Surging Tuition: More Than Meets the Eye

The University of California Davis made headlines last year after a group of student protesters were pepper-sprayed. You've probably seen the video. The incident went viral and became a symbol of the Occupy Wall Street movement.

Whether the pepper-spraying was right or wrong isn't a topic for this website. Why some of the students were protesting in the first place, however, seems relevant, since it has to do with one of many people's largest lifetime expenses: college tuition.

Students were protesting for all kinds of reasons, many of which you might disagree with. Most, however, were protesting a fact that I think most people find outrageous: Tuition at the University of California system has doubled over the last five years, and is set to nearly double again by 2016. In 2006, tuition at a UC school ran roughly $7,000 a year. By 2016, it could be as high as $22,000 a year. I'd probably be upset, too.

The UC system isn't alone, of course. Along with health care, college tuition has undergone a period of truly extreme inflation. Over the past quarter century, tuition has increased at nearly four times the rate of broader inflation. Between 1990 and 2010, the share of income an average American family spent on education nearly doubled. Students have largely dealt with (or fed) tuition inflation by binging on debt. In 2010, total student loans outstanding overtook credit card debt outstanding -- well over $800 billion.

We all know that tuition is rising, and it's bad. But why is it rising?

The biggest reason may be simple economics. The wage premium those with a college degree hold over those without one is growing, so the price of obtaining a degree has gone up as well.

Another reason that doesn't get enough attention, and one that explains almost all the tuition increase at UC schools, is the decline in state, local, and federal government's share of education costs. By and large, tuition is going up not because schools are raking in more money, but because subsidies are going down.

A very helpful report by the Lumina Foundation for Education helped me wrap my head around this. The report, which looks at higher education finances from 1999-2009, puts it simply: "Public sector tuition increases in 2009 were almost entirely the result of cost-shifting to replace institutional subsidies, rather than to finance new spending." Private schools faced something similar: Higher tuition has largely been used to finance grants and aid to other students, or to offset dwindling income from endowments.

Some of the numbers are staggering. At public research institutions, tuition's share of overall school revenue jumped from 38% in 1999 to 52% in 2009:

Source: Lumina Foundation for Education.

Another way to look at this: Between 1999 and 2009, the total funding of public research institutions increased by 11%, but tuition surged more than 50%.

The same is true for private colleges, where government aid (you might be surprised how much they receive) and endowment income have dropped substantially, increasing the reliance on tuition:

Source: Lumina Foundation for Education.

And community colleges have felt pressure, too:

Source: Lumina Foundation for Education.

Consider some actual dollar figures behind the decline in subsidies. At the UC system in California, "state funding … has declined from a high of $3.2 billion to $2.3 billion in the economic downturn, despite rising enrollment. This year, for the first time, the UC system collects more money from students than from the state," according to The Washington Post. In 2008, the endowments of Harvard, Yale, and Stanford all fell more than 25%. In 2010, Rice University announced it was raising tuition "to compensate for endowment losses." The school's vice president of finance explained: "Rice raises tuition every year -- as do most other schools -- and it is especially important this year, given that our endowment losses are 18%."

The most unfortunate part of this is that surging tuition costs are not, for the most part, rewarding students with a higher-quality education. Costs are simply being shifted around. And while states are slashing higher education budgets, taxpayers aren't being rewarded with lower tax rates, or even lower budget deficits; most states are cutting education spending to offset rising health-care and pension costs.

But the most dangerous part about the growing reliance on tuition is that it exacerbates inequality, making it more difficult for those of lower means to move up the economic ladder. A good college education is increasingly feasible only to those whose parents are wealthy enough to foot the bill, or those willing (often regrettably) to entomb themselves in debt. One of the biggest factors determining anyone's income is their level of education. If education is held back by an 18-year-old's ability to pay nearly $100,000 for a degree at a public university, you can connect the dots: Getting ahead becomes more about luck and less about hard work and ingenuity. No one should consider that a recipe for a healthy economy.

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  • Report this Comment On January 06, 2012, at 5:33 PM, BostonCats wrote:

    I'm sorry, charts from the Lumina Foundation notwithstanding, the article does not seem credible:

    (1)I'm unaware of any major funding group at the State or Federal level that has shows marked reductions in recent years. Year after year, everything goes up.

    (2) Also the accompanying charts use percentages instead of $ amounts. This makes it impossible for people to compare their own college expenses with those reported by Lumina.

    (3) Colleges can have markedly different endowments, but very similar expenses when compared to their peers. That would suggest gouging by schools with large endowments.

    (4) Finally, the market has a double-digit return for the last 3 years, but no one's talking about rolling-back their charges to what they were 3 years ago.

    All in all, not believable.

  • Report this Comment On January 06, 2012, at 5:41 PM, TMFHousel wrote:

    <<I'm unaware of any major funding group at the State or Federal level that has shows marked reductions in recent years.>>

    From the article: At the UC system in California, "state funding … has declined from a high of $3.2 billion to $2.3 billion in the economic downturn, despite rising enrollment."

    <<Colleges can have markedly different endowments, but very similar expenses when compared to their peers. That would suggest gouging by schools with large endowments.>>

    I'm not sure that's the case. There's a reason Harvard produces more research than a tiny no-name private college.

    <<Finally, the market has a double-digit return for the last 3 years, but no one's talking about rolling-back their charges to what they were 3 years ago.>>

    Many schools with high-profile endowments are still well below pre-recession levels. Harvard for example:

    "In 2008-2009, the $11-billion decline in the value of the endowment caused the University to retrench and to begin reducing subsequent distributions from the endowment to support the operating budget—an effect that diminished the largest single source of revenue in fiscal 2010 and 2011."

  • Report this Comment On January 06, 2012, at 6:00 PM, TMFHousel wrote:

    By the way, first question reminds me of this quote:

    According to The Los Angeles Times: "Some 75% of respondents said they were following the [California] budget debate, yet only 16% were aware that state spending has shrunk by billions of dollars over the last three years.

  • Report this Comment On January 06, 2012, at 8:41 PM, hbofbyu wrote:

    If you offer everyone the same access (regardless of performance) to a college level education you dilute it to the point that it is meaningless (and a lot of it is quickly becoming as significant as a High School Diploma is now).

    Upper education has to weed people out. A "C" student in High School does not merit a Harvard Education.

    If we should provide everyone access to at least a community college education then why not just make High School 2 years longer and increase the standards.

    "The world needs ditch diggers too." (Judge Smails)

  • Report this Comment On January 06, 2012, at 8:56 PM, cstoner wrote:

    Thanks for the article and prior comments. I'd like to hear from others on these two ideas:

    a. How much of the institutional 'cost' is driven by union-esque employee salaries, benefits (e.g. tenure, long sabaticals, free tuition for employee dependents)

    b. Author says: "Higher tuition has largely been used to finance grants and aid to other students..." which seems like yet another scheme for redistributing wealth from the 'haves' to the 'less fortunate'. I have two teens headed for college soon and my reward for studying in school and working hard for career success, not to mention saving and sacrificing over 30 years, is that I get to pay for other peoples kids tuition, in addition to my own.

  • Report this Comment On January 06, 2012, at 9:38 PM, Bert31 wrote:

    There now are nearly as many senior managers at UC (8,144) as tenured and tenure-track faculty (8,521). As recently as 1993, the ratio between these groups was much different — 2,429 to 6,846.

    Put another way, 18 years ago the student-to-upper management ratio was 62-to-1. Now it's all the way down to 2-to-1. The ratio of students to regular faculty, meanwhile, has risen from 22-to-1 in 1993 to 26-to-1.

  • Report this Comment On January 06, 2012, at 10:10 PM, ershler wrote:

    cstoner,

    The other side to using tuition to finance grants is it allows people who should go to college to do it and have it financed by people who shouldn't but their parents can afford it.

