Why do college costs outpace inflation?

Tuition and other costs, not including room and board, rose on average
to $6,185 at public four-year colleges this year, up 6.6 percent from
last year, while tuition at private colleges hit $23,712, an increase
of 6.3 percent…In recent years, consumer prices have risen less than 3 percent a year,
while net tuition at public colleges has risen by 8.8 percent and at
private ones, 6.7 percent.

Etc., and please note that explanations for high costs (i.e., lazy professors who won’t blog) do not automatically translate into explanations for rising costs.

Rrecall that 78 percent of the buyers in this market choose the public sector.  Tuition is going up because it can, to paraphrase the old saw about the dog (or is it the monkey?).  But too big a sticker shock across one year would irritate voters, who might then insist on tighter regulations on public sector higher education.  Think about the equilibrium.  Many state schools could earn more money by forgoing state aid and raising tuition to profit-maximizing levels, or some approximation thereof.  Step-by-step, we are moving toward some version of this outcome.

Why do low-tuition goodies for middle class parents no longer figure so prominently in the political calculus?  Could it be the aging of the population?  Or simply that some schools tried raising tuition and found that it did not backfire?. 

If the market discounters — who capture 78 percent of the customers — can raise their price, so can the other suppliers.

If more people want to get into Harvard, Harvard doesn’t have much incentive to increase the size of a yearly class.  The academic departments don’t want to lower standards by hiring more professors or adjuncts, and the development office seems OK with just raising the size of the required bribe for admission, rather than hoping that a bigger class means more donations thirty years from now.

At the same time the returns to skilled labor are rising, so many people even feel they’re getting their monies worth.  Toss in a dash of Robin Hanson’s "showing that you care" ("I’m sorry Johnny, but we won’t be spending a penny more on you") and the market seems to hang together.

Nor do universities have the best governance structures for controlling costs.  Here are some good comments on the problem.


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