Higher education prices are too high

I know all about the literature on the rising returns to higher education.  But there are two blades to the Marshallian scissors!  Supply needs to do its job here.

Comments

The formatting on this is off, at least in Chrome: http://imgur.com/3LUi8

I'm in Chrome, looks fine. New version as of 3 months ago

You forgot to add the rate military spending since 2001.

It beats them all.

After Clinton's vacation from history, I suppose it would, huh?

We didn't have 2 or 3 or 4 or 5 crazy wars. We had increasing military spending.

Step 1. Don't vote for the wars.
Step 2. Spending goes down.

Who votes for wars these days, exactly? Congress has been in "abdication" mode for decades and is now institutionally committed to deferring to residents of the Oval Office, who are themselves subject to election, granted, but only once every four years, not the two-year cycle that would keep voter pressure on Congress itself. --So much for Constitutional efficiency.

Yes, if you cherry pick (since 2001), you can always manipulate the data to return a particular result.

However, if you calculate the rate of growth since 1980 (I couldn't find the data for 1978) the average rate of growth in military expenditures is 5.6%. Certainly too high, but still behind all the other items specifically called out.

Data:
1980 $167 billion
2012 $903 billion
http://www.usgovernmentspending.com/spending_chart_1980_2012USb_13s1li011mcn_30t

Because that graph really supports just taking an average and treating the trend as if it were best fitted by a straight line...

JW, I think your data excludes supplemental war expenditures.

From wiki:
"This shows the increase in defense spending since 2000 (pre 9/11). The annual base defense budget increased from $295B in FY2000 to $549B by FY2011, an 86% increase, excluding supplemental funding directly attributed to the wars in Iraq and Afghanistan and certain other expenses related to the "War on Terror." ... The cumulative increase in the base defense budget is estimated to reach $1.46 trillion by the end of fiscal year 2011, while the total spending for the wars is approximately $1.22 trillion, a combined total of $2.68 trillion. These amounts exclude Homeland Security and Veteran's Affairs expenses, which have also increased. The U.S. last balanced its budget in FY2001.

http://en.wikipedia.org/wiki/File:U.S._Defense_Spending_Trends.png

Did you realize that the link you pointed to supports my numbers? In other words, the numbers I provided included the total cost.

"These amounts exclude Homeland Security"
Homeland Security is not part of the DOD. Nor is the CIA or FBI for that matter. They are different agencies.

That's in the aggregate, not a per unit price index. I have no idea what the right index would show, so it could be that we're just buying more military than in the past. As another commenter noted, that's also not the same time period.

Bill: this is a price index, not a quantity spent. Has the price of the military risen (per what is an interesting question), or just the quantity?

Agreed re price index issue. But, if you are spending money on something else, and that something else is growing faster than a price index, you should look at that. Particlularly when one candidate wants to make military spending rise from 3% of GDP (a conservative measure, by the way) to 4% of GDP

Given that prices have been rising steadily for decades, and the relatively paltry concomitant rise in supply, we are left with little choice than to accept that higher education bundle of goods is something terribly difficult to supply. Inputs into production higher education, expertise, suffer from decreasing returns to scale, while the final output has early onset increasing returns to scale from high fixed costs and network effects (credibility and social networks) that heavily favor incumbent firms. But to make matters even worse, the signaling theory of education proponents have a point, and that is the nail in the would-be suppliers coffin. Prestige production is a particularly daunting industry for would-be entrepreneurs - by definition, any product or endeavor with non-trivial expectations for success would cease to carry the prestige they are trying to sell. All of this adds up to a an expected failure rate for would be entrepreneurs that is astonishingly daunting. Even as online schools reduce fixed costs, they still face a likelihood of success that makes starting a NYC restaurant look like trying to sell cigarettes in prison.

Education is the Harley-Davidson of Education.

Brilliant!

