scene Autumn 2008


(Illustrations by James Yang)

Behind the Sticker Price

A look at what’s driving the price of a college education today,
and how the university is managing the issue

By Dick Anderson  
Illustrations by James Yang

When Zachary Fellman was looking at colleges, “he had some very definite ideas about the type of educational institution he wanted to go to,” recalled his mom, Teri. A native of Los Angeles, Zach looked to the East for a small liberal arts setting — remote location or otherwise — ideally at a school where he could play lacrosse. When decision time came, he got a handful of acceptance letters from schools on both coasts, including “scholarship offers from every school except Colgate,” Teri said.
    After visiting the campus with his parents, what cinched Zach’s decision was his acceptance letter. “It was absolutely phenomenal,” said Teri, a practicing attorney (husband Mark is a professional photographer). “I got the impression that they really understood him.”

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    A senior this fall, Zach is majoring in peace and conflict studies with a minor in Middle Eastern and Islamic civilization studies and studied for a semester abroad in Israel last spring. “That was an amazing opportunity,” said Teri. “He’s been intellectually stimulated by several of his professors — and that’s the key to everything.”
    The cost of tuition, room, board, and the student activities fee at Colgate for 2008–2009 is $49,170. “We had an inkling that it was going to be bad, but we never expected it would be that expensive,” said Teri. “But Zach’s our only child — he’s it — so we were able to afford him a lot of opportunities.”
    As parents of a “full-pay” student (a term that is something of a misnomer, but we’ll get to that later), the Fellmans have plenty of company. Of the 2,750 students returning to Colgate this fall, approximately 60 percent of them are doing so without financial aid. For those parents, if current trends continue, the four-year cost of a Colgate education will total somewhere in the neighborhood of $210,000.
    The situation is hardly unique to Colgate. As the cost of higher education continues to outstrip cost-of-living increases (Colgate’s tuition went up 5 percent last year), the question of how colleges and universities manage their finances — from tuition to financial aid to their endowments — has drawn the scrutiny of even the Senate Finance Committee. In January, the bipartisan committee asked the nation’s 136 colleges and universities with endowments of $500 million or more — including Colgate — to share information about endowment, fees, and financial aid.
    “This is the most controversial issue in higher education,” said President Rebecca Chopp. “The issues of what we can do to manage costs and to increase resources, while providing value to students and connecting to our alumni, are the key priorities that I and the Board of Trustees — all of whom are alumni or parents — work on continuously.”
    “It is very costly to try to provide the ambitious and enlightening experience that we’re trying to provide to our students,” added David Hale ’84, vice president for finance and administration. “From managing utilities to buying insurance and certain goods and services, we should employ best practices in order to manage costs.”
    Many cost drivers are things that institutions don’t have a lot of control over, said Steven M. Bloom, an assistant director with the American Council on Education in Washington, D.C. Not only are many drivers structural in nature, he said, “It’s a very labor-intensive industry. If you try to enhance productivity, you have the potential to negatively impact quality. The issue’s not going away anytime soon.”
    In examining this complex issue, we might ask the philosophical question: What is the cost of intellectual sustainability? Put another way, why does a Colgate education cost so much — and what is the return on investment for our students? And what is Colgate doing to balance competitiveness and affordability?

A word on price and wealth
The price of tuition is a tricky thing to enumerate. And regardless of his or her financial situation, every student receives a discount to the actual price of a Colgate education, which in 2008–2009 is $53,570.
    “Whatever the costs are, tuition doesn’t pay it all,” said Kevin Rask, a Wake Forest University professor who studies the economics of education (and formerly a Colgate faculty member). “You’re still not even covering your annual costs.” Ultimately, he said, a college has to weigh any number of factors — including the old standby of “supply and demand” — when administrators decide where they’re going to set a price. This year, Colgate is essentially underwriting the cost of each full-pay student with $4,400 and each aided student (on average) with $34,000. [For more, see sidebar, “So why can’t you just make tuition cheaper?”]
    The health and wealth of an institution rests on its endowment, and in Colgate’s case, the relatively small size of its endowment is the most significant factor affecting not just operating budget, but also tuition pricing and what the institution is able to offer in terms of programs, services, and support such as financial aid for its students. Income for this year’s operating budget of $147,320,539 comes from a variety of sources. Total student charges provide approximately 63 percent. The Annual Fund is the university’s third-largest annual revenue source, providing 7 percent. A multitude of smaller sources yield another 7 percent, while the rest — approximately 23 percent — is spent from the endowment.
    As of June 30, Colgate’s endowment had a market value of approximately $705 million, having achieved an average annual investment return of 11.3 percent over the last five years.
    “There is pressure on spending endowments,” admitted Hale, who noted that Colgate budgets approximately 5 percent of its endowment toward current operations annually. “Our spending and investment policies are geared toward the long term, so that future generations can also benefit from the endowment.”
    The rub, he said, is when one looks at a key figure in the endowment equation: how much per student a college has to spend. Compared to its peers, at $255,974, Colgate’s endowment-per-student rate falls significantly short, which presents a major challenge in being able to afford to offer a comparable level of services and support to the very best colleges and universities in the country against whom Colgate competes, but who are wealthier.




