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Tuition can easily get in the tens (if not hundreds) of thousands of dollars for a 4-year degree. This is unarguably many times over what the university needs to cover the costs of offering their services. Why is this the case if they are usually run under a non-profit architecture?

Where is all this money going?

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    This is unarguably many times over what the university needs to cover the costs of offering their services. [Citation needed]
    – Corvus
    May 23 '15 at 6:34
  • 4
    @Corvus Bad assumption aside, understanding the economics is, I think, a quite legitimate question.
    – jakebeal
    May 23 '15 at 6:38
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    You would be surprised to learn that tuition is not a major income source for some expensive, high class research schools. For example: web.mit.edu/facts/financial.html MIT self reports only 10% of revenue from tuition. So clearly, tuition is not enough to cover costs!
    – JP Janet
    May 23 '15 at 7:45
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    @JPJanet MIT does a lot more then just teach fee paying undergraduates.
    – StrongBad
    May 23 '15 at 7:55
  • @YasmaniLlanes I was not the down-voter, but you are substantially underestimating the costs of running a university. Despite large tuition increases, every public R1 schools I know well loses money on every in-state student. In the past, state governments have heavily subsidized tuition, but this is no longer the case in most states. As a result, schools have to make up the difference from high out-of-state tuition.
    – Corvus
    May 23 '15 at 7:59
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I think that education in US, even in non-profit institutions, is expensive, because colleges and universities can charge basically whatever amounts they want, a practice, to a significant degree, IMHO prompted by trying to stay competitive by overspending on amenities, many of which are very remote to the nature of education and learning. Of course, there are significant costs, some of which are appropriate, such as salaries for faculty and staff, equipment for labs, some research programs and other reasonable expenses. Having said that, I believe that some of the expenses are over-inflated, such as (too) nice and fancy campuses and buildings, top administrative and executive compensation, research labs and programs that don't produce significant enough output, sports and other over-spending sources. That is not to say that tuition and fees cover all those expenses - universities traditionally rely on various financial sources in addition to tuition and fees (see the last link below). Of course, the above is just my somewhat naive (but, hopefully, not so far from reality) interpretation or, rather, impression of the complex ecosystem of higher education.

More details on the topic can be found on Wikipedia (i.e., see this section and this article) and other resources (i.e., this article). In the popular press, there is no shortage of opinions, both blaming colleges and universities for exponential increase of the cost of education as well as defending their actions and situation. Those interested in a more comprehensive economic analysis of the subject, can be referred to a significant amount of existing academic research, such as this thesis.

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    This is a very good answer that hits on most of the key points. I'd stress that there has not only been an increase in highly paid administrators, but also a huge increase in the number of administrative positions, while faculty positions have stayed roughly constant in number (but often switching from tenure track to less expensive non-tenure track lines.)
    – Corvus
    May 23 '15 at 8:01
  • @Corvus: Thank you for kind words. I agree with your emphasis. It seems that institutions try to optimize (read: cut) costs not where IMHO they should (that is, in secondary areas), but in exactly opposite and critical for education quality dimension. At the same time, they increase spending in non-essential (for education quality) areas, as we both mentioned. May 23 '15 at 8:18
  • "...because colleges and universities can charge basically whatever amounts they want...". I agree with this statement if the words "within certain limits" are added. However, I think it deserves further elaboration. Since you are obviously very familiar with the issues, why do you think this is the case? I believe the economic term for this is "inelastic". May 23 '15 at 15:22
  • @FaheemMitha: While my answer, of course, does not imply the infinite charging, it is not clear what the word certain in your clarifying phrase "within certain limits" really means. I don't see much certainty in charges and the limits seem to be more based on the overall market's pricing situation, even for non-profit institutions. I wouldn't say that I'm more familiar with the topic than many other people, I was sympathetic to solving this problem (as other social issues), hence my answer. As for the term "inelastic", perhaps, it fits, but I don't think it fully reflects underlying reasons. May 23 '15 at 17:57
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Tuition rates have grown much faster than inflation over the past decades; most estimates show that they've more than doubled -- after adjusting for inflation! -- in the past 30 years.

There seems to be a large body of evidence and broad consensus supporting the idea that a disproportionate increase in the number and/or salaries of university administrators is responsible for this growth. A quick Google search turns up hundreds of articles, many of which link to the primary data. This trend seems to be global. A few examples, of which I suggest reading at least the first:

This list could go on for a long time, but you get the idea. There are other theories; here is one opposing point of view.

