Robert B. Archibald and David H. Feldman are economists at the College of William & Mary, a public university in Virginia, and the authors of “Why Does College Cost So Much?” If you want the brief version, you could look at an op-ed article by the two economists for Inside Higher Ed or a summary of the book compiled by the University of Washington. The professors also talked about the book in this short video.

Susan Lontkowski

My conversation with them follows:

Q. You argue that the rapid rise in college tuition isn’t actually surprising. The costs of all kinds of other services, like health care and live entertainment, have also risen much faster than inflation. What are the biggest reasons all these services have become so much more expensive? Is it mostly that they don’t face competition from low-wage countries like China? Or is it more that they have trouble using new technologies to become more efficient and cost effective — and, if so, why would that be?

Mr. Archibald: The biggest reason that these services have experienced prices that rise more rapidly than prices in general is that increasing productivity in many services is very difficult. The service often is the time of the service provider, and you cannot use less of the provider’s time without compromising the quality of the service. Also, the service providers in many of the relevant industries — doctors, lawyers, dentists and college professors — are highly educated, highly skilled workers. In the last quarter of the last century, economic forces generated rapidly increasing wages for highly educated, highly skilled workers. The combination of these two factors, slow productivity growth and rapidly expanding wages, results in rapidly rising prices. This should not be a surprise to most economists.



There is a sense in which you are right. Colleges and universities and doctors and lawyers do not face competition from low-wage countries like China. Most personal services are not traded internationally. One does not go to China for a haircut or a conference with one’s lawyer. Still, despite the fact that these services are protected from foreign competition, the more fundamental problem is slow productivity growth. If we could find a way of providing services of the same quality using less labor, price increases would be smaller.

Mr. Feldman: Let me take on the technology portion of the question more directly. Higher education certainly is affected by technological change, and this can indeed reduce cost. For instance, like most industries, we no longer use an army of typists to process paperwork. But the primary effect of technological change in higher education is not cost reduction. Instead, new technologies and techniques change what we do and how we do it. In many ways, colleges and universities are “first adopters” of new technologies because our faculty needs these tools to be productive scholars and teachers. Our students need these tools because they are used in the labor market they will be entering. In a sense, universities must meet an evolving standard of care in education that is set externally. The term “standard of care” is not an accident, since it reflects the way new techniques also affect the kindred service of medical provision.

Q. So what kind of policies might hold down the price of college? The number of low- and middle-income students who graduate from college hasn’t risen much at all in recent years, and research suggests cost is one reason. Given the budget squeezes in many states, it seems as if we should be thinking about solutions beyond government-provided financial aid.

Oxford University Press

Mr. Feldman: The real question is how we create access for people who could succeed in college if only they can get their foot in the door. The way we subsidize higher education can have a big impact on who gets to go to college.

Big state universities tend not to discount price on the basis of financial need nearly as much as the elite private schools, whose high and rapidly rising list prices garner so much of the headlines. Public universities generally use their state appropriation to reduce the tuition charged to in-state students, and they do this regardless of the student’s ability to pay. As a result, when Flagship U tries to recoup some of its lost state appropriation through tuition hikes on all in-state students, this can have a big impact on lower-income families.

State universities are beginning to emulate their private brethren by raising tuition and setting aside a good portion of their tuition increases for price discounts to less wealthy families. In these situations, prices can rise for affluent students without rising for many poorer students. A major constraint on doing this, however, is the reluctance of state legislatures to allow sufficiently high increases in the list-price tuition that wealthier families would have to pay.

Mr. Archibald: While financial aid may not be the complete answer to the access problem, if fixed, it could be very important. The biggest problem with our current financial aid programs is their complexity. Families have to make a series of decisions early in the process to help their children to become college material. Well-to-do families usually take care of this quite well. College is expected, and in most cases the expectation is realized. On the other hand, because they think they can never afford college, children from less well-to-do families do not take the steps one has to take to prepare for college.

Federal financial aid is intended to change this. If less well-to-do families and their children had faith that government aid would be available, they could make the right early decisions. Unfortunately, federal financial aid does not have the desired effect on expectations. To obtain federal financial aid one has to fill out confusing forms. The amount of aid one actually qualifies for is determined by formulas that are very complex, so it is very difficult to know what will happen until the aid application process is finished. Also, each aid award is designed on a case-by-case basis, so it is hard to learn from the experience of others.