Keep in mind that the medical CPI measures a *constant quality* AND *constant quantity* of medical care over the years.

http://www.bls.gov/cpi/cpifact4.htm

As medical care has gotten better people have been consuming more of it. This makes the medical CPI not very meaningful for most people.

In the year 1900, just 1% of personal income was spent on medical care.

I wonder if you can prove that medical care has gotten "better" - and how you would measure "better" in that context....

"I wonder if you can prove that medical care has gotten “better” – and how you would measure “better” in that context…."

Since 1900? I can't imagine a reasonable way to measure medical care that wouldn't result in the conclusion that it's gotten better.

Let me try: According to WHO, equal access is a critical measure of health care proficiency. In 1900 good health care & useful pharmaceuticals were equally unavailable and therefore the 1900 health care system scores better than today by that important measure. Tanzania would also grade higher by that critical WHO measure, I imagine.

This is true. Cornelius Vanderbilt and a hobo had exactly the same access to:

-- antibiotics
-- MRIs or CT scans
-- modern analgaesics
-- chemotherapy for cancer
-- aspirin
-- laser surgery
-- asthma inhalers
-- insulin for their diabeetus
-- electronic hearing-aids

and much more. Now some people have access to these, and some don't. Ipso facto, health care has got worse.

According to who?

LOL, but I was planning ahead. I put in the phrase "a reasonable way to measure medical care". So off with your outlandish measurements. ;)

A quadruple bypass is obviously twice as good as a double bypass.

anecdotal but important to me.. If I had been born 10 years earlier.. I likely would have been dead for 15 years by now. :) (Bad Heart)
or you could look at Cystic Fibrosis life expectancy

Good examples, but the problem is they're not numerous enough to make a dent in overall mortality. We need big hitters in cardiovascular disease, cancer, diabetes, and smoking cessation to really move the needle, and those don't come easily.

People often say that France has a better medical system than the US. Perhaps in the delivery, but the quality of care is comparable (we all share and use the same literature, after all). Certain measurements turn out better in France because of differences in reporting events and different demographics.

"Prove that health care has gotten better." "We need big hitters..."

What?? Check out cardiovascular disease:

http://theincidentaleconomist.com/wordpress/wp-content/uploads/2012/01/CVD-deaths.jpg

The stats for cancer are similarly impressive. Infectious disease is off the charts, with vaccines and antibiotics.
AIDS wasn't recognized and antivirals didn't exist in 1980. By the early 1990s, it had gone from a death sentence to something Magic Johnson walks around with for the next few decades.

Whether what we spend to get such results is worth it is a legitimate question. Whether there are incredible improvements in medical care is not, in my opinion.

Are there any areas where costs have increased as rapidly that do not have significant portions paid by third parties?

Yes, vet care. A similar rate of growth and all private pay.

Separate questions--doesn't something have to be above average? I'm never quite sure what to make of these sorts of trends. Are we supposed to be like Lake Wobegon where all prices increase below the average rate of inflation? I would flunk my student if he/she showed me the above graph as the only evidence that "the price is too high".

Though I wonder how much the rise in vet bills has to do with people having fewer/no children and having emotional transference to their pet. You see heroic/very expensive measures taken in those situations that you tend not to see elsewhere.

Veterinary or veterans? :)

Yeah that was my 1st question. lol

funny! Veterinary--and we probably have similar attachment to our own lives and it might suggest the potential for the market to contain health care costs.

Question: Is this NET tuition paid by students, or GROSS (headline) tuition?

What Noah said. Headline tuition is an irrelevant number and actual rates paid are not increasing anywhere near this fast according to the Planet Money team and all the other reporting I've seen that attempts to address that issue (like Freakonomics podcast pointed this out as well recently.)

Not only that, but the gross tuition figures also ignore government subsidies. In recent years we have seen very high tuition increases -- double digit percentages in many cases -- by PUBLIC colleges. Why? It's not because those greedy publics are extorting funds from students; it's because the financial support they've been getting from their states has been declining. When a college is faced with a multi-million dollar funding gap -- and an increase rather than a decrease in students wanting to attend, steep tuition increases are inevitable.

