Students & Parents | Costs

Colleges Worsen Income Inequality

FOX BUSINESS NEWS   |  August 25, 2014 by Elizabeth MacDonald

Tuition gouging for degrees that are useless in the real world and a failed business model have put U.S. colleges front and center as exacerbating income inequality.

Many college students are increasingly getting priced out of getting the very same skills elected officials in Washington, D.C. have strenuously argued are needed to stop rising pay gaps.

Annual private college costs have surged 24% over the last ten years, to $40,917 on average, and are up 37% for public universities, to $18,391, data from the College Board show. At the same time, median U.S. household income has steadily dropped 5.7% from 2003 to 2013.

Meanwhile, student unemployment worsened over the last decade: The 20-to-24-age bracket saw jobless rates rising to 11.1% from 9.5% in 2003, and for 25 and older, it grew a percentage point to 5.6%.

Over the decades, college officials have used their nonprofit status to build an unsustainable business model more akin to hoteliers, one that real estate mogul Donald Trump would envy. And all on the backs of taxpayers, students and their families.

Schools across the U.S. offer practical degrees, useful in the corporate or public sector, like engineering, software design, or accounting.  But even the most prestigious colleges no longer offer a solid liberal arts education. Instead, many schools charge nosebleed tuition for degrees built on useless courses about, say, the cultural efficacy of soap operas, or sex and gender in society, that don’t lead to work in the real world and exacerbate income inequality.

The broken college business model has dire consequences, as students face a brutally-competitive job market in the wake of the worst financial collapse since the Great Depression. Solid, practical degrees are more important than ever, as “young adults change jobs on average 11 times in the first 25 years of their adult lives,” notes George Leef, director of research for the John William Pope Center for Higher Education Policy.

A top college watchdog, the American Council of Trustees and Alumni (ACTA), adds: “It is a tragedy that our colleges and universities are increasingly characterized by their high costs, not their high standards,” adding, “it is time to demand improvement.”

Meanwhile, income inequality is rampant for those without college degrees. Employees with just a high-school diploma earn just two-thirds of the typical salary of college graduates, down from 81% in 1965, the earliest year for available data, says the Pew Research Center. Young adults with high-school diplomas face three times the likelihood of living in poverty than they did 35 years ago, Pew says.

Another disturbing headline: The era of the four-year college education is over. ACTA says: “Six years is the norm used by the U.S. Department of Education” with “far too many” students taking even longer to graduate, burdening families even more.

Ask yourself: Where is it written in the tax code that a college’s nonprofit status means it should prioritize spending on bling over reducing tuition? 

Why are taxpayers, students and their families subsidizing commercial activity at colleges, when these schools get so much federal and state aid on top of tax breaks?

Where are the Congressional hearings into tax breaks meant for colleges operating solely for educational purposes – a mission that is supposed to help solve income inequality?

DC Ignores Incentives Problem

The student debt bubble has blown to $1.2 trillion, as Democratic Senators Elizabeth Warren, Al Franken, and Richard Durbin push for new legislation to help student borrowers, including more tax increases on upper brackets to help pay for student debt.

President Barack Obama has already issued an executive order to extend caps on student borrowers’ repayments at 10% of their monthly income. Seven in 10 college seniors graduating last year had student loan debt. Those graduates owed an average of $29,400 each, according to the Project on Student Debt.

But this is a story about incentives, not after-the-fact fixes. College officials are hiking tuition costs even though they operate their schools as nonprofits, and even though students get substantial federal and state aid.

Colleges and universities get a lot of tax breaks. They are exempt from paying federal corporate income taxes, state and local sales taxes, and property taxes. Their endowments accept tax-deductible contributions and they don’t have to pay capital gains taxes on these funds. Also, colleges can borrow money using tax-exempt bonds and they do not have to pay taxes on the interest they earn.

This, as numerous schools, including Harvard University ($58,600 for tuition, room and board), Stanford University ($56,446) and Yale University ($60,900), sit on multi-billion dollar endowments that rival the size of many hedge funds.

At the same time, college students got $136.7 billion in federal and state grants to pay for their degrees in 2012 and 2013 (see here: Often, when students approach colleges for help, they instead get stuck with loans, anecdotal evidence shows.

Degrees in Studying Lady Gaga, Mad Men

ACTA’s latest What Will They Learn? report finds “do it yourself” curriculums — where students pick their own curriculums — are in vogue. Partly because of that, just 2%, 22, of the 1,091 colleges and universities studied, got an A grade for offering the basic requirements students need for a decent education, according to this scale. The A list included Pepperdine University ($44,902), Morehouse College ($25,468) and Baylor University ($34,480). The U.S. military Academy also scored an A.