  • Report this Comment On January 07, 2012, at 4:19 AM, CaptainWidget wrote:

    If subsidies are shrinking by 1% a year, why are tuition rates increasing by 20% a year? If, as you claim, costs are just being shifted, where is the extra 19% arriving from? I'm sorry, your logic doesn't follow.

    The truth is that colleges get the most important subsidy of all, a government guarantee. Once the government stamps a loan with it's AAA seal of approval, it completely distorts the market, allowing money to flood in that would have otherwise never came anywhere near college tuition. College tuition rates perfect matched inflation until 78 (I think) when the federal government got into the business of guaranteeing college loans. Lo and behold, from 78 on the cost of college skyrocketed away from the rate on inflation.

    http://www.youtube.com/watch?v=OwEbO_t30cg

    If you can find any fault with the follow video, I'd be open to listening. But it's a pretty airtight explanation of why tuition is going up, and why, if the guarantee ended tomorrow, the rates would slash by 90% overnight.

  • Report this Comment On January 07, 2012, at 1:05 PM, LouisFBrooks wrote:

    The University where I work at here in FL has seen a reduction in state funding of $100M in the past 5 years with more coming.

    --louis

  • Report this Comment On January 07, 2012, at 1:07 PM, Johnlatasa wrote:

    An article on rising tuition that does not mention bloated, overpaid administration and luxurious pensions is not to be taken seriously

  • Report this Comment On January 07, 2012, at 2:13 PM, borneofan wrote:

    Can you imagine anything else that would inspire discussion when it is only 50% subsidized....? Other than health care and education of course, the two most heavily government controlled, regulated, managed non-capitalist systems in this country.

    By mentioning only the earnings differential with no mention of cost, unemployment and career changes, the assumptions of any report on the value of education are suspect.

    After all, no one is paid the average. The real price is at the margin. The average president of the US earns $400,000 in salary. Perhaps we should graduate millions at great expense so that we will have more valuable degrees and all get rich. No. Because the marginal value of the next president is zero. And if you insist on shoving well papered and subsidized children until the average presidential pay is the same as for garden variety non-degreed kids, you will have wasted many millions and many lives.

    I look forward to a day when "USER PAYS" is not a dirty phrase, and a real market in education is formed. Till then, the bubble will expand.

    Let's follow the money and see who really benefits from the bubble in education. A bottomless pit of federally guaranteed loan money, in combination with state subsidies, and implicit favoritism with the bias of in-state vs out of state tuition force kids to shop in a virtual monopoly provider economic environment, and to do so with access to a blank check drawn on the taxpayers and federal reserve printing press.

    Limitations on choice, rigid costs, and lots of free money. Looks like the price is going up.

    Students are just a proxy, an excuse to insulate and maintain a few elites above the fray.

    The price is unemployment or job loss to lower cost venues, places that do not have the high carrying costs and taxes that go with maximizing education output regardless of benefit.

    Price matters. And the further the price is paid from where the cost is incurred, the harder it is to optimize.

    Government is inflation. There is no other source that rivals ownership of the printing press for creating inflation.

  • Report this Comment On January 07, 2012, at 2:48 PM, xjadiff wrote:

    Maybe I'm off topic here, but a few decades ago in Europe's eastern bloc there was a tuition payment system where the students studied basically for free if they worked later in that country for a few years (and repaid the tuition indirectly through taxes). If they moved away, they paid the tuition costs immediately.

    A similar system in the US would be to have the state, in which the school is located, pay for the tuition and subsequently get it back from the student in taxes or make the student repay it if s/he landed a job (or started a business) in another country or abroad.

  • Report this Comment On January 07, 2012, at 4:51 PM, CaptainWidget wrote:

    <<A similar system in the US would be to have the state, in which the school is located, pay for the tuition and subsequently get it back from the student in taxes or make the student repay it if s/he landed a job (or started a business) in another country or abroad.>>

    Public investments into education are the worst possible investment the state could take. There's no guarantee (or even probability) that the investment will stay within the state, the turnaround time is ridiculously long, and most projects will never come to fruition.

    At least with a road it will EVENTUALLY be done, and you can drive on it. 70% of kids with a college loan will never graduate, if they do it takes 6-8 years before they're working in a productive job, and if they do become productive there's no incentive for them to stay in state to utilize their education.

    If there were no guarantees on school, it would be $2-5000 a year to go to school. What's so wrong about an 18 year old savings up his beer money and paying for his own education rather than burdening a bunch of middle class families to pay for it?

  • Report this Comment On January 07, 2012, at 6:49 PM, Sunny7039 wrote:

    Maybe this reflects an ideological position -- "obviously" the only people who could possibly merit a college education are those whose parents have proven their genetic worthiness by becoming rich.

    If more and more people adopt this ideology, then guess what the result will be? Exactly what we've got.

    I don't think it's an accident that of the modern, developed democracies, the U.K. is by far the least mobile society and the most unequal. They believe this rot, and the result is predictable. What is really sad is that the U.S. now ressembles them. This was not true at all a few generations ago. Now, it's not only true, but most people have resigned themselves to it.

  • Report this Comment On January 07, 2012, at 6:51 PM, kyleleeh wrote:

    @CaptainWidgit

    You said

    << If subsidies are shrinking by 1% a year, why are tuition rates increasing by 20% a year? If, as you claim, costs are just being shifted, where is the extra 19% arriving from? I'm sorry, your logic doesn't follow. >>

    I'm not sure where you are getting the 1% a year from?

    Going from 3.2 billion in funding a year to 2.3 billion a year is a 39% decline. What is that number you're quoting based on?

  • Report this Comment On January 07, 2012, at 6:59 PM, Sunny7039 wrote:

    BTW, while you all are arguing about money and subsidy and how "inefficient" it all is -- were you aware that most Europeans pay no tuition at all? I'm talking about the continent, obviously, not U.K.

    Oh, not only that -- but if you yourself qualify for admission to their universities (no mean feat), then you don't pay tuition, either. That's right. You don't have to be a citizen, pay income taxes, or work in their countries afterward. You just have to be qualified. That part is, however, real hard. Don't think you can do it without calculus, Latin, and near-perfect bilingualism, as a minimum.

    On the other hand, no one will demand that you take a disguised IQ test. They want to see what you've achieved so far up front, rather than judge you based on your "aptitude."

  • Report this Comment On January 07, 2012, at 7:09 PM, ynotc wrote:

    Another factor is the cost for proffessors. The list of college educators and administrators who make more than $500,000 per year ran into the thousands in our state (Washington). With very few exceptions it is hard to understand what teacher would be worth that amount of money. Don't start witht the complaining. I am a teacher.

  • Report this Comment On January 07, 2012, at 7:22 PM, kyleleeh wrote:

    @Sunny7039

    You said

    << BTW, while you all are arguing about money and subsidy and how "inefficient" it all is -- were you aware that most Europeans pay no tuition at all? I'm talking about the continent, obviously, not U.K. >>

    Have you noticed how many European nations are now on the verge of bankruptcy from this kind of entitlement spending?

  • Report this Comment On January 07, 2012, at 7:26 PM, Sunny7039 wrote:

    And let's understand how "market logic" operates in this context.

    If you yourself, and your immediate family (spouse, children) already have a college degree, what can you do to enhance its value except to prevent others from getting one as well?

    What is the incentive for a teacher to help your child excel academically beyond what their own child is capable of?

    What is the incentive for a rich person to see more "ordinary" people's children compete for seats at Harvard or Yale with their own child? Or for those "ordinary" people to come out of UC-Davis with just as much real knowledge and capabililty as a Harvard grad?

    Market incentives don't necessarily work in favor of education. On a micro level, they often work against it.

