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Our First Look At Tuition

By Professor Doom

Now I have two bongs. I’ve named them Pell and TOPS.”

--student discussing his prized possessions (Pell and TOPS both provide money to students without much restriction)

While the previous essays have mapped the causes of the collapse of higher education in this country, no discussion of this collapse could be complete without some mention of the most easily observed symptom: the skyrocketing costs of higher education. Foolish students, corrupt administrators, timid faculty and worthless degrees have doubtless always existed, but the cost of a college education has moved from merely expensive to a price that is utterly back-breaking for all but the wealthy.

Over the last few decades, two things have consistently increased faster than the official government rate of inflation: college tuition, and health care. The increases for medical care are usually attributed to the costs of research for new drugs and procedures, although examination of why new drugs and procedures increase so much more quickly than, say research and development of new computer gadgets is never satisfactorily addressed. In any event, no such rationalization exists for tuition, as there are no significant breakthroughs in education that could be sold to students, no expensive speculative research programs to pay for, and very seldom are even weak explanations given for the ever rising prices, prices that have risen roughly twice as fast (relative to inflation) as for medical care. While there have been some student protests, for the most part people are content to take out a larger student loan and not ask “why?” There are some answers to this question, but to address the big picture answer requires some basic economics.

Some Economics and Why Economics (Apparently) Doesn’t Apply To Tuition.

Supply, demand, and price are three interrelated concepts for any commodity, and education is a commodity as well. If the supply is large (for example, fresh water), then the price will typically be low. If demand is high relative to supply (say, fresh water, on an island), then the price will be high. As the price increases, demand will typically drop, as people will seek ways to reduce their needs (which is why people on islands avoid having grassy yards and swimming pools). If the price drops, on the other hand, demand can increase (so one might find more swimming pools in areas where fresh water is in abundance).

Let’s look at demand for higher education. The general trend for college enrollments for the last forty years has been increasing, but recently enrollment shot up (there was a similar burst around the early 20th century as well). Enrollment in postsecondary institutions increased 9% between 1989 and 1999, little different than the general increase in population in the United States. In the decade after that, enrollment increased nearly 40%, a massive increase that cannot be so easily explained by the general increase in the population1.

Clearly, demand has increased. Supply of education in a format people want (anyone could just go to the library and read, after all) has not been so easy to provide despite the efforts of already existing institutions. It takes time to establish and accredit a “real” educational institution able to handle the influx of new students in a given year, so from this alone one would expect the price to increase until there are enough institutions to handle the demand, and prices surely have increased. Of course, price increases clearly haven’t caused the demand to drop (as enrollments are still increasing). The growth in recent years is attributed to the weak economy, but the spike in student population began well before that—and a weak economy means people shouldn’t have the money for tuition. It’s natural to ask what’s causing such an increase in demand even in the face of rising prices.

So with the price of tuition increasing, why hasn’t the demand dropped? The answer is money, particularly government loan and grant money. Vast sums of government loans are easily available to any degree-seeking student that even sort-of graduates out of high school. Student loans at the federal level headed sharply higher, starting around 19962.

Everyone knows what a high school graduate is, but what’s a degree seeking student? Anyone who clicks off a box saying “I am a degree seeking student.” That’s it. There’s no penalty for lying or if the student changes his mind later, as long as for that one second the box is being checked the student claims to believe it to be true, it’s all good. It doesn’t matter if the student is just there to take a single course in theatre or poetry, as long as that box is checked, he—or more accurately, the institution--becomes qualified to receive a huge amount of student loans and grants for his education. Federal loans, the big-big money, are only available if the college is accredited, but the difference is amazing once these loans become available: the number of students at my own college doubled and doubled again in a few short years once the free money spigot was opened.

I’ll think I’ll buy another computer with it.”

--student contemplating how to spend surplus loan money. In this case he is effectively going into debt to buy an unnecessary, extra, depreciating asset. It’s curious administrators will propose “life skills” courses, but never consider giving students useful financial advice.

