THE BLOG
08/26/2013 03:31 pm ET Updated Oct 26, 2013

Two Reliable Harbingers

Two reliable harbingers that a new academic year is about to get underway: First, the sudden appearance of about 100 very large young men on campus as fall football camp gets underway. Second, a spate of stories in the popular media about how unaffordable college has become, astronomical levels of student debt, and the impending doom of the traditional residential campus. This year is no exception. A national TV news story last week reported that the average cost of year of college is $8,000, while average private college tuition is $37,000. Who knew our business was so profitable! That is a bit of a twist on the approaching bankruptcy theme, however. You would think that entrepreneurs would be lining up to start new campuses with that kind of profit margin.

Of course, this is at best highly misleading. No doubt the tuition figures do not include institutional financial aid that discounts the "sticker price" more than 50% at most private colleges. And I have no idea where that cost number came from.

I do know that the great majority of campuses have negative operating margins for their traditional-age students. That certainly is true of my university, a residential campus of 1280 full-time students. Our average net tuition -- after financial aid -- is about $14,500 (about average for private four-year colleges, as reported by the National Association of Independent Colleges and Universities.) Our average cost is about $19,000. The difference is made up through endowment earnings, annual contributions and small amounts of miscellaneous revenue (as a member of NCAA Division III, our athletic program doesn't bring in big dollars). Like most of our sister tuition-dependent small colleges, the margins are razor-thin. Popular press stories about palatial residence halls, with spas and climbing walls, and faculty that teach one course a semester don't apply here.

Texas Lutheran is one of the most cost-conscious enterprises you will find -- in higher education or out. Our faculty members teach four courses per semester. This weekend's Wall Street Journal reported that Princeton's new student residence cost $300K per bed. Our new residence hall came in well below one-fifth that cost. To keep it affordable, we went "old-school." Instead of apartment-style suites we have multiple rooms to a wing and even community bathrooms! The WSJ also cited the 9,630 sq. ft. Tudor mansion that is the presidential residence at Ohio State. I don't begrudge the president of that large and complex institution anything, but my wife and I are quite happy living on campus in a 1970 2,500 sq. ft. brick rancher.

My institution is not unique. Most of my presidential colleagues are struggling to provide modern classrooms and facilities. There is not enough space today to enter into the debate about whether federal financial aid has been the primary driver of rising tuition. However, the pricing power of most private colleges is extremely limited, and has greatly diminished since the 2008 recession. It is simply false to say, as that TV news story did, that "colleges are able to raise tuition with impunity, knowing that they are going to get paid no matter what."