Those of you who dislike government intervention into markets including subsidies should be *applauding* these tuition increases. Because they reflect the increased privatization of higher education, and the move away from subisidized, low-cost higher education.

BUT, many, many private schools are jacking up their tuition - which simply gives them the ability to practice price discrimination. There are a LOT of average private liberal arts schools charging $40k a year for tuition, and while some wealthy and academically undistinguished students pay full fare - most don't. And this isn't a government subsidy, it's just an instant discount from the school to attract the premier students.

I'm paying for my wife's tuition out of my bank account or my bank account + taxes. Net or gross, I'm still paying.

I think this is insightful.

Arguably you shouldn't count aid that comes from the school's endowment in the cost. Arguably.

But the fact that a subsidy is spreading the costs around does not mean that the costs are not rising. It may be that the student is not paying the full amount of tuition, but the full amount is being paid, and people who are not in college (either now or ever) are shouldering the bill.

In many schools, tuition is waived or reduced based on need. If you come from a household with income under ~$80K, you go to schools like Harvard or MIT for free. That tuition is covered by the international students and the rich kids paying full freight.

Pity this doesn't take into account COL differences. $200k in SF or NYC is probably comparable to $80K in Montana.

> If you come from a household with income under ~$80K, you go to schools like Harvard or MIT for free

Not true. They also consider assets.

So on top of generous subsidies, they are price discriminating too.

How special.

In other words, "No worries - it's just another government-induced bubble!"

My guess is gross. But doesn't matter. Someone foots the bill. If not the student, the tax-payer. Tyler's argument is about supply, demand and relative prices and not about student costs.

Gross doesn't matter to the extent higher education has adopted the Jos. A Bank pricing model.

If the school charges $200,000 a semester but then gives "financial aid" by granting him $180,000, the gross cost is definitely not being borne by anyone at all.

As David says nearby, this is just so the school can practice perfect price discrimination, i.e., let us look through your entire financial history before deciding what to charge you.

Doesn't that depend on the type of financial aid? If it's a grant from the school, it's just price discrimination as you describe. If it's a student loan, it's some mix of the student plus taxpayers. If it's a tax credit or deduction, it's taxpayers.

Yeah. I did specify $180,000 grant, but generally the price you will pay is arrived at first, including the maximum they think they can push you into debt without turning into a bell-tower shooter. Then they call all the rest "grant."

http://www.bls.gov/cpi/cpifacct.htm

George Mason University is still reasonably priced if you are in-state last I checked. And you get to have economics taught to you by world class professors!

How much is Tyler selling his Text for?

How much had Tyler paid for an Econ. 101 Textbook when he was in College?

Question of the Day!!! The price of textbooks is astounding these days but I think probably not much more than the inflation since I graduated back in 1970.

Can Tyler see no circumstances in which different goods have different rates of long-run price change, perhaps in response to differences between different characteristics of goods, especially as regards international trade? I mean, it's an average. Some things have to be above average. Some things have to be below average.

Of course Tyler sees it. He's a brilliant economist.

The rise of multi-billion dollar for-profit institutions and overcrowded public institutions should be enough to convince you it's not all about the marginal value of an education. Students are suing schools over the inability to find jobs in their field or transfer credits. Foreign students are flooding into our universities. Supply is the problem.

This looks consistent with the idea that non-tradables respond to domestic conditions while tradables respond to the (weighted) average global conditions. Maybe Bullard was right back in February ... maybe US monetary policy *was* too loose (i.e. inflation-inducing), but east Asian exporters kept enough downward pressure on tradable good prices to offset it in the aggregate statistics.

The three specific areas - medical, textbook, tuition all share one common characteristic. The consumer does not pay the costs of these in a large percentage of the cases directly - and out his or her own account. Insurance serves as the intermediary for medical - student loans for the other two.

How are student loans not paid by the student?

