Rising Tuition Fees – The Next Bubble?

A report last week from statistics Canada showed that the average university tuition rate rose by an average of 4.3% last year, and that this figure outpaced inflation by a considerable margin as the latter came in at 2.7%.  This is not a new trend, and unfortunately has led to a well-documented increase in the cost of post-secondary education.  In raw numbers, Canadian undergraduate students are now paying an average of $5,366 in tuition fees, up from $5,146 a year ago.  Tuition rose in every province except Newfoundland and Labrador, where there hasn’t been an increase since 2003-2004.  While undergraduates took the majority of the financial sting, graduate students seen their fees increase 3.7% as well, and are now paying an average of $5,600 in tuition expenses.

The Trend Of Rising Tuition Fees Is Not Unique To Canada

Before I tried to analyze the broader effects of this tuition-outpacing-inflation trend, I thought I would take a look at the correlation to USA post-secondary costs.  The most recent study I found appeared on the Bloomberg website, and was conducted by the National Association of Independent Colleges and Universities.  The study showed a comparable 4.6% rise in the cost of post-secondary education, and while this was relative to a higher core inflation rate of 3.6%, it still represents a significant gap in the cost of a good education compared to everything else in society.

There Has To Be A Better Way…

I am definitely not in the camp of “post-secondary education should be free for all, and we should keep tuition costs down at all costs,” but the fact is that this increase in tuition fees is not sustainable.  I wrote a post a couple weeks ago about market bubbles, and I am growing more and more convinced that post-secondary education is one of the next bubbles that will greatly effect society at large (full disclosure, this is not my original idea, I have seen it mentioned in a variety of places).  This is making more and more sense.  The whole structure of publically-funded post-secondary education in Canada essentially makes being in university administration the best guarantee of printing money this side of owning a casino.  The university big shots pay themselves more, hold a gun to the head of the electorate (students and students’ parents) in saying they can’t function without more money, and so the government capitulates and give more money to avoid the dreaded rise in tuition that is a political no-no.  Then, we as society help everyone out by giving students this idea that they need a university degree and that it is worth the cost (no matter what that cost is) even if it is in underwater basket-weaving.  Eventually something has to give here.  My guess is that pretty soon people are going to start following the money, and that sure won’t lead them to an 80K philosophy degree.

The My University Money “Put This Together In An Hour” Plan

I truly don’t understand why government has to make things so complicated.  Here is a simple multi-step proposal that would allow both government and universities (which is by extension paid for by the government as well) to eliminate a massive layer of lobbyists and bureaucracy:

1) First we need to determine how much university administration should cost per student.  If university administration is going to be paid with mostly tax dollars, there should be some kind of publically-mandated regulation of costs in place.  Placing a cap on position salary isn’t enough, there are WAY too many positions that are completely made up and have no true job description.  These positions are pure bureaucratic fat and should be trimmed immediately.  Consequently, lets put a committee together to look at the top 40 universities across Canada (obviously in the USA this would be more difficult considering the much higher quantity of schools) and look at exactly what is needed to run a university.  Should a university president get paid more than the Prime Minister?!  I’m going to go out on a limb here and say that is ridiculous.  Remember, their salaries have not been determined by true free market principles because the entire market has been inflated due to the subsidization process.  So let’s figure out a true administration cost per student.  This figure will be the core of my proposal, so we should get some smart people from outside academia, preferably with private-sector management knowledge, that will have experienced life inside the ivory white tower of post-secondary education, and outside of it.

2) We also need to determine what the average infrastructure, utility cost, and a few other core expenses of universities should be.  The goal here is to determine what a well managed facility should cost to maintain.  Again, private sector thoughts would be a boon at this stage.

3)  Lets determine exactly what the fair ratio is of government subsidization is for post-secondary study.  If we decided that certain industries such as engineering, or a certain trade are in much higher demand and much more useful to society, let’s decide to subsidize them a little more.  We can review the trends every 3 years.  It should be fairly straight forward.  What percentage of your education should the government pay for?  No doubt this will be subject to a great amount of debate and will likely become a platform of government parties.  This is a positive thing.  We would actually be making the funding of post-secondary education transparent to people instead of the ridiculous promises we now see thrown back-and-forth without anything truly being done.

