Why Are not-for-profit College Costs increasing faster than inflation?

My paper carried an article a few months ago that the highest paid state employee in all bur one or two states is that states major college football coach, with the college basketball coaches not far behind.  From the numbers I’ve seen, major college sports coaches are well into the top 3% of U. S. individual income distributions and are no doubt bringing the top 5% of incomes higher.  Interestingly enough this does not seem to be much of an issue with the media and the public although there has been a lot of hand-ringing about the national income spreads going up.  At the same time college costs for the last couple of decades have been going up well past inflation percentages.  Are these tuition costs being driven by coaches salaries?  Maybe, but I don’t think that’s the primary reason.  Both prices are probably being driven by the same motivation.  It has a lot to do with competitive competition and the assistance of the Federal Government through student loan programs along with some insistence that everyone needs at least a four-year college degree.

Several years ago when I was working for a major corporation I ended up spending some time in Boston working with one of our corporate lawyers on a litigation issue.  We were using the help of a Boston Law firm , and one day we ended at the end of the day with a little time to spare.  Our corporate attorney, had, in his younger days attended Boston College.  The lawyers in the Boston firm asked if we had been out to see the BC campus and we hadn’t.  So they said if we had not seen it since they gone “big time” in division I college football that we ought to go because there had been significant money spent on the campus buildings.  They said that when the school had some big time success in football, the money that people gave the school went up significantly.  But not just for the athletic programs, but for the academic side as well.  Our lawyer, Gil, and I had a chance to take the subway out to the school before we caught the plane back to Tulsa and Gil was very impressed.  There were apparently new academic buildings, new dorms and an upgraded and changed campus from what he remembered.

So I learned something I had not expected on that trip.  A successful athletic program can have a significant effect on the whole University.  But I suspect that it needs to be succesful enough to be known nationally and have a significant amount of Nationally televised games.  With the number of games on TV these days, that is not as  big a deal as it was then.  BC had done that well enough to have few game clips become national standards.  For most colleges the two big “revenue sports” are football and basketball.  The football team probably needs bowl game and basketball needs “March madness”.  And coaches are the key to that.  So a lot of big colleges don’t want to take a chance on promoting assistant coaches, they want “proven” head coaches who have already done it at some other school.  These coaches are already making big money, so the hiring college has to pay more to get him and keep him. All this causes salaries to keep ratcheting up.

The other thing that’s changed are school rating systems.  When I went off to college (many years ago) there weren’t any well publicized national rating systems.  My high school teachers and advisors had some ideas of which schools might be better or not so good, but these all seemed to be just impressions not based on any significant objective data.  Now there several annual rating systems that are based on “objective data”.  Some of the data seems to be valid – like how many of their graduates got jobs and at what salaries.  Some things that the schools have control over may be not be particularly good indicators.  Two of the most reported re the assumed quality of the faculty based on some things that may or may not be applicable to the classroom.  The most obvious is the idea that a university that has more PhD’s is going to have better classes.  And at the same time, real world work experience is apparently not important.  When I was in both undergrad school in engineering and as a grad student in a respected MBA program, the best instructors that I remember may not have had PhD’s, but even if they did they had non-academic practical experience.  The worst instructors were those that had legitimate PhD’s but no practical real world experience.  But most of today’s rating systems give no credit for real world experience, but they give credit for PhD’s and publication of articles.  At one point im my career I was in the position  of manager of a Management Science department trying to do some analytical models that would help the operating management do better planning and have better results.  We had some significant successes that are still in use today.  During that time I had a subscription to an ORSA/TIMS (Operation research/management science professional organization) set of publications.   The two different publications had articles written by academic professionals  – one was academic theory and the other was “practical applications”.  I never spent much time with the “theory” publication – mainly it was too esoteric for me to understand or see much value in.  But for a while I tried to read the “practical applications” publication.  The practical articles seemed to have been written by people who had no experience in the real world, and most of the articles in there seemed to be out of touch with reality.  .

But the employment of PhD’s with or without any piratical experience is critical to the rating systems.  The other thing that gets noticed a lot is a University’s student acceptance ratio.  How many have applied compared to how many actually accepted.  I applied to 3 schools,  but my children and grand-children have applied to more than that, but not as many as now are the average number.  It helps a University in the rating system to have a lot of applications.  The more they have that are more than they plan to accept, the higher marks they get.  One thing that helps their application numbers in addition to those things mentioned earlier is to have more flexibility in the course requirements.  Fewer required courses and more flexibility in what the student might be interested in taking whether if helps him or her in their after school life. So both my universities have cut the number of required courses.  I heard a guy speak this morning and he cited the number of currently unemployed university grads who had not taken courses that helped them prepare for paid jobs.  He reminded me of a young guy that we hired after he went back to junior college and take a two-year degree in computer programming.  It seem he had both a BA and masters degree in Greet mythology, but those degrees did not get him a paying job, so he went back and got a two-year programming degree and we hired him. But if he thought he would get a high paid job out of his 1st two degrees, he was sadly mistaken.  Does everyone need a college BA to get a well paid job?  Maybe not.

I will probably do a part 2 to this post since I have not covered everything I would like to cover.  But I seem to have run out of time and space and I would not want to make it too long to read.



About tjc13

BE - Chem Engineering, Vanderbilt Univ, MBA, University of Tulsa - Worked for an energy and chemical company for many years and then started a management consulting business working for both for-profit and not-for-profit organizations.
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