Paying for the Class of 2039

When we found out that Penny was on the way, among the first things I did as a soon-to-be dad was open a 529 college savings account.* I don’t know much, but I know that 18+ years is a lot of time for compounding to do its magic, and that sending her to college is not going to be cheap. We are determined for Penny to graduate in the Class of 2039 debt-free, as both Laura and I were able to do. I now pitch a few hundred dollars into her 529 every month.

Planning for something as far-out as college in 18 years obviously involves a ton of unknowns, like: will people even go to college as a matter of course then? My guess is that they will, so we have to plan for it, but I have my doubts. American higher education is in deep trouble and on a path whose costs alone are clearly unsustainable. (And as we know, the thing about unsustainable things is that, eventually, they always stop.) As a future buyer of educational services for our (nearly) 3-month-old, I don’t know that I’ll be on the universities’ side when the time comes to save them.

The cost curve

We all know that higher education has steadily increased in price for decades.

An example: I was lucky enough to go to the University of Virginia as an in-state student. Tuition and mandatory fees at UVA (and across Virginia’s excellent network of four-year colleges) literally doubled between 2000 and 2010, and have increased somewhere in the neighborhood of 60% since then. Tuition increases have varied from high single-digit to double-digit increases every single year (and remember, this does not include room & board). What cost my folks about $16,000 for my entire college tuition would not, in 2018, even fully cover a single year. (In fact, it cost them even less than that, because they took advantage of Virginia’s 529 plan, which is/was a prepaid tuition program that “froze” tuition levels at an earlier point. They’ve changed the program and made it far more expensive now, but you can read more about it here.)

Anyone who has been paying attention for the last two decades knows that this is solidly in line with national trends, not an outlier. The reasons for the relentless increase in the cost of college are hotly debated:

  • decreasing state support (mostly true)
  • skyrocketing administrative costs and executive pay (certainly true)
  • capital misallocation by university administrations (probably true)
  • a lack of cost discipline due to nearly unlimited student loan availability (also probably true)

Universities only aggressively promote the first reason, of course, because pushing back against it guards the flow of funds into a university bureaucracy that is sclerotic and fundamentally ill-suited for modern realities. I have a lot to say about all of these reasons, but that’s probably a discussion for a different blog post. 😅

Regardless of the reasons why college is becoming more expensive, it nevertheless is, and shows no signs of stopping. Following current trends, it’s perfectly reasonable to extrapolate that an in-state, four-year public university tuition for Penny will be quadruple its cost in 2017 (if not more). Ergo, four years at UVA would be roughly $64,000 for an in-state resident; or, more relevant for us, $36,000 at UNC-Chapel Hill. That is before room and board, which more than doubles the cost of each: $128,000 and $72,000, respectively. (Forget private colleges for now, because… lol.)

There are plenty of places to quibble with these figures – room & board don’t increase at the same rate as tuition, for example – but it’s also perfectly reasonable to think that this back-of-the-envelope accounting underestimates the likely costs instead of overestimating them. Legacy costs like pensions and healthcare, for example, are only going to increase.

But wait! That’s just the sticker price!

A dirty, but open, secret in college financing is that few families actually pay the “sticker price.”

Universities use high tuition costs as a way to price discriminate, awarding financial aid (typically in the form of waivers) to lower-income families and fully charging wealthier ones. As UNC mentions on its Cost of Attendance page (after apologizing for large tuition increases), nearly half of UNC students receive some financial aid, and lower-income students are able to graduate debt-free. While this sounds great, most students who bother applying, get into and attend UNC are far from “low income,” so its impact is somewhat exaggerated: only around 6% of UNC graduates over the last decade have benefitted from this deal. This is common at other major, wealthy public universities (UVA has something similar), while less-wealthy institutions are substantially less generous.

Nor is this a “flagship school” problem. While UVA and UNC-Chapel Hill, like other “public ivies,” are more expensive than their less-prestigious state counterparts, they are not dramatically so. UNC-Pembroke, for example, lists their “fully loaded” cost of attendance at about $17,000, while James Madison University in Virginia lists $26,000 (!).

Your average middle-class family sending a student to a four-year university like this may receive some aid, or they may not. The sticker price is probably a pretty good standard to use.

