Think Freely Media presents Common Sense with Paul Jacob

The Truth About Tuition

tuition, supply and demand, subsidy, government

Subsidize something, and you tend to get more of it.

But wait, what if you subsidize demand for something, but don’t really allow (or continue to disallow) increased supply?

Then prices for that something go way up.

This is elementary economics — nothing controversial about it.

Except that politicians and bureaucrats who make public policy tend not to acknowledge this aspect of reality when they propose subsidies. Instead, they expect praise for their “heroic” and “caring” program of destruction.

They need to be educated. But, alas, all this applies best to college education. How does one educate the educators?

A new study, which reliable economists tell me is “sophisticated,” finds that the bulk of recent college tuition price inflation can, indeed, be directly linked to the federal government’s loan subsidies.

This study makes for some opaque reading, alas: “Essentially, demand shocks lead to higher college costs and more debt, and in the absence of higher labor market returns, more loan default inevitably occurs.” Yikes.

The college education bubble has been much talked-about for years, at least amongst skeptics of government policy. But in hushed tones — the big fear, here, is that a bursting of the bubble will lead to — who knows what? I mean, who-knows-what policy reaction.

Probably just more government subsidy and control. And even higher tuition still. Double yikes.

Thankfully, while the brick-and-mortar higher education institutions suck up more and more government-backed money, the Internet is enabling some great alternatives. The future, I think, does not belong to the university system as we have known it.

This is Common Sense. I’m Paul Jacob.

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tuition, supply and demand, subsidy, government


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  1. Pat says:

    ‘The future, I think, does not belong to the university system as we have known it.’ That future is a long time in the future. It will take decades (at least two generations) to undo the damage done by government. Too many people have a vested interest in the current system. We have already reached the point where a bachelors degree isn’t good enough. Now you need a masters. This system took a long time to build and it won’t go away quietly.

  2. JFB says:

    The hyper-inflation, excessive cost and inefficient methodology of the present subsidized higher education are the market stimulus for change. The market signals for innovation and development of alternatives are loud and clear,
    The market manipulation of the subsidies and student loan programs has retarded what would have been an evolutionary and orderly change, and created a system which is unsustainable.
    The pace of change to the next system, when it occurs, will therefore be accelerated and revolutionary, with the resulting dislocations appearing more severe than would occurred naturally. I suspect most of the present, established institutions will be gravely wounded, with many destroyed entirely.
    The first reaction will be more well intentioned but short sighted and futile efforts of the traditionalists (established) to hold their own. They will call for ever more governmental regulation to stifle competition, and increased subsidies to finance the beast. Those “reforms” will, and must, fail.
    This is not Lake Woebegone, and presently all of the children, institutions and public policies are not above average.

  3. Rollin L. says:

    I learned, many years ago, that the easy availability of money for college- in the form of loans as well as grant and scholarship programs- was the major factor in the dramatic growth of tuition cost. While I am glad to see a study backing this with good research, it is actually a rather obvious dynamic, once it comes to one’s attention. While it will be a good thing if, as suggested, the online degree becomes more dominant, thus starving the bloated university and college system of the riches it is sucking up, there is still one trillion or so in student debt that the taxpayers may be, in large part, liable for. Thanks, President Obama, for making that worse than it was already. But the best solution to the problem of student debt and the danger of default is to change the way the liability is established. Colleges and universities should be responsible for their fair share of the burden. If XYZ University accepts a student and his/her money- possibly in the tens of thousands per year- they should be on the hook for the completion of the degree in question. Should the student spend $50k and drop out, then the student should remain liable for much of that, but XYZ should be on the hook for a chunk of it too. If they failed the student, they should really be on the hook. But if they simply picked a poor student who dropped the ball on studies and the responsibility of this expensive commitment, then they should take the responsibility for making such a poor investment and eat their share of the loss. Imagine if these institutions had to pay back to the lender (taxpayers, pretty much) when no degree is achieved, or even it a student can’t find work in the worthless BA that college allowed them to pursue. Why the heck should said institution skate on all that money while giving nothing of value? If they have to get VERY choosy about who they accept, and put systems in place to ensure a high degree of success, then they will pass on a whole lot of kids who went to college just to avoid real life and have to do something worthwhile with themselves. For a while, this will dramatically reduce the number of kids going to college, forcing the institutions to dramatically reduce costs to bring the student body volume back up. That is a win for everyone except the greedy admin and faculties.

    • JFB says:

      College is a choice of purchasing services in hopes of improving  ones self. It is an investment. If it fails it is not the fault of the device provider, but rather the foolish purchaser who should be saddled with the burden if the market is going to work. Self determination and individual responsibility is the only long term and efficient answer. 

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