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University challenged

26 December 2013 By Christopher Swann

American universities need a better lesson in capitalism. Spiraling degree costs are an economic drag: students now borrow $121 billion a year and parents may be taking up to $200 billion a year out of their savings to help, according to a Reuters Breakingviews analysis. Add in taxpayer contributions and the $485 billion spent on sending kids to college equates to more than 3 percent of GDP.

The cost of a college education has jumped by 72 percent in the past 13 years and by 538 percent since 1985 – outpacing even the almost threefold jump in medical spending. Extra-curricular activities account for much of this. Net spending per athlete at the top 350 sports universities, for example, climbed 50 percent between 2005 and 2010, according to the Delta Cost Project, a higher education think tank.

Such luxuries, though, do not directly promote productivity or academic rigor and only improve the earning power of a small subset of graduates. The average pay for an American with a bachelor’s degree has fallen 15 percent since 2000, according to the Institute for Public Policy Research.

This trend of rising tuition costs and lower incomes is akin to the negative operating leverage that can get a company boss fired. Few colleges, though, have done much to address it. In his call for universities to demonstrate how they provide value for money, President Barack Obama in August mentioned one that has: Western Governors University awards its degrees on competence and learning rather than credits accumulated or time spent studying.

Brigham Young University-Idaho, meanwhile, may have free market economics down pat. Not only does it shun spending on extras like sports and research. It has also adopted the manufacturing sector’s approach to plant utilization, running courses all year round to get the most use out of its buildings and academics. As a result, tuition fees, which started low at around a tenth of the average private college, have risen by 45 percent over the past decade compared with 70 percent at comparable schools.

High-fee universities will always have their place – especially elite schools like Stanford and the Massachusetts Institute of Technology. But if innovations like BYU-I’s take hold at the majority of colleges, it would provide a potentially huge boost to the U.S. economy.

 

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