Why Your College Tuition Isn’t Going Where You Think

We all know that college tuition is on the rise. But when you see that at many top public colleges’ total costs in America exceed $25,000 annually, and that costs for many excellent private schools are in the $50,000 to $60,000 range or more per year, it’s quite mind-blowing.

Does it cost good money for schools of all kinds to hire and retain excellent faculty, build or maintain nice facilities, or put on any number of campus programs? Of course it does.

Do those expenses justify, however, the aggressive year-over-year price increases witnessed this past decade? Absolutely not!

Fortunately, when you see the advertised price for a given college, that’s just the sticker price. Most families don’t pay published tuition rates. Scholarships, grants, and other financial aid help offset those costs.

But just knowing how much college tuition costs have escalated is a real eye-opener to many parents.

A Wake-Up Call About College Tuition

If that’s not enough, here’s another wake-up call.

You might think that most of your tuition dollars are going toward salaries for professors and activities that provide a direct benefit to education. Well, that assumption would be misguided — not to mention a bit naïve and ill-informed.

Economist Rudy Fichtenbaum is a professor at Wright State University, Fairborn, Ohio, and president of the American Association of University Professors. In an interview with the Wall Street Journal, he decried the amount of money being spent not on professor salaries, but on a whole host of other things.

“Critics of higher education often blame faculty salaries for rising costs. However, when measured in constant dollars, salaries for full-time faculty at public institutions have actually declined,” Fichtenbaum said. “What is driving costs (are) the metastasizing army of administrators with bloated salaries, and our university presidents who are now paid as though they were CEOs running a business — and not a very successful one at that.”

“There is also the growth in entertainment spending and spending on amenities. Many universities claim that they must compete and therefore have borrowed millions to build luxury dorms, new dining halls and rock-climbing walls. They also spend millions subsidizing intercollegiate athletics,” he added.

Some students take advantage of these “amenities”; others don’t. But the reality is that everyone pays for them — unless you know better.

College tuition dollars are diverted in other ways you may not expect.

Tuition Set Asides

A separate Wall Street Journal report in 2014 highlighted how some students’ tuition payments are subsidizing their classmates’ tuition.

According to the Journal, due to cutbacks in state aid, at least a dozen flagship state schools take tuition payments made by middle class families and wealthy families and use that tuition revenue to cover tuition for low-income students.

These so-called “tuition set-asides” have grown dramatically in recent years. The Journal’s analysis found that at public schools, tuition set-asides range from 5% to 40% of college tuition that students pay.

Meanwhile, at private schools without large endowments, more than half of the college tuition payments may be set aside for financial-aid scholarships. At both public and private colleges and universities, school officials use tuition set-aides as a way to create a more diverse student body and to meet various institutional goals.

An NPR report in 2014 offered an even more detailed, fascinating account of where tuition dollars are spent at private postsecondary schools.

NPR examined Duke University, an elite institution that had tuition and fees of $45,620 in 2013-2014. The total cost of attendance at Duke — including tuition, fees, room and board — was $61,404 in 2013-2014. In profiling the campus, NPR quoted Duke executive vice provost Jim Roberts as saying that students paying full freight — or just over $60,000 annually — were still actually getting a substantial “discount” off their education.

How is this even remotely possible?

The Quarter Million Dollar Degree

In a nutshell, school officials say that it takes about $90,000 a year to educate a student at Duke. Of that total, here’s a breakdown of how the money gets spent:

  • $21,000, or 23%, goes to faculty compensation
  • $20,000, or 22%, goes to Duke students who get financial aid
  • $14,000, or 16%, goes to pay a share of administrative and academic support salaries, (including more than $1 million in total compensation to Duke’s president and more than $500,000 to the provost)
  • 14,000, or 16%, goes to dorms, food and health services
  • $8,000, or 8%, goes into building and maintaining physical infrastructure
  • $7,000, or 8%, goes to staff salaries for deans and faculty
  • $5,000, or 7%, goes to miscellaneous costs

It should be noted that at Duke, about 53% of the student body pays the full, published sticker price, in excess of $60,000 annually.

For the record, NPR wasn’t picking on Duke — and neither am I in highlighting these statistics. After all, among top-ranking schools, Duke isn’t alone in having such costs. You’ll find similar expenses from many of its private-school peers.

Nor is Duke unique among elite research universities and prestigious liberal arts colleges in claiming that you’re getting a relative bargain if you fork over about a quarter of a million dollars over four years to earn a Bachelor’s degree.

So as I explained in my book, College Secrets, if you want to worry about tuition — that is, tuition that you actually have to pay out of pocket, not a school’s stated tuition price — perhaps the first question to ask a school is: how exactly will my tuition dollars be spent?

If you’re happy with the answers, and you later decide to pay up, then the obvious question you have to ask yourself is: will it ultimately be worth it?

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