Higher education has changed
When Hale started his senior year at Colgate 25 years ago, he was a geology major with a minor in history — and the cost of a Colgate education was $11,400, plus another $900 for books, supplies, and the like. “My professors in geology were superb — I learned a great deal from them in terms of how to study and how to think. But by the time I got to my senior year, I was a little more interested in business. So I left geology, which was probably good for both me and science,” he added with a laugh.
    Hale went on to New York University’s Stern School of Business, spent a few years working for Paramount and Sony pictures in Los Angeles, and returned to Colgate in 1993, working in the development office for three years before joining the finance division. From the vantage point of an alumnus-turned-administrator, “I would say that we are doing so much more than what was offered twenty-five years ago — and what was offered then was terrific,” said Hale. “It’s a much more intimate experience, with smaller class sizes, more professors, far more expansive student life programs, and more ambitious study-abroad programs.”
    “The delivery of a quality education is more complex than it was in the 1970s or 1980s,” added Chopp. “Knowledge has become far more interdisciplinary and driven through technology. Today, we teach sciences with equipment and machines and programs that nobody could have dreamed of twenty years ago. A library, to give another example, must now accommodate technology in addition to providing space for books and studying.”
    Knowledge has become a more global pursuit as well, with study-abroad programs more of a necessity than a luxury today. Nearly 63 percent of all Colgate undergraduates study abroad under the supervision of full-time faculty (a number that jumps up to 70 percent with the inclusion of such domestic off-campus initiatives as Colgate’s National Institutes of Health program in Washington, D.C.). “It’s a wonderful way to expand the global knowledge of the faculty,” Chopp said. “Faculty members come back to campus and bring their knowledge to the rest of the students.”
    Such experiences can be life-changing, but spending three weeks in a remote Ugandan jungle carries a price tag. Colgate spends about $2.5 million per year on study-abroad and off-campus programming, or roughly 5.5 percent of the university’s $47 million instruction budget.
    As seen in the accompanying pie chart illustration, although costs have increased significantly over the past 20 years, how the university allocates its resources on an annual basis has not changed.
    “Essentially,” said Hale, “we are investing in a student’s education in the same way we did twenty years ago; however, we are offering more, and it costs more.”





The human equation
To illustrate Colgate’s profound effect on its students, Lyle Roelofs, provost and dean of the faculty, paraphrased remarks made by Jerry Balmuth, Harry Emerson Fosdick Professor of philosophy and religion, to a recent 50-year reunion class.  “A Colgate education seeks to impart and awaken a fresh sensitivity to otherwise unnoticed aspects of nature and of the human world,” Balmuth noted. “Colgate sets and frames the original agenda around which a student’s sense of self and self-esteem can subsequently develop. It critically processes and forms both personal and social persona. By its teaching, it inspires respect for learning and the beginning exploration of the initially unsuspected range of knowledge and relationships that give worth and dignity to our lives, as learning does to human life more generally.”
    The transformational nature of a Colgate education begins with the connection between undergraduates and professors — and the university’s 10-to-1 student-to-faculty ratio is key to nurturing those personal relationships. Of Colgate’s $147.3 million operating budget for 008–2009, the largest expenditure is compensation, at $82.4 million.
    “We are a heavily personnel-dominated institution,” said Chopp.
    “At top-rate liberal arts colleges and universities, faculty are the most highly educated people in your workforce,” said Rask, who taught economics at Colgate for 16 years before leaving for Wake Forest last year. “And at a place like Colgate, they demand good researchers who are also good teachers — and that is a smaller subset of PhD professionals.”
    Further complicating the education equation is the fact that a third of Colgate’s faculty are 55 or older, creating a bit of distortion toward the high end of the wage scale. While Colgate can’t match the compensation levels that these great minds could command in the commercial sector, the university does face some pressure to offer competitive salaries in trying to hire and maintain faculty who might otherwise be attracted to a more urban setting. “You could hire a graduate student from Syracuse for $2,500 to teach a course, but we don’t go that way,” said Roelofs.

