How to Reduce the Cost of College: Moore’s Law vs.”The Law of More”

“Moore’s law” is the observation that the number of transistors in a microchip doubles approximately every two years. Although it sounds esoteric, the results of Moore’s law are astounding. It’s why computer prices have plummeted over the last two decades, it’s why we have the Xbox One rather than the Nintendo, it’s allowed us to store thousands of songs and pictures on a phone rather than a floppy disk, and its why our cameras are racing to have the most megapixels.

At it’s economic core, Moore’s law represents an experience curve, which indicates that as a industry’s cumulative output goes up, the cost of producing each unit will go down. In other words, as an industry becomes more experienced in producing a product, the lower its costs become.

But as any college student or recent alumnus can attest, higher education doesn’t exist on an experienced curve. In fact, rather than Moore’s law, colleges are governed by the “law of more.” Jeff Denneen and Tom Dretler wrote in a recent report:

“Much of the liquidity crisis facing higher education comes from having succumbed to the “Law of More.” Many institutions have operated on the assumption that the more they build, spend, diversity and expand, the more they will persist and prosper. But instead, the opposite has happened: Institutions have become overleveraged. Their long-term debt is increasing at an average rate of approximately 12% per year, and their average annual interest expense is growing at almost twice the rate of their instruction-related expense. In addition to growing debt, administrative and student services costs are growing faster than instructional costs.”

De-wonked, that means that colleges are in trouble because they are spending money on non-educational expenses at an unsustainable rate. The result has been tuition increases that far exceed inflation, leaving young adults with ever-increasing student loan burdens that will have an economic impact for decades to come.

Make no mistake, colleges are doing their best to foist their fiscal problems upon unwary students. Tuition hikes have long been outpacing growth in family income and are even growing faster than medical care (which is fueling a national fiscal crisis) and housing (an asset bubble that fueled the latest recession when it popped). With family incomes flat or declining, students are being forced to turn to the student loan markets in order to even consider college. Sadly, the ready availability of taxpayer subsidized loans has been seen as a green light for college administrators to continue increasing the tuition pricetag.

There has been no shortage of scholarship discussing the problem, and yet nothing has been done. Why? Steven Pearlstein, writing for the Washington Post, ventures a hypothesis:

Among faculty members, there remains a deeply held view that equates spending with quality, considers “accountability” an assault on academic freedom and sees “productivity” as merely code for charlatan anti-intellectualism. For their part, administrators cling to hopes of boosting enrollment and fundraising while waiting for the current budget cycle to pass.

“The American university is a grand political accommodation,” says Richard Vedder, an Ohio University economist and founder of the Center for College Productivity and Affordability. College presidents, he argues, appease faculty members by giving them control over what and how they teach. They appease students and parents with high grades and good facilities. They appease alumni with expensive sports teams. They appease politicians with shiny new research centers. “The idea is to buy off any group that might upset the political equilibrium,” Vedder said.

More importantly, Pearlstein lists four things that colleges should do to solve the problem. Summarized, they are:

  1. Cap administrative costs: Data shows that the biggest increase in cost per students come from dramatic increases in non-teaching staff such as academic and psychological counseling, accreditation and government compliance. If an institution of higher learning is spending a higher amount on non-learning related administration we have a problem.
  2. Reconfigure the academic calendar: Universities are spending billions on facilities that sit idle much of the year. If the calendar was configured to expand into the summer months, or even  better utilize the regular workday hours of the workweek, colleges could serve more students at less cost without further infrastructure investments.
  3. More teaching, less research: Teaching loads at research universities have declined by almost 50 percent in the last 30 years, but professors are working more than ever because of superfluous research they need to achieve tenure. Pearlstein notes that the number of journal articles has soared even though readership has declined and few papers articles are ever cited by researchers again.
  4. Restructure the curriculum: Improve the general education curriculum to allow students to take classes that tackle big, interesting questions rather than a slew of basic 101 courses. Colleges should also utilize technology to offer hybrid courses that combine video lectures with in-person discussions and tutored “labs,” which have been shown to increase retention and decrease costs.

Colleges can and should do more to address tuition costs for students. But unlike the current “Law of More,” that focuses on getting more and better amenities, colleges should aspire to Moore’s law, and seek to expand and improve their output by using data, technology and just plain old common sense.