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Why Does College Cost So Much?$

Robert B. Archibald and David H. Feldman

Print publication date: 2010

Print ISBN-13: 9780199744503

Published to Oxford Scholarship Online: January 2011

DOI: 10.1093/acprof:oso/9780199744503.001.0001

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(p.263) Appendix 1 Data on Costs and Prices

(p.263) Appendix 1 Data on Costs and Prices

Why Does College Cost So Much?
Oxford University Press

(p.263) Appendix 1

Data on Costs and Prices

We are telling a story about college cost, so ideally we should have clear data on college cost to use in the story. The broadest measure of costs calculated for the entire higher education sector over a long time span is called “Education and General Expenses,” or E&G for short. These expenses cover the bulk of the costs involved in the academic side of what colleges and universities do, including the costs of instruction, research, public service, academic support (which includes things like libraries), institutional support (which includes most administrative costs), student services (such as the admissions office or the registrar), maintenance and operations (which includes buildings and grounds), and scholarships and fellowships. Unfortunately, the data on E&G expenses are only available every other year until 1965, and the data series ends in 1995. The series stops in 1995 because the Department of Education changed the definitions of some of the variables, and the later information cannot be compared to earlier data. On the other hand, data for higher education prices (tuition and fees) are available annually from 1947 on a continuing basis.

Here is the problem. Our objective is to explain what has happened to higher education costs, but the most comprehensive data source covers higher education prices instead. Prices and costs are not the same in higher education because of the subsidies available from government support and from endowment income. If patterns of subsidization (p.264) change, then price and cost do not have to move together. This is an important issue, and we will explore the role of subsidization in detail in Part III of the book.

In addition, although E&G expenses represent the most important costs covered by tuition and fees, they do not represent all of the costs. Some activities classified as auxiliary services, which are excluded from E&G expenses, are covered by mandatory fees. Auxiliary services are the self-supporting operations of the institution that provide a service to students or faculty and that charge a fee that is directly related to what they provide. Auxiliary services include things like residence halls and food services, student health facilities, parking services, and intercollegiate athletics (if not self-supporting). The auxiliary services covered by mandatory fees, such as student health facilities, student counseling services, and intramural sports, are included in tuition and fees but are not part of E&G costs.

The bottom line of this discussion is that we would prefer to have a more complete set of cost data, one that includes the parts of auxiliary services covered by mandatory fees. Unfortunately, the available cost data are incomplete, both in what they cover and the time period they cover. Yet all is not lost. We may be able to use the more comprehensive price data to build our facts about higher education. We have to make

Appendix 1 Data on Costs and Prices

Appendix 1 Figure 1 A Comparison of the Real Cost of Higher Education and Real Higher Education Prices, (1970=1)

(p.265) two assumptions to use these data. First, we have to assume that E&G costs behave similarly to the costs of auxiliary services covered by mandatory fees. Second, we have to assume that the price series follows the same basic path as E&G costs. There is no way to check the validity of the first assumption, but we can take a look at the available evidence for the second assumption.

Appendix 1 figure 1 compares the behavior of costs and prices. It clearly shows us that prices and costs do not behave identically over the time period of overlap, yet the behavior is broadly similar. Costs rose more rapidly than prices in the early years, but starting in the late 1950s, the two time series behave very similarly. Both series are rising through the late 1960s and both flatten out during the 1970s. Both series then start to rise again quite strongly in the 1980s. So, although the details of each series do differ, they share a basic pattern. Since our analysis does not require us to make fine comparisons, we think the similarity of the two series provides sufficient justification for us to say that the price series that we use in the analysis represents the basic behavior of both prices and costs. (p.266)