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What's rising faster than health care? College costs
- william42 15y agoI'm disappointed in you, HN. Not a single one of you mentioned Baumol's cost disease.
- sliverstorm 15y agoI'm curious- if all schools were run like businesses on the open market, is there anything stopping tuition from reaching an equilibrium price close to the value of the degree (in terms of wages)? It seems like folks will likely continue paying more to go to college so long as the boost in income is worth it, and colleges will continue to increase tuition until they can no longer get away with it, so it seems like that's where we could be headed. Why it didn't happen before, I figure could be due to public schools setting a very low bar and private schools had to remain at least somewhat nearby. But as the government continues to pull funding from public higher education, it becomes more and more private, i.e. driven by the market.
- Total_Meltdown 15y agoRemember, economics assumes rational actors. We have loads of students in school because they think they have to be, but don't treat it as an investment. For most fields, tuition is already way above equilibrium, because schools and students alike believe that demand is inelastic: either you get a degree, or you're a second-class laborer. By not having this information, they can't be rational, and continue to "buy degrees" even though MC > MB.
- jeffdavis 15y ago"...if all schools were run like businesses on the open market, is there anything stopping tuition from reaching an equilibrium price close to the value of the degree..." Obviously: competition and alternatives. Just like the equilibrium price of a computer is way lower than what you are willing to pay for it. Often, markets lead to lower* prices on many things as technology and processes improve in pursuit of profits. *: If you define the value of a degree as the extra value above and beyond the next best alternative, than of course alternatives don't really factor in. But with most goods and services, there is some kind of alternative in addition to competition.
- pnathan 15y agoThe price of a high-paying degree is approximately the cost of a poorly-paying degree, modulo the particular college.
- chollida1 15y agoDepends on the degree...Perhaps at the undergrad level there is some truth to this. Comparing an undergrad english degree to a degree in medicine and you can easily be an order of magnitude off.
- pnathan 15y agoYou have to compare apples to apples. A degree in medicine is a MD + a Bachelor's. An undergrad English degree is only 1 degree. Medical schools are their own beast, too. Better compare the Bachelor's in English vs. the Bachelor's in Biology.
- chollida1 15y agoAgreed, That's why I qualified my statement by saying: > Perhaps at the undergrad level there is some truth to this. Evidently this upset someone though, sigh:(
- wisty 15y agoIn theory, supply will rise and demand will fall, and they will meet in equilibrium. In practice, nothing ever reaches an equilibrium. It's often not even close. Colleges are basically in the fashion industry, if you squint at their business models. Price can be a selling point, if it can be used as a way of signalling class or dedication, look at Gucci handbags and the Ivy League. It doesn't matter how little you can buy a handbag for, people still pay more for a top brand. I guess it might follow the fashion industry. A few boutique providers sell "high quality" goods, to people who want to pay extra for the label. Everyone else will try to drive costs to zero. I wonder how much business process outsourcing they will end up doing? Get ready to have your tutorial papers marked by someone in another timezone ...
- tghw 15y agoWhat you're missing are the loans. College loans are cheap money, which change the equation so that price doesn't matter nearly as much. It's almost an identical situation as the housing bubble: people get cheap money to pay for college, with the expectation that a degree will make the loan easier to pay off in the future (just like houses never go down in value, right?). The difference is, there's no defaulting on student loans. Even bankruptcy won't save you. And that means this bubble is going to be much harder to pop. In the meantime, colleges will keep raising tuition because there's enough cheap loans out there to sustain it, and the banks will keep making cheap loans because it's a bet they can't lose.
- maxxxxx 15y agoHow can you determine the value of the degree? The only thing you know for pretty sure is that without degree you will have a massive problem on the job market.
- knieveltech 15y agoWith any number of arts degrees, you've still got a massive problem on the job market and now you're saddled with debt.
- maxxxxx 15y agoGood point! I should have phrased it "the right degree". I could have added "from the right school" too.
- absconditus 15y agohttp://www.google.com/hostednews/ap/article/ALeqM5jlrhIlMeu6yjDVoWvrNx4VWhR3FQ?docId=f9dac2bf9354487ba5693521b2f2bca7 http://www.google.com/hostednews/ap/article/ALeqM5jlrhIlMeu6...
- marknutter 15y agoBlame cheap, easy loans from the US Government combined with the cultural belief that a college degree will guarantee a living wage. The colleges should be issuing the loans. I can bet that if they did, they'd be a heckuva more selective about who attended and have a much larger vested interest in making sure their students became successful financially after graduation.
- umtrey 15y agoAn unintended consequence would be limiting education based on financial ability - a school would not admit a lower income student as opposed to a higher income student. While this does occur in loans, and also in property taxes feeding school districts... to say someone can't go to college here because they don't have the money now is a tough argument. The great equalizer will have taken the final plunge into a wealth-based advantage.