    Whenever you read stuff about education and you don't take the possibility of a perverse motive into account, I think you're being gullible, frankly.

  • Report this Comment On January 07, 2012, at 7:29 PM, CaptainWidget wrote:

    The graphs. State subsides are only a fraction of the picture. The federal government backs $100 BILLION in college loans every single year, and this number is growing, not shrinking.

    That makes a 900 million dollar change in subsidies in a single state a statistically non-relevant factor.

    This is a pretty simple economics equation that people let their politics get in the way of (namely: author of this article)

    Supply and demand determines the price of commodities. Before federally backed loans, there was X amount of dollars to pay for Y amount of college educations. Once the federal government started to inject an extra 100 billion dollars per annum into X, without a proportional increase in Y amount of college educations available, the only solution is for costs of Y to rise....they call that inflation.

    The price of a college education is "inflating" because the supply of colleges cannot increase at a commensurate rate at which the Federal Reserve can buy treasury bills. The fed can print off a trillion dollars and inject it into "federally back loans" before colleges have a chance to train staff and build facilities. The only option is for prices to rise to raise marginal indifference among prospective college goers.

  • Report this Comment On January 07, 2012, at 7:35 PM, CaptainWidget wrote:

    <<If you yourself, and your immediate family (spouse, children) already have a college degree, what can you do to enhance its value except to prevent others from getting one as well?>>

    For this to be true, the time value of the educated person must be so low that their years of experience post education add nothing to their overall value, or at least so little that a fresh college graduate is equal to them in the market. So instead of using their time to further increase their abilities, their time is best spent hurting others.

    Basically, you're presuming that their time must be worth nothing and is best spent trying to sabotage other college students.

    So....you presume that educated people have nothing better to do that sabotage 18 year old's just starting out in life? Who's being gullible?

  • Report this Comment On January 07, 2012, at 7:48 PM, kyleleeh wrote:

    @CaptainWidgit

    That still makes no sense...the loan is paid by the student to the lender, none of that money is used to subsidize a lower tuition bill to student, only to provide financing for the tuition the student has to come up with.

    Banks don't "subsidize" the auto industry by providing car loans they just give people access to the money needed to buy one. The cost of making a car is completely independent of whether the buyer finances or pays cash.

    I still don't see how you think a 20% tuition hike doesn't make sense with a 39% drop in state funding or an 18-25% drop in endowment funds. The cost to operate the school is not effected by a students ability to get a federal loan...if they all paid cash the universities bills would still be the same.

  • Report this Comment On January 07, 2012, at 8:10 PM, CaptainWidget wrote:

    You don't get it. Those loans would never be made without the federal backing. What bank would lend to an 18 year old with no work history, no income, a 2.0 GPA, no defined career path, and no family history of higher education? No bank in the right mind..the only reason the loans exist (and therefore, the only reason money is flood into the college market) is the federal guarantee.

    To paraphrase the video I posted earlier...what would happen if federally backed loans disappeared tomorrow? Well, there'd be thousands of colleges across the US with 0 applications on file, because no one would afford to apply. So what are the colleges going to do? Just close the doors forever? Of course not, they need to get some revenues. A $2 an hour job is better than a $0 dollar an hour job. First rule of business, slash costs, get in SOME revenues.

    The marginal cost of educating an extra student is nothing, and each seat that goes unfilled is a wasted resource. You can't rewind time and fill up that seat that goes empty for an entire semester. So knowing this, colleges would cut tuition to whatever rate filled up every single seat in the university. So...what would that rate be? How many 18 year old kids can afford $20K out of pocket? None....so they'd cut it to what....$2000 dollars, just to get in the maximum amount of revenue.

    So then what happens, they colleges are getting the MOST possible revenue they can, and they're still no profitable. So like any business, they cut costs to benefit the bottom line. Inflated teacher salaries, redundant administrative positions, maybe cancel extravagant perks (lobster dinners and million dollar indoor fitness facilities), possibly delay construction plans.

    And then guess what...the colleges are profitable again, at a low tuition rate. But until the federal guarantees stop...they have no reason to cut costs. Because anyone who wants to borrow money can, the government will back it, and flood billions of dollars into the market that wouldn't be there under market conditions.

    AND BTW you're incorrect, the DOE now directly administers all federally backed college loans. and even when they weren't, the private banks had to act under strict federal guidance when adminstering loans...not exactly a free market.

  • Report this Comment On January 07, 2012, at 8:46 PM, Sunny7039 wrote:

    CW, regarding your reply to me -- I have never seen anyone erect more straw men than you, but for you to throw in a sentimental appeal must be a first.

    Where did I say that an individual's "market value" in the aggregate can only be enhanced by preventing others from getting a degree? An individual's "market value" is a combination of all sorts of factors, some of which are beyond that person's control for that matter.

    What I said was that using "market logic," once you yourself have a degree, the only thing you can do to enhance the value of that DEGREE is to make sure a whole bunch of other people don't get one as well. You could make it harder to get for some ("raise standards"), or you could make it impossible for others ("cut funding"). But you really can't make the degree you already have more valuable once it's in your hands by adding other things to the mix. You can make your value as an employee greater by adding other things to the mix, but the degree as such won't be affected by that.

    As far as your point about loans and government guarantees creating inflation in tuition costs -- of course you are right. Other people are saying that government-guaranteed loans can't be the whole story that explains the differential between tuition inflation and other inflation. If it were, we would have seen greater tuition inflation much sooner. Nor would the inflation be so pronounced right now, in a very short timespan during a very poor economy. So, other factors we might not have pinpointed yet must be operating, and . . . we should LOOK for them.

    Economics is often about the margins, you know? Your whole discourse seems to be ignoring that.

  • Report this Comment On January 07, 2012, at 9:04 PM, Sunny7039 wrote:

    Speaking of margins . . . these charts demonstrate that the proportion of total funding borne by tuition at public institutions increased 36.8% in the period between 1999-2009 (and most of that period was during difficult economic times for most people). On the other hand, the proportion of total funding borne by tuition at private institutions increased only 12.9% during the same period.

    Obviously, the private ones started with a significantly larger base. But when you take a relative perspective, tuition as a proportional source of total funding increased at public institutions at nearly three times the rate as at private.

    That's real interesting, isn't it?

    What's that about?

    And, er, why is it that so much public money ends up at the private schools, anyway? Are we getting what we pay for (in basic and applied research, for example)? Or are we mostly helping to create a situation where a qualified freshman whose parents have an average income will not be able to go to a private school, or to a public one for that matter? Who benefits from that?

    Great data in this article, by the way. It should get people to think, rather than beat the usual drum.

  • Report this Comment On January 07, 2012, at 9:15 PM, kyleleeh wrote:

    I never argued that increase demand for education would cause universities to raise tuition...there's a reason for profit universities like ITT tech didn't exist before the GI bill.

    My argument was over this statement of yours:

    "If subsidies are shrinking by 1% a year, why are tuition rates increasing by 20% a year? If, as you claim, costs are just being shifted, where is the extra 19% arriving from? I'm sorry, your logic doesn't follow."

    I disagree with your numbers completely, subsidies are shrinking by much more then 1% a year as is clearly explained by the author.

    If the government is paying me a subsidy of $1 per unit of every widget I make and then decides to cut that subsidy to 50 cents each, it doesn't matter if the market price of the widget is $5 or $500 I will have to raise my price 50 cents to maintain my profits.

    Giving a student a loan to pay for tuition is not a subsidy if they have to pay the loan back. It's like arguing that Wells Fargo is subsidizing General Motors by giving people auto loans, or VISA is subsidizing Macys by giving people credit cards. It will allow people to purchases your product but it does nothing to reduce the cost of providing that product.

    And in the end it's still the student paying for the tuition not the government, because they will be forced to pay the money back even if they declare bankruptcy...which is how it should be.

