01/12/2012 08:49 am ET Updated Mar 13, 2012

The Value Gap

Since the late 1970s, when some type of a college education essentially became a requirement for a solid, sustainable, middle-class job, the cost of that education has skyrocketed.

The annual price tag for a college credential has risen about three times as fast as inflation, and there is no sign that it's slowing down. In the last decade alone, tuition rates at public colleges and universities, which enroll about 80 percent of American students, rose by an average of 5.6 percentage points above inflation every year.

Despite those vast price increases, students continued to line up for admission to one of the nation's colleges. To pay the bills, students and their families borrowed -- a lot.

Some $110 billion in student loans was borrowed last year. That's more than half the amount that was borrowed between the passage of the first Higher Education Act, in 1965, and the end of President Bill Clinton's second term.

By now, in most industries, customers would have said, enough is enough. But along with health care, higher ed has enjoyed something no other sector in the U.S. economy can claim: Raise prices and people will go to almost any end, including huge amounts of debt, to pay the bill (well, maybe housing enjoyed that too, but we saw how that ended).

Colleges have been helped greatly by a blip in the birth rate 20 or so years ago, which meant there were three million more 18-to-24-year-olds in the population. That spike has now ended, and colleges are already dealing with the consequences, particularly in the Northeast. What's more, many experts are predicting a nationwide drop in the number of affluent, well-prepared high-school graduates whose parents attended college, the types of students who propelled growth at so many institutions in recent years.

But beyond demographics, what has really helped sustain the anything-goes pricing model in higher ed is the so-called wage premium. The reason so many students want to go to college, and the reason so many families are willing to pay anything for it, is the lifetime payoff of a degree: a typical bachelor's-degree recipient earns about 66 percent more than a high-school graduate during a 40-year career.

Although wages for college grads actually fell over the last decade, the wage premium is not going to disappear. Employers may disagree about what they want in their workers, but they do agree on one thing. "They want education," says Anthony P. Carnevale of Georgetown University's Center on Education and the Workforce.

So going to college is worth it, but going to any college at any price may no longer be worth it. About half of Americans think that the higher-education system is doing a poor or fair job in providing value for the money spent, according to a survey last spring by the Pew Research Center.

College presidents seem tone-deaf to those concerns. In a companion survey conducted with The Chronicle, three-fourths of college leaders said the system was providing a good or excellent value.

For some presidents, it's easy to ignore public and political consternation over college prices. Their elite institutions can continue to charge almost anything because they enjoy so many qualified applicants that they can easily fill their freshman classes 10 times over.

For the vast majority of colleges, however, the time has come to prove their worth if they have any plans to continue the price increases of the past several years. In the face of several stinging reports about the limited learning that goes on during the undergraduate years, prospective parents and students want to know if their experience will be rigorous enough to justify the cost and reap the rewards in the job market.

Sure, the climbing walls, the new dorms, the fancy food in the dining hall, and the sports teams will continue to be a sales tool employed by many colleges to reel in students. But academic rigor will play a greater role in the value proposition, as a simple credential will no longer cut it in some employment circles. And on that front, many colleges just don't measure up.