- stonemetal 15y agoIt might exclude the middle, but the truly needy tend to get scholarships to cover college costs. Scholarship programs might have to be rethought out to compensate for the lack of loans.
- deleted 15y ago[deleted]
- fr0sty 15y agoPlenty of rather poor people were going to college 50+ years ago. They worked during the summers, or took a year or more off first to earn money and then went off to school. The graph in the article show college costs up 300% in the last 21 years. The economist[1] reports an 11x increase in college tuition from 1978-2011. The problem is definitely _not_ that people can't get loans but rather that college is so expensive that it requires loans in the first place. [1] http://crimsoncavalier.blogspot.com/2010/09/who-says-theres-no-inflation.html http://crimsoncavalier.blogspot.com/2010/09/who-says-theres-...
- pnathan 15y ago
- druiid 15y agoWell I have to ask if anyone actually thinks this system of student loan debt and increasing student loan debt, is sustainable? I personally see it coming to a bubble state at some point in the future and with the debt being basically impossible (except for a slim set of cases) to remove in bankruptcy... what are we going to do about it?
- orangecat 15y agoGovernment policy: everyone should have as much health care as they want. Result: health care prices soar. Government policy: everyone should own a home. Result: home prices soar. Government policy: everyone should go to college...
- tghw 15y agoWhat "government policy" are you referring to exactly?
- Game_Ender 15y agoMedicare/Medicaid, Fannie Mae & Freddie Mac, and government gauntness of student loans.
- golfstrom 15y agoCollege costs are just like any other bubble: they rose and continue to rise due to the ease of financing. Why we allow 18-year olds to blissfully sign up for a lifetime of crippling six-figure debt is beyond me. At least make them get an engineering or business degree from a public college. In-demand colleges can keep raising tuition because students will just get bigger loans to get the name on the degree.
- watty 15y agoThey're adults and aren't being forced to sign up for an out of state private school that costs 40k a year. Intelligent adults will pursue scholarships and go to school in state for for a reasonable price.
- tghw 15y agoWhile it is true that they are (or almost are) adults and should be able to make their own decisions, I think you'd be hard pressed to say that there is nothing wrong with a bank giving a $200,000 dollar loan to someone with absolutely no income. Because you can't get out of student debt, the banks are more than happy to make loans to people who shouldn't really be taking them. Eventually, the bank will get its money back. For the education bubble to be popped, there's going to have to be a change in legislation allowing people to be protected from student loans if they go into bankruptcy. Once that's the case, banks will start being more careful with the loans they make, there will be less cheap money available, and people will have to start making more rational decisions about which college they attend.
- gte910h 15y ago>change in legislation allowing people to be protected from student loans if they go into bankruptcy. I think there is a balance there, but that is the huge deal: no one should be able to co-sign, and you should be able to go into bankruptcy after a long period of trying to make it work and drop the student loan dept too. I don't want to swing the other way and see chapter 7 bankruptcies right after school driving rates up to absurd levels.
- pnathan 15y agoWhat's the breakdown in average college cost rise as per Ivies vs. state universities? The numbers I hear quoted for an Ivy education is usaully 1 order of magnitude higher than I hear quoted for a state U.
- watty 15y agoHere's a recent article that ranks schools on cost vs salaries: http://www.smartmoney.com/borrow/student-loans/which-colleges-help-their-grads-get-top-salaries-1312402692380/?link=SM_mag_inside#article_tab_article http://www.smartmoney.com/borrow/student-loans/which-college...
- aantix 15y agoMalcolm Gladwell examined the so-called "advantages" of going to an Ivy League school in his piece "Getting In". http://www.gladwell.com/2005/2005_10_10_a_admissions.html http://www.gladwell.com/2005/2005_10_10_a_admissions.html From the article... "As a hypothetical example, take the University of Pennsylvania and Penn State, which are two schools a lot of students choose between," Krueger said. "One is Ivy, one is a state school. Penn is much more highly selective. If you compare the students who go to those two schools, the ones who go to Penn have higher incomes. But let's look at those who got into both types of schools, some of whom chose Penn and some of whom chose Penn State. Within that set it doesn't seem to matter whether you go to the more selective school. Now, you would think that the more ambitious student is the one who would choose to go to Penn, and the ones choosing to go to Penn State might be a little less confident in their abilities or have a little lower family income, and both of those factors would point to people doing worse later on. But they don't."
- pnathan 15y agoMy personal opinion is that Ivies bang-for-the-buck is in the networking possibilities. There usually is some cool research, but high-grade official research isn't usually at the undergraduate level these days.
- cma 15y agoColleges are engaged in a destructive "fanciest buildings" arms race.
- angdis 15y agoYes, I see a lot of that. Virtually every university I come across has recently completed or in the middle of some huge sprawling campus expansion. It is hard to fathom that the growth from increased tuition aren't directly funding such building projects.
