Professor's new book examines rising cost of college education

Parents and students have bemoaned the drastic rise in college tuition rates for decades, watching institutions continually yank prices and degrees out of students’ reach.
Yet few have demanded sound reasoning for this seemingly unstoppable upswing, which now exceeds the rate of increase in health-care costs, said Bob Martin, emeritus Boles Professor of Economics at Centre College.
So Martin explores the answer to this often unasked question in his forthcoming book “The College Cost Disease, Higher Cost and Lower Quality.”
Martin has published numerous articles about the skyrocketing costs of higher education since the early ‘80s, when he began teaching economics at Louisiana State University, Baton Rouge.
He was a professor and interim dean of the College of Business at the University of Texas, Arlington, before he arrived at Centre in 1996 and retired in 2008.
During his academic career, he watched yearly costs of attending most public universities in Kentucky rise more than $5,000.
A year of tuition and fees for a full-time, undergraduate, resident at the University of Kentucky went from $1,332 in the 1986-87 school year to $8,123 in the 2009-10 school year. Rates at Eastern Kentucky University increased slightly less, from $1,020 in 1986-87 to $6,312 in 2009-10, according to documents from the Kentucky Council on Postsecondary Education.
Martin’s book, published by Edward Elgar Ltd. and available on Amazon.com on May 11, explains several principal reasons colleges and universities can inflate costs while reducing educational quality.
“Students have to pay more and more or borrow more and more to get a higher education from a public or private institution,” Martin said. “The combination of rising real cost and declining quality is something that cannot be allowed to persist.”
One issue Martin cites as problematic for cost control is higher education’s economic classification as an “experience good.” This category encompasses products and services that users purchase before they’re sure of the quality, such as a bottle of wine.
The market for experience goods functions effectively when customers buy a product frequently, can immediately access its quality and are prepared to use an alternate provider if they are unsatisfied.
“None of those conditions exist in higher education,” Martin said. “None of them do.”
In an effective experience-goods market, a consumer can try one expensive and one cheap bottle of wine and conduct a quick cost/benefit analysis. But in higher education, a student can’t sample Harvard, then try a state school and immediately determine which will provide the best education for the price.
In fact, many graduates are still unsure about the quality of their education years later, Martin said.
This creates an environment where school administrators know more about the product than students and parents, so administrators can craft reputations that may not accurately reflect the caliber of their institution’s education.
These reputations are based largely on an assumption that arises because the public cannot sufficiently measure the quality of higher education — greater cost equals greater quality.
This is the crux of higher education’s power to raise costs unchecked, Martin suggests.
“It’s rational, but it’s a nasty incentive for institutions,” Martin said. “The public would interpret any reduction in costs as a reduction in quality.”
So, institutions always seek to spend more and cut less.
The problem is exacerbated by the non-profit, break-even budget on which higher education operates, he said.
Revenues act as a cap on expenditures in this scenario. So institutions must continually raise revenues from tuition, donations and allocations to maintain their reputations by spending more each year.
Another issue central to the chronically high cost of higher education, Martin maintains, is what economists call the “principal agent problem.”
“Everybody is familiar with this problem, but probably not using that term,” Martin said. “The principal agent problem exists in every aspect of society.”
It arises when people select another person or institution to act on their behalf, for example, every time a person elects a politician or buys stock in a company.
In these cases, elections and laws ensure that politicians and companies operate in the best interest of their constituents and shareholders.  
But in higher education, in which people trust institutions to use their tax and tuition dollars in their best interest, there are no market controls, Martin said.
Martin, who spent more than 30 years working at colleges and universities, said improved quality is frequently used to justify changes like reduced classloads for teachers and shorter terms for students.
But both of these adjustments ultimately increase costs, and no group of people or laws hold administrators accountable for such decisions.
“We never seriously look at incremental cost versus quality,” Martin said. “If such changes had actually resulted in the improvement of higher education, society would have a lot less to say about this.”
But data Martin collected during his research shows grade point averages and graduation rates declining as costs increase.
This again illustrates how the lack of public information about quality allows institutions to raise costs without question, he maintains.
The solution to the problem and many of the others outlined in Martin’s book is seemingly simple — increased information.
However, with lack of societal, governmental and media regulation, Martin said higher education officials are unlikely to release any data that would damage their all-important and tightly-controlled reputations.  
However, if parents and students can begin to understand the economic reasoning behind skyrocketing costs, perhaps with the help of Martin’s book, they may be able to demand enough information to answer the most important economic question when picking a school: Is it worth it?