Does Wealth Inequality among Universities Pose a Threat to the American Economy? (Part 4)

Pros & Cons: How America Funds Higher Ed

In the first three parts of this series, we initially looked at a report from Moody’s regarding the growing separation by wealth between a small number of extraordinarily rich colleges and universities and the very large number of institutions that are heavily dependent on tuition to fund their annual budgets. Subsequently, we reviewed the history of wealth acquisition by the very rich campuses and noted that it was a relatively recent phenomenon. Then we examined the consequence of this imbalance in wealth in terms of the long-term viability of tuition-dependent colleges and universities.

Now, in Part 4, we will consider the relationship between historic patterns of public and private financial support for higher education, and the current very high level of frustration, on the part of parents, politicians and pundits, regarding the diminishing opportunities for young people to receive a college education that is both excellent and affordable.

At certain points in our nation’s history, public opinion has held that higher education is a social good, whereas at other times higher education has been perceived as a private benefit. Those swings in opinion have had profound effects on public policy, and, as we shall see, have contributed to the very significant economic challenges our country is facing today.

Examples of times when there was broad public support for the use of taxpayer dollars to subsidize educational costs include:

  1. 1790, and the advent of public institutions of higher education (the Universities of North Carolina and Vermont);
  1. 1862’s Morrill Act, establishing land-grant universities for the purpose of creating expertise in agriculture and engineering (“Justin Morrill, the man behind America’s higher education,” The Boston Globe, June 21, 2015);
  1. 1944’s G.I. Bill, which opened the doors of higher education to more than two million returning servicemen and women;
  1. The period from roughly 1950 to 1980, when a dramatic expansion of state and community colleges resulted in a quadrupling of the percentage of American adults with a college education.

During the last 35 years or so, however, the prevailing view in America has been that higher education is primarily a private benefit, and therefore the responsibility for paying for higher education rests with the individual. Reflecting this belief, state appropriations to public higher education have dropped precipitously, leading to dramatic increases in tuition prices at public institutions, and a sharp reduction in affordability on the part of prospective students and their families.

A few statistics:

  1. The average list price for tuition and fees at public four-year colleges and universities in America in 2014-15 was $9,138; with room and board included, the price was $18,943.
  1. The average list price for tuition, fees, room and board at private, nonprofit, four-year colleges and universities in America in 2014-15 was $42,419.
  1. The median family income in America in 2013 was $51,939.
  1. Measured in inflation-adjusted dollars, between 1985 and 2010 the list price for public universities increased by 157 percent, and by 137 percent for private colleges and universities.
  1. On the other hand, median family income between 1985 and 2010 increased by just 8 percent.

(To be sure, the prices cited above are list prices; the actual price paid by most students, especially at private colleges, is much less. Even so, there is no disputing the fact that the average family must pay a much larger proportion of family income to send a child to college today than was the case 30 years ago. That fact alone accounts for much of the concern of parents that a college education has simply become too expensive, and may no longer be “worth it.”)

How does this shift in public policy regarding the funding of higher education relate to the subject of this blog: wealth inequality among colleges and universities?

To the extent that people actually expected that philanthropic dollars would somehow replace the dollars that the states took away from public institutions, they must be terribly disappointed. In the first place, there aren’t enough philanthropic dollars to substitute for the missing public dollars, and, in the second place, philanthropists are obviously free to follow their own wishes regarding the target of their gifts – and since many of them are graduates of wealthy and prestigious private colleges and universities, those are the institutions that have been most favored, a point made emphatically in the Moody’s study that is the subject of this series.

As a consequence of losing state dollars and of rising costs, over the past 35 years all colleges and universities, public and private alike, created, or expanded, offices of “development” or “advancement” (read: gift-seeking), in order to remain competitive with their peers – and some have been far more successful than others (see Part 2 of this series). Highly uneven success in fund raising resulted in the enormous wealth inequality we now see among the nation’s more than 2,000 four-year colleges and universities. In addition, lack of significant philanthropic success has forced the great majority of private and public colleges and universities to raise their tuition prices to cover their costs – and since median family income has not kept pace with rising college prices, more and more families are finding it very difficult to pay for a college education. The growing inability of American families to afford to send their children to college threatens the overall American economy because we are falling farther and farther behind other countries in the percentage of adults with a college education (“Take a trip abroad, see the US in decline,” The Boston Globe, June 21, 2015).

Somewhat paradoxically, the richest (and therefore the most prestigious) colleges and universities have had no trouble enrolling large numbers of students whose families are both able and willing to pay full price – and full price at these schools is generally around $60,000 per year – even as less well-known colleges struggle to attract a full class of students where the discounted price averages less than $30,000 per year. The paradox is explained by the growing wealth and income inequality in America today (see particularly my blog post on Sept. 30, 2014): wealthy individuals can afford to send their children to these rich and prestigious colleges and universities, and are only too happy to do so because their children will be surrounded primarily by children from equally wealthy families, and because of the presumed status of the elite brand name that will appear on their children’s diplomas.

The current path our nation is on will ensure that the problems I have been discussing will only become more severe, resulting in an even more stratified society and a national economy that continues to weaken. But does our nation’s economic future depend solely on society once again deciding to embrace the notion that there is great public benefit from having a highly educated populace – or are there steps to address the growing stratification of colleges by wealth that would, if taken, once again expand affordable access to a quality education?

Next time, Part 5: A New Course Heading for the Ship of State.