4) After we determine the administration costs per-student, and the infrastructure costs of having a student attend university, we will be operating on the same playing field.  The formula will now become automatic for what amount of government money post-secondary institutions are entitled to.  Once this is figured out, we just simply make the per-student amount tied to inflation, and bingo, bango, bongo, no more lobbying needed, no more mudslinging back and forth between various parties.  The only debate that should take place would be the percentage of funding the government should be responsible for, and possible question of whether a few of the periphery “infrastructure etc” costs should be included in the original calculation.

5) Caps should be put on what specific levels of administration are allowed to make.  Once you lock in the university president position at say 90% of what the Prime Minister makes (I know even that number sounds ridiculous, but it is interesting to note that would be at least a 50% paycut for most university presidents), simply lock in every other position as a percentage of what the President makes.

6) Publically-funded universities should be forced to show their balance sheets in a universal way, especially their compensation packages for respective positions.  They are spending government tax dollars and they should be way more accountable than they are now.

I started to write about an alternative path that would allow for less regulation, but I believe that will have to be an entirely new post.  The bottom line for the time-being at a personal finance level, is to plan for post-secondary costs.  This means taking advantage of RESPs, and being aware of the scholarships, grants, bursaries and other “free money” options that are available to students.  Post-secondary education has to be looked at as a family investment at this point for most people.  If costs are going to continue to trend upward (and it looks like we lack the political will to do much about it), individuals need to invest money ear marked for education in order keep place with this rate of inflation.  Until the government wakes up, it is important to take personal responsibility for future tuition fees.

I would love to hear some criticisms of my theory, or even better – some constructive additions to it.  There has to be a more efficient way of providing education in the areas we need in Canada.  Anyone know what a university president really does except pose for pictures and ask alumni for money anyway?

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I agree with you that something needs to be done for sure. My employment is at a public college here in the US, and it really is mind blogging to see what goes into creating the tuition and fees every year. Our Board of trustees approves our rates each year, which is a decision made by looking at our expected enrollment, budget needs, and state and federal funding. Even though we are a public University, we still rely on donor support (from alumni) for a large percentage of our budget needs. I honestly don’t know if there are concrete ways… Read more »

Looking at it from a student prospective (I went back to school to finish a teaching credential), you have to weigh the cost of getting that advanced degree (or certificate in my case) with the potential employment outcome. If I had done a cost analysis a few years ago, I might have been hesitant to pursue my credential. Averaging $12,000 for a teaching credential, I can assume that if I can find a job by next year, the total cost of my degree will be 1/4 a year’s salary. Not bad. But the job situation is bleak.

Interesting plan. I disagree with using the Prime Minster’s salary analogy though. The PM is extremely underpaid but there would be an huge outcry if he were to be paid like a top CEO. Universities need to be run like businesses. Sure, they are partially funded by the government, but they are still out there competing for customers just like any other business. They need a vision and a strategic direction to grow their business. That comes from having strong leadership in place. Putting a cap on senior administration salaries will only serve to make Universities uncompetitive for top talent,… Read more »

In California, tuition and fees have gone up tremnedously. Many of my students go to community collge for two years to save money.

@ Teacher Man: On the lower-division level, as a matter of fact community students do get the same level of undergraduate instruction as they do in the university. Hiring adjuncts is a way to get experienced, highly educated and basically unemployable Ph.D.s to work for third-world wages. I have a doctorate in English & history, can guarantee I have more publications than 98% of full-time university faculty, and taught upper-division and graduate students full-time at a research-1 university for ten years before moving into a better-paying administrative job. Therein lay my error: The admin job was exempt, allowing the university… Read more »

Randy Post

The rising cost of eduaction makes it hard for lower income children to advance in society.I wish something could be done to control the cost.

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