    Also, not sure where this is coming from or who it's directed at? But you said:

    "AND BTW you're incorrect, the DOE now directly administers all federally backed college loans. and even when they weren't, the private banks had to act under strict federal guidance when adminstering loans...not exactly a free market."

    Who said it didn't and what are they incorrect about?

    Not that it's even relevant who the lender is, most people I went school with don't even know who their loan lender is they just make out the the check whoever.

  • Report this Comment On January 07, 2012, at 9:35 PM, Zappy101 wrote:

    One of the things I find disgraceful is interest loans of around 10% for a college education. It seems to me that as a society we should be encouraging our youth to get a quality education, not discouraging.

  • Report this Comment On January 07, 2012, at 10:42 PM, CaptainWidget wrote:

    <<As far as your point about loans and government guarantees creating inflation in tuition costs -- of course you are right. Other people are saying that government-guaranteed loans can't be the whole story that explains the differential between tuition inflation and other inflation. If it were, we would have seen greater tuition inflation much sooner. Nor would the inflation be so pronounced right now, in a very short timespan during a very poor economy. >>

    The government started granting federal loans in 1978 via the middle income student assistant act, signed by carter. Now look at this chart and tell me when college tuition inflation separated from CPI, and in your estimation, what could have been the catalyst?

    http://1.bp.blogspot.com/_otfwl2zc6Qc/TA_rUPRX8oI/AAAAAAAANq...

    Cause and effect is pretty damning on this one. There was NO gap between the initiation of broad based federal college loans and the inflation of tuition prices. If you admit that federal guarantees are inflating the college tuition market....and sources indicate that inflation started rising within a year of that federal guarantee........I'd say you've found your solution.

  • Report this Comment On January 07, 2012, at 10:48 PM, CaptainWidget wrote:

    <<If the government is paying me a subsidy of $1 per unit of every widget I make and then decides to cut that subsidy to 50 cents each, it doesn't matter if the market price of the widget is $5 or $500 I will have to raise my price 50 cents to maintain my profits.>>

    If the government were paying you 50 cents subsidy for each unti of good you produces, I'm sure you'd find a way to bloat the price by 60 cents and lobby congress for a little more help.

    You'd be a fool to make the argument that the market cost of an education is $35K a year. Structurally, a college education is about record keeping. Why has the cost of record keeping dropped parabolically in the computer age, and yet college prices are still rising?

    The hard costs of a college education are tiny. One teach can educate hundreds, possibly thousands of students in a single semester, with the modern wonders of technology. Tests can be graded by software. Economics of scale should reduce the per student cost of education on these huge campuses...and yet...prices keep rising.

    The reason, of course, is the cheap money. The colleges are getting so much easy money from federal loans, they have to figure out some place to spend it. So their expenses go up, but very few of those expenses are necessary to the cost of an education.

    So.....using your own analogy....if the government took away your 50 cent subsidy, you would pass on the costs to your customer, while your smarter competitor would figure out a way to cut his costs by 50 cents and drive you out of business. It's that simple. If the subsidy goes away, expenses will drop until the industry is profitable again.

  • Report this Comment On January 07, 2012, at 11:35 PM, kyleleeh wrote:

    @CaptainWidget

    <<So.....using your own analogy....if the government took away your 50 cent subsidy, you would pass on the costs to your customer, while your smarter competitor would figure out a way to cut his costs by 50 cents and drive you out of business. It's that simple. If the subsidy goes away, expenses will drop until the industry is profitable again. >>

    That's only true when you HAVE competitors. Universities turn down more applications then they accept every year so they absolutely can and do pass on lost subsidies to the students with little or no fear about not getting enough student applications the next year. Did you see Apple lower the cost of an Ipad when the Kindle Fire came out? No. They know people will pay up what ever they charge for their brand...same is true with places like Standford, Yale, and Berkley.

    The reason we have such a "recent" spike in tuition, which yes, has already been rising faster then inflation, is because universities are making up for the lost subsidies.

    I think where we don't see eye to eye is on what a universities MO is to begin with. It doesn't matter to many universities what the cost of putting a student in the classroom is, there charter is for research and they look at both subsidies and student tuition as a way to finance that. If they loose government subsidies that were paying for there cancer research then they just charge the students more. Whether or not that increase reflects the cost of educating that student is irrelevant to them, because education was never the universities main priority to begin with...something many students don't understand these days.

  • Report this Comment On January 08, 2012, at 12:10 AM, CaptainWidget wrote:

    <<That's only true when you HAVE competitors. Universities turn down more applications then they accept every year so they absolutely can and do pass on lost subsidies to the students with little or no fear about not getting enough student applications the next year. Did you see Apple lower the cost of an Ipad when the Kindle Fire came out? No. They know people will pay up what ever they charge for their brand...same is true with places like Standford, Yale, and Berkley.>>

    I gave away some free lemonade, and I had more demand than I could supply. So it only stands to reason that if I charged 5 dollars per cup, I would still have infinite demand, amirite??

    When you shift costs to students in a more immediate, understandable way, their marginal indifference to an education changes. Many students who get 4 year degrees when the payments are deferred would never bother even going if they had to pay up front.

    Just like easy government loans increased the total number of dollars in the schools, it also increased the total number of students in schools.

    When demand for a commodity (through government manipulation) is raised above the market's ability to supply that commodity, the only way to distribute the commodity is through raising prices or rationing.

    All colleges are raising their prices, and the best colleges are able to raise their prices and ration their product. In the absence of the loans, the lower quality colleges would have to lower their prices to compete, and the highest quality colleges would either have to stop rationing and/or lower their prices.

    If you seriously believe that there's no competition in the college market, I don't know what to say. Phoenix University must be a figment of imagination.

  • Report this Comment On January 08, 2012, at 1:03 AM, kyleleeh wrote:

    Ok one more then I'm done for the night.

    Schools like Phoenix, Heald, and ITT tech should not even be counted as universities...there just diploma mills. If students could not get loans then they would probably go out of business because they cater to mostly (not all) students who probably aren't cut out for college in the first place. They just receive money from your lender and give you a diploma a few semesters later...you almost have to try to fail at those schools.

    But those schools don't get government subsidies in the first place, so they aren't included in the authors analysis.

    Even before student loan repayment became mandatory (a better description then backed) real universities had more applicants wanting to pay cash then they did openings, they would not have to lower their tuition anymore then Bentley had to lower it's cost to compete with Saturn.

  • Report this Comment On January 08, 2012, at 1:29 AM, CaptainWidget wrote:

    <<Even before student loan repayment became mandatory (a better description then backed) real universities had more applicants wanting to pay cash then they did openings, they would not have to lower their tuition anymore then Bentley had to lower it's cost to compete with Saturn.>>

    Before federal loan backing, an ivy league education was affordable on an 18 year old's salary. The inflation adjusted tuition of Harvard in 1950 was under $4500. So yes...Harvard was selective, because everyone could afford it.

    In 1950 if you were a solid student and got accepted to Harvard, you could pay for it with a summer of digging ditches or waitressing. Trying paying for a Harvard education now with a manual labor job. They choose to use merit and admissions process as their barrier to entry for their commodity, rather than raising prices.

    However in 1950 if you got declined for Harvard, you could, with near certainty, get into a local or state college and pay maybe $1000 a year....maybe. You're purposefully choosing to use the top of the top universities as your argument for norm. I'm sorry, it's not. There are plenty of universities now, and pre-78 who have completely open admissions. My university was completely open admission, and it was a legit accredited university, the same accredation as Harvard. I've never personally met anyone who wanted to go to school but was unable....never. I'm sure they exist, but let's be realistic, if you get declined by Harvard, you settle for UCLA. If you get declined by UCLA, you settle for the University of Flordia. And so on and so on until you're at University of Phoenix. No one who truly wants a college education is unable to find a college willing to admit them....now or ever.....