With this money gushing in, increases in tuition are not noticeable to students. In other words, the “price” isn’t effectively rising, foiling the usual economic relationships. Since the loans cover the tuition and then some, the price is a non-issue for the financially unsophisticated—free money is free money, and so rising prices don’t decrease demand like it would according to ordinary economic theory. All the loan receiver notices from higher tuition is that his piece of the check is smaller (as the college is taking more). It’s still a check, it’s still motivating the person to go to college…or at least go to college to collect the checks. Because the cost of education is “hidden” in this way from the student, the price can rise even further, motivating even larger loans. There can be complaints, but as politicians respond to the public outcry against the expense of education, still more loan money becomes available, a politically easier solution than trying to scale back institutional spending. The extra money means the demand doesn’t fall, and the self-feeding cycle continues.

Keep this in mind: the sheer existence of all the student loans are, in fact, contributing to the ever rising prices of education. With no incentive to keep costs low, institutions can spend and increase overhead and pass on the costs to the student, or at least the taxpayer who ultimately pays the bill for government spending. Despite the 40% growth in the customer base over a decade and the rising revenue per customer (both of which would bode well for most any business), most all public universities are struggling to keep their budgets under control. The extra money from tuition seems to get soaked up faster than it is splashed into the budget. More accurately for public institutions, they face budget cuts even as their revenue from the student loans rises.

There is no question that there are bright, hardworking, but economically disadvantaged people that benefit from these loan programs. Because tuition is so expensive, these loan programs are the only way they can afford college now. Decades ago, before these programs and the higher tuition they caused, such people could “work their way through college,” but this expression has little meaning today, where such work at best merely offsets a small part of college expenses. These people are being forced into a debt system they might never escape.

There are also very sinister elements about this process that attracts so many “students,” and note how I put that word in quotes. A number of these new “students” don’t come to college for the education, otherwise they would already have been in college before the free money. These “students” come to college because going to college can be as lucrative as a low wage job, with far less effort. These folk that play the system for short term game might not be true victims, but there’s another cadre of students very much victimized by the loan system: the ones that truly don’t understand how the system works.

It took me six years to get this degree in psychology. I have $45,000 in student loans. I can’t get a job with this degree. What am I supposed to do?”

--OWS protester sign

Recall the discussion earlier about offering remedial courses that cover material as basic as the number line. These remedial courses are paid for just like any other college course, it’s all the same when it comes to the loan money. But a student who cannot perform the task of “locate 2 on a number line” without professional assistance (and I’m not exaggerating here about having such attendees at my college) likewise isn’t mathematically sophisticated enough to distinguish between “student loan” and “free money.” Should not college administrators show a little restraint in taking advantage of these people? If showing restraint was an administrator’s job, I suppose there would be restraint. As demonstrated earlier, administrative goals, or even training, have nothing to do with restraint.

Various loan deferral programs, and the simple fact that a student can now easily take six years or more to get a four year degree, explains why the problem of student loans of the last ten years going into default hasn’t materialized as yet, but it truly is just a matter of time. Student loan default rates rose sharply in 2011, so perhaps the consequences will be more apparent fairly soon3. The current default rate of nearly 9% is far below the high of 20% in 1990, but now there are far more students taking on loans for a greater amount (over a trillion dollars of such debt now), and the current defaults are disguised due to the many more ways repayment can be deferred, as opposed to what existed twenty years ago.

My proposed myth about “Any college will take your money, no matter what” is starting to sound more like a fundamental truth. A person merely clicks off “I am a degree seeking student,” and signs up for whatever classes he wants (and, very often, these are not classes that lead to any particular degree, but “for some reason” the institution still offers them to the detriment of students). The college takes its cut of the loan money, and the student gets what’s left over or pays the difference if he’s at an expensive school, and the process is repeated semester after semester, or until the loan money runs out. It’s a win-win situation for the student and the college, as long as the prospect of repaying the loan is taken out of the picture for the student, and the concept of providing an education is irrelevant for the institution.

With the endless loan money coming in, there’s nothing to stop the price from rising constantly.




--Message board post, no negative responses. Do people not know about public libraries or how to read things on the internet?

Think about it.

  1. National Center for Education Statistics. Digest of Education Statistics.

  2. United States Department of Education, “Student Loan Volume Tables--FY 2009 President’s Budget.”

  3. Lewin, Temar. “Student Loan Default Rates Rise Sharply in Past Year.” New York Times. September 12, 2011.





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