Thursday, November 03, 2005

The price of college reflects supply and demand 

I find it interesting to hear congresspeople talk of college costs skyrocketing. Our own Congressman Mark Kennedy recently sent a letter to the House Education and the Workforce Committee, seeking an investigation into "skyrocketing" tuition costs.
At a time when we must be concerned about the continuing competitiveness of our educational system and the quality of our workforce, especially in math, science, and technology, Congress must examine why such immense tuition increases occur, and what can be done to make college more affordable for all Americans. Simply put, if our families are not able to afford higher education, the rest of the world will move ahead, while our nation will be left behind.

What's interesting to me is that enrollments have risen during the period of skyrocketing tuition, and particularly enrollments of eligible females (18-24, HS graduates, rose from 25% in 1967 to over 45% in 2000; male enrollments over the same period are roughly flat, but some of that may be due to the end of the draft and the desirability of the college deferment.) So if you want to understand why tuition costs (read: prices) have risen so much, there appears to be a simple answer: demand went up. This is compounded by the conclusion of many researchers that the return to the student of investment in higher education has risen.

Moreover, increases in student aid allow universities to raise tuition and revenue for itself while holding still the net cost to the student. Thus funds that have been pushed by Congress as middle-class transfer programs (like the Pell grant) may contribute to tuition increases. Aid does help get more students into school and gain degrees (cf Dynarski), but much of the money is captured by students who would have attended anyway.

Demand thus is rising for many reasons, while in many ways the technology of producing an educated student hasn't changed very much. Walk through a classroom hall on a campus and tell me where the productivity gains are. Sure, we project with PowerPoint, or have students with computers sending us email or engaged in an online experiment, but are we able to educate students cheaper than before? I would say no.

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