Why Tuition at Highly Selective Colleges Is So High and Why the Cost to the Institution Is Even Higher: Dickinson College, a Case Study of a Community in Constant Transformation (Executive Summary)

Report author Annette Smith Parker '73, former vice president and treasurer and chief financial officer of the college.

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Dickinson College exists "to prepare young people, by means of a useful education in the liberal arts and sciences, for engaged lives of citizenship and leadership in the service of society." Fulfilling this educational mission drives the energy, the vision and the allocation of resources at the college. Dickinson's approach to budget preparation, oversight and reporting focuses on a fiduciary responsibility to spend the dollars it receives efficiently and effectively in support of a top-quality educational and residential experience and to ensure that this same quality of experience is sustained for generations of Dickinson students long into the future.

Dickinson is committed to engaging multiple stakeholders—parents, alumni, students, accrediting bodies, rating agencies, etc.—in a dialogue about its financial operations. The college's Web site provides access to significant financial data, including multiple years of budgets, audited financial statements and investment information. The college monitors and reports on three interrelated business outcomes: financial, social and environmental. The college was recently recognized for its transparent approach when the Sustainable Endowments Institute awarded Dickinson an "A" grade on the 2011 Green Report Card, making the college one of only seven institutions nationwide to receive this distinction. Further financial information is available at www.dickinson.edu/about/offices/financial-operations.

A search for the answer to the question, "Why does college cost so much?" has triggered hundreds of sociological studies, economic monographs and scholarly books, as well as countless hours of discussion on campuses across the country. What follows is an open look at the journey the Dickinson community has taken as it has grappled with the multiplicity of conflated issues raised by this critical question.

The Difference Between Price and Cost

"Simply put, price is what a student pays to attend college, and cost is what the college spends to provide the student's total educational experience at the college. … Tuition rarely, if ever, covers the costs of a nonprofit public or private college or university. Government support and private contributions often make up the shortfall."

At Dickinson, the cost of educating, housing, feeding and supporting a robust experience for one student inside and outside the classroom during the 2009-10 school year (FY10) was $63,000. For the same year, the price charged to each student (for tuition, fees, room and board before any financial aid) was just under $50,200. That means that every student began with a "subsidy" of close to $13,000 for the year. This difference between cost and price is covered by generous donations to the Annual Fund, spending from the investment portfolio that was created through contributions to the endowment, and miscellaneous auxiliary net income.

Affordability and Access

"One of the most pressing questions in American higher education today is how to make high-quality education available to all who seek it. At the heart of discussions of access and quality are matters of cost and price. How much will it cost an institution to make high-quality education available and what will be the price for those who want that education?"

In general, private colleges and universities provide far greater levels of aid based on financial need than public institutions. (Further data are available at www.naicu.edu/docLib/20070327_12Facts2006.pdf )

Dickinson is committed to the principle that students who have the academic ability and social maturity to succeed, are excited about learning and passionate about engagement, and have made Dickinson their top choice should be able to attend the college. Beyond the "subsidy" that every student receives, total financial-aid grants of $32.4 million were awarded by the college during FY10. More than 90 percent of these awards were based on demonstrated financial need. The average award from college funds in FY10 was $26,450 per student.

Private Higher Education Is an Affordable Choice

"Opportunity cost" is another important factor in calculating the price a student pays on average for a private college degree. That is to say, there is a cost a student must absorb for the extra years of study—lost wages, as well as additional tuition— if he or she cannot graduate with a bachelor's degree in four years. These additional costs of time and tuition minus significant differences in aid can make the net price of attending a private institution much closer to the actual price paid at what appears to be a less expensive state-sponsored (public) alternative. According to the National Association of Independent Colleges and Universities, by the time financial aid and time to degree are calculated into the direct and opportunity costs for a bachelor's degree, the average price a student pays at a private institution is about half the price a student would pay at a state college or university.

Focusing on Value

There are big differences between the value of less-expensive models of higher education and the private liberal-arts experience. At Dickinson more than 94 percent of classes are taught by full-time, fully engaged faculty members. There are no graduate assistants teaching classes. A recent study conducted by Bloomberg Businessweek attempted to quantify "return on investment" for individual colleges and universities. Focusing on "much heftier return on investment, at a price that won't send the average middle-class family to the poorhouse," the study reported that, even though the "sticker prices … can easily exceed $200,000 … [g]enerous financial-aid packages, coupled with a relatively inexpensive education and a strong return on investment, make these institutions especially appealing to middle-class families." In the study, Dickinson College was ranked 37th of all colleges and universities nationally for 30-year net return on investment for graduates.

Unlike the high student-to-faculty ratio and large lecture format of many universities, the value proposition at an institution like Dickinson rests on close interaction between students and highly educated teacher/scholars—more like the model of master and apprentice than the model of "efficient mass production." As College of William & Mary economists Robert Archibald and David Feldman argue on their blog, "Why Does College Cost So Much," "The artisan nature of higher education … [relies] on providing strong interaction between professors and students. As long as this is what people value, college costs will tend to rise faster than the overall inflation rate. … Higher education also shares with many other personal services a reliance on a highly educated workforce. … All personal services that rely heavily on this sort of labor (i.e., a highly educated workforce) have experienced a surge in costs."

