The Two-Income Trap (8 page)

A generation or so ago, Americans were more likely to believe that there were many avenues for a young person to make his way into the middle class, including paths that didn’t require a degree. I (Elizabeth) recall my parents encouraging me to attend college, since my grades were high and they hoped I might become a teacher one day. But they were equally pleased when my eldest brother joined the Air Force, my middle brother entered a skilled trade, and my youngest brother became a pilot—even though all three of the boys had given up on college. My parents’ views were pretty typical a generation or two ago. Education was valued, but no one in our neighborhood would have claimed it was the “single most important determinant of a young person’s success.”

Today, 77 percent of adults say that getting a college education is more important than it was just ten years ago, and 87 percent believe that “a college education has become as important as a high school diploma used to be.”
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Middle-class parents—obeying the dictate that college is essential in the new economy—have found
themselves combatants in yet another active bidding war. Once again, supply and demand are out of balance. The number of students aiming for a spot in a decent four-year institution is rising every year, while the number of openings at the major public and private universities stays essentially the same. This is true not just at Harvard and Princeton, but also at the big state universities. The “open admission” policies that once ensured pretty much everyone a slot at State U. have virtually disappeared. Indeed, many state universities no longer have room even for average students, let alone struggling ones. The University of Wisconsin, for example, recently announced that the majority of its student body graduated in the top 10 percent of their high school classes.
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Not every child can be in the top 10 percent, and parents can find themselves in a bind. For the growing number of parents whose kids don’t make it into the local public university, there may be little choice but to come up with $25,000 (or more) a year for tuition, room, and board at a private college.
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With more applications flooding admissions offices every year, colleges are in the catbird seat, free to increase the price of admission with relative impunity. Parents may complain and students may protest, but since nearly two-thirds of parents view a degree for Junior as “
absolutely essential
,” universities can safely assume that families will find a way to pay.
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And that is precisely what has happened. After adjusting for inflation, in-state tuition and fees at the average state university have nearly doubled in less than twenty-five years.
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To put that in perspective, the price of college has grown twice as fast as the average professor’s salary, three times faster than the cost of food, and eight times faster than the cost of electricity.
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Tuition, room, and board now cost more than $8,600 a year at the average public university. To pay these fees the average family in the United States would have to commit 17 percent of its total pretax income to this one expense.
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A private education is even more prohibitive. Denise Robinson, a schoolteacher in central Texas, describes the cost of putting her older daughter through the local Catholic college: “You
don’t make enough that you’re [rich], but you don’t qualify for financial aid. We were probably out at least $100,000 at the end.”

It should come as no surprise that six out of ten Americans also believe it is “
absolutely essential
” that university administrators keep tuition from rising.
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But despite public opinion, costs continue to spiral upward. University officials typically blame tuition hikes on the inevitable consequences of rising costs. They point to the high costs of keeping up with scientific discoveries, the need to provide technology resources for students and faculty, and the growth in financial aid—all valuable endeavors.
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Economist David Breneman gives voice to this view, claiming, “There is no problem for the federal government or the colleges and universities to solve other than the public relations task of explaining the economic facts of life to the populace.”
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But not all the cost increases are just “facts of life,” as Dr. Breneman suggests. For example, the American Association of University Professors blames spiraling administrative costs, which grew by 60 percent between 1980 and 1997.
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The American Council on Education points to “student expectations” for “a high level and wide variety of services,” which includes, among other things, “better food services.”
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Another study shows that the more prestigious colleges have decreased the teaching loads of their undergraduate professors, giving them more time for research and other pursuits.
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And then there are sports. In winning years a few of the big programs might break even thanks to sell-out crowds and television deals, but for most colleges the costs to field teams in every sport from football to water polo must come out of the general budget. Basketball powerhouse Duke University is a case in point. Every year it takes $4 million to $5 million out of the university’s general revenues to pump into the athletic budget. Columbia University allocates even more, redirecting $7 million of its general revenue to make up the shortfall in athletics.
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In the race to win the most games, universities are spending more every year, and the deficits are getting larger. According to the National Collegiate Athletic Association, the overwhelming majority of colleges lose money on their
sports programs. During the 1990s the average deficit grew by more than 50 percent for all but the largest universities.
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We point out these expenditures not because we are scrooges who don’t enjoy a good football game (one of us is a diehard University of Oklahoma football fan). Our aim is to expose the myth that college costs are like helium balloons that inevitably rise by the immutable laws of nature. We believe that colleges are charging more not because they must, but because they can. Like parents, institutions of higher learning have entered into a bidding war of their own—not the war to provide the best value to families, but the war to produce the best research, win the most basketball games, and serve the best food. According to the
Chronicle of Higher Education,
virtually every university in America “aspires to make it into the top 50, or top 20, or top 10.”
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As a result, colleges have engaged in an “arms race of expenditures triggered by the pursuit of prestige.”
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And parents are stuck paying the bill.