    Yes, schools like Phoenix are a modern phenomenon of federally backed loans. And yes they diminish the value of an education. But these places are businesses, they could not care less about research. If their admissions were drying up, you'd bet your ass they'd lower their prices immediately to try to shore up their balance sheets. Imagine the leverage of 600,000 University of Phoenix students getting their tuition slashed by 90%. If you think that wouldn't have a bleed through effect to the rest of the college and university industry, and consequently, their tuition rates, you're crazy.

  • Report this Comment On January 08, 2012, at 12:02 PM, dcfoolz wrote:

    Thanks for the article. While it may be true that some of the cost of tuition increases is due to "cost shifting" as a result of decreased funding from State and Federal sources, I think most Universities have spent a fortune in new construction costs (i.e., Athletic centers, Student Center Food Courts, upscale dorms, speciality research buildings), all of which may affect the "quality" of a student's non-academic experience. However, some of these are quite extravagant and are not really for the benefit of undergraduate education.

    I attended MIT. Since I've graduated, it built an elaborate Athletic facility. Since MIT sports does not bring in advertising revenue from ESPN, etc, as does other State Univeristies that have TV broadcasts of their Football or Basketball games, this new facility is a "cost center" for MIT. It was expensive to build and is expensive to maintain. MIT students don't go to that school because of its sports program.

    Additionally, numerous speciality research facilities have been built at MIT since I graduated. Although some undergraduates get to spend a little time in these labs, it generally benefits the Graduate Students and Nobel-prize-seeking Professors. However, the graduate students don't pay tuition, only the undergraduates do. Therefore, the benefits for non-undergraduates are being borne by tuition-paying undergraduates.

    Here are two examples of why undergraduate tuition has risen at my alma mater which do not benefit undergraduates and are not due to "cost shifting." I think the story of rising tuition costs is more complicated than what the author has proposed.

    It is probably time for, particularly, Public Universities to reconsider their mission and what types of expenditures will be most effective for educating their students. I believe certain monies have been poorly allocated away from purely educational purposes and into expansive building projects. Yet, the undergraduates are being asked to carry this expensive burden which primarily benefits others.

    If America ever returns to valuing The Public Good," in its public policies, Higher Education will probably follow along. Until then, I expect we will continue to see this unfairness in education, as we see it in taxation policy and war policy.

  • Report this Comment On January 08, 2012, at 1:55 PM, MittyMo wrote:

    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 (and their faculties) will charge ever higher prices.

    Then some suggest we have to throw even more money at the problems.

    Government has fueled out-of-control rises in prices for medical care, housing, and higher education. When will people finally focus on the causes & consequences of government's failed policies.

  • Report this Comment On January 08, 2012, at 3:41 PM, jhffmn wrote:

    Is this article for reals?

    So from 2004 to 2009 tuition close to doubled for a public institution.

    Yet, the graphs above suggest the share of tuition as a source of income decreased 3%. And the conclusion is the cost of higher education is due to a decrease in public aid?

    This article isn't just misleading. It's an outright lie. The author should be ashamed of himself and anyone stupid enough to believe this crap hopefully didn't waste money earning a degree.

  • Report this Comment On January 08, 2012, at 3:49 PM, TMFHousel wrote:

    <<Yet, the graphs above suggest the share of tuition as a source of income decreased 3%>>

    I'm not sure where you got that from. Nowhere in the article does it state this.

    Please note the difference between accusing someone of an "outright lie" vs. misreading what they wrote.

  • Report this Comment On January 08, 2012, at 4:54 PM, Kauaicat wrote:

    Adding to Captain Widget's and dcfoolz' comments:

    One of the problems I see is the large number of college students studying in worthless or near-worthless liberal arts programs. I suspect that many of the students in 4-year colleges do not even belong there from an academic standpoint, and are wasting their parents money, student loan money (that will never be paid back) or in some cases, their own money. After all, how many sociologists or psychologists or anthropologists or English majors do we really need? These professions are mostly supported directly or indirectly by the various localities, states and the federal government, i.e. taxpayer money. In a vicious cycle, these same non-producers then vote for the political party which hugely supports these subsidies, creating more and more of the same.

    It is much easier to get a liberal arts degree than bust your butt in the physical sciences or engineering or the tougher business specialities like accounting or finance. So the liberal arts student takes the easy way out, and parties their way through school, eventually ending up as the stereotypical 25 yr old living in their parents' basement, and participating in the OWS movement.

    It is telling that the highest student loan default rate is for students with a law degree (40%), in large part caused by an oversupply of lawyers who can't even get their foot in the door. There already are way too many lawyers, even with the demand for their services being created by more and more restrictive legislation, and a judicial system legislating from the bench.

  • Report this Comment On January 08, 2012, at 4:58 PM, jhffmn wrote:

    I apologize, that was a typo on my part. The graphs above suggest subsidies, not tuition, decreased by 3% of the total share of revenue.

    Let's say over that period of time 2004-2009 tuition rose by 40%, which given the example in the article of tuition doubling over 5 years is perhaps a conservative estimate.

    If that were the case, even if subsidies decreased by 3% as a total share of revenue, subsidies would have still increased as a total amount! They only increased slower than the rate of tuition.

    A graph that shows what share of revenue subsidies provide provides no useful information as to whether subsides decreased or increased.

    And from what information is provided, the suggestion that subsidies increased tuition is highly suspect. I suspect an outright lie.

  • Report this Comment On January 08, 2012, at 5:24 PM, TMFHousel wrote:

    <<The graphs above suggest subsidies, not tuition, decreased by 3% of the total share of revenue.>>

    From the graph:

    Subsidy, 1999 = 62%

    Subsidy, 2009 = 48%

    Difference = 14%

    In $ terms, subsidies at public research institutions decreased from $9,000/student in 1999 to $7,889 in 2009, and tuition increased from $5353 in 1999 to $8030 in 2009. The 5-yr doubling example you refer to is strictly for UC schools, as the article states.

    <<And from what information is provided, the suggestion that subsidies increased tuition is highly suspect. I suspect an outright lie.>>

    The numbers are clearly laid out, and sourced links are provided in the article. Again, please differentiate between a lie and misreading what is written.

  • Report this Comment On January 08, 2012, at 10:01 PM, CaptainWidget wrote:

    I think the point that he's making is you're only showing it as a percentage, and not as totals.

    If the total percentage of a college education paid by subsidies dropped by 10% over 10 years, but the total COST of the education increased by 30% over the same time span, then, assuming enrollment numbers stay flat (and in reality they're not...they're increasing year on year) then the gross amount of subsidies have increased. No?

    Then you mentioned one isolated number of one state as proof that total subsidies are decreasing....well.....that's one state and one figure. I'm sure I could find a study by the Heritage Foundation that indicates that subsidies in California have doubled over the last 10 years, do you understand?

    And you've totally ducked the 1.2 TRILLION dollars of college loan guarantees. Bicker all you want about a few hundred million in subsidies...trust me...the universities are barely noticing.

  • Report this Comment On January 09, 2012, at 10:39 AM, whereaminow wrote:

    Morgan,

    We all have biases and all we all write and analyze with biases, but you need to make your biases clear right from the start. Everyone knows my biases. I don't hide them. Stop hiding yours.

    A decrease is subsidies might have caused an increase in price? Really? That's a new one. How did you make that superman leap in logic? Explain how you go from Point A to Point B.

    In California, state-level subsidies may be decreasing, how does that explain rising tuition costs in the other 49 states? Hmmm, that's a mystery,

    Could there be something else at work? Oh, I don't know, what it could it be, what could it be, what could it be....

    Perhaps its that giant loan granting machine called the Federal Government, with free money created out of thin air from the Federal Reserve? No, not possible?

