The 12 Reasons College Costs Keep Rising
Richard Vedder:
When asked the question, "Why do colleges keep raising tuition fees?" I give answers ranging from three words ("because they can"), to 85,000 (my book, Going Broke By Degree). Avoiding both extremes, let's evaluate two rival explanations for the college cost explosion, followed by 12 key expressions that add more detail.
University presidents and some economists (e.g., David Feldman and Robert Archibald) often cite the Baumol Effect (named after a Princeton economist), arguing that higher education is a service industry where it is inherently difficult to raise productivity by substituting machines for humans. Teaching is like theater: it takes as many actors today to produce King Lear as it did when Shakespeare wrote it 400 years ago. While there is some truth to the argument, in reality technology does allow a single teacher to reach ever bigger audiences (using everything from microphones to streaming video). Moreover, in reality a majority of college costs today are not for instruction--the number of administrators, broadly defined, often exceeds the number of faculty.
The second explanation comes from former Education Secretary Bill Bennett: rapidly expanding federal student financial assistance programs have pushed up college prices, so the gains from student aid accrue less to students than to the colleges themselves, financing an academic arms race. Recent studies (by Stephanie Rieg Cellini and Claudia Goldin, Andrew Gillen, and Nicholas Turner) support the Bennett Hypothesis. Student aid has fueled the demand for higher education. In the market economy, increased demand for a product made by one company (say the iPhone) quickly spurs competition (other smart phones), so prices do not rise. That fails to happen in higher education, as many providers restrict supply to enhance prestige. Harvard has an Admissions Committee, McDonald's does not.
Posted by Jim Zellmer at June 22, 2012 4:52 AM
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