Inflation, information, and investments
In the current economic environment, the hard costs — some obvious, some not so — of providing the kind of Colgate education that students and parents have come to expect are going up at an even faster rate than a 5 percent tuition hike begins to cover.
    Since arriving at Colgate in 2006 after 21 years at Vassar College, Art Punsoni has noted many similarities between the two schools — with one notable exception. “The climate here is somewhat colder,” he said. On a typical winter morning, “You wake up here and see a few inches of snow.”
    Considering that Punsoni’s job as director of purchasing means wrestling with the rising costs of everything from paper to fuel oil, that distinction is significant.
    “The cost of keeping an older campus such as Colgate’s warm in the winter and cool in the summer is a daunting one,” he said — particularly when the cost of fuel oil a year ago was somewhere in the neighborhood of $65 per barrel, and reached a high of $147 per barrel in midsummer. The rising cost of fuel then spills over many line items, from athletics travel to airfares for study-abroad programs to the cost of transporting food and other necessities to campus. “Making sure that our students get support will always be our priority.”
    The environmentally friendly wood-fired boiler, installed during the energy crisis in the early 1980s, provides more than 75 percent of Colgate’s heat and domestic hot water needs and saves the university about a million gallons of oil a year — a cost savings likely to exceed $1 million in 2008–2009. Colgate is looking to expand its use of biomass with the first large planting of willow (10 acres) which, within five to eight years, will produce a significant amount of the wood needed to produce the campus’s own energy. And, more broadly, Punsoni and his team are constantly working to negotiate multiyear agreements with suppliers and vendors.
    Another inevitable expenditure, the university’s employee health care bill, exceeds more than $5 million each year, and has been growing more than 15 percent annually. In recent years, Colgate has taken steps such as tightening up the benefits plan and asking employees to take on higher copay levels.
    Information resources and technology constitute a particularly visible, if predictable, example of a rapidly increasing expenditure.
    “Every piece of equipment we buy for ITS [Information Technology Services] has a lifespan of four to six years,” said Roelofs. Add to that double-digit inflation in the costs of books and scholarly periodicals, and you have a budget challenge that may be impossible to sustain indefinitely.
    “In our effort to provide a research-capable library, our librarians are continuing to work to get those costs under control,” Roelofs said, by working in consortiums and with publishers of journals to discuss new models for information delivery.
    Construction inflation, meanwhile, had been climbing steadily at less than 3 percent annually until a spike in inflation in building materials drove up costs more recently by close to 10 percent. That adds up quickly when you’re building a $58 million facility like the Robert H.N. Ho Science Center, which opened last fall, or completing a $60 million expansion and renovation of the Case Library and Geyer Center for Information Technology (completed in January 2007).
    “A classroom where a philosophy seminar is going to happen doesn’t have to be that expensive,” Roelofs said. “But you can’t offer a quality educational experience without offering state-of-the-art science labs and excellent scholarly resources.”
    In athletics, Colgate is one of only two “top 25” national liberal arts colleges that compete at the Division I level. “It’s a long-standing tradition,” Hale noted — and a commitment that the university takes seriously. Accordingly, Colgate spends more than $10 million annually on athletics, funding 25 intercollegiate athletic teams including football and hockey. Given the university’s location, travel costs are one inevitably expensive line item.
    “We also have to invest in facilities that support wellness and other forms of physical activity for the whole campus community,” added Roelofs. “This also amounts to major capital and operating expenses.”
    On a related note, outside regulations are another driver of costs. As a charter member of the eight-school Patriot League — which leads the NCAA in Division I graduation rates among student-athletes — Colgate is held to the same rigorous regulatory environment as larger institutions. “We love our athletics, but the NCAA and the league we’re in both produce regulations at an alarming rate,” said Chopp. A Patriot League Team Green Committee, for instance, was recently formed to focus on environmental protection and promotion through athletics. Beyond athletics, in response to the Americans with Disabilities Act, fire safety regulations, asbestos abatement, and the like, Colgate has invested significant resources to make the campus safer, more accessible, and healthier.