    Trillions of dollars of loans from the Fed? No impact. A few state level subsidies gone. Now, THAT must be the reason prices are rising!

    C'mon Morgan. Seriously. This is so beyond ridiculous.

    Please just come out and admit that you took one college level econ class, learned the simplistic and crude Keynesian view, and stopped there. That would explain why so many of your articles are drippy nonsense.

    (And there is no debating whether or not it is ok to pepper spray college kids for speaking their minds. It's a crime, and everyone one of those fascist cops should be tarred and feathered.)

    David

  • Report this Comment On January 09, 2012, at 10:48 AM, TMFHousel wrote:

    <<In California, state-level subsidies may be decreasing, how does that explain rising tuition costs in the other 49 states? Hmmm, that's a mystery,>>

    It's not just California. The average subsidy at public research institutions has declined from $9,000/student in 1999 to $7,889 in 2009.

    Nowhere in the article does it state that falling subsidies represent all of the increase in tuition. I agree that govt backed loans have had a large impact as well (and many other variables).

  • Report this Comment On January 09, 2012, at 11:03 AM, whereaminow wrote:

    Morgan,

    Tuition has risen for 50 years. Yet, data that purportedly explains the rise in ONE of those years has cleared everything up for you.

    Hilarious.

    And I could go on. The entire education system is a distorted joke, because economists (really, quacks with degrees) keep advising us not to listen to price signals. And so the government steps in and destroys every price signal in the entire system.

    Then you have the selfishness of the entire University operation. They cater to children that want to be spoon fed a degree with zero marketability ("I wanna be an art major! Waaaahhh!"), because those kids show up with pocketfuls of government money taken from you and I. Those children never learn that the key to success in this world has nothing to do with a diploma, and everything to do with being unselfish and learning skills that fill other people's needs.

    In a market economy, the ultimate source of all sustained increases in price is government intervention. College tuition is no different. Writing misleading articles filled with crocodile tears for the poor college kids might get you sway among the lowest common denominator but it doesn't add any value to the conversation.

    David

  • Report this Comment On January 09, 2012, at 11:05 AM, TheDumbMoney wrote:

    Not sure if others have mentioned, but the NYT did a nice blog piece a month or so ago about how this is in no small part a sticker price increase over the last decade, and nonloan financial aid is also at record highs. All universities are capturing more marginal dollars at the high end (legacy, foreign, outofstate, richndumb) , while giving lots more aid, and not only loans, to others.

  • Report this Comment On January 09, 2012, at 11:07 AM, TMFHousel wrote:

    <<Yet, data that purportedly explains the rise in ONE of those years has cleared everything up for you>>

    1999 to 2009 is more than one year.

    Again, I agree that there are several variables influencing the rise in tuition, including govt backed loans. We're in agreement there.

  • Report this Comment On January 09, 2012, at 11:10 AM, TMFHousel wrote:

    dtaf,

    Good point, and mentioned in the article: "Private schools faced something similar: Higher tuition has largely been used to finance grants and aid to other students ...."

    Net impact is that tuition goes up for some while school's income rises by a much smaller amount.

  • Report this Comment On January 09, 2012, at 11:21 AM, whereaminow wrote:

    Morgan,

    According to your article, the study was for that period, but only 2009 was "explained" by the shift:

    ---> "Public sector tuition increases in 2009 were almost entirely the result of cost-shifting to replace institutional subsidies, rather than to finance new spending."<----

    I just want to know how you can do an article on rising tuition costs on the one hand without using the words inflation, government intervention, and the Federal Reserve?

    How is that even possible?

    You know that when the first McDonald's opened up in Moscow, 75% of the applicants had Master's Degrees. The market is about learning to serve each other. The more we use the violence of the federal government to give people education, the less people learn how serve each other. We end up with lots of highly educated and completely useless college graduates.

    Education is something that must be taken. It can never be given.

    David

  • Report this Comment On January 09, 2012, at 11:24 AM, TMFHousel wrote:

    From the article:

    "Between 1999 and 2009, the total funding of public research institutions increased by 11%, but tuition surged more than 50%."

  • Report this Comment On January 09, 2012, at 11:39 AM, DJDynamicNC wrote:

    Remember, when a high rate of compensation attends to a Wall Street executive, it's necessary to preserve the best talent in a competitive market, but when it's being awarded to an educator, it's a budget-bloating piece of fiscal excess which must be cut, cut, cut.

    This will be true even if the school in question is extremely well run and the executive in question just bankrupted half the nation.

  • Report this Comment On January 09, 2012, at 12:03 PM, ejclason2 wrote:

    Excellent article. It is reasonable to argue whether decreasing goverment subsidies to public universities is a good or bad thing. However those who deny that said subsides are going down are probably trying to warp reality to conform to their world view.

    One additional point. There is an increasing need for employees with college education. If tuition increases, economic theory indicates that the number of people seeking college education will decrease. This doesn't sound like a good thing.

  • Report this Comment On January 09, 2012, at 12:27 PM, DJDynamicNC wrote:

    @Whereaminow: -->"In a market economy, the ultimate source of all sustained increases in price is government intervention" <--

    That's a fairly bold claim. I'd suspect that population growth can put increasing price pressure on resources, for example.

  • Report this Comment On January 09, 2012, at 12:48 PM, DJDynamicNC wrote:

    I would also like to point out that in 3 years of tuition at University of Toronto would cost the same as one semester at UCLA.

    That's because Canadian subsidies are much higher (and U of T is a top rated school globally, so it's not that the educational quality is much lower).

    That would tend to indicate that government subsidies do not inflate the price of education directly.

  • Report this Comment On January 09, 2012, at 12:48 PM, DJDynamicNC wrote:

    ^^^ Sorry, that should read 3 years = 1 year, not 1 semester.

  • Report this Comment On January 09, 2012, at 5:02 PM, talan123 wrote:

    Government subsidies pretty much make or break tuition rates.

    My State has been slicing and dicing the school budgets every year and tuition has been rising at around 10% each year.

    Fees have been increasing as well. That is another way to increase tuition without actually raising the tuition. Computer lab fees went from $39 a year to $300 at one local college.

  • Report this Comment On January 09, 2012, at 6:18 PM, DJDynamicNC wrote:

    Amid all this, we're going to experience a massive brouhaha over proposed cuts to the defense budget which will bring it down to 2007 levels (still much higher than anything paid during the height of the cold war, even using inflation-adjusted dollars).

    America has made its choice between subsidizing education and subsidizing the blowing up of bridges in Pakistan so that we can overpay contractors to build new bridges in Pakistan (building bridges in America, of course, would be socialism). Paying for teachers is just not worth the associated loss in our ability to pay for freedom bombs.

  • Report this Comment On January 09, 2012, at 6:19 PM, Sunny7039 wrote:

    kyleleeh, your statement about Euro "bankruptcy" doesn't even reach the level of a post hoc fallacy.

    University in Europe has been tuition-free for centuries, if not for most of its history. This is a practice that takes its inspiration from Socrates, not Goldman Sachs. (Sorry.) If these governments are in trouble now, it can't possibly be because of educational "largesse." On the other hand, their productivity (i.e., the market value of their labor per manhour worked) is pretty damned high -- something that typically is closely related to education. So if they get out of this mess, there's good reason to believe it will be thanks to the fact that they actually educate people, and respect educators and education.

    Thanks for showing us why Americans need to study history. When it comes to policy, your thinking doesn't advance beyond the last soundbite you heard. Well, that's going to work for you I'm sure.

    I thought this was one of the best articles I've seen on this website. The data is remarkable, and I'm glad to have it in one place.

  • Report this Comment On January 09, 2012, at 11:09 PM, devoish wrote:

    Morgan, you hit dead on target with the cost shifting of reducing subsides raising the cost of tuition. The increase in student debt follows that shift, it does not precede it.

