We have seen over the past year  in Quebec that the issue of university tuition can be incredibly polarizing. Indeed, in much of the debate over the recent planned tuition hikes, anti-hike activists drew ominous comparisons not only with the higher rates in the rest of Canada, but with the comparatively astronomical sticker prices in the United States. The average cost (tuition and fees) of attending an American four-year private university is $27,293, with ancillary fees adding almost another $10,000.

While private American universities certainly represent the highest end of the tuition spectrum, universities overall in the United States are expensive compared to other developed nations. However, it bears noting that the astronomical figures often quoted in the public debate can be misleading; unlike in Canada, the sticker price of tuition is not paid by most students in the U.S. Indeed, while the list price has risen well past the rate of inflation nationwide, the average actual price paid by students—across all types of universities—has actually stayed steady over the past 10 years, growing from $12,650 in 2001-2002 to $12,950 this past year.

However the discrepancy between this supposed sticker price and the actual price paid by students by no means signifies that the American university system is working. Rather, the extremely inefficient scaling of tuition is merely a manifestation of the system’s dysfunction. This price discrimination is examined under the Bennett Hypothesis, named after the Reagan-era Education Secretary William Bennett.

Emerging in the late ‘80s, the Bennett Hypothesis posits that increases in federal aid are far from making college more affordable. Instead of increasing accessibility by making more aid available to those who need it, increases in aid actually drive up the cost of tuition. Universities have raised their tuitions beyond the rate of inflation, confident that federal aid would cushion the increase.

While the theory has since been controversial and is supported by inconclusive empirical evidence, studies have demonstrated that increases in tuition are not simply redistributive from richer students. At least at the top end of American universities—highly ranked private institutions—increases in federal student aid have been met with increases in tuition totalling more than just the amount of additional federal aid.

Another explanation for skyrocketing university tuitions is the dogged competition for students that universities engage in, year after year, for the highest scoring applicants. This competitive pressure is not misplaced in the realm of education. However, consumers—parents and prospective students—choose universities based on the very definition of imperfect information. University ranking systems, including the oft-quoted U.S. News and World Report ranking, contribute to this. U.S. News tends to take into account input statistics like entering SAT scores and spending per student, in addition to the rather nebulous concept of ‘prestige,’ which counts for anywhere from 22 to 25 per cent of an institution’s score. This is all instead of looking at what happens to students after their four-year stay at these institutions.

[pullquote]The complexity of the issue makes addressing the cost of a university education…an issue far too complex to receive serious treatment.[/pullquote]

This would not be so bad if universities did not have an incentive to blatantly game this sort of system. Many institutions, looking to vault their way upwards in the rankings, but without  having any Ivy “prestige” to trade on, have begun an arms race to attract the supposed ‘best and brightest,’ with fancy dorms, nicer buildings, and sports like squash. This behaviour is rewarded in several ways. Firstly, as earlier noted, the U.S. News rankings take into account selectivity, which means that convincing more students with higher SAT scores to even fill out an application to the university raises one’s ranking. Nicer buildings and dorms mean that you’re spending more money per student. Another notch upwards in the rankings.

This extravagant spending puts the burden of higher tuition on less affluent students. Many institutions in or near the upper tier today seem to have made this transition: George Washington University, Boston University, and New York University have all, over the course of a decade,  put themselves in the same conversation as the Ivy League and other established elite institutions, largely on the back of this tuition-fueled push.

A number of international think tanks have proposed solutions. A study by the Organization for Economic Cooperation and Development (OECD) earlier this year suggested income-contingent loans as a solution to ensure access, advocating for moderate tuition levels in combination with means-tested grants. At the same time, a paper by the American Enterprise Institute suggested seriously rethinking the cost structure at American instructions—reducing the amount of tuition-funded research, downsizing under-enrolled departments, and trimming administrative bloat.

Perhaps the biggest problem facing American universities today is that this analysis provides only a snapshot of the forces pushing tuition up at the high end. Gone unmentioned are the inflated cost structures of American universities at every level, and the effects of student debt at the back end. It is undoubtedly complex and multifaceted. On some level, the complexity of the issue makes addressing the cost of a university education—beyond small-bore campaign sloganeering about interest rates on a small number of government student loans—an issue far too complex to receive serious treatment from American politicians. If anything, that should be the cause for real worry.