Monday, October 8, 2012

College Costs ... Going Up or Are We Just Looking at Them the Wrong Way?

We're bombarded with reports that the cost of college is increasing rapidly and becoming unaffordable for too many prospective students and their families.

In fact, repaying student loans has become an onerous burden lasting well into adulthood, and good jobs are hard to find upon graduation. It's a mess.

Now Texas is trying to do something about it. Texas Pushes $10,000 Degree has the story:

"For sale: a college education for $10,000 or less.

Texas Gov. Rick Perry is renewing his call for such lower-cost undergraduate degrees, in what he hopes will be the state's signature response to the national problem of rising college tuition and student debt.

"A $10,000 degree provides an opportunity for students to earn a low-cost, high-quality degree that will get them where they want to go in their careers and their lives," the Republican governor said in a statement last week. The governor has repeatedly urged schools to find ways to teach students more efficiently.

Ten Texas colleges have responded to the governor's challenge, first made a year ago. Angelo State University, a 7,000-student school in west Texas, announced Wednesday it will offer a $10,000 degree starting next fall. The 10 schools educate more than 50,000 students, or roughly 10% of the undergraduates at public universities in the state, but don't include the state's flagship public universities, such as the University of Texas at Austin.

As details of the colleges' plans have emerged, so have skeptics who question the financial and academic viability of pricing college at a fraction of the roughly $30,000 that students at Texas public universities pay on average over four years....

Mr. Perry's plan comes at a time when tuition is soaring; undergraduate costs at public four-year universities climbed 139% between 1990 and 2010, according to the nonprofit College Board.

For the 2011-12 academic year, average tuition and fees across the nation were $8,244 at a four-year public university and $28,500 at a private institution, the College Board said.

Driving recent price increases are cuts in appropriations for higher education by states as they struggle to balance their budgets. Between 2006 and 2011 state governments appropriated 12.5% less per student, according to a March report by the State Higher Education Officers.

One result is that students are taking on increasing amounts of education-related debt. Americans owed $904 billion in student loans at the end of March, nearly 8% more than a year ago, according to the Federal Reserve Bank of New York. That compares with the $679 billion they owed on credit cards at the end of the first quarter. . . .

To offer its new $9,974 degree, starting next year, Angelo State will increase class sizes, offer courses online and will incorporate a $5,000 annual scholarship for participating students. To qualify, students must have relatively high standardized test scores and maintain a grade point average of 3.5 or better....

The push for lower-cost degrees has generated widespread concern among Texas professors, who say they fear schools are sacrificing quality by seeking savings, for instance by increasing the use of adjunct professors. . . .

Thomas Lindsay, an education expert at the Texas Public Policy Foundation, a conservative think tank in Austin, said critiques of low-cost degrees miss the broader significance—that colleges, for the first time, are broadly thinking of ways to lower their costs."

Summing Up

The reason students are paying lots more to go to college isn't necessarily that the total cost of college attendance is going up so rapidly. It's more related to the fact that the subsidization of college costs by taxpayers is coming down. States are paying less, so students are paying more.

But what will happen if it appropriately gets a little more difficult to get accepted into college initially, if upon entering it also gets more difficult to stay in college by being required to get good grades and if it becomes a little harder to qualify for student loans and grants, too? If we tighten up a little all the way around, in other words?

In that case, college costs will begin to decline, grades will begin to rise and young people's debts would become smaller as there would be fewer dropouts and more graduates would be able to find good jobs.

To repeat the obvious, total college costs will go down if student loans aren't as pervasive and easily accessible as they are currently. More stringent admissions criteria would add another factor to slowing or even reducing the rising costs of college.

That's because of the fundamental difference between price based costing and cost based pricing.

Cost based pricing --- Colleges for too long have added up their costs and then charged tuition and fees accordingly. They haven't worried about being limited to charging what's affordable to attendees and their families. Getting more "butts in the seats," even if those butts later drop out, are then replaced by new butts, and signing up all those butts for loans and grants have provided the colleges with more than enough money to cover their costs.

Price based costing --- It's time to make the costs of attending college more closely related to the "customer's" ability to pay and the benefits resulting from the college experience. For colleges to focus on providing the best value for money received. To give the "customer" as much benefit and value as possible for a dollar spent on that customer's education. Regardless of where the money originates.

That's my view. Give price based costing a chance, then sit back and watch everything get better in a hurry.

Thanks. Bob.

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