Sticker Shock

issue 04 | winter 2016
Sticker Shock

As the world virtually drowns in all the ink that’s been used to write stories about the high cost of a college education, Denison has been working to do something about it—mostly by providing significant financial aid for our students (nearly $60 million last year alone, thanks in part to fundraising initiatives aimed at alleviating student debt). And it seems the College is getting results: Denison students are graduating with less debt and have a far lower default rate than the national average. But almost everywhere else, across the nation, the story is not so rosy—so comparatively speaking, Denison is in a good place. Even so, the work the College does to control costs becomes tougher by the day. So what’s going on? Why does the cost of a college or university degree keep rising?

Here are the numbers. Figures from the federal government’s National Center for Education Statistics suggest that the price of undergraduate tuition, room, and board at four-year private nonprofit institutions rose more than 140 percent (adjusted for inflation) between 1999 and 2015. And the College Board, for its part, reports that tuition at public institutions has gone up 40 percent since 2005.

To understand what’s happening to college costs, it’s worth reviewing the rather complicated system by which colleges and universities set tuition and fees. There are several elements. First, there is the actual cost of educating a student. Second, there’s the full sticker price that a student would pay in the absence of any discounts (financial aid). And finally, there is the net price that a student would pay once such discounts have been applied.

Take Denison’s sticker price of $63,000 a year. Of that, tuition accounts for approximately $48,000, with room and board making up most of the rest. The gifts that have supported the endowment allow Denison to offer need and merit aid to the majority of the student body. The average Denison student is paying only $31,000 a year, including room and board. But the actual cost of educating a student at Denison is far higher than the per-student net revenue—just above $57,000 a year.

Even so, let’s be clear: No matter how you look at it, a Denison education is expensive. But according to Denison President Adam Weinberg, the College works hard to be affordable, and not just for low-income students, but also for middle-class students, those whose family incomes have stagnated for the past several decades.

Much of Denison’s ability to offset its sticker price is made possible by the College’s endowment, whichnow stands at roughly $750 million—a resource that both Weinberg and Denison’s Chief Financial Officer David English say is made possible by the ongoing generosity of Denison alumni, families, and friends. (The endowment has grown steadily over the years from $69 million in 1990 to more than $490 million just 10 years later, reaching a peak in 2015 of more than $800 million.)

The College, in turn, protects the endowment through conservative fiscal management. As a result, students and their families today pay only 60 percent of what it actually costs to operate the College; most of the remaining 40 percent comes from endowed funds and other gifts. Furthermore, Denison has not done what many colleges have done—overbuilt the campus and/or devoted lots of resources to things that don’t impact undergraduate education. Instead, says Weinberg, the endowment has been focused on easing the burden of tuition increases through generous financial aid packages.

But other small liberal arts colleges, especially those that lack substantial endowments and that rely more heavily on tuition and fees, are in a far less enviable position. All schools, says Catherine Bond Hill, president of Vassar College and an economist who specializes in higher education, compete for students who can pay full freight, thereby helping to defray the costs of those who cannot. But those same students tend to demand services and amenities that drive up costs across the board.

At the same time, incomes across much of the nation’s economy are lagging. In 2008, the Economic Policy Institute and the Center on Budget and Policy Priorities reported that the top fifth of income-earning families saw their incomes increase by 36 percent over roughly two decades. The middle fifth, by comparison, saw a 13 percent average increase over the same period, while the bottom fifth experienced only an 11 percent increase. The problem continues today. That means that more and more resources must be devoted to financial aid by colleges, like Denison, that are committed to recruiting a socioeconomically diverse student body. As a result, says Hill, it is becoming harder for colleges to recruit from both sides of the income gap. It’s a conundrum: every dollar that goes to financial aid cannot go to the kinds of programs and services that disproportionately attract more affluent students, and every dollar that is spent on anything other than financial aid cannot be used to subsidize the less privileged. “That’s the trade-off. Every school is having to make that decision,” Hill says.

For many colleges, this can mean an increasingly desperate race to meet both operating expenses and educational goals. Small, tuition-dependent institutions without significant endowments, for example, can find it difficult to invest in academic programs and amenities—especially when times are tough and enrollments are down. That, in turn, can make it even harder for them to compete for students and to raise the tuition they need to cover expenses. The consequences can be dire for the schools themselves—on average, five colleges shut their doors every year, and Moody’s Investors Service expects the closure rate for small colleges and universities to triple by 2017. But the result can be even worse for students.

So Denison is working to address issues of affordability and the return on investment generated by the student experience. But across the nation, concern continues to rise, and few colleges have found meaningful ways to respond.


The Wall Street Journal reported in May that nationwide, seven in ten members of the class of 2016 borrowed for their educations, and the Institute for College Access & Success says they graduated with $28,950 in debt. (Others paint a darker picture. The website Cappex puts the average student debt at $37,172.) Many argue that those figures are fueled by students borrowing to attend for-profit institutions, which faced harsh criticism from the Obama administration when the U.S. Department of Education released new regulations in 2014 to address schools and career training programs that were charging high rates and not effectively preparing students for the workforce.

