Why Does College Cost So Much? The Middle States Regional Forum for the College Board February 13, 2008 Atlantic City, NJ G. Richard Wynn VP of Finance and Administration Haverford College, PA and Lois M. Johnson Assoc. VC of Administration and Finance Pennsylvania State System of Higher Education

PRICE CONFUSED WITH COST –Price Tuition and fees, room and board Cost of attendance Impact of financial aid—net price –Cost of education differs significantly from price Public institutions Private institutions –Consumer pays less than true value of service

COST OF PUBLIC EDUCATION Instruction Other Living Other Educational Costs Cost Structure Student Other State Fund Sources

REVENUE THEORY OF COST* A non-profit organization’s costs are determined by the revenue available “Laws of non-profit costs” 1.Dominant goal is excellence and prestige, not profits 2.In quest for excellence, virtually no limit to dollars spent 3.Each organization raises all the dollars it can generate 4.Each organization spends (almost) all that it raises Cumulative effect is toward ever increasing expenditures *Howard R. Bowen, (1981). The Costs of Higher Education. San Francisco. CA: Jossey-Bass.

“COST DISEASE” FACING LABOR INTENSIVE SERVICE INDUSTRIES –Productivity Increases: change in output exceeding change in inputs –String quartet –Class size

HIGHER EDUCATION – A CAPITAL ABSORBING SERVICE INDUSTRY –Output = graduates –Capital inputs: computers electronic card catalog facilities –Quality enhancements

OTHER COST DRIVERS –Program mix/mission –Student demand –State/industry demand –Regulations; Unfunded mandates

BALANCING ACT: EXCELLENCE vs. COST –Efficiency –Managing Student Expectations –Partnerships –Accountability –Financial Aid