In the absence of rising demand, this arms race of prestige just wouldn’t have been possible. If Americans had not come to view a college degree as equivalent to an “admission ticket to good jobs and a middle-class lifestyle,” then demand for a university slot would have been much less intense.
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As a result, parents would have been much freer to shop for a college on the basis of price or to forgo higher education altogether if the price seemed too high. All but the most elite universities would have felt far more pressure to keep costs down. Colleges might have been forced to make some painful cuts, but university tuition would have behaved more like any other rational marketplace, in which supply and demand are balanced and price holds relatively steady.

Whenever the problem of college costs are discussed, conservative policymakers typically focus on making more loans available to families. But is this really a solution? In 2001, over 5 million students had
borrowed $34 billion in federal student loans—more than triple the amount borrowed just ten years earlier.
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Student borrowing from private lenders has grown even faster, increasing
fivefold
in just six years.
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Nor do college students bear the burden alone; parents are also going deep into debt to pay for their children’s education. Every year, more than a million families take out a second mortgage on their homes just to pay for educational expenses.
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Borrowing does not reduce the costs; it simply means that families can pay and pay and pay some more. At what point do we agree that families have taken on all the debt they can handle? The debt load tripled in the past ten years—do we intend to let it triple again over the next decade? Offering these families more debt is like throwing rocks to a drowning man—it won’t help.

Liberals, for their part, regularly call on taxpayers to foot more of the bill. But taxpayers
are
paying more. Over the past two decades, states increased per-pupil appropriations to public universities by 13 percent (adjusted for inflation).
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How much more are taxpayers supposed to pay? Are state governments supposed to write a blank check for higher education, allowing universities to increase costs with abandon? College administrators point out that a 13 percent increase in public funding fell far short of the 41 percent growth in university expenditures, which is why they were forced to raise tuition so much. That may be true, but that simply says, “We’re spending more than the state will give us, so we pass the costs on to families.” That is not a ringing endorsement of the frugality of the current system.

The more-taxes approach suffers from the same problem the more-debt approach engenders. It gives colleges more money to spend, without any attempt to control their spiraling costs. Perhaps it is time to shake things up with a hold on price increases. A multi-year freeze on tuition at all our state universities would prompt an intensive discussion of higher education priorities and some hard choices. Do they
all
want to offer expensive sports programs? Should some colleges concentrate on science and engineering, while
others focus on the liberal arts? Should universities be asked to educate more students in exchange for additional tax dollars? This approach would certainly hit the supply-and-demand problem right between the eyes.

If
all
state-supported universities were committed to stopping tuition increases, the effects would reverberate throughout the educational system. Many public colleges might rededicate themselves to serving their local communities, dropping out of the arms race for ephemeral national prestige. The pressure would be on private colleges to follow suit, lest the gap between private and public tuitions grow even larger. The upward spiral of tuition and the resulting it’snot-our-fault-everyone-else-is-doing-it mentality would receive a serious thumping.

Colleges and universities are like any other organism in their desire for survival and growth. Their leaders are true believers in the research and scholarly missions of their schools, and their desire for excellence—however it is measured among universities—is genuine. It is no wonder that they can always justify their rising costs and why they need every penny that comes their way—and more. There can
always
be more research, more athletic fields, more books for the library. To be sure, the issues are complex, and a spending freeze might force some universities to make some very tough choices. In the long run, however, it would refocus public universities on their mission—providing an education for all qualified members of the public, not just those who can come up with ten or twenty thousand dollars each year.

Not all of the extra income brought in by Mom’s paycheck went to that house in the suburbs and preschool and college tuition. A lot of it went to another line item in the family budget, a favorite target of the over-consumption critics—that shiny, oversized, overgadgeted behemoth, the family car.

At first, we thought the family car might just shatter our case against the Over-Consumption Myth. Cars now come jam-packed with automatic gizmos that no one had even dreamed of a generation ago. And cars cost more than ever. The average family now spends an
additional
$4,000 (inflation adjusted) every year to buy, lease, and maintain the family automobiles.
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In the words of a Toyota salesman quoted in
Affluenza,
“People’s expectations are much higher. They want amenities—power steering, power brakes as standard, premium sound systems.”
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At last, a big-ticket item that that proves that Americans are indeed indulging themselves with lavish extravagances they can ill afford.

Not so fast. Families spend more, but not because they are upgrading to Corinthian leather and built-in seat warmers. Instead, the typical family with children spent its money on something a bit more prosaic—a second car.
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Once an unheard-of luxury within the middle class, the second car has become a necessity. With Mom in the workforce and the family located ever further from the city’s center, that second car became the only means for running errands, earning a second income, and getting by in the far-flung suburbs.
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What about the price tag on that second car? An average new car costs more than $22,000 today, compared with less than $16,000 in the late 1970s (inflation adjusted).
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The critics might point a triumphant finger, but they would miss another important fact. Cars last longer than they used to. In the late 1970s, the average car on the road was just five and a half years old. Now the average family is driving a car that is more than eight years old.
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Today’s families pay more for that shiny new vehicle than their parents did, but they hold on to it longer too. In fact, when we analyzed unpublished data from the Bureau of Labor Statistics, we found that the average amount a family of four spends
per car
(car payments, insurance, maintenance and so forth) is 20 percent
less
than it was a generation ago.
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For all the griping about those overpriced SUVs, there is little evidence that sunroofs and power windows are sending families to the poorhouse.