    The growth of student loan is being driven by the shift of college prices away from subsidies and onto the student. Just as with mortgages, payday and credit card lending the increased predatory opportunities that present themselves in the private and less regulated lending markets make the results much worse.

    From a 2008 report.

    http://www.studentloanborrowerassistance.org/blogs/wp-conten...

    "The effects of the subprime lending meltdown are being felt far beyond the mortgage

    market. Consumers are also struggling with other types of high-rate credit. Investors with

    stakes in credit cards and student loans are getting increasingly nervous.

    In the past, student loans were less vulnerable to market changes because most of the

    loans were originated or guaranteed by the federal government.

    Federal law regulates loan

    terms and requires lenders to provide a number of borrower protections. The newer private

    student loan market, in contrast, is much more susceptible to the volatility that has affected

    other credit markets.

    Private student loans, many of which are both subprime and predatory, have proliferated in recent years and now comprise about 24% of the nation’s

    educational loan volume.

    This report focuses on the growth of the private student loan market and its

    consequences. We first summarize the trends in the industry, including a comparison of

    private student loans to federal loans. We also discuss who is borrowing these loans and

    why. The next sections focus on problems with private student loans, including a discussion

    of parallels to the subprime mortgage crisis. The final section presents policy

    recommendations to protect borrowers.

    WHAT ARE PRIVATE STUDENT LOANS?

    Private student loans are made by lenders to students and families outside of the

    federal student loan program. They are not subsidized or insured by the federal government

    and may be provided by banks, non-profits, or other financial institutions."

    It is worth a read, if the subject interests you.

    Best wishes,

    Steven

  • Report this Comment On January 09, 2012, at 11:10 PM, devoish wrote:

    Well, there's a copy/paste that did not work well.

    Best wishes,

    Steven

  • Report this Comment On January 09, 2012, at 11:13 PM, devoish wrote:

    "The effects of the subprime lending meltdown are being felt far beyond the mortgage market. Consumers are also struggling with other types of high-rate credit. Investors with stakes in credit cards and student loans are getting increasingly nervous.

    In the past, student loans were less vulnerable to market changes because most of the loans were originated or guaranteed by the federal government. Federal law regulates loan terms and requires lenders to provide a number of borrower protections. The newer private student loan market, in contrast, is much more susceptible to the volatility that has affected other credit markets.

    Private student loans, many of which are both subprime and predatory, have proliferated in recent years and now comprise about 24% of the nation’s educational loan volume.

    This report focuses on the growth of the private student loan market and its consequences. We first summarize the trends in the industry, including a comparison of private student loans to federal loans. We also discuss who is borrowing these loans and why. The next sections focus on problems with private student loans, including a discussion of parallels to the subprime mortgage crisis. The final section presents policy recommendations to protect borrowers.

    WHAT ARE PRIVATE STUDENT LOANS?

    Private student loans are made by lenders to students and families outside of the federal student loan program. They are not subsidized or insured by the federal government and may be provided by banks, non-profits, or other financial institutions."

    Best wishes,

    Steven

  • Report this Comment On January 09, 2012, at 11:31 PM, CaptainWidget wrote:

    <<That would tend to indicate that government subsidies do not inflate the price of education directly.>>

    It would if it were true. Show me figures indicating that the Canadian government exceeds 100+ billion a year in post secondary education subsidies, and you have a case. Unfortunately I don't think that case exists.

    People act as if loan guarantees for students who don't qualify for private loans is not a subsidy, which is an absurd argument.

    The free market rate for a 18 year old, with no co-signor, to get a 120K dollar loan would be what......20%.....if the loan even existed. Then the government uses it's money, it's credit score, it's guns, and it's bombs to get that 18 year old a 3% interest rate with payments deferred for 4 years.

    So now the question is, what do you call all the dollars between 3% interest and 20% interest (not to mention the dollars of loans that would have NEVER been made in the private market). There's a massive gross discrepancy between the free market figure and the government "assistance" figure....those dollars don't come out of thin air. They're paid for by the tax payers, and when the government uses tax dollars to float an industry it's called.....anyone want to chime in..A SUBSIDY!!!

    Don't get too caught up on the accounting of it. Government dollars used to help people and industries that wouldn't otherwise exist in the market are subsidies.

    And now that we've defined, and agreed upon the fact that college loans backed by the fed are in fact subsidies we now realize that the government has spent over a trillion dollars subsidizing college educations in the last 10 years. If Canada's subsidies came within 1/10th of that figure, I'd be astounded.

  • Report this Comment On January 10, 2012, at 9:56 AM, wjcoffman wrote:

    I got lost starting with "The wage premium those with a college degree hold over those without one is growing, so the price of obtaining a degree has gone up as well."

    So, bread costs more because I have more money? Or, since investment in my education pays generous returns then the colleges want their cut so they price their services accordingly?

    I was rescued from confusion shortly thereafter with "Another reason that doesn't get enough attention, and one that explains almost all the tuition increase at UC schools, is the decline in state, local, and federal government's share of education costs." Now we're getting somewhere....

    However, the headache returned when I read "By and large, tuition is going up not because schools are raking in more money, but because subsidies are going down."

    How would tuition go up because schools are raking in more money? If tuition was going up and schools were raking in more money - well, I get that.

    Oh, and everything else covered by previous commentors.

  • Report this Comment On January 10, 2012, at 9:58 AM, DJDynamicNC wrote:

    http://www.dailykos.com/story/2012/01/09/1053104/-Class-of-3...

    You propose that the removal of subsidies would reduce prices by forcing universities to compete in a free market to stay in business. And maybe that'as true! However, that is not the only way that price pressure could be reduced. Universities could also simply fail and shutter their doors, leaving the remaining universities to charge high prices as a premium for their exclusive enrollment. After all, universities offer two products - education and prestige. There is only so much value that can be added to education in a four year span, and so prestige is the real market battleground for most universities - and that means that they are aided by restricting enrollment, not increasing it. You could just as easily simply see a shift towards university education becoming a luxury good in response to a non-subsidized market.

    That may be a more pure market, but it is not a desirable policy outcome.

  • Report this Comment On January 10, 2012, at 11:29 PM, devoish wrote:

    Morgan,

    Your point about the cost shift from subsidies to tuition is valid.

    Watch the terminology, David is talking about "price", the sum of subsidies and tuition.

    Captain Widget does not need to fantasize about what the private market would charge for student loans. The private market exists and it is 25% of all student loans in 2008 and was growing fast at that time, it charges much more than the Government and much less than he suggests.

    All of you fall short in you analysis. The reason college costs are skyrocketing compared to other costs is primarily because of demand. Unlike Davids analysis, lending and available money did not create a demand for college educations. Lending provided demand for college with the means to achieve that goal, a more expensive method than just funding college directly through taxes like high school. There was an initial success in funding the demand for college due to the GI Bill after WW2, and as Captain Widget suggests there was a second increase in funding the demand for college in the 70's through the use of government backed lending with loan guarantees and Sallie Mae.

    Following the defeat and decline of unions in the 80's and 90's parents and high school grads of the late 90's were told correctly that there was very little opportunity for a middle class lifestyle without a college diploma, so with no other game in town demand for college diplomas skyrocketed as did lending to meet that demand. From 1999 until 2009, enrollment in degree granting institutions rose from 14.8mil to 20.4million.

    2001 - "Remember it is your own fault you didn't study in HS and didn't go to college and now you are flipping burgers."

