Elite College ($50,000 a Year) or Good State School ($20,000)?

Richard Vedder:

The new Sallie Mae-Gallup survey of attitudes toward higher education, "How America Pays for College 2012," shows that Americans are becoming increasingly resistant to rising college prices. Some people who were saying "I want the best college money can buy" a few years ago, are now saying "We aren't going to pay sky-high tuition when there are much cheaper colleges nearly as good."

How sensitive are people to price? I woke up in the middle of the night with a minor epiphany about this. My surmise is that, by and large, in the era before massive federal student loan programs and also smaller private scholarship offerings, the demand for college was highly elastic--people were extremely sensitive to price. In, say, 1925, when family incomes in today's dollars were typically perhaps $20,000 or $25,000, the cost of any school was burdensome, and the Ivy League, costing perhaps $8,000 or $10,000 a year for all costs (in today's dollars), was a luxury for the truly rich, while state schools, costing perhaps $4,000 a year, were available for some middle class people but by no means all.

Fast forward to today. Incomes have doubled or tripled, but the cost of college has gone up far more -five or six fold. The availability of loans and the development of a culture arguing that higher education is a good "investment" has made the demand for college not only larger, but also far more insensitive to price. A good college is now considered a necessity of life, almost like salt or life-sustaining drugs, whereas earlier it was what John Stuart Mill might call a "superfluidity."

Posted by Jim Zellmer at July 24, 2012 2:08 AM
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