Lower-than-market interest rates either issued or guaranteed by the public-sector.

They are subsidized. The student does not pay the full cost of the debt, since the loans are guaranteed and receive a low interest rate. The cost of default is born by the taxpayer.

But the cost of this subsidy is not exactly the full amount of the loan; it's hard to tell what the subsidy is worth, and it would vary by borrower creditworthiness, at least. I.e, it disproportionately goes to art history majors with poor grades and not to engineers with good prospects. Basically the subsidy helps people who would otherwise have a hard time financing their education, namely people with poor career prospects. There's probably an element of co-signer effects in there, but I think most subsidized student loans are not co-signed. I could be remembering incorrectly. Presumably if they went away co-signing would become more common.

I'm not sure there is a cost of default since educational loans are non-dischargeable.

Also, interest rates on student loans last I checked weren't like totally awesome.

The jacking up of rates is a pretty recent phenomenon. They've generally been held to below-market rates.

You're right that they aren't generally dischargeable in bankruptcy, but that doesn't mean the borrowers always pay. Someone not paying while the debt continues to build counts as default.

What Dan said. The government pays the lender when (if) the borrower defaults.

If the debt isn't dischargeable, default is not possible unless the student high tails it out of the country forever or somehow manages to live on a cash basis for the rest of his/her life, yes?

>default is not possible unless the student high tails it out of the country forever or somehow manages to live on a cash basis for the rest of his/her life, yes?

Life is very, very different at the margins.

Part of the reason they're below market is because unlike every other loan on the market, they're non-dischargable. If my mortgage was non-dischargeable, I'm pretty sure it would go down quite a bit.

It's possible to not pay. That's default. Many student loan borrowers default.

What's not possible is to get the government to forget that you took out the loan.

"Many"?

How "many"?

Or do you only have vague pronouncements about how much of a problem this cost of default is?

Google is your friend, git.

http://www2.ed.gov/offices/OSFAP/defaultmanagement/defaultrates.html

I think counts as "many" borrowers.

I think _that_ counts as “many” borrowers.

My kingdom for a preview function...

I think _that_ counts as “many” borrowers. I would really like a preview function.

For people who can't be bothered to look, the cohort default rate ranges from 4.5 to 22.4 percent. Recently, it's been around 9 percent.

Although I am not answering your point about student loans, I will answer the point that students do not pay for their entire cost of their education. The way in which they do so is through increased third party subsidies into the institutions of higher education. They take the form of Pell grants, state grants, small private scholarships, scholarships provided directly by the school, and so forth. Additionally, it should be mentioned that yes it is true that many if not most students at the higher priced elite schools do not pay the full sticker price, the schools do admit that they do spend that much per student, i.e. if you take their total expenditures and divide it by the total student body. Since the students are not paying the full sticker price, by matters of pure arithmetic, third party payers must be paying the rest.

Have you SEEN the latest generation Calculus textbooks? Cutting edge stuff. I can't believe people were able to learn with the old versions.

My wife had to buy (ie, I bought) a senior level math textbook for 250 that was rebranded by the university as one of its own. The original cover was switched for one with their logo with some page numbers and problems switched.
She bought a book last semester and didn't pull it out of the wrapper, because she never used it. It was ~150. The school offered her 2 bucks to buy it back.
This semester the organic chem book was loose leaf. She had to buy her own three ring binders. They charged her 200+.

Why have textbook gone up in price when the cost of printing even paper books has gone down?
.
Name the knowledge taught in course to 90% of students that has changed in the past 30 years.

For example, what new intro to microeconomics theory has changed in the past three decades? Same for intro to macro?

As far as I can tell, nothing in the books from 1980 has been proven wrong by the past three decades of history. The only thing that has changes is denouncing Keynesian theory and then calling Keynesian policy supply side economics - deficit stimulus is deficit stimulus, and to the degree that Keynesian deficits are growth promoting, Reagan made Republicans Keynesians on steroids. It would be better for the instructor to use a 1980s textbook that would have included Milton Friedman's version of monetarism which was Keynesian, to analyze current events in my view. Instead, the textbooks have become the means of promoting a political ideology, while making the smart or lucky authors rich at the expense of the students.

