Politics & Policy

A Fortune in Tuition

Why does college cost so darn much?

EDITOR’S NOTE: This article appears in the October 11, 2004, issue of National Review.

Tuition fees at the typical American state university rose “only” 9 percent this year, USA Today tells us, down from 14 percent last year. For every single year for over 20 years, average tuition hikes have exceeded the inflation rate. When I entered Northwestern University in the late 1950s, it took a median-income family less than two months’ income to pay the annual tuition; today it takes over six months’ income to pay it, at a typical selective private school.

Why is tuition soaring? According to conventional campus wisdom, it’s because of declining external funding: lagging state subsidies to public universities, inadequate contributions and investment income at private ones. Schools also sometimes argue that higher tuition is funding qualitative improvements.

My own research–published in a new book, Going Broke by Degree: Why College Costs Too Much (AEI Press, 2004)–suggests that the conventional wisdom is wrong. Tuition has been growing for decades–during periods of rapidly rising as well as falling state and private funding. As to qualitative improvements, it is true facilities are nicer these days and some new academic offerings have been introduced, but at the same time the average score on the Graduate Record Exam is lower today than in 1965; it is highly questionable whether college kids are learning any more than they were decades ago.

The real reason for soaring college costs is higher demand for colleges, largely resulting from well-intended but dubious governmental policies. When demand rises relative to supply, prices (in this case, tuition fees) go up. Demand is rising partly for non-governmental reasons, such as higher incomes and a growing earnings differential between high-school and college graduates. But it is also rising rapidly because of the huge growth in government loan and grant programs as well as tuition tax credits. Pell grants, Stafford and Perkins loans, tax-sheltered college-saving schemes (“529 plans”), work-study programs, etc.: All serve to increase the number of students wanting a college education at any given price. Kids without money for college simply borrow it.

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