Least Surprising Education Headline of the Year

The Center on American Progress sponsored an event last week focused on college rankings. I was on the panel along with a representative of U.S. News & World Report, and recent late-night comedy star Paul Glastris. During the Q&A, I made a point that I try to make whenever someone gives me a chance, and sometimes even when they don't, which is that the problem of constantly-rising college costs is actually more connected to the U.S. News rankings than people commonly understand. It's well-known that colleges engage in various shenanigans to boost their rankings, like counting a $15 donation a student given by a senior as three $5 donations over the subsequent three years, in order to boost the "alumni giving rate." But that's small potatoes in terms of what drives the rankings; the big opportunities are tied to money. 10 percent of the rankings are a function of spending per student (by contrast, admissions rates are only 1.5 percent), while an even larger percentage is driven by things that cost money to buy, like small class sizes and well-paid professors.

That translates into incentives that virtually guarantee inefficiency and constantly rising costs. If a university were able to figure out how to reduce its costs by, say, 10 percent, while holding quality constant, and it chose to pass those savings along to its customers in the form of a tuition decrease, its U.S. News rankings would go down. If, on the other hand, it became 10 percent less efficient and passed the cost onto customers in the form a tuition increase (not a hard thing to do if you're a selective college), its ranking would go up. All of this stems from a deficit of reliable, comparable, institution-level measures of quality. Thus we have this crazy higher education market with no value proposition, one where cost and quality are assumed to be the same thing -- and in the sense that high-end higher education is a luxury good that primarily serves to signal your exclusive ability to acquire and pay for it, they are the same thing.

Like many higher education problems, U.S. News exacerbates this problem but didn't create it; there are a whole host of long-established values and incentives that reward institutions for raising as much money as possible and spending it with little care for efficiency.

Therefore, it comes as a surprise to absolutely no one to see this headline in the New York Times: "College Costs Rising Rapidly." Once again, average tuition and fees for public and private universities rose at more than double the rate of inflation. Higher ed folks can--and will--make whatever excuses and caveats they like about net prices, public appropriations, appropriate price deflators, etc., but the bottom line is that by whatever measure you choose--percent of GDP, median income, anything--higher education simply costs more today than it ever has before, and there is precious little evidence to show that those resources are being spent in a way that correspondingly increases benefits for the students and taxpayers who foot the bill.

UPDATE: Matt Yglesias comments here, Unfogged here.