“Only about 13 percent of students attend for-profit schools,” The Huffington Post reported in 2014, “yet the sector is responsible for nearly half of all student loan defaults.” In any case, total outstanding student loan debt recently surpassed $1 trillion, a number so high that it is regarded as a threat to the housing market (highly indebted graduates are less likely to save toward a down payment or to qualify for a mortgage) and, by extension, to the economy as a whole. Costs across the higher education sector are unquestionably rising faster than inflation, and the financial burden on many families has indeed grown heavier. But as counterintuitive as it seems, the steepest increases in tuition and fees have in fact occurred at public institutions rather than at private ones; and at the latter, the situation for those with the least money to spend has actually improved, thanks to increased financial aid. So what are the actual consequences for higher education and for the country?

Higher education in America is exceptionally diverse, and each institution—nonprofit and for-profit, public and private, research university and residential liberal arts college—faces its own particular financial challenges. This is in part why the numbers that get tossed around in the media can be so difficult to parse, and why the explanations for rising costs—explanations that range from escalating costs for utilities, health care, and construction to withering state funding—are equally varied.

Consider a large public university, for example. With a budget stressed by recent slashing of state appropriations, that institution faces a set of challenges that is very different from those faced by a small private college with a sizable endowment. Moreover, average figures for the prices that schools charge, and for student debt loads, mask enormous differences in what students at specific institutions actually pay. At Ohio State University, for example, state residents are asked to pay approximately $10,000 a year in tuition and fees, while nonresidents are charged up more than 28,000. While the cost of tuition at Denison is significantly more, a typical Denison grad carries less in student loan debt than a typical OSU grad—in large part due to four-year graduation rates (77 percent at Denison versus 59 percent at OSU; having to pay for an extra year or two to complete a degree adds significantly to the total cost of that diploma) and to Denison’s commitment through endowment resources to reducing financial burdens for students. Still, a few economic factors drive up costs at almost all institutions.


So what’s to be done?

One is a phenomenon called Baumol’s cost disease, a malady first described in the 1960s by William J. Baumol and his fellow economist, the late William Bowen ’55, president emeritus of both Princeton University and The Andrew W. Mellon Foundation, a Denison life trustee, and a leading expert on education and economics. (We learned at press time of Bowen’s passing. See page 49.) Baumol’s cost disease afflicts industries that experience rising costs without productivity growth. “It applies to any labor-intensive enterprise where productivity gains are hard to come by,” said Bowen. He and Baumol introduced the idea in a book about economic problems in the performing arts, and they illustrated it using the example of a string quartet: It takes just as many people and just as much time to perform a piece of string quartet music today as it did in the 19th century. Similarly, it takes just as many professors and just as much time to educate students today as it did when Socrates schooled Plato 2,500 years ago. Yet wages in both the performing arts and higher education tend nonetheless to rise over time, as employers are forced to compete for skilled workers not only within their specific industries (music, higher education), but across the entire labor market.

This phenomenon is especially pronounced in higher education, which relies heavily on skilled workers of many kinds: not just professors, but also administrators, librarians, coaches, technologists, and a whole host of other highly trained and educated personnel. Wages for such skilled workers have risen significantly compared with those of unskilled workers over the past 40 years, and the increased return on higher education has fueled the demand for a college diploma. The latest figures from the U.S. Bureau of Labor Statistics suggest that a bachelor’s degree may translate into about $1 million in additional lifetime earnings.

Not every institution is equally susceptible to Baumol’s cost disease. Large public universities, for example, can boost productivity by increasing class sizes. And Bowen, who was the founding chairman of Ithaka, a not-for-profit organization that aims to improve teaching and learning through the use of digital technologies, asserted that so-called adaptive learning software that uses computers as interactive teaching tools could help control the cost disease in some settings. But for liberal arts colleges like Denison, which adhere to the principle that small class sizes, low student-faculty ratios, and plenty of personal interaction are central to the educational experience, the cost factor cannot be so easily addressed.

Mounting government regulation is another shared problem. A recent study commissioned by Vanderbilt University found that complying with federal regulations, like hiring a Title IX coordinator to provide services for students and satisfy the federal statute prohibiting sex discrimination, or following the financial oversight and auditing rules set forth under the Sarbanes-Oxley Act of 2002, now represents anywhere from 3 to 11 percent of operating expenses at colleges and universities. And smaller schools experience greater costs per student than larger ones. It’s no coincidence that the president of Saint Leo University wrote a piece in 2014 for the Chronicle of Higher Education titled “Think College Costs Too Much? Thank the Government.”

At the same time, federal antitrust law prohibits college presidents from coming together to discuss ways of keeping prices down. For example, says Hill, they might agree to forgo certain costly amenities or shift from merit-based to needbased aid—things they might be reluctant to do in isolation for fear of losing potential applicants. “If you got the top 100 liberal arts college presidents in a room together, and we were allowed to actually talk about pricing, we would come up with a better way of doing it,” says Weinberg.