    2011 - "It is much easier to get a liberal arts degree than bust your butt in the physical sciences or engineering or the tougher business specialities like accounting or finance. So the liberal arts student takes the easy way out, and parties their way through school, eventually ending up as the stereotypical 25 yr old living in their parents' basement, and participating in the OWS movement." - Kauaicat

    Best wishes,

    Steven

  • Report this Comment On January 11, 2012, at 10:50 PM, ET69 wrote:

    "I'm unaware of any major funding group at the State or Federal level that has shows marked reductions in recent years. Year after year, everything goes up." B.S.!

    UC Berkeley now only receives about 11% from the state. Why bother calling it a public university anymore? It might as well be private. For all the hater morons above with lame excuses and lies about worthless college students and how only the rich deserve an education or how "liberal arts" are somehow easy or worthless - YOU are the worthless toads who can't see you are cutting your own nose off.

    Is there no limit to how dumb you want this country to be? Apparently not. keep it up and you will turn millions and millions of working class and middle class kids into socialist revolutionaries! Well maybe there is a silver lining to all this after all.......

  • Report this Comment On January 12, 2012, at 2:56 PM, DJDynamicNC wrote:

    I'm not clear on when exactly it became fashionable to allow the market to dictate what was valuable to humanity as a whole in every situation at all times. People who study English and the Arts may not have much value to capitalism, but that reflects poorly on capitalism, not on art students.

    If you truly believe that art has no value beyond what the market will bear and that the study of human culture has no value beyond what employment you can obtain with it, then that's your own personal cross to bear, but I am happy to live in a society that subsidizes the arts and culture, and I vote accordingly.

    This nation is great in MANY ways. Financial innovation is not the only kind that counts (it is, on the other hand, the only kind that bankrupts the nation).

  • Report this Comment On January 12, 2012, at 3:30 PM, unclecicero wrote:

    This is an interesting article, but would be better if it relied on more than one primary source. The Lumina Foundation is not an unbiased scholar producing research on this issue; it is active in lobbying for more government subsidies for higher education, and this study serves those ends.

    For example, while the study counts Pell Grant funds as a part of the total revenue from tuition, it defines "Federal appropriations, grants and contracts" as "the total amount of revenue from federal appropriations, grants and contracts (excluding Pell Grants)." Money that should be counted in the total Federal contribution to education is excluded and attributed to the student share of costs. This hardly makes sense as Pell Grants do not have to be paid back and are paid directly to the educational institutions, although students do have limited access to the funds. Even students on full athletic scholarships take advantage of the Pell Grant, and I can give you many examples of how creative they can be in making sure that money goes to the "Related" portion of the total "E&R" spending (E = Education, which means tuition and fees, not money spent for textbooks, dining, room etc.) In short, the major flaw in this study is while direct subsidies to educational institutions (again minimized in this study by also not counting capital investments), subsidies to education directed through the student and family has grown quite dramatically. Both political parties use these subsidies to great advantage, but one clearly more than the other.

    Currently more than $277 billion is available for student aid in 2012/2013. The largest single portion comes from Federal subsidies -- $154 billion, not counting the estimated $13.8 billion in Federal education tax credits or the government portion of the $43.9 billion in institutional grants. States will ante up a paltry $9.2 billion. The remaining $10 billion comes from private grants and employer subsidies. The average student receiving aid gets an average of $12,455 per year.

    One factor in the debate over the efficiency/cost of subsidies may be to look at the state systems with the highest tuition rates in comparison to those with the lowest. In the 25 states with tuition costs above the national median, the average student contribution to cost was 43 percent of the total bill. In the 25 states below the median, students contribute 57 percent.

  • Report this Comment On January 13, 2012, at 2:09 PM, thku4grace wrote:

    If a college education cost $1 and went to $5 I could write about the outrageous 500% increase in tuition. But you'd likely point out to me what an idiot I am for complaining about the increase when actually $5 for tuition is clearly a steal. Well, College tuition in the university of California system doesn't cost $5, but even with the increase the cost of tuition is still incredibly cheap when compared to tuition at both public and private universities in every other state. Even cheaper is the tuition in the California state university system. But why is it so cheap? Because taxpayers are subsidizing it at a far greater rate than is being done in every other state. Now taxpayers have to subsidize illegal aliens for that same education. Enough is enough.

  • Report this Comment On January 13, 2012, at 3:17 PM, DJDynamicNC wrote:

    -->"Now taxpayers have to subsidize illegal aliens for that same education. Enough is enough"<--

    You're absolutely right. We should open up our borders and give illegal immigrants a path to citizenship so they can pay taxes and help support our schools like the rest of us.

  • Report this Comment On January 13, 2012, at 3:43 PM, jvillani4866 wrote:

    I guess I'm not very good at math. The charts show low single digit declines in public funding, but tuition rises at double digits annually? So where is the 100% correlation between the two that the author states?

  • Report this Comment On January 13, 2012, at 3:46 PM, TMFHousel wrote:

    jvillani,

    Note that the charts show the amount of total funding, while the double-digit increases you're referring to relate to the dollar amount of tuition.

    Related example: If the price of gas doubles, the share of your household's budget that goes to gasoline might only rise a few percentage points.

  • Report this Comment On January 13, 2012, at 5:43 PM, drborst wrote:

    Morgan, Interesting article, but I was expecting something different. Is there any data on the total cost of higher education?

    My kids go to a small private grade school, with a budget of 85% salaries and benefits (and the adminstative overhead is quite low, I think Direct labor costs are around 75% of the total budget, meaning the budget for teachers in the class room). The tution increases every year, but the reason is the teacher salaries increase slightly and the health care cost go up a lot.

    The school's budget is in sharp contrast to the factory where I work, where the direct personel costs were roughly 5% of the total production cost 10 years ago and have dropped to something closer to 4% today.

    Aren't there some industries, like manufacturing, that can boost productivity, and others, like elementary education, that can't? And isn't it the case that an elementary school will have to raise prices faster than a factory to keep up with rising wages?

    And here is where I have a real question. Where does college education in the US fit in the continuum between my kid's school and the factory where I work?

    And it you'd like to address the even bigger question, where does health care fall in that continuum? It seems to me that health care is getting significantly less productive over time.

    drborst

  • Report this Comment On January 13, 2012, at 11:37 PM, promommyfool wrote:

    10 years ago when I went to college the second time the two most divisive subjects amoung students were afirmative action in admissions and rising tuition costs. One of those has been less a problem as students have sued over loosing out to less qualified applicants. The second subject appears to be no less the hot topic. Here we've created a verrrrry long threat. Imagine how long the thread would be if actual college students were taking it up.

  • Report this Comment On January 16, 2012, at 1:19 PM, rmiers wrote:

    It's pretty easy to connect the dots. High teacher pay (getting higher)(overpaid pensions)(lots 0f supervisors) getting higher (militant unions) getting worse, higher regulations, and expenses.

    Sad state of affairs methinks.

    Next mile post will be free school for aliens and educational workers exempt from all taxes. Isn't a shame that we can't short state and federal governments?

  • Report this Comment On January 18, 2012, at 1:59 PM, DJDynamicNC wrote:

    -->"Next mile post will be free school for aliens and educational workers exempt from all taxes."<--

    Nonsense, the way gas prices are going the aliens won't even be able to afford to fill up their UFOs for the trip.

  • Report this Comment On January 20, 2012, at 2:24 AM, jeepshepard wrote:

    There is a lot of wild spending and wasteful spending of colleges and universities. Anyone that has been out of school for 5 years or more can attest to massive building projects on their respective campuses. Go back to your campus and you'll find perfectly good buildings are torn down , and new ones are put up. Are the attendance rates going up that much? No, it is colleges following the "keeping up with the Joneses" with other colleges. One campus gets a new building and the college next door or across state has to keep up.

  • Report this Comment On January 20, 2012, at 12:55 PM, thidmark wrote:

    Many college grads don't know the difference between "lose" and "loose." And on and on.

    We've got bigger problems than tuition rates ...

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