Taxes for education?

To be clear, I think states should adequately support higher education with taxpayer money. I also think most universities themselves are very poorly managed and don’t use taxpayer funds very effectively, for some reasons that aren’t their fault (like mandated costs) and some that are (chasing research revenue and not serving students).

Nevertheless, all discussion of what level of state investment in higher education is optimal should have this caveat: pretty much all research on the topic conclusively shows that investment in early childhood education provides much greater long-term social benefit than higher ed.

Colleges and universities are inarguably vital institutions to our economy, polity, society and culture for reasons too obvious to go into here. Yet tax dollars invested in programs like pre-K, Head Start and early literacy have dramatically greater payoff in terms of human development than the same in state universities. Again, volumes of research confirm this. Higher education has a much more vocal and better-organized advocacy lobby for a few obvious reasons: its direct beneficiaries (college graduates) are more likely than pre-K graduates to speak in full sentences, and can also vote; but also, higher education systematically advantages higher-status people through selective admissions, while early childhood investments are public benefit programs.

Unsustainable things stop

With a median household income of roughly $48,000 in North Carolina, and a year of undergraduate education at UNC costing about $25,000 (fully loaded), it’s hard not to see higher education as effectively unattainable for a huge swath of people. And as we’ve seen, it’s getting worse.

Most of the anti-higher-ed noise out there is carried out by partisan issue entrepreneurs trying to drum up outrage: “liberal university professors,” etc etc. This is mostly nonsense distraction, but part of the reason it resonates with some is because universities have increasingly catered to well-off families and burdened their graduates with more and more debt. While academics complain that graduates’ job prospects are not their problem, 80% of students say that the primary reason they go to college in the first place is to “get a middle-class job.” So when voters see public universities as both inaccessible and unconcerned with economic realities, they’re reasonably less supportive of extending them generous taxpayer subsidies. Given the political climate, this problem is unfortunately twisted into screeds about “liberal universities” rather than a sober examination about what universities are actually good for, and at, and how they need to change.

So here’s my prediction: when the cost of a single year at a state university nearly approaches median annual household income, there will eventually come a tipping point. Taxpayers won’t keep shoveling money into a pit, and entrepreneurial politicians will seize upon the issue to take their pound of flesh. Most state universities are run with a high degree of independence today, but that isn’t intergalactic law. It’s easy to imagine conservative politicians demanding hearings, investigations, audits into university administrations. Academia would (rightly) shriek about such political interference, but I don’t think voters would much care.

I suspect that with no end in sight to eye-watering cost increases, public universities are making themselves increasingly vulnerable to taxpayer revolts that will result in drastic intervention by state legislatures. Moreover, most of those interventions will be led by demagogues more interested in winning political points bashing “liberal universities” than by level-headed experts who are believers in the value of higher education. They will end or severely curtail the tenure system (an idea I support); slash administrative and support payrolls; gut expensive capital projects; perhaps even mandate a raid on university endowments themselves, or their tax exemption.

It is exceedingly rare that I praise anything done by Rick Perry, but one not-awful idea he had while governor of Texas was a challenge to that state’s public universities to develop full, four-year degree programs which cost $10,000 total, inclusive of books and fees. Naturally, academics protested that it could not – and even should not – be done. And yet, 80+ percent of Texans were in favor, and it’s now (mostly) a reality. Other states are experimenting with similar models now too. It’s far from outlandish to imagine state legislatures similarly capping tuition levels and flatly rejecting requested increases from university administrations. One idea that I actually find interesting: forcing universities be liable for their graduates’ loans that go into default.

If universities don’t clean their house, eventually states will feel political pressure to do it for them. And the results will not be pretty.

Moreover, I suspect all of this will happen over the next 18 years before Penny goes to college. There’s no way to know how much it’ll cost to send her, and regardless of what happens, it probably won’t be cheap. Nevertheless, I hope universities will open their eyes to the political nightmare their runaway cost structure is creating.

* Dads protip: you can start a 529 even before baby is born! When they’re ready, it’s simple to change the beneficiary to Junior’s name. If you don’t have kids yet, but expect to someday, you can do this RIGHT NOW and I suggest you do. Just more time added to that magic compounding clock. Plus, in many states, your contribution is tax-deductible.