The rising cost of higher education is not new, and people have been aware that the cost of going to college has been rising fast for some time. However, are young people today having a harder time paying for college than before? Why is the price of higher education so high? Also what can be done about it?
The Cost of Higher Education is the Highest it Has Ever Been!
Higher education costs have been rising faster than inflation since at least 1980. From 1980 to 2004 inflation rose roughly 18-20% while the cost of higher education rose by over 250%. Today universities are increasingly charging $50,000 a year or more for students to attend as an undergraduate. Some argue that people should not look at the so called “sticker price” of higher education because students receive discounts and financial aid. Yet, if this were the case one would expect student debt to stay relatively stable when compared to inflation. From 1993 to 2008 average student debt climbed from $9,250 to over $19,00, a 58% increase after inflation! What many people fail to realize about financial aid is that most forms of aid are just loans, a student still needs to pay that back and as we will see later on in the series paying back these loans can be no easy task for many recent graduates.
Why are Costs Going Up?
There are many factors that go into higher education inflation. Some major factors are the higher education arms race, student access to to much government subsidized loans, and a complete lack of cost consciousness by the consumer and the institutions and even prices fixed to exclude lower income students.
The higher education arms race is led by elite institutions’ desire to be at the top of the rankings, attract the best students and have the most well known professors. This has led to schools spending money on new facilities, amazing gyms and dorms. paying high wages for well known faculty and in general has created a spend spend spend climate at schools. Also once another school builds the next great thing every other school needs to spend just to keep up.
In any normal business this type of arms race would be curtailed by the limit consumers are willing or able to spend for the product or service. Take handbags for example, Coach does not charge $2,000 for its product because people are not willing to spend that much money. Even if coach did something such as put a computer into the handbag a consumer still may not buy it because while it might be cool, a consumer may not see the benefit relative to cost. This is referred to as consumer cost consciousness. This cost consciousness is lost in higher education for two main reasons, the first being people believe the cost of education is almost always worth it and the government keeps intervening and supplies students with credit.
It is true that a college education will boost ones income overtime. However, this does not mean one should spend $200,000 on a college degree. The ever popular phrase that people on average make a million dollars more over their lifetimes with a college degree actually says little about college graduate wages, but for non-degree employees wages. Wages for workers with just a high school diploma have fallen off a cliff in the last forty years, while wages for college graduates have remained stable. College graduates’ wages have not been increasing faster than inflation for some time, so the more you pay for your education the more your education eats into your wages. A college degree just keeps a person from falling off a financial cliff. Once this is understood ever increasing costs for education can not be justified, in fact it means that higher education is becoming less valuable to the consumer as its price increases.
The other component to the disappearance of cost consciousness is government loans. The federal government gives students access to tens of thousands of dollars in loans every year and is constantly upping the limit. This means that students have the ability to pay higher and higher tuition and fee prices. Many free market thinkers believe that as students ability to pay increases, schools will charge ever higher prices.
The last reason some believe colleges are charging higher and higher prices is to price out lower income perspective students. Elite universities do allow a few gifted young people in poverty the chance to attend for little or no cost, but over all institutions have no intention of having proportional representation of all income levels and classes. A dirty little secret in higher education is the fourth form of affirmative action. The first three are diversity, athletics and progeny. The fourth is called development, which means if an unsatisfactory applicant comes from a family that has the potential to donate large sums of money applies, space will be made for some of them. .
Raising tuition prices does force low income students out of the institution or from applying to it. Even if you increase aide to match the growth in price, poor students still decide to look elsewhere as the Massachusetts Board of Higher Education found in a study a few years ago. The policy consequences of this mean that even with higher aide when a school raises its prices it is shutting out thousands of poor students from their institution.
Does the Rising Cost of Higher Education Matter?
The cost of higher education matters for many reasons, high education costs can distort meritocracy in the business community by pricing out to many highly qualified young people from getting the education they need, it can increase class disparity and leave the poor trapped in poverty and uneducated. Increasing costs in education could also be a bubble that can also price out the middle class and in doing so cause the bubble to bust and may bring down many higher education institutions causing permanent damage to our country’s ability to educate its workforce and reduce research and development in America.
If a large percentage of Americans can no longer afford higher education, especially the poor. Businesses no longer have access to the best and brightest. Instead this business meritocracy turns into a business aristocracy. Where only the children of the well off have access to jobs. History has shown us that when governments do this, the results are disastrous. With to few options for hiring talented employees business productivity will decline. Leading to smaller profits, fewer jobs created and less innovation. Most of the great business leaders of our time did not grow up rich, after all if you are already rich why build a great new company? Steve Jobs is a great example of someone coming from a middle to working class family, learning what he needed in college (he did not complete his degree but as one can see he didn’t need to) and once had the skills he needed went off and created something great (it should be noted this article was written on a mac).
From a public policy position, pricing out the poor from education not only takes all the talented young people from poor familes out of the market it also creates a dangerous situation with the poor trapped in poverty. America is built upon the promise that you can get yourself out of poverty and live the American dream. While this has never been completely true, it is for many and is the cornerstone of American society. You take this away from millions of Americans and they no longer have a reason to invest in our society and respect our laws. Nations in the past have fallen when this happens, and today with 14 million unemployed and recent graduates seeing this kind of fate, many have already taken to the street demanding change. Just recently former National Security Advisor Zbigniew Brzezinki warned of the possibility of riots if employment in America does not improve. Pricing out education exacerbates this already deteriorating situation.
This becomes even more troublesome since higher education is starting to price out the middle class. Higher education institutions need to fill there student rolls with hundreds of thousands of middle class young people every year or face a lack of income to stay afloat. This higher education price bubble has been starting since colleges have been jacking up the price because government continues to offer too many loans to young people who cannot afford it, the price could get to the point that middle class young people no longer try to achieve an education. Besides the problems already mentioned because being priced out of education, it could also bring a quick bust to the bubble, forcing schools to downsize and perhaps go out of business. After the crash prices will go down sharply but the number of available seats will have also diminished making it hard to get into a school. It will also mean less academic research and development, a major economic engine of innovation.
It is clear that higher education costs must be curbed and institutions need to start being more responsible in how much they charge students.
What next? If higher education costs continue to soar it could lead to many being priced out or even a crash for the system as a whole. What can be done to alleviate this problem? What role does government have to play in this? What role do students and parents play in this higher education arms race? And what most colleges and universities do to clean up their act? All this and more to be revealed this Sunday!