Basics Of US College Education


By Rajkamal Rao  

When exploring college, people generally talk about various terms which are exclusively used in the post-secondary education world:  private colleges, public universities, community colleges, credit hours, the College Board, transfers, endowments, budgets, in-state tuition and so on.  This chapter is intended to bring the average reader familiarity with these terms.  If you are already familiar with them, you are welcome to skip this section.

The National Association of Independent Colleges and Universities, by far, offers the best description of the US Higher Education system.  We owe the following text and graphic to NAICU.

 As you can see from the chart, higher education in the US is made up of four sectors: 

·         Private, nonprofit (also called independent) colleges and universities - from Abilene Christian University to York College of Pennsylvania.  The Ivy Leagues and other elite schools such as Carnegie Mellon, Stanford, MIT and Northwestern University all fall into this category;

·         Public, or state, colleges and universities, typically funded to varying degrees by their state, and administered most often through a state system of higher education - these are the well-known state schools such as the University of Texas in Austin or the University of California in Berkeley;

·         Community colleges, funded largely by their local and state jurisdiction, and offering career training, two-year associate's degree programs, and the first two years of bachelor's degree programs (though some also offer four-year degree programs) - examples are North Tarrant County Community College and Colin County Community College; and

·         Proprietary or for-profit schools, which often specialize in career and job-related training and generate profits for their owners - examples are ITT or DeVry.

Credit and Credit Hours 

Earning a college degree in the US is all about earning credit hours towards the degree.   But what exactly is a credit hour?  It simply represents one hour of class per week for a term or semester.  Most US schools break up an academic year into semesters (Fall, Spring) with each semester being 16/17 weeks long.  A 3 Semester Credit Hours (SCH) class means that for 16 weeks in the semester, you will meet your professor in class (lecture or lab) for 3 hours a week.  The idea is that you will receive 16 x 3 = 48 hours of instruction for that class throughout the semester. 

When you pass your final exam in the class and are awarded a passing grade, you will have earned 3 SCH or 3 credits.  Generally, an Associate’s degree requires 60 credit hours, and a 4-year Bachelor’s degree requires 120 credit hours.  So, you will need to complete 20 such courses for an Associate’s degree and 4o such courses to earn a BS degree because 40 x 3 = 120.

Luckily, US colleges don't insist that all of the academic work you do towards earning the degree must be completed at the college you eventually graduate from.  Many colleges permit you to study at other institutions (or even online) and allow you to "transfer" those credits to your destination college. 

The best example of this is through the popular Advanced Placement (AP) program run by the College Board.  The College Board is a not-for-profit membership organization of American colleges and universities that began in the early 1900's.  Its sole mission is to connect students to college success and opportunity.

Tip:  Review our detailed primer on the AdvancedPlacement (AP) program. 

Recognizing that many students in US high schools are gifted and talented but are not challenged enough in their high schools, the College Board decided to roll out AP courses for high school students to complete before they even enter college.  The best incentive for such students was that by passing an exam conducted by the College Board after paying a small fee, they would earn credit hours that would directly transfer to the college that they would enter.  These students could then either spend less to complete their required 120 credits degree by taking fewer college credit hour classes, or, for the same money, take additional courses and graduate with a double major (which requires 140-150 credit hours).

For a US high school student, participating in an AP program requires that she first talk to a counselor at her school.  If admitted, she is allowed to take AP classes in her high school along with her regular school work.  This is tough but motivated students do handle the burden.  Then, the student appears for the AP exams conducted by the College Board, typically in May.  If the student passes the exam, her credit record can be applied to the college that she will be going to.  Because not all US high schools offer AP programs, the College Board has made it possible for students to take AP classes online and take the AP exam. 

The AP program is not the only way to earn and transfer college credits.  Most colleges and universities honor credit hours earned at other colleges and universities, subject to limitations.  

Your college will recognize those hours but won't assign a grade to them when you receive your degree.  For BA/BS degrees, transfer programs especially from 2-year community colleges are a lot more lenient and well defined.  In other words, you could attend a 2-year community college where tuition rates are much lower and complete up to 60 credit hours - half the needed credit hours to graduate - and transfer all those credits to a 4-year college. 

Economics of college 

Providing quality education to a large population is not easy.  Nor is it cheap.  Colleges need to buy land and construct buildings to hold classes; build labs, parking lots, libraries and student facilities like cafeterias, computer centers, gyms and dormitories; build offices for professors and administrators - and do all before a single student enrolls.  

And then, there are ongoing costs: expenses to maintain this vast infrastructure; salaries to pay college faculty and staff, administrative expenses related to recruiting new students and transfer candidates; utilities expenses and investments in research that can attract bright professors to join the institution in the first place.

