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How Much Should College Really Cost?

In the past two decades, the cost of a college education has risen steadily. Tuition and fees have increased at twice the rate of inflation, outstripping growth of family incomes or the rate of increase of just about every other good or service on the market. Policymakers and college leaders looking to rein in costs can be flummoxed by the paucity of promising models. Now, Oklahoma State University business school professor Vance Fried has offered up an intriguing take in his new white paper, "Opportunities for Efficiency and Innovation: A Primer on How to Cut College Costs" (full disclosure, the piece was published by my AEI shop).

Fried starts with a simple but provocative thought-experiment: What would it cost to educate undergraduates at a hypothetical college built from scratch, if the college focused on student learning and nothing else? Fried proceeds to identify opportunities for substantial cost savings. He argues that the real levers for increasing efficiency are not the conspicuous, big-ticket items, like football stadiums and plush dorms, but more mundane expenditures that soak up scarce funds. Fried flags five promising cost-cutting strategies: eliminate or separately fund research and public service, optimize class size, eliminate or consolidate low enrollment programs, eliminate administrator bloat, and downsize student life programs.

Offering up alternative practices on each score, Fried is able to sketch a greenfield, high-quality college with a per pupil annual cost of $6,700--compared to $25,900 for a public research institution or $51,500 for a private research institution. When compared to similarly-sized traditional research institutions, the per pupil cost is one-fifth that of privates and just over one-third that of publics. Fried even takes on community colleges, suggesting that they are still 20 percent more expensive per pupil than Fried's four-year construct. Fried takes on online learning, too, suggesting that the projected savings only materialize when the alternative is small classes, while larger classes in traditional institutions price out similarly to online alternatives.

Fried suggests ways in which policymakers can encourage colleges to embrace cost-effectiveness. He urges states to take advantage of market mechanisms to drive cost-cutting, by creating autonomous pilot colleges to incubate cost-cutting approaches and leveling the playing field for new providers by reducing subsidies for established institutions. Fried also argues that venture philanthropy can support and invest in low-price, high-quality models.

State revenues are just starting to recover, but the end of stimulus dollars, new obligations created by health care reform, and the likelihood that deficit reduction means Washington will be dialing back domestic spending mean that education isn't even close to being out of the woods. The road ahead promises to be bumpy, for both K-12 and higher ed, and Fried's thought-provoking piece is the kind of analysis that can help made the course a little more manageable.

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The opinions expressed in Rick Hess Straight Up are strictly those of the author(s) and do not reflect the opinions or endorsement of Editorial Projects in Education, or any of its publications.

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