- tokenadult 15y agoColleges vary quite a lot in terms of how much spending they do that can reasonably be accounted for as spending on student instruction, and spending on all aspects of care of students. At some colleges, the list price for the students who pay most out of pocket is BELOW the spending per student. That's because those colleges have sources of income (e.g., endowment income and direct grants to the institution) other than tuition income. http://www.collegeresults.org/search1b.aspx?institutionid=130794 http://www.collegeresults.org/search1b.aspx?institutionid=13... (Check the Finances and Faculty tab shown for the college comparison linked above, and then sort by Instructional Expenditures / Total FTE column.)
- chopsueyar 15y agoWhat a thorough article.
- gte910h 15y agoYou want to make college costs come down? Make college loans dischargable in chapter 13 bankruptcies after 7 years of the date of graduation, or 12 years from date of first attendance
- walkon 15y agoWouldn't that just make the cost of borrowing go up?
- ianferrel 15y agoWouldn't that do the exact opposite? It would reduce the cost paid by the student, which would make them even less price sensitive.
- gte910h 15y agoIt would make loan companies charge more for majors that aren't productive.
- DanielBMarkham 15y agoI hate histrionics, but I feel compelled to connect the dots here. Colleges charge more and more -- the growth rate is way above anything most of us would consider reasonable. Why? Because the feds guarantee loans for kids attending. That is, the person directly paying is not the person receiving the benefit. In fact, for many people the goal is to have the feds completely pay for education using loans, thereby giving everybody the chance to make an easy trade: take on some debt which you will have to pay many decades from now, and in return you get a few years of attending a super cool school, learning incredible stuff, and making new friends. Except, you can never default on these loans. Once you make them, you are stuck with them for life. And those things you choose to study? Many of those will never offer you the chance to make the money you need to pay the loans back. So now you're out of college with a degree that doesn't offer the income potential you need to pay for all those loans you signed for. So how is this any different from indentured servitude? It's not to a particular person, but to society at large. We give you a piece of paper, you sign it, you have fun and work hard for a few years, and then you're in such bad financial straits that you'll have to take anything you can find that makes money in a sad attempt to ever get even again. How many PhDs are waiting tables in college towns? Does this appear to be a functional system achieving necessary societal goals? There's a big discussion over whether college is necessary. No clear answers there. But there is also a discussion over whether the money trades that we make as a society are actually doing any good. We keep paying more and more, getting lots of good folks in debt, and when we ask if college is supposed to help them pay these loans back, we get a speech about how college is a special time in a person's life and shouldn't be related directly to money. It seems fine to relate it directly to money when the kid is signing his life away for a vague promise, but when we ask where the payoff is we're told we're being crass. It's about more than money. It's about the experience. That might be true, but there are a lot of special times in a person's life. Why are we letting people trade a few good years when they're young in order to limit their options for decades afterwards? Where's the sense in that, not to the person involved necessarily, but to the rest of us?
- angdis 15y agoDepending on the job market, college grads may or may not have a hard time find a job to get on track to pay off their loans quickly, so what? Everyone has a rough patch, some more than others. The high school student who chooses NOT to go to college might be better off for a few years after high school, but on average, their LONG TERM economic future is not as bright as that of a college grad-- even if the college grad has a rough time find settling into a career after graduation. This is perhaps more clear if you look at people in their 30's and 40's. The college grads are, I think, generally better off (modulo some outliers).
- antidaily 15y agoRemember when middle class parents could afford to pay for their kids' undergrad education?
- Nicknameless 15y agoI think you need to qualify your point a little.. American middle class parents. Middle class parents don't have any problem doing so in plenty of other countries.
- Nicknameless 15y agoWhy the down vote? The education bubble is not a global phenomenon, and there are plenty of great working educational models in other countries that the US could look to (even if it would be branded as 'socialism' etc).
- lawn 15y agoI'm a 22 year old university student in Sweden (starting my 2nd year now) and I find it hard to imagine life with school costing a fortune like this. Sure I, and most students in Sweden, take loans to pay for food, rent and books but the school itself is free - even now! We're also getting a good low rent loan with a part allowance. No wonder we're having so many foreign students. That's going to change from next year though when the foreigners will get charged.
- jpadkins 15y agoyour school itself is not free, the costs are just hidden from you. You will pay much more in taxes over your lifetime than the college costs cited this article. There is no free lunch.
- lawn 15y agoBut of course you're right. I still find it a bit hard to imagine, where would I be now if I had loan a lot more. I might be studying the same but I surely would work harder, both in school and during the summer. On a related note things like medical care and laws sometimes makes me feel the same.
- larrik 15y agoThere's interesting comment after the article about why this may actually be very misleading: Public college costs used to be covered more by the state, whereas now the states are cutting and cutting and raising tuition and fees dramatically. This raises student's tuition at a much faster rate than the total tuition rate is actually rising. Worth considering?