All US colleges charge tuition fees to recover some of the costs for providing an education.   These are never enough, though.  Public institutions depend heavily on the states to help finance their budgets.  The Center on Budget and Policy Priorities (CBPP), a nonpartisan research and policy institute, estimates that state and local governments provide 53% of a public college’s budget.  The National Association of State Budget Officers calculates that in 2011, states provided a total of $170.4 billion to public colleges, an amount roughly equal to the size of the economy of Kuwait.  And this does not include funds received by these institutions from the US government for research and other programs.

Private colleges can’t turn to states, obviously.  So they depend on the largess of alumni to help build “endowment funds” - a pot of money continuously collected from alumni and friends through expanded funding drives.  The funds are used to buy financial assets which generate high returns (such as stocks, bonds and real estate) and are often managed by talented and experienced alumni.  The returns from the assets - interest, dividends, capital gains - are pumped back to support school activities.

Stanford University’s endowment funds - there are nearly 7,000 of them - are worth $21 billion and returns from the funds’ investments kicked in nearly 21 percent of the school’s operating budget of over $5 billion.   Harvard University has gone so far as to establish its own company - the Harvard Management Company (HMC) - to manage its massive, $36.4 billion portfolio.  As of June 30, 2014, the company reported that its annualized return on the endowment over the last 20 years has been an outstanding 12.3% per year.  In fiscal year 2014, distributions from the endowment contributed almost a third of the University's operating budget.

Schools also actively pursue lavish gifts by large benefactors to fund college construction projects, research and even financial aid programs.  Former New York City mayor Michael Bloomberg disclosed in 2013 that the total value of his contributions to Johns Hopkins University, where he earned his first college degree, exceeded $1.1 billion.  The New York Times reported, “His wealth — not to mention a small army of his favored architects, art consultants and landscape designers — has bankrolled and molded the handsome brick-and-marble walkways, lamps and benches that dot the campus; has constructed a physics building, a school of public health, a children’s hospital, a stem-cell research institute, a malaria institute and a library wing; has commissioned giant art installations by Kendall Buster, Mark Dion and Robert Israel; and has financed 20 percent of all need-based financial aid grants to undergraduates over the past few years.”

What benefactors get in return is the unending gratitude of the institution displayed prominently on college property.  At Johns Hopkins, the largest building on its Homewood campus, complete with a rooftop observatory dome, is named the Bloomberg Center for Physics and Astronomy.  In 2004, David Tepper donated $55 million to Carnegie Mellon University to have its entire business school named after him, which is now called the Tepper School of Business.  Baylor University spent $266 million just to build its brand new football stadium in Waco, Texas.  Its name was changed from “Baylor Stadium” to “McLane Stadium” to honor alumnus Drayton McLane, Jr. who helped fund its construction. 

The role that tuition plays 

No matter whether a college is public or private, revenue from tuition fees is still an important part of its budget.  Tuition fees are generally based on credit hours - such as, $180 per credit hour.  Simple arithmetic shows that the total tuition costs for a 60 SCH Associates degree is $180 x 60 = $10,800 and for a 120 SCH four-year degree, the cost is $180 x 120 = $21,600.

Public schools provide a discount in fees to state residents, sometimes of nearly 50%.  At the University of Texas in Dallas (a public university) in-state tuition costs $5,903 for the Fall 2015 semester but out-of-state tuition is $15,189 per year - a discount of 61% for Texas residents.  This is largely a way for state governments to give something back to residents who have been paying hefty taxes to the state.  Most public schools have extremely strict rules to determine if a student qualifies for the special discounted rate - but the intent is clear.  If a student is normally domiciled in the state and he or his parents have been paying taxes to the state, the student generally qualifies for the discounted rate.   Private schools do not discriminate in their fees - all students, resident, non-resident or international pay the same fees.

A student attending a state school in another state as a non-resident may therefore be better off going to a private college instead, if costs alone were a concern.  In some circumstances a student may consider a private college over a state school although he is a state resident.  Peter Cappelli, a Professor of Management at the prestigious Wharton School of the University of Pennsylvania, says, “You’re likely to be able to get much better financial aid at elite (private) schools.  If you’re making less than $100,000 per year as a family, you tend to not pay much of anything in tuition costs anyway - it is cheaper than going to a state school”.

A look at this table of elite private schools from the US Department of Education somewhat confirms what Prof. Cappelli is saying.  However, the income cap is $48,000 so many middle class families will not qualify.  Also, these schools are highly selective.

For students and families, tuition costs form an important part of the college experience but there are additional costs.  Application fees, books, test fees (SAT/AP/ACT), test preparation fees, other administrative fees, housing, food, health insurance and transportation, all contribute to the so-called overall cost of attendance.  Many of these costs are one-time expenditures and are neither trivial nor refundable.  The two largest components of US college education are tuition fees and living expenses (housing and food) - and add up to nearly 80% of the total. 

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