Is College Tuition Too High? How Competition Drives Up Costs

Competition among colleges, as highlighted by the study, drives tuition up through "positional competition." Institutions strive to improve their rankings, attract top students and faculty, and increase resources. This leads to investments in areas like rankings, capital campaigns, facilities improvements, and excellence campaigns. These actions, designed to enhance prestige, ultimately result in higher tuition, increased institutional debt, and greater expenditures per student, thus negatively affecting students and their families. The study's model simulates this dynamic, showing how the pursuit of reputation can have the unintended consequence of escalating costs.

The study identifies several key factors that fuel tuition inflation. These include actions driven by the drive for higher rankings, leading to investments even if they do not directly improve education. "Capital Campaigns" involve fundraising for endowments and projects, increasing spending. The "facilities arms race" sees colleges building luxurious amenities. "Excellence Campaigns" aim to attract top faculty and students, often through high compensation and financial aid. The study found that four out of five of these scenarios—rankings, capital campaigns, facilities improvements, and excellence campaigns—contribute to tuition increases, highlighting the multifaceted nature of the problem.

The study's authors suggest several strategies. One key recommendation is "Weakening the connection between college rank and associated rewards," potentially by de-emphasizing rankings in funding and hiring. Another is "Reducing uncertainty about college quality" through more transparent data on educational outcomes. They also suggest "Creating a new ranking category for value colleges" and "Modifying rankings to encourage collaboration" among institutions. Additionally, "Reconsidering antitrust regulations" to allow coordination on financial aid could help curb the competitive spending.

"Positional competition" is the core mechanism driving tuition increases. Colleges engage in a constant struggle to improve their standing, attract top talent, and secure resources. This involves making investments that improve the perception of the institution, such as improving facilities, increasing the amount of financial aid offered, and hiring top faculty. The implications of this type of competition is tuition escalation, higher institutional debt, and increased spending per student, ultimately making higher education less accessible and more costly for students and families. The study's model captures how the focus on prestige, driven by rankings, can lead to a cycle of escalating costs, rather than lower prices as one might expect.

The study suggests that rankings aren't inherently bad, but the way they are used and the impact they have on competition can be problematic. The authors suggest "Weakening the connection between college rank and associated rewards", indicating that the problem lies in the consequences of rankings, not necessarily the rankings themselves. Modifying rankings to encourage collaboration and creating a new category for "value colleges" are proposed solutions, which implies a more nuanced approach. This approach would acknowledge the role of rankings but also mitigate their negative effects, fostering a more collaborative and cost-conscious environment in higher education. The goal is to shift the focus from competition for prestige to a more balanced approach that prioritizes educational quality and accessibility.