Add in the options of online and electronic media for textbooks in opensource forms so an instructor can use existing online textbooks as they are, or draw different sources together into new custom texts.

A decade ago I took micro using a book that new cost $60 which was superior than the most widely used Mankiw book that was then at $120, and is now higher - the cheaper book was the 7th edition of a book originally published in the early 60s.

And most people have the sense that education is working less well today than five decades ago, so the many new editions of extremely high priced textbooks have not delivered better education quality.

As many are blaming government for the big increase in education costs, what the hell has changed in the past three decades in government regulation that has made textbooks so much more expensive while cutting their quality?

Copyright has changed, but the changes to copyright would protect an econ book written in the 30s as a revenue source for the publisher and author, while the old copyright law would create the incentive to write a new one every three decades, more than protecting a 1980s econ textbook.

What has change is the Wall Streeting of education. The message to college professors is you need to monetize the knowledge capital you have acquired and increase the return on capital every year by diversifying and monetizing your brand. By making your brand stronger and defending your brand aggressively, you can raise prices and make sure no money is left in the table, and by lobbying, you can have banks put more money on the table for you to grab.

Overpriced textbooks are just one more way of taking money off the table and into your pocket.

35 years ago, when I started teaching, I used some texts from Dryden Press that were short and just covered the basic theory. I supplemented these with current readings. Those texts would never go out of date and the readings could always be current.

Guess what? The books were discontinued. It is not that the publishers didn't like them - it was that academics wouldn't use them. It is too much work to make up your own exams (probably there wasn't enough imagination to think of asking the students to make up their own questions!) and find appropriate readings. The blame lies with lazy academics and poor reward structures in higher education, I believe.

If you asked your students to make up their exam, do you get to play the lazy academic card?

Hilarious. Is there any comment you can't turn into a Keynesian rant?

Just to make a self-centered point, what is not a significant source of tuitions rising more rapidly than the general rate of inflation (and even possibly more rapidly than medical care costs) is anything having to do with faculty, although much commentary about how to solve this has focused on faculty. Facutly to student ratios have not risen in the past half century, and faculty salaries have risen at approximately the rate of inflation. However, the ratio of administrators and staff to students has risen substantially, and while staff salaries have not done so (unless one counts athletic coaches as staff), administrator salaries have risen at a rate above the rate of inflation.

Why? You'd think that if there were no value added by the massive increase resources allocated to admin roles, the industry would be ripe for a "Chainsaw Al" Dunlap to come along and cut like mad. No value added should mean few complaints.

I would still LOVE to learn how much of the cost of present-day post-secondary education is directly associated with the remedial language and math (and, by now, science?) programs that have become de rigueur. Would simply removing these programs from college and university administration actually reduce their costs? (In the absence of data, I'm guessing they would have to.) Would returning responsibility for such remediation to the primary and secondary education sectors, where to my provincial mind they properly belong, result actually in cost savings? --and Harvard aside, I further wonder to what extent cheating is tolerated or encouraged within remedial education programs . . . .

Seems like supply is trying to do its job. See pg 165.

http://www.census.gov/prod/2003pubs/02statab/educ.pdf

Something else going on here? More access to student loans driving up the price?

How is this just a supply argument, you can't say there is a lack of available universities?? This to me is the introduction of increased government assistance paying our great educators via subsidies and unforgivable debt for the general public. Nothing like roping in a bunch of unsuspecting youth with bad debt and hopes and dreams, reminds me of the increased appearance of predatory credit cards to individuals as soon as they turn 18. Remember that scam? i wonder if you get a free t-shirt when you pay 40k a year for a remedial education? At least the government gives you a low interest rate for that unforgivable debt. Going to go chart this vs. student loan debt which has been EXPLODING. similar to housing..... selling the American dream to anyone that can take out a loan.

