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Why Does College Cost So Much?



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One of the most popular articles on Digg yesterday was titled, “Why Does College Cost So Much?” — I guess it’s that time of year. The article was written by a pair of economics professors who have written a forthcoming book on the subject. The authors argue that the primary factors driving college-tuition inflation are:

  1. The labor-hours needed to provide this “artisanal” service have not declined;
  2. The cost of employing the highly educated workers needed to provide the service has gone up; and
  3. The cost of the technologies employed in higher education has risen faster than the cost of other technologies.

I’m interested to see what kind of evidence the authors provide for this thesis in their book, because I’m not at all persuaded by this article. The authors don’t bother to mention the argument, even for the purpose of dismissing it, that the primary factor driving college-tuition inflation is actually ballooning federal tuition support: Tuition keeps going up because the federal government ensures that students can afford to pay it.

The authors’ thesis is undermined by the fact that tuition inflation has kept up even at for-profit career schools such as the University of Phoenix and Grand Canyon University, which charge about the same as all but the most prestigious state schools charge their out-of-state students despite being mostly exempt from the factors that, according to the authors, are forcing state schools to raise their prices. The for-profits can afford to charge such high rates for their product primarily because they draw their students from low-income populations that qualify for large amounts of student aid. But empirical studies have found that all universities — not just for-profits — are quite adept at capturing federal tuition subsidies. The only exemption appears to be in-state tuition rates, which in most states are capped. 

Not surprisingly, the professors reject the idea of applying such caps more broadly: “Our story of rising cost is devoid of bad people making bad decisions,” they write. “This means that there are no simple fixes, like price controls, that would not also reduce the quality of the education we offer.” While they do not come right out and argue for increased public financial aid, that seems to be the inescapable conclusion of their argument, which is that 1) the disproportionate rate of college-tuition inflation is due to economic factors largely outside of our control, 2) mainly deriving from what a great product we put out, and 3) price controls are not the answer, so the answer must be 4) more financial aid to help families afford our expensive product. “We need to streamline [the financial aid] system,” they write, “and rewrite the funding relationship between public universities and their state sponsors.” I find it hard to disagree with that statement, but I don’t think we’re talking about the same thing. 



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