The College Cost Dilemma, Part 1: Prices Soar While Endowments Rise

This is the first article in a series on the price of attending college, both in general and at Swarthmore. See also the second article.

Tuitions have risen, at Swarthmore and other elite private institutions, while endowment values have skyrocketed at the same time. Amherst College, for example, saw its endowment increase in value by almost 30% last year. Still, the college raised tuition by about 4%. This trend has led prominent members of the Senate Finance Committee to stage an inquiry into the state of college finances in general.

The budget recently approved by Swarthmore’s Board of Managers included a 4.6% tuition hike, leading to a total cost to students of $47,804 before financial aid. Although this is only slightly higher than the CPI inflation of 4.1% over the same time period, if charges had tracked the CPI since 1970 they would be around $20,000 today.

Meanwhile, the College’s endowment has increased from around $48.5 million (about $270 million in today’s dollars, using the CPI) to $1.44 billion. This trend is not unique to Swarthmore: endowments have increased comparably at elite private institutions across the nation.

In response to this pattern, Senators Chuck Grassley and Max Baucus sent a letter in January to 136 colleges and universities with endowments of at least $500 million. The senators asked for information about the history of tuition, financial aid, and endowment spending at each institution. According to the press release, the Senate Finance Committee is “seeking answers [for high tuitions,] in light of…explosive college endowment growth.”

Treasurer Suzanne Welsh says that the College was more than happy to provide these answers. In fact, “it wasn’t really that difficult…most of [what was requested] was information we’ve always put out there.”

Other institutions, however, seemed to have more trouble: according to an article in the Yale Daily News, only 43 of the schools had responded by the original deadline. Said Welsh, “It’s more complicated for universities, because of all the graduate programs” and other complications.

Welsh was also very willing to provide answers to the public. She said, for example, that superficial analyses of inflation versus tuition increases, like the one at the beginning of this article, are invalid for two reasons. The College provides far more services than it did thirty years ago, including large increases in financial aid, so it is only natural that its price increased faster than inflation.

Furthermore, the CPI, or consumer price index, is not even an appropriate measure of inflation for this purpose, according to Welsh. CPI is a measure of the increase in prices of a so-called basket of consumer goods. About 55% of the College’s costs, however, lie in salaries for faculty and staff: salaries tend to increase at a rate greater than that of consumer products, because of productivity increases.

Although elite institutions invariably come with an especially expensive price tag — according to Welsh, “higher education is just expensive” — look back tomorrow for more on the complicated subject of endowment spending.

The 1970 value of the endowment has been corrected since publication. The number originally cited, $18 million, was the value of the original gifts; $45 million was its market value at the time.


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