I find it amusing that the new right-wing mantra is that there are too many people going to college, specifically unqualified people. Supposedly, they would be better served by, get this, starting and managing a business. Of course, you never see them recommending this course of action to their own sons and daughters.

These are the same people who continue to believe that the same people will make tons of money by allowing to invest their social security funds into the stock market.

And the continue to insist that it was the Democrats, not Bush and Co, who promoted the home ownership society. No sense of responsibility at all.

I think the home ownership society was a bi-partisan effort?

A decade of a real estate/credit bubble: bipartisan.
A decade of wars in faraway places: bipartisan.
A decade of financial services shenanigans: bipartisan.
4 years of stagnant economy: democrats!

You're on the wrong blog to be denouncing Republicans and "right-wingers" for accomplishing something nobody was advocating for.

It seems to me that there has been a great increase in the supply of textbooks, if you count all the internet resources available. But it is not practical for professors to recommend a great number of different websites: See www... for Lecture 1, www... for Lecture 2, etc. and of course urls may disappear.

Maybe, some enterprising in-between has created a reliable supply chain of internet materials for a particular course? Students can pay the in-between, who gives a cut to the website suppliers? Ah, this is what publishers and online texts are. But still, why don't we seem more of this that can drive costs down? Do the intermediaries (publishers) have such a lock on the business?

You can't increase supply of a positional good, silly.

But you CAN increase the supply (or number) of position goods.

Or as I like to say, if you made a movie about the faculty of Harvard storming into Harlem and holding the kids hostage with remedial education it could only ever be a slapstick comedy.

Please use log scale here, the rise from 600-800 is not as meaningful as the rise from 100 to 200. Just a pet peeve.

I give it either 5 logs or 1 remarkably long log.

Dude, what are you eating?

Pretty sure it's more permanent than his diet.

Not long ago, I peered down at a bowl of bran and it occurred to me that the older I get the more the input looks like the output.

How would those of you who seem to be arguing this is a supply problem reconcile the recent data that showed that some 50% of college grads were taking jobs that only require a high school diploma [or less] - I will try and find a link to it and post...

I have no idea what I'm arguing for but here's a model. With the hollowing out of the middle, you need a degree to jump into the "employed" class. So, just when the returns to more education are highest to the individual, they are the lowest to society.

Is that a number that has any historical tracking? What is a normal amount of people taking jobs they're some sort of overqualified for? What about during an average recession?

Anyway, when I hear Tyler say "supply needs to do its job here," I think he's talking about disruptions in the mold of udacity or coursera that greatly expand supply.

"Supply needs to do its job here"

No can do. The state licensing schemes keep that from happening.

BTW, For the last number of years I have been assigning older editions of standard textbooks. The cost is about 5% of the new edition. I am not sure what this does to the equilibrium price point for next texts; maybe nothing

Over the same period, the wage premium of a college degree over a high school diploma has increased by 30%: http://www.economist.com/images/20000923/csu712.gif

The problem isn't supply, which has increased by 75% over the same period (http://nces.ed.gov/programs/digest/d10/tables/dt10_296.asp). Instead, it is the declining value of high school (which may or may not have anything to do with the period of low funding: http://nces.ed.gov/edfin/graph_topic.asp?INDEX=11 *cough*). By increasing the marginal value of a college degree, it shifts the demand curve: even if supply increases (and it has), we would expect the price to increase.

You can't lower the price to the original levels by increasing the supply unless the government is willing to oversupply at a lower price point (which so far they aren't, choosing instead to increase loans, which merely decreases the gap between willingness to pay and ability to pay, making the market more efficient while further increasing demand.) You could lower demand by increasing the marginal value of near substitutes, such as associate degrees, vocational training or high school. Unless that happens, though, I'm not expecting the price of a higher education to fall any time soon.

