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Colleges must cut costs

Updated: May 3, 2013 12:14PM

Amid worries about job losses and problems paying the mortgage, many American families are facing another financial crisis: How to pay for college.

There's no doubt a college education will be a necessity in the economy that emerges from the current recession. Even though a college degree can't prevent a layoff, it will give an edge for the jobs of the future.

But what if American families can't afford college? After all, in spite of the economy, college costs continue to rise. It's now estimated that the four-year cost of college will be $124,000 for today's high school seniors, with many private schools costing much more.

The College Board, which tracks average college costs, won't release its report for the 2009-2010 school years until late October. But in 2008-2009, public college costs increased an average of 6.4 percent, and private school costs rose 5.9 percent. For years, these costs have risen far more than the most traditional measures of inflation.

What families are doing

A new survey by Fidelity Investments finds more parents have started saving for college. Even so, families can cover only 11 percent of the total cost of their children's college education this year, down from 15 percent in 2008.

Families are resorting to drastic measures, according to the survey. Seventeen percent plan to have a nonworking spouse return to work, while an equal number hope to take on a second job. Half plan to have their child live at home and commute. And 43 percent of parents say they will have to delay retirement to help pay for a child's education.

Even students are changing their tune, with 90 percent saying they believe they should help pay for at least some college costs, either out of their own savings (42 percent) or by working while in school (76 percent).

The good news, according to the survey, is that parents and students are more aware of the need to save, many taking advantage of tax-free 529 college savings plans. (A reminder here that if you want to invest outside your state's savings plan, you can go to Fidelity or Vanguard and open an account there. You simply forgo any deduction on your state income tax for your contribution if you invest in an out-of-state plan.)

What are colleges doing?

If families are doing their best to save for college, it's only fair to ask what colleges and universities are doing. State university tuition increases have been rising faster than those for private colleges. And the outlook is gloomy. Every state is facing budget nightmares because of the recession. The big allocations to public universities are a tempting target. In fact, many parents complain that their rising tuition bills are just being used to make up for cuts in state support.

Private schools rely on income from their endowment funds, many of which have shrunk dramatically in the market decline. They're usually loathe to dig into principal -- especially when they're hoping for more of a stock rebound.

Colleges have not traditionally been run as a business. Few businesses offer job security like "tenure" -- except for federal bureaucrats and the U.S. Postal Service (two "businesses" that continually lose money).

And few businesses can survive without reacting to market forces by cutting less-profitable product lines. Yet universities continue to offer marginal courses in the name of a "broad and diverse" education. Take a look at your child's course catalog, and you'll see what I mean.

Certainly, universities have rising costs of maintaining their buildings, classrooms and libraries. But university "management" and board supervision may be more focused on the profitability of the football team than the kind of prudent cost-cutting every other business faces these days.

In an era when "everyday low prices" or discount stores are the only places consumers will shop, why don't colleges get the message that their customers cannot afford their rising prices?

How long will it take until universities recognize that their "customers" are no longer willing, or able, to go into debt to buy their educational product?

Only when market forces teach the lesson of responsible pricing will college become more affordable. Let's hope that will not be too late for a generation of students who will be sidelined because they simply can't afford college now.

Losing today's students would have a terrible impact on America's future economic growth. And that's The Savage Truth.
