential for reducing the average cost of education, but then you have to ask the question ‘what is the product, and has it been changed when it now becomes part of a MOOC? Is it different than what it was in the classroom?’

TC: Aside from their potential, have MOOCs impacted the current market? Have universities adopted this technology?

CC: Hesitancy is different from refusal. Universities that aren’t skeptical toward a change like this aren’t doing their job. A university that turns its nose up to it is being silly, and I don’t know any that have done that. This University has been willing to experiment, and I think it’s learned a lot of lessons from it. That’s one of the great things about this industry and this institution—it’s up for change.

However, not yet. Not at selective, elite, research-intensive, teaching-intensive universities. But something’s going to happen. If I had to bet, I would bet that some of the components of MOOCs—not MOOCs themselves—but some of the technologies will find themselves in collaborations in state universities first, because that’s where the big savings are going to be. Right now, you’re teaching Chemistry [101] to a few thousand people at University X. If you can take the lecture part of that and reduce it or cooperate with different universities, you’ve saved some money and put it in other places.

These things are going to happen. At some point, persistence from the buying public will make the difference. Up to this point, Duke and its near competitors have been able to increase tuition because its customers have been willing to pay. It’s a lot like the frog who is in the hot water and the water keeps getting heated up more and more. We don’t know, but the tipping point might be something.

TC: Have there been any changing trends in how much universities can fundraise?

CC: Every university that wants to get better has gotten very proficient at fundraising. There was a time when even Duke—which is now one of the best fundraisers—had a very sleepy operation and saw it as something that wasn’t so vital. At the beginning of the 1980s, they lifted a lot of weights and got a lot stronger, and now the operation is as strong here as it is elsewhere. It is the fact that the size of the largest donations seem to be getting bigger and bigger. Among high-income donors, universities are one of the favorite donee organizations. Johns Hopkins for example got a lot of money from a guy named Bloomberg. They are what I’m calling the ‘inequality dividend.’ As much as we decry inequality, places like Duke are in fact reaping some unexpected benefits.