have just emerged from the season in which colleges and universities
announce tuition rates for the coming academic year. This has
come to mean announcing the amount by which tuition will go up,
and this in turn has typically led to articles in the press comparing
institutions and decrying the degree to which the increases exceed
the consumer price index.
year has been no exception. Under the headline "As Endowments
Slip at Colleges, Big Tuition Increases Fill the Void," the
New York Times surveyed the scene and gave its own hypotheses.
The rate of growth of tuition does seem to have accelerated again
somewhat this year, but the reasons are somewhat more complex
than the headline in the Times suggests. Why does tuition
tend to go up faster than inflation, and what is the University
of Chicago's particular version of this?
leading private research universities (as distinct from some of
the publics and smaller privates included the survey by the Times)
will almost all have tuition increases clustered between 4 percent
and 5 percent, and the top dozen or so will be within a few hundred
dollars of one another. Undergraduate tuition at the University
of Chicago for 2002-2003 will increase by 5 percent to $27,324.
MIT will probably be the highest of these institutions at $28,230.
Others will be quite close to us: Dartmouth at $27,600, Johns
Hopkins at $27,390, Cornell at $27,270, Princeton at $27,230,
Stanford at $27,204, Yale at $27,130, Northwestern at $27,108,
Duke at $27,045, and so forth.
upward pressure on tuition derives from the upward pressure on
costs in what is a very people-intensive business. Whereas what
has enabled the U.S. economy to begin to pull out of recession
has been principally productivity gains (i.e., more goods and
services produced per unit of work), higher education as we have
wanted to practice it at Chicago is not a business in which productivity
(in this sense) can easily be increased.
On the one hand, the ratio of students to faculty, which is what
underlies the largest part of the University's economy, cannot
be increased steadily over significant periods of time. To be
sure, the current program of increasing the size of the College
will have something of this effect, though it will add some costs
and thus will not be an increase entirely at the margin. But as
we well know, this has not been undertaken lightly, and we will
have reached the limit with the current program if we are to maintain
the small class size and the amount of teaching by the senior
faculty (whom we simultaneously expect to be extraordinarily distinguished
in research) that we think essential to a Chicago education.
the other hand, neither can we lower costs over time by reducing
the effective rate at which we compensate the faculty and associated
staff-at least not if we want to have the quality of faculty that
has made the University what it is. Imagine saying to a new assistant
professor that, because we wish to keep tuition increases in line
with inflation, he or she can look forward to retiring several
decades hence with absolutely no increase in real income. The
facts are that undergraduates aren't widgets, and faculty members
aren't assembly-line workers.
there are the other sorts of pressures associated with an enterprise
that rests primarily on attracting and retaining very talented
people. We compete for a very small pool of the most talented
people. Whether one describes it as a feature of the winner-take-all
society or as free agency having come to academe, the compensation
of the academic world's most talented citizens has a way of going
up much faster than other categories of expense, as is the case
in most professions.
are the factors that particularly affect Chicago? A crucial one
has to do with the difference between gross tuition and net tuition.
That is, how much of the tuition that we nominally collect is
given back to students in the form of financial aid? For undergraduates,
we "give back" about 24 percent (we award half as much
again in financial aid that comes from endowment income). This
means that if we raise undergraduate tuition $1, only an additional
76 cents becomes available for faculty salaries and the like.
Add to this the fact that the University continues to be the teacher
of teachers in higher education and that we have a much higher
proportion of students in Ph.D. and M.A. programs than competing
institutions do. These programs "give back" almost 67
percent of nominal tuition income in the form of fellowships.
income remains, especially for us, the largest single stream of
unrestricted revenue. But with our mix of undergraduates and graduate
students, our net tuition overall is somewhat lower than that
of some competing institutions. A number of our wealthier peers
also have distinctly more endowment income dedicated to financial
aid, both undergraduate and graduate, with the result that a greater
share of tuition income is available for general purposes. Thus
we are likely to be on the higher end of the rather narrow range
of tuition increases while nevertheless staying within the range
of tuition actually charged by competing institutions.
factors are all at work independent of the performance of the
endowment. A decline in the value of the endowment does, however,
add to the pressure on tuition. Simultaneously, most institutions
have a formula for payout from the endowment that attempts to
buffer the volatility in the markets. Indeed, some have a formula
that will produce no downturn at all in endowment payout in response
to recent market trends because it does not respond to striking
growth in the markets either. For others the downward effect will
not be felt for another year or more. On balance, then, the downturn
in the financial markets in 2001 is probably not the principal
factor in tuition increases for 2002-2003
increases in excess of the consumer price index will probably
be with us for the foreseeable future because of the kind of institution
we are and must continue to be. But we are committed to enhancing
other streams of revenue and to managing costs effectively so
as to make this difference as small as possible.
Don M. Randel writes each issue on a topic of his choosing. -