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>This excess demand and fixed supply means that colleges can raise prices. If colleges raise prices, won't this make it more attractive/affordable for new coll

>This excess demand and fixed supply means that colleges can raise prices. If colleges raise prices, won't this make it more attractive/affordable for new colleges to open, thus increasing supply?

alistairSH 13y ago
Yes, which is why we have the large number of new for-profit institutions. Many of these new for-profits deliver degrees that aren't the paper used to print them because delivery a quality education isn't easy.
msandford 13y ago
Potentially yes. But those colleges won't have the prestige and long history that a college needs to serve as some kind of credential, neither will the inherent network-building happen there either. What I mean is that because Harvard is such an elite school, many of the people you meet there WILL be involved in society at the highest levels and you'll already know them. That gives you a powerful advantage. University of Phoenix doesn't have that yet and may not for several decades. And the University of Phoenix doesn't carry much prestige or brand recognition with it. Furthermore the job market doesn't necessarily support the need for additional college grads. In a "normally functioning" (total bullshit I know but go with it for a second) job market high wages and high employment does two things: 1. Increases people's ability to pay for loans post-graduation 2. Reduces the average default risk When that happens, interest rates for college loans go down and more people are able to go to college based on fundamentals: the job market will (with some lag factor) still be good when they graduate and thus loaning to them is a good idea. This is a "natural market function" which, though imperfect, tends to balance out the supply of college with ability to demand. I would estimate that college loans would tend to lag the job market by somewhere between 2 and 10 years depending on how agile a bank was to react to the job market. So you would have a period of heightened wages for at least 4 years as people worked their way through school and then potentially a period of lowered wages for a few years as people slowly figure out that the crazy high wages are gone. But with these subsidies you get all the downside of the glut with none of the upside of the scarcity. It's not awesome.
RougeFemme 13y ago
This is true for for-profit colleges. But some public and non-elite private colleges risk pricing themselves out of existence - or at least into dire financial straits - if they raise their prices too high and if student loans dry up.
skylan_q 13y ago
If colleges raise prices, won't this make it more attractive/affordable for new colleges to open, thus increasing supply? Yes. Hence "bubble". The government did everything in its power to funnel money into housing back from 1999 through 2005. If someone was against this, they were against people having homes. This resulted in a housing boom. Today, the government gives out giant loans to students who will never be able to repay them. If you are against this program, you are "against people getting an education".
tsotha 13y ago
It would be if you assumed the purpose of college was to impart information. It's not. All that stuff about "teaching students to think" is just bullshit, frankly. The real reason you have to go to college to get a good job is the school you went to gives employers an indication of how smart you are. Prior to Griggs v Duke Power employers could just give you an IQ test, and all the big ones did. If you wanted to work for IBM you could get a job even without a college degree if you did well on the IQ test. But with that single court ruling employers had to cast about for another way to rank applicants, and the most obvious solution was by college exclusivity. So if you went to Harvard they want you. Not because you were likely to learn anything at Harvard you couldn't learn at State U. It's because they know you have to be pretty smart to get into Harvard as only one in about twenty applicants is actually accepted. So Harvard (with the highest rejection ratio) can charge whatever it wants (and it's worth every penny), whereas schools that take everyone can't charge more than enough to keep the lights on. It's hard to establish a new school. Parents will want to know "Is it a good school?" Since this is one of the biggest decisions in Junior's life, they're going to go conservative and try to get him into established colleges with solid reputations. Your new college has a chicken and egg problem - you can't get a lot of applicants unless you reject a lot of applicants.
- reader5000 13y ago
  I think this is a big part of it. I think of it as a signalling tax on the young extracted by the old. "Ah ya think you're smart eh? You want a job eh? Promise me $100k+ your future earnings and we'll talk".

>This excess demand and fixed supply means that colleges can raise prices. If colleges raise prices, won't this make it more attractive/affordable for new colleges to open, thus increasing supply?

alistairSH 13y ago

Yes, which is why we have the large number of new for-profit institutions. Many of these new for-profits deliver degrees that aren't the paper used to print them because delivery a quality education isn't easy.

msandford 13y ago

Potentially yes. But those colleges won't have the prestige and long history that a college needs to serve as some kind of credential, neither will the inherent network-building happen there either. What I mean is that because Harvard is such an elite school, many of the people you meet there WILL be involved in society at the highest levels and you'll already know them. That gives you a powerful advantage. University of Phoenix doesn't have that yet and may not for several decades. And the University of Phoenix doesn't carry much prestige or brand recognition with it. Furthermore the job market doesn't necessarily support the need for additional college grads. In a "normally functioning" (total bullshit I know but go with it for a second) job market high wages and high employment does two things: 1. Increases people's ability to pay for loans post-graduation 2. Reduces the average default risk When that happens, interest rates for college loans go down and more people are able to go to college based on fundamentals: the job market will (with some lag factor) still be good when they graduate and thus loaning to them is a good idea. This is a "natural market function" which, though imperfect, tends to balance out the supply of college with ability to demand. I would estimate that college loans would tend to lag the job market by somewhere between 2 and 10 years depending on how agile a bank was to react to the job market. So you would have a period of heightened wages for at least 4 years as people worked their way through school and then potentially a period of lowered wages for a few years as people slowly figure out that the crazy high wages are gone. But with these subsidies you get all the downside of the glut with