The basic standards are: English composition, literature, foreign language, U.S. government or history, economics, mathematics, and natural or physical science. If schools offered six or seven of these basic requirements, they got an A. If just two were offered, that meant a D grade; just one resulted in an F.

More than a third, 35.5% or 387 schools, got a B grade, 30.8% a C, 23.4% a D, and 8.3% an F, ACTA found.

The blue-chip colleges in America got dismal grades even though annual costs easily top the $55,000 threshold.  Harvard and Yale both got a D. The University of California at Berkeley ($27,386 for out-of-state students) and Brown University ($46,408) both scored an F.

“Brown has an ‘open curriculum,’ meaning students may take whatever classes they wish, with no requirements at all,” ACTA reports. The John William Pope Center’s Leef notes that: “At Berkeley, for example, a student can graduate without cracking open a great novel, speaking even a few words of a foreign language, understanding statistics or knowing anything that happened more than a week ago.”

Most of the state universities in Michigan and Wisconsin scored Cs, Ds or Fs.

One of the most expensive colleges studied, Amherst College, ($46,574), did not require a single one of ACTA’s seven core subjects. Instead, Amherst’s curriculum lets students “confront the meaning of his or her education, and does it without imposing a particular course or subject on all students,” ACTA says.

Leef also points out that a study done by his center found that the University of North Carolina at Chapel Hill sells these impractical courses: The Stage Musicals of Rodgers and Hammerstein; Food in American Culture; The History of Hip-Hop Culture; Sex and Gender in Society; and Guerrillas and Revolution in 20th Century Latin America.

 ACTA also says that at the University of Indiana–Bloomington, students can fulfill their “Social and Historical Breadth of Inquiry” requirement by taking a course in “The Fame Monster: The Cultural Politics of Lady Gaga.”

At Middlebury College, students can satisfy their “Historical Studies” requirement by enrolling in the course “Blame It On Bossa Nova: The History of a Transnational Phenomenon” or by taking “Mad Men and Mad Women,” which uses AMC’s “Mad Men” “as a course foundation.”

Meanwhile, a recent survey of college graduates “found that barely half knew that the U.S. Constitution established the separation of powers,” the college watchdog ACTA says. “Only 38% could identify the correct length of congressional terms of office.”

College Bling

But instead of focusing on lowering tuition costs and improving their course offerings, many colleges are more interested in splashy college bling in the form of white elephant football stadiums, four-star college cafeterias, and sports complexes on the level of a Chelsea Piers in New York City.

All while an excess of administrators continues to help drive tuition costs and student debt higher, and all of which is pricing students out of an education they need to stop the very same income inequality politicians are outraged about.

University officials argue their bling polishes their brand names and attracts students. However, students increasingly subsidize these expenditures, as private donations and ticket sales repeatedly fail to meet projected costs.

Annual National Collegiate Athletic Association (NCAA) industry revenue from tickets, television, and merchandising is more than $15 billion, Bloomberg figures show. And that has colleges blowing out their arenas. The University of California at Berkeley spent $474 million on a new football stadium two years ago. This, after state legislators cut $650 million from the university system’s $3-billion budget, causing tuition costs to rise 17% for in-state students, and 5% for nonresidents.

Colorado State University is working on a $220 million football stadium expected to be finished by 2016 as tuition costs bear down. It is estimated colleges in Texas are spending more than a billion dollars on football arenas (see here:

Student athletes, of course, get more help than regular students. Recently, the Knight Commission on Intercollegiate Athletics estimated that Division I schools with football programs spend about $91,900 per athlete, roughly seven times the spending per student of $13,600.

Reports indicate that NCAA data reveal just 16.2% of the spending at Division 1 schools with football teams actually goes to student aid. The rest goes to salaries, game expenses, and facilities. The highest-paid college officials increasingly are coaches.

Colleges from the University of Texas at Austin to UCLA to Yale have reinvented the standard cafeteria into restaurant-style eateries. No more steam tables for meat loaf or pasta. Now, espresso makers, sushi bars, roast beef or turkey stations, vegan bars and designer sundae stations are increasingly the norm.

Oklahoma City University has a raw vegan bar. The University of California at San Diego has a vegan “eatery and lounge” on campus. The University of North Texas turned one of its dining halls into an all-vegan cafeteria. High Point University in North Carolina even has a four-star level restaurant, 1924 Prime Steakhouse.

Colleges are also building out state-of-the art gym facilities, with Olympic-size pools, saunas, Jacuzzis, expansive weight rooms, aerobics and yoga centers, and a string of squash, racquetball, basketball, volleyball and tennis courts.


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