Keeping Colgate accessible
Growing up in Hamilton, All-State soccer and ice hockey standout Simon Jarcho ’08 got to know the Colgate faculty and coaching staff pretty well over the years. And, while his older brothers were eager to get away from the small college community where they had spent most of their lives, Simon embraced Colgate’s offer of an Alumni Memorial Scholarship — which is awarded each year to Colgate’s top 200 admitted students — and even took a job with the Office of Admission as a tour guide. “His friends joked about him being the mayor of the village,” said dad Harry, a social studies teacher at Hamilton Central School, where Simon graduated as valedictorian in 2004.
    Simon spent a semester in London as a junior with the economics study group, went back to Oxford to work this summer, and had a job waiting for him with the Princeton Economics Group when he returned to the United States this fall. According to Harry, Colgate would have been out of reach were it not for financial aid.
    Colgate will award $35.3 million in financial aid in the 2008–2009 academic year, an increase of $9.8 million (or 38.4 percent) since 2003–2004 and $17 million more (93.7 percent) than a decade ago. The average institutional grant award for all financial aid recipients in 2007–2008 was $29,452, and this year saw a slight uptick in the number of families needing financial aid.
    Thanks to gifts to the university, Colgate is working to provide more than 50 additional financial aid packages to deserving students. Yet remaining “need aware” — which means having to turn away highly qualified applicants for whom Colgate cannot offer financial aid — is the best the university can do in providing access, and in fact is its single-most significant cost-containing measure.
    “We work with the admission office so that we’re supporting their efforts to build the best possible class we can admit,” explains Hugh Bradford, associate vice president for budget and financial aid. “We had a trial year a few years ago of admitting students need blind, but it’s something we couldn’t sustain in the long run.”
    To close the gap with its academic peers, both now and in the long run, growing the endowment is key. “We’re very committed to expanding our endowment for our students,” said Chopp, who noted that Colgate’s Passion for the Climb campaign is “very much a campaign for endowment.” Of the $400 million campaign, $163.5 million is earmarked for general endowment and the Annual Fund (while another $87.5 million is for financial aid and access, which would bring additional relief to parents).

What price education?
“Certainly the sticker shock makes you think about the cost of tuition,” said another full-pay parent, Carolyn Byrd of Atlanta, whose son is a sophomore at Colgate this year. “Its value will be determined over the long run.” (The youngest of four, Anthony Reynold Baldwin Jr. broke from family tradition — his older brothers and his father all went to Morehouse College — when he opted for Colgate.)
    While salary certainly isn’t the only way to determine the value of an education, it is one objective measure of success after graduation. “There’s evidence that graduates of more exclusive, more selective universities do earn more,” said Rask. Studies show people from selective schools or private universities enjoy greater salary growth over the course of their careers than those who attend public schools or nonselective schools. A recent PayScale study of college graduates’ salary potential ranked Colgate second among liberal arts colleges in mid-career median salaries, as well as fifth (and the first non-Ivy school) among universities whose highest-paid 10 percent of alumni take home the biggest salaries regardless of how long they have been out of school.
    Among prospective students, Colgate remains a top destination, with more than 9,400 applicants last year — the largest and most diverse pool ever. In recent years, nearly all first-tier colleges and universities have seen a surge in applications due to what Rask calls a “demographic bulge” in high school seniors — a number that will top out in 2009. In the near future, colleges will find themselves competing for a smaller pool of academically qualified students whose families can afford to pay full tuition. For a school like Colgate — which competes in the marketplace “more on specific qualities than on price,” as Bradford put it — outstanding instructors, small class sizes, and great facilities may not come cheap, but they don’t go unnoticed.
    “Our Colgate parents are deeply appreciative of the connections that their children develop,” Chopp said. “And alumni connections provide years of friendships as well as important business and professional connections that last a lifetime.”
    Hale agreed: “Being part of a high-achieving, broad alumni community is absolutely wonderful and invaluable. I think what we are delivering for our students is incredible,” he said. “At $50,000, it better be.”


So, why can’t you just make tuition cheaper?

David Hale ’84, financial vice president, explains

Given Colgate’s significant “wealth gap” relative to peer institutions, we rely more heavily on revenue from student charges than the schools with whom we compete for students and faculty. As a result, a price cut would have a significantly greater impact on Colgate’s operations than our peer institutions.

As for expenditure control, we must always be scrutinizing opportunities to achieve cost savings and create efficiencies; however, Colgate’s two largest expense lines are financial aid and compensation. Our single-most important strategic priority is to make Colgate more accessible by increasing the number of financial aid packages we can offer to admitted students. A reduction to this $35 million expense is not under consideration. As for compensation, Colgate works hard to provide “market” salaries to faculty and staff, and, in order to compete effectively with our wealthier peers, we employ smaller levels of faculty and staff (on a per-student basis) than they do. Lowering costs in the area of compensation would have a direct and immediate impact on the quality of the educational and extracurricular experiences provided to our students. Were we to reduce the size of the faculty, class size would increase, and students would lose essential opportunities for close interaction with their professors. When new academic offerings — such as the new systems biology program under development — come online, we of course will not eliminate an existing department or major.

In the wake of strong investment returns and incredibly generous contributions to the endowment, Colgate has aggressively increased the annual amount of endowment support provided to the operating budget; however, the endowment is the university’s primary financial asset, and endowment spending decisions must balance current needs with a commitment to preserve (and hopefully enhance) its value for future generations of Colgate students. Spending down the endowment beyond levels necessary to maintain intergenerational equity (Colgate has averaged a spending rate of 4.8 percent of the underlying endowment market value over the past five years) in order to reduce prices could risk the long-term viability of our great 189-year-old school.