Monday, November 15, 2010

The Higher Cost of Higher Ed

If you have a son or daughter in college, you have our sympathies. It's no secret that the cost of a higher education has risen faster than virtually any other item over the last three decades. A recent article posted at Inside Higher Ed notes that college tuition has risen at an annual rate of 7.1% since 1981--far above the rate of inflation, and well beyond increases for other consumer items, ranging from energy to health insurance.

College administrators have tried to defend skyrocketing tuition rates, blaming everything from higher salaries for faculty and staff members, to the "amenities" required to attract new students. After all, no self-respecting freshman who go near a campus without a state-of-the-art workout facility, or a posh dorm room. They also claim that its more difficult to control costs in education and other service industries, where costs increases have been running well above inflation for decades.

Still, those arguments only go so far. Fact is, colleges and universities have become addicted to a seemingly endless stream of federal (and private) student aid. In an easy money environment, administrators found it easy to jack up tuition rates, knowing that politicians would increase funding to match the rising cost of a college degree.

And, as you might expect, those at the pinnacle of the university system have reaped the rewards of this perpetual boom cycle. According to the Chronicle of Higher Education, 30 college presidents earned more than $1 million in pay and benefits in 2008, based on an analysis of tax records and other data. Among the rest, 20% of the chief executives at the 448 institutions surveyed earned at least $600,000 a year.

And the perks don't end with six and seven-figure compensation packages. As the Chronicle discovered, university leaders now receive fringe benefits once associated with corporate executives, and the ranks of "millionaire" presidents and chancellors is growing:

Perks including first-class air travel, country club dues and housing are now included in reported pay.

In 2007-2008, 23 presidents received more than $1 million. As recently as 2004, no college president had broken the seven-figure threshold.

While some presidents on the latest list lead ultra-selective schools such as Columbia, Yale and Penn, executives from schools such as the University of Tulsa and Chapman University in Orange, Calif., are on it, too.

Not all the most elite schools are represented, either. The presidents of Harvard, Princeton and Johns Hopkins all were paid in the $800,000 range.

The Chronicle also found that public university presidents (as a group) earn slightly less than their counterparts at private institutions. The highest paid leader of a state college was Gordon Gee of The Ohio State University, who earned $1.5 million in salary and other compensation last year. By comparison, the head of Strayer Education Inc, the holding company for the for-profit school of the same name, paid Chairman Robert Silberman $41.9 million last year, including stock options and deferred compensation.

Obviously, the salary of college presidents is a very small factor in the tuition equation. And, we don't begrudge the packages being offered to university leaders. It's a buyer's market, and there are college boards that clearly believe their presidents and chancellors are worth more than $1 million a year.

Besides, keeping the board of trustees happy (not to mention faculty and alumni) is a tough job. It's not hard to find a university that has forced out a chief executive who was deemed unsuccessful, unpopular, or both. Gordon Gee of Ohio State, acclaimed as the "Best College President in America" by Time, left Brown under a cloud in 2000, after only two years on the job. To this day, he is commemorated on the Brown campus with the "E. Gordon Gee Lavatory Complex," a collection of port-a-potties that appears during the spring weekend.

So where's the rub? It lies in the hypocrisy with which such stories are reported. If it's okay for a college president (in many cases, a public employee) to earn a seven-figure salary, then why is it considered outrageous when a Wall Street executive earns an eye-popping compensation package. True, college leaders aren't in the Goldman Sachs league (at least, not yet), but when you consider that no university presidents were earning this kind of money 15 years ago, the salary inflation is significant, to say the least.

And what are taxpayers and alumni donors getting for their money? That's the $64,000 question. While institutions like Harvard and Princeton are at the top of the academic ladder, other schools with high-paid leaders have a mixed performance record. We know of one SEC school that pays its chancellor well over $500,000 a year in salary and other compensation. The campus is gorgeous (and so are the co-eds), but the school doesn't have a single, world-class academic program.

There's nothing to indicate that university presidents will be taking a big pay cut in the near future, but some sort of reckoning may be at hand. The days of unlimited federal student aid--the "mother's milk" of the modern university system--may be ending, with renewed attempts to reign in the national debt. That will put more pressure on university leaders to grow endowments (no easy feat in a down economy) and find other sources of funding. Facing those realities, the kings and queens of academia will have to earn those fat paychecks.

1 comment:

Ed Rasimus said...

Two simple truths to learn here:

1.) A product will cost a consumer the value of the materials/labor to produce it plus a reasonable profit (which the consumer accepts).

2.) Artificial payment through government stipend or redistribution policy will raise prices exponentially. The customer must be impacted by pricing and make a market-driven decision.

Doesn't matter whether it is higher ed, healthcare, mortgages, or Chevy Volts.