Tuition Price Increases Reflect More Than Inflation

Between 1971 and 2011, average prices increased by 875 percent for a new home, 751 percent for a new car, 850 percent for a gallon of gas and 450 percent for first-class postage, as measured by the Consumer Price Index (CPI). These "products" fall into two basic categories—those that have remained the same over time and those that are more complex and have changed substantially in their functionality, safety or nature during the last 40 years. The metric of inflation one uses can have a significant effect on calculation of price change related to inflation. Additionally, one must try to calculate the impact of quality improvements on the change in price over time.

Archibald and Feldman report that the higher-education inflation factors are similar to those of other services that require significant professional education. In looking for reasons behind the disparity between overall inflation and the average increase in the price of tuition, they explain that higher education is by nature a service industry. "From 1947 to 2009 the average annual price increase for services was 4.0 percent, while for goods the average annual price increase was only 2.4 percent," they point out. "Technological progress has not reduced the number of labor hours required to provide most services. By contrast, technical innovation has significantly reduced the number of labor hours and kilowatts of power needed to produce most manufactured goods and agricultural products."

40 Years Later—Significant Quality Improvements

The student experience at Dickinson has changed significantly during the last 40 years. Illustrations of significant quality improvements abound on campus across academic, residential and co-curricular programming—in Carlisle and in support of Dickinson's programs around the world. A growing reputation in hands-on learning, sustainability and global education has positioned Dickinson as a leader among colleges and universities.

In 1971, faculty focused primarily on teaching. Today, faculty members are expected to complete extensive research and publish their findings of new knowledge as well as design a constantly evolving, innovative curriculum, teach their classes, provide public service through the committee structure and advise majors in their departments. The introduction of technology into teaching has actually increased demands on time, and many professors engage students directly in their own research—publishing scholarly works and making professional presentations with them.

One of the biggest pressures on campuses like Dickinson's is the need for and cost of the construction of facilities that appropriately advance quality academic, residential, social and athletic programming. A growing and increasingly innovative academic program requires facilities that support intellectual inquiry. Additionally, a more sophisticated  understanding and application of information technology and services has matured as Dickinson has moved into a position of national leadership.

Investments that provide physical access and personal accommodations to students with learning disabilities and other issues—students who could not have been successful in college in the past—have been substantial. An expanding regulatory and reporting environment across multiple areas, from mandated laboratory safety standards to accountability reporting, provides positive changes to the caliber of the student experience, but comes at a cost. Ultimately, this has an impact on the price of tuition.

It is apparent that Dickinson now provides a very different "product" in substance and in quality than it did 40 years ago—not the same experience at inflated prices. And not only is the product different today, but it also will continue to evolve. Innovation is critical to staying on the leading edge of knowledge.

Finding Efficiencies in Operations

In a special report on Dickinson in 2006, The Chronicle of Higher Education said, "If Dickinson were a corporation, this would be a classic turnaround story." Strategic planning, visionary leadership and effective execution have resulted in a Standard & Poor's (S&P) bond rating increase from BBB+ from in 1999, when the current administration arrived, to A+ with a stable outlook today. When S&P announced the college's most recent rating upgrade in March 2011, it cited Dickinson's strong financial operations and investment success during the recent recession, which enabled Dickinson to avoid drastic the operating-budget cuts experienced at other colleges.

Dickinson remains committed to an effective resource-allocation methodology to provide a top-tier educational and residential experience. Services are built on a thoughtful "client-centered" approach, while management keeps a careful eye on cost. For more than a decade, Dickinson has followed best practices for higher education, among them the use of consortia. Thirteen years ago, with funding from the Mellon Foundation, Dickinson partnered with Franklin & Marshall and Gettysburg colleges and Bucknell University to form the Shared Services Consortium (SSC). This initiative was designed to identify and implement administrative, auxiliary and academic-support opportunities that evolve from collaborative projects and shared services to leverage economies of scale and provide benefits in excess of costs.

The process of identifying and realizing efficiencies may lead to reduced costs, but it does not necessarily lead to lower prices. Efficiencies can provide opportunities for reallocation of limited funds to initiatives with higher priority. This funds continual improvement without pushing price higher. In many cases, these "savings" also enhance access, another major challenge within higher education.

Is American Higher Education Experiencing a "Crisis of Confidence"?

A recent report from the Pew Research Center subtitled "A Crisis of Confidence" documents the lifelong positive benefit of a college degree. The study reports, however, that the American public wonders whether higher education still provides value at the current price and disagrees on the purpose of higher education. "College graduates place more emphasis on intellectual growth; those who are not college graduates place more emphasis on career preparation," the report explains.

In a companion report, U.S. college presidents expressed concern about the academic preparation of students and the global competitiveness (which they say is declining) of American higher education. As the report puts it, "Presidents are evenly divided about the main role colleges play in students' lives: Half say it is to help them mature and grow intellectually, while 48 percent say it is to provide skills, knowledge and training to help them succeed in the working world."

Dickinson does not have a "crisis of confidence" in its students, the academic and residential experience it provides or its place in the future. The college is fully committed to teaching undergraduate students in the liberal arts and sciences at a high level of accomplishment. Since its founding, Dickinson College has steadfastly asserted that the liberal-arts approach to learning, as the Association of American Colleges and Universities puts it, "prepares [students] to live responsible, productive, and creative lives in a dramatically changing world. … The ability to think, to learn, and to express oneself both rigorously and creatively, the capacity to understand ideas and issues in context, the commitment to live in society and the yearning for truth are fundamental features of our humanity. In centering education upon these qualities, liberal learning is society's best investment in our shared future." These goals make up a useful education and produce precisely the kinds of skills necessary for a globally engaged workforce in the 21st century.