I was happily surprised to see that my own institution's budget for next year adds about 15% to research and education (we are growing), while decreasing the budget for administration and finance by about 8%! But we have an unusual President, whose priorities are in the right place. And we don't charge tuition.

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  • An interesting perspective, but it should be noted that you are merely identifying how tuition money is spent, not why it tuition in general is increasing. Heuristically, tuition has increased due to economic incompetence by Baby Boomers and their children and their complicity in driving the funding model of attaining a college education into credit avenues, State controlled expropriation and false price triggers May 23 '15 at 12:54
  • Another factor that hasn't received adequate emphasis here is the withdrawal of state government support for higher education. See e.g. cdn.americanprogress.org/wp-content/uploads/2014/01/…
    – Corvus
    May 23 '15 at 19:07
  • @Corvus That is discussed quite directly in the NYT article (which debunks it) and the "opposing viewpoint" that I linked, as well as in some of the other links. May 24 '15 at 9:44
  • @DavidKetcheson I saw that claim in the NY Times article, but writing it in a newspaper doesn't automatically make it true. I am all too familiar with the strain that a school suffers when the state legislature makes huge cuts to the higher education funding but still tries to cap tuition and out-of-state admissions.
    – Corvus
    May 24 '15 at 17:47
2

There is a long list of possible answers to the question, and different answers will apply to different schools. Cal State LA is not the same as USC, although neither is a for-profit entity. Not all universities in the US are expensive. Some have big endowments and some do not. Some nonprofit universities are private, and some are public. For the public ones, the level at which the cost is set is based on how willing the voters are to pay for the system. Here are some general answers:

  • The more expensive schools are competing against each other to provide the best amenities, such as rock-climbing walls. This is described in more detail in Aleksandr Blekh's answer.

  • As described in David Ketcheson's answer, many schools are topheavy with administrators.

  • Being cheap can, counterintuitively, be a competitive disadvantage in attracting students. Affluent parents may figure that if school A costs $50,000 a year, and B costs $25,000, then B must not be as good.

  • At many private schools, there is an expectation that nobody will actually pay full tuition. What you actually pay is based on your ability to pay.

  • Students have opinions about where they want to go to school, but the bills may be paid by the parents, not the students. Or if the students are paying, they may be using loans, so the money doesn't seem real to them.

  • Education is seen as a public good, and therefore there is a tendency for government to subsidize it in various ways, such as tax-advantaging college savings funds or Pell grants. These subsidies distort the market and raise prices. Although the question is about nonprofits, the extreme examples of this are for-profit schools such as the scandal-ridden Everest College, which had an absurd cost-to-value ratio.

  • In fields like science and education, research activities act as a subsidy to the school, since the school charges funding agencies an overhead as part of grant funding. However, research in some other fields may be a net loss for the school.

  • Similarly, some sports programs may produce net revenue for the school, while others are a net loss. This is controversial and hard to measure. E.g., you can't tell whether USC's football program causes alumni to feel connected to the school and therefore donate money.

  • Some subjects are just expensive to teach. For example, undergraduate physics labs are expensive to run, but they're needed as a service to other departments such as engineering.

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Haha! Market economics and myths about degrees and particular institutions, and crucially the value of networking in professional life after university.

In reality much smaller, flatter structures than universities could provide the same (or better) standard of tertiary education. A lot of the seminars could possibly be done by skyping or hiring a cheap room locally. Lectures (if indeed they are ever genuinely needed) could be delivered by YouTube. This wouldn't prevent the possibility of social interaction with other students.

For most subjects these days, most learning is self-learning, done by reading books (and of course use of the Net).

What you are paying for is NOT quality of education, NOT face-time with your teachers and NOT lectures (you could get that info more efficiently by reading). Contrary to myth, the value of university is not even about "having a good time"/"so much more than education".

In reality you are paying for a piece of paper which says "Yale" or "London University" or whatever, and the value of that piece of paper is that potential employers regard it as a badge of seriousness, not of education.

The other thing you're paying for is to make friends. The idea is that subsequently they and/or you become moderately successful and help one another out.

And the level of the fees? They charge whatever they can get away with. Everything is now "marketised" (already in the Anglo-Saxon world, and the rest of the world will have to follow suite). Even if they didn't spend the money on staff salaries they would find ways: advertising and branding, preposterously expensive research facilities, Hadron coliders, sabbaticals... the list is endless: university managers are creative people in one way at least.

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    This rant is not an answer to the question. stackexchange is not a forum to vent anger or freely exchange opinions.
    – Siyuan Ren
    May 23 '15 at 13:20
  • there speaks the voice of vested interest
    – mrodent
    May 23 '15 at 18:41

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