Here is the link - it is actually a bit worse than my original post - 53% of all bachelor degree grads UNDER 25 are unemployed or working at high school level jobs.

http://www.theatlantic.com/business/archive/2012/04/53-of-recent-college-grads-are-jobless-or-underemployed-how/256237/

As noted elsewhere the beneficiaries of this have been the administrative/support side of college employees - faculty have done well - but many schools recently have expanded the use of lower cost adjunct faculty to reduce costs.

I have a hard time defining the tuition [and book purchases] of the 53% as anything other than a waste.

Imagine the disruption of shutting down 1/3 of the current colleges to divert at least a portion of the 53% into the work force...

The idea of college level people working at "high school level jobs," flies in the face of the fact that college educated people are earning an increasing premium over high school educated people. Note also that the residential quality (dorms and cafeterias) has risen dramatically, so some of the costs are not not apples to apples. Has anyone eaten at a college cafeteria recently? It is in no way similar to my 1980s eating experience. Not even close.

High school graduates aren't working those jobs though. I've seen plenty of office gigs that require no knowledge you couldn't get from Sesame Street that demand a B.A., and even waitressing gigs that want a college degree. It's more about those jobs looking for people who have the executive processing skills to get through college than it is about any specific skill college might teach.

A big part of why the gap has grown is because wages for high school grads have dropped so much, not because college has become so much more valuable. The distinction is academic, however; economists know that it's marginal benefits that matter.

How much of the college premium is earned by the engineers, the nurses, and the good business students? Maybe it's not very evenly spread around.

At our flagship state university, in-state tuition for LAS is $15K. For business, it's $20K. There is information there.

I have some problems with the supposed data. If you look at the year 2000 Federal data
www.bls.gov/opub/ee/empearn201101.pdf
Table A16 appears to be the closest to what is being talked about. For 16-24 year olds with college degrees or higher (presumably recent graduates), 152,000 out of 1,932,000 are unemployed - a rate well under 10%. The Current Population Survey does not make it easy to break it down by age and educational attainment (or perhaps I just can't find the right table -can anybody direct me to it?), but this table would seem to be close to what is being discussed. Of course, underemployment is a different story and hard to measure. But I'm not sure I believe the story from the Atlantic (or AP for that matter).

Is there a way to include in the plot the rate of increase of federal grants to higher education? I would assume there is a correlation somewhere in the data.

Two things need to happen.

1. Government needs to stop subsidizing student loans, which is the only thing allowing universities to constantly jack up prices.

2. There needs to be more emphasis on vocational training, both in terms of earnings and social prestige.

It's just another asset bubble - mania over something thought of by conventional wisdom as indispensable or never dropping in value financed by easy credit.

Students need to stop evaluating university as a must have. Having crunched the numbers, working straight out of HS at Costco or Trader Joe's is more lucrative (assuming equal expenditure and investment of the remaining earnings) than delaying that to accumulate debt and get a college degree in most majors. Heck, work in a highly protected low-skill job (respiratory therapist or RN) pays off more than a bachelor's in English for example.

Alternatively they can do as two students I met in ugrad did - drop out of HS at 16 (strategic plan, not for academic failure, mind you), go to local community college for 2 years, transfer to UC Berkeley for the last 2 years, get a degree, profit! All without the same expense and 2 years ahead of their comparable cohorts.

It has struck me that the U.S. could have gotten an identical effect by 1) not increasing college enrollment, 2) keeping high school up to standard so employers would still want to hire high school graduates who had not gone on to college, and 3) start charging high school students and their parents and arm and a leg to attend high school.

Part of the increase in higher education costs is due to the fact that states have drastically reduced their contributions to higher education forcing increases in tuition to not only cover inflation but reduced contributions for the state. The second point is the increase is the stated rate of tuition increase and not the average. The colleges have socialzed the cost of college by increasing tuition for those that have money and providing more scholarship money and grants to lower income students. They have ffectively embraced a graduated tax system for tuition.

