7 ms·

I remember reading an article describing how college costs can be explained by an analysis of supply and demand. There have been a variety of historic reasons f

I remember reading an article describing how college costs can be explained by an analysis of supply and demand. There have been a variety of historic reasons for demand rising at different times - mostly related to unemployment and lack of other economic choices. I keep hearing the meme that low-cost college is the cause of college expense - but college is free in many countries where they are doing quite well. So I question the facile opinions I keep hearing.

wutbrodo 9y ago
> I keep hearing the meme that low-cost college is the cause of college expense I think you've misunderstood what you're hearing: low cost college by definition can't be the cause of high cost college. The claim is that high availability of funds/liquidity for college is what pushes up prices,since there are more dollars available to chase a supply that hasn't kept pace[1]. > college is free in many countries where they are doing quite well. So I question the facile opinions I keep hearing. This doesn't really make any sense. Colleges that are provided for free are a lot less dependent on markets to determine prices: they treat them like a more or less generic public good (where college choice is determined by quality of student more than ability to pay). [1] strictly speaking, the supply hasn't been that constrained, but since college is largely perceived as a positional good, this affects all but the bottom rung for-profit colleges.
- taneq 9y ago
  > The claim is that high availability of funds/liquidity for college is what pushes up prices,since there are more dollars available to chase a supply that hasn't kept pace[1]. Exactly. It's no different to what causes a real estate bubble: Extremely low interest rates and lax lending policies make borrowed cash very cheap, which pushes up the amount that the average buyer can 'afford' to borrow.
gozur88 9y ago
College in the US is used by employers as a proxy for intelligence, something that's an outgrowth of laws and court rulings that date back to the '70s. So if you want to put yourself on the path to the C-Suite in a Fortune 500 company or to a partnership in a major law firm, you have to get into one of the very top colleges in the country. That, in turn, means top colleges can charge pretty much whatever they want and it's still worth the money. Not because of the instruction students receive, but because getting admitted is highly competitive and those students managed to do it. In other words, it's a positive feedback loop driving up prices for a scarce resource. Even when you get out of the nosebleed tier, colleges are easy to rank by their accept/reject ratio. So if you're a big employer and you have a candidate from Brown (acceptance 9.5%) and one from Cornell (acceptance 15.1%), you'd probably prefer the one from Brown, everything else being equal. The sad part is adding more money just makes the problem worse for the same reason adding money to real estate markets just makes everything more expensive.
- akhilcacharya 9y ago
  Hmm, what happens if we don't go to any of these schools?
  - gozur88 9y ago
    Meaning what, not going to college or going instead to the local State U?
    - akhilcacharya 9y ago
      Going to a State U instead of those elite Us
      - gozur88 9y ago
        State U is just fine for a technical degree, but you're diminishingly unlikely to be a CEO of a large company you didn't start yourself. Or a partner in a big NYC corporate law firm.
- ethbro 9y ago
  Above and beyond that, and to crib on one of the grandparent comments re: "Eventually, demand will decrease if prices continue increasing": If the minimum barrier to employment is having a college degree, then people will continue doing whatever they have to in order to get a college degree. The only way you're going to change demand is if decent jobs start being created that don't require a bachelor's degree. And I don't see that happening...
  - gozur88 9y ago
    >The only way you're going to change demand is if decent jobs start being created that don't require a bachelor's degree. And I don't see that happening... I do. At the lower end, if employers can't afford to pay people enough to make their loan payments, they'll start hiring people without debt.

wutbrodo 9y ago

> I keep hearing the meme that low-cost college is the cause of college expense I think you've misunderstood what you're hearing: low cost college by definition can't be the cause of high cost college. The claim is that high availability of funds/liquidity for college is what pushes up prices,since there are more dollars available to chase a supply that hasn't kept pace[1]. > college is free in many countries where they are doing quite well. So I question the facile opinions I keep hearing. This doesn't really make any sense. Colleges that are provided for free are a lot less dependent on markets to determine prices: they treat them like a more or less generic public good (where college choice is determined by quality of student more than ability to pay). [1] strictly speaking, the supply hasn't been that constrained, but since college is largely perceived as a positional good, this affects all but the bottom rung for-profit colleges.

taneq 9y ago
> The claim is that high availability of funds/liquidity for college is what pushes up prices,since there are more dollars available to chase a supply that hasn't kept pace[1]. Exactly. It's no different to what causes a real estate bubble: Extremely low interest rates and lax lending policies make borrowed cash very cheap, which pushes up the amount that the average buyer can 'afford' to borrow.

gozur88 9y ago

College in the US is used by employers as a proxy for intelligence, something that's an outgrowth of laws and court rulings that date back to the '70s. So if you want to put yourself on the path to the C-Suite in a Fortune 500 company or to a partnership in a major law firm, you have to get into one of the very top colleges in the country. That, in turn, means top colleges can charge pretty much whatever they want and it's still worth the money. Not because of the instruction students receive, but because getting admitted is highly competitive and those students managed to do it. In other words, it's a positive feedback loop driving up prices for a scarce resource. Even when you get out of the nosebleed tier, colleges are easy to rank by their accept/reject ratio. So if you're a big employer and you have a candidate from Brown (acceptance 9.5%) and one from Cornell (acceptance 15.1%), you'd probably prefer the one from Brown, everything else being equal. The sad part is adding more money just makes the problem worse for the same reason adding money to real estate markets just makes everything more expensive.

akhilcacharya 9y ago
Hmm, what happens if we don't go to any of these schools?
- gozur88 9y ago
  Meaning what, not going to college or going instead to the local State U?
  - akhilcacharya 9y ago
    Going to a State U instead of those elite Us
    - gozur88 9y ago
      State U is just fine for a technical degree, but you're diminishingly unlikely to be a CEO of a large company you didn't start yourself. Or a partner in a big NYC corporate law firm.
ethbro 9y ago
Above and beyond that, and to crib on one of the grandparent comments re: "Eventually, demand will decrease if prices continue increasing": If the minimum barrier to employment is having a college degree, then people will continue doing whatever they have to in order to get a college degree. The only way you're going to change demand is if decent jobs start being created that don't require a bachelor's degree. And I don't see that happening...
- gozur88 9y ago
  >The only way you're going to change demand is if decent jobs start being created that don't require a bachelor's degree. And I don't see that happening... I do. At the lower end, if employers can't afford to pay people enough to make their loan payments, they'll start hiring people without debt.