Public policies geared toward reducing income inequality and spurring economic growth for low-income and middleclass families certainly would help. As Hill points out, these would moderate the need for financial aid at the lower end of the income distribution while reducing demand for expensive services at the top. Also helpful would be reducing the regulatory burden on colleges and finding a way to allow college presidents to talk to one another about pricing.

For their part, colleges and universities could ramp up their collaborative efforts, gaining scale, as Bowen put it, by doing things like helping one another teach courses at lower cost than they can do by themselves. Denison, for example, participates in a variety of resource-sharing programs with its partners in The Five Colleges of Ohio consortium (The College of Wooster, Kenyon College, Oberlin College, and Ohio Wesleyan University). Since 1995, the Ohio Five have collaborated on numerous initiatives aimed at improving quality and reducing costs—such as establishing a joint library system, making better use of digital technology, and finding new ways of assessing creativity and critical thinking.

Institutions of higher education also could adopt other aspects of the Denison model, such as concentrating their fundraising efforts on support for financial aid. “In this historical moment, given the importance of higher education and the economic struggles of lower- and middle-income families,” says Weinberg, “colleges like Denison need to concentrate their fundraising efforts on financial aid and other strategies that will reduce the real costs of students attending college. I am proud of the work Denison has been doing and plan to continue to do more of it.”

Alexander Gelfand is a writer in New York. His work has appeared in The New York Times, the Chicago Tribune, and The Economist.


Spooked by sticker prices and the much-talked-about prospect of massive loan debt, some students may be tempted to make decisions about where to enroll and what to study, based heavily on financial anxiety. They may abjure the liberal arts altogether in favor of supposedly more career-oriented training—this at a time when the very skills needed to thrive in a rapidly changing global economy (critical thinking, effective communication, creative problem- solving) are the ones that a liberal arts education is best equipped to provide.

“I worry about young people who choose very narrow preprofessional degree programs, like the ones offered at most non–liberal arts institutions,” Weinberg says. “The global economy is changing fast, so they’re essentially being trained for professions that may not even exist in the future. And they aren’t as likely to receive the kind of education that will prepare them with the skills and networks to adapt as the world changes around them.”

Denison’s response to the changing global marketplace involves doubling down on the very essence of the liberal arts. The College’s strategic priorities state that Denison will “remain committed to the core attributes that frame the student experience. First and foremost, we are a liberal arts college. On campus, we often refer to William Cronon’s classic essay, ‘Only Connect,’ in which Cronon defines a liberally educated person as someone who can: 1) listen and hear, 2) read and understand, 3) talk with anyone, 4) write persuasively, 5) solve a wide variety of puzzles and problems, 6) respect rigor as a way of seeking truth, 7) practice respect and humility, 8) understand how to get things done in the world, 9) nurture and empower the people around them, and 10) see the connections that help one to make sense of the world and act in creative ways.”

As part of the College’s strategic priorities, Denison’s faculty ushered in a series of new majors, including data analytics (see p. 12) and global commerce, as well as new concentrations, such as financial economics and narrative nonfiction. The College is developing global experiences across the curriculum and investing in the performing arts with a new building for which ground will be broken this spring. The Lisska Center for Scholarly Engagement is working to expand student research, allowing students to engage in even more graduate-level work with their professors. And to cap it off, the College is asserting the value of the liberal arts by more clearly connecting the dots between the education students receive and their successful launch into graduate programs and the professions. With a $9.3 million gift from the Knowlton Foundation, Denison has created the Austin E. Knowlton Center for Career Exploration, which has expanded the College’s career services programs, staffing, and technology. And by collecting data through surveys, the College is able to show the actual impact of the Denison experience on the civic, personal, and professional lives of alumni.


One byproduct of the national debate has been the production of much better data on what has to happen in college for it to matter. Large data sets like the Gallup-Purdue Index and a series of annual surveys done by the Higher Education Research Institute at UCLA, coupled with a range of more focused qualitative pieces of research, show that a college education is shaped by three factors: first, students have to be engaged in their curricular pursuits; second, they need to be involved in co-curricular activities; and third, they need to be surrounded by peers who influence and push them in the right ways, which administrators and faculty call lateral learning. Here’s how Denison stacks up:

  • 75 percent of Denison students will have a significant leadership experience during their time at Denison.
  • A Gallup-Purdue study estimates that about one-third of college students will be involved in activities outside the classroom. At Denison that figure is close to 100 percent, with about 25 percent of Denison students involved in varsity athletics at some point during their time on the Hill.
  • According to Gallup-Purdue research, 25 percent of students will make a strong connection with a faculty member during their college years. That figure is 92 percent at Denison.
  • Over the last two years, the faculty have introduced several new majors and concentrations into Denison’s curriculum, including majors in global commerce, data analytics, and health, exercise, and sport science, as well as concentrations in narrative nonfiction and financial economics.
Published December 2016
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