Rapidly increasing education costs are desirable. People who can't afford education have already demonstrated that neither they nor their parents have the intelligence, thrift or work ethic to benefit from it.

Has anyone considered the possibility that the CPI has remained low relative to higher ed and medical care not so much because these professional services are so expensive, but because the cost of other consumer goods has managed to stay extraordinarily cheap in this time period with constant or rising quality due to improved manufacturing technologies (e.g. highly automated and efficient factories), improved supply chain efficiencies (e.g. Walmart), and offshoring (e.g. sending factories to Mexico and China)?

But, professional services prices are to a great extent derivative of what consumers can afford. The distinction here being between industries where cost of production and efficiency are an important part of prices due to competition of easily compared and interchanged goods, and industries where quality is hard to monitor, prices are hard to know in advance and substitution of service providers with lower cost service providers is not easily accomplished. The harder it is to commodify a good or service, the less it has participated in a revolution of increasing quality combined with price discipline in goods. One way to see this is in the demise of industries made up of people who repair goods (tailors, consumer electronics repairmen, etc.) as replacing goods has grown cheaper to fix them. A fifteen minute iPod screen repair involving $5 of parts tops, costs 25%-35% of the cost of buying a new one, so the repair industry hasn't thrived.

Higher education, in particular, is something of a residual investment after other basic needs have been met. You don't buy it until your family has food, shelter, a television, a car that works, and more. To some extent it is a form of investment; to some extent it is a form of social class status display (hence the very small number of people who drop out of high school at sixteen, do two years of community college, and then two years as a transfer at Berkley, even though far more people could do it than actually do).

As we need less and less of our incomes to buy "stuff", we have more money left over to spend on professional services. If anything, higher education devotes more resources to a year of instruction for a single student now than it did, for example, during the GI Bill years. But, when the people who buy professional services are more affluent and have more money left over after paying for other things, they pay more, when people who buy them are less affluent and have less money left over after paying for other things, they pay less. This is true even within subgroups of professional services. For example, the amount a lawyer gets paid is closely related to how much the people who make hiring decisions on behalf of the clients he or she works for get paid. Custody lawyers for rich people make much more money than custody lawyers for poor people, despite doing essentially the same work; similarly white collar criminal defense lawyers make more than blue collar criminal defense lawyers for often comparable work.

Notably, both higher education and medical care are disproportionately consumed by the upper middle class beneficiaries of the last forty years of economic growth relative to the working class population whose wealth has stagnated during that time period.

At the end of the day, the real question is who captures the value of the education. This chart seems to show that people other than the students are capturing more of the value of the education over time.

As corporate education system came into picture tuition fee increased exponentially . Government should take care of this system .
Prices

As corporate education system came into picture the tuition fee increased exponentially . Government should provide quality education
with less tuition fee .

Prices

The correlation between industries highly subsidized by government and above average CPI growth is so obvious the only explanation for Dumb-o-crats ignoring this is their ignorance that demand curves slope downward and supply curves slope upward.

Crony unionism at work.

Is the tuition increase based off the marginal price, i.e. what's paid by the kids with the wealthiest parents? Because that's become increasingly different from what kids pay whose parents are average or low-income. Much more so than in the past. Tuition is still rising faster than inflation even when need-based financial aid is taken into account, but the difference isn't nearly so staggering.

It's simple, really.

There are government backed student loans that have a sliding-scale maximum payment, and debt forgiveness after 20 years of on-time payments.

So it doesn't matter what the school charges, the coat to the student is the same.

The ROI for a four year college is becoming more than questionable due to the fact that the labor market cannot create enough jobs for all these graduates.

Don't you have to somehow normalize the cost of tuition with the drop in government support? That's had an impact on Mason and I'm sure other public colleges as well. The cost of tuition has skyrocketed but maybe the overall "cost of college" hasn't been on anything like that steep incline.

Hey Tyler,

Can I reuse this graphic on my blog?

Thanks,
Jacob

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