Data show that students from less well-to-do families who stay with the process all the way through to the end and actually get financial aid awards go to college about as frequently as their classmates from higher income families. The difficulty is that many students with the ability to benefit from higher education drop out of the process before they make it to the end, or don’t even start. Federal financial aid needs to be overhauled so that it is much easier for all families to understand.

Q. What would a better, simpler financial aid process look like?

Mr. Archibald: A better financial aid process would be simple and universal. The Georgia HOPE Scholarship program is one example at the state level that is very popular and effective. Its success could be copied. A student in Georgia who has a B average or better in high school is eligible for a scholarship covering tuition and fees at a state supported institution in Georgia. This is simple. High school students and their parents know about it and can explain it. Also, it is universal. Every student with at least a B average is eligible, not just students from lower-income families. There is no complex application procedure and no uncertainty about the benefit. Lastly, there is good evidence that the Georgia HOPE scholarship has increased college attendance in Georgia.

If we can copy this at the federal level, we will have a more effective financial aid system. The key is to keep things simple. We need to change how people plan for the future, and complex programs don’t have the right effect on people’s expectations. Also, it needs to be universal. If there is uncertainty about eligibility, the program will be less effective.

Mr. Feldman: People criticize programs like the HOPE scholarships on two grounds. First, they object to the grade requirement since it puts excess pressure on high school students and teachers. But grade requirements set at reasonable levels aren’t going to cut out much of the “college material” population, and having some requirement may send a signal to students that they must be serious. In any case, an even more universal program that goes to all high school graduates would be fine with us. Universities could do their own sorting through the college application process.

The more important complaint is that a universal program is inefficient since some aid goes to students who do not need it. This is true, but the benefits of simplicity and universality must be weighed against any inefficiency. The current Pell Grant program is a means-tested process that directs public funds where they are most needed. Yet the Pell Grant has not done a good job of raising college-going rates among lower-income students. This reflects the complexity inherent in all means-tested programs.

A simple and universal federal grant program doesn’t have to be large to be effective. It just needs to be a visible and predictable down payment on an education at a less expensive public institution. Universities themselves, and especially the more expensive ones, would continue to use the price discounting I talked about earlier to target students of limited means. That’s O.K. Federal policy is about access to higher education, not choosing which school the student should attend.

Q. My sense is that colleges don’t compete on price as much as companies in other sectors of the economy do. I know there are merit scholarships. But why don’t we see colleges try to attract better students by cutting their listed tuition, for instance? And maybe more to the point, could policy makers do anything to introduce more competitive pricing pressures to higher education?

Mr. Feldman: For starters, McDonald’s and Chrysler don’t care much about who buys their product as long as the customer can pay the price. Universities, on the other hand, care deeply about crafting the right freshman class. They want to create a diverse and stimulating educational environment for all students, because a lot of learning comes from interactions with peers inside and outside the classroom. Price discounting and merit scholarships are the tools that allow a school to select the incoming class carefully.

As a parent of a high school senior, I am very glad to see my son get offers of merit grants. But let me tell you the dark little secret about these grants. They do not create access to higher education for students who otherwise could not go. Merit-based price discounts only help determine which school a student attends. A fully funded need-based aid system is what would create real access for students who would otherwise be shut out or have to trade down to lower quality alternatives.

Lastly, the market for higher education today is much more competitive than it was 40 years ago. Today’s students are much more likely to think regionally and nationally before selecting a school. Forty years ago a substantially higher fraction of the student population attended the small set of schools that were closer to their homes.

Mr. Archibald: We do not think that it is likely that any government intervention could introduce more competitive pricing practices in higher education without causing other problems.

Everyone has three objectives for higher education: lower tuition, higher quality, and less government spending on subsidies. The unfortunate truth is that we can have any two of these, but we can’t have all three. If we mandate low tuition, we have to give on one of the other two. Either the government has to increase spending on subsidies, or the quality of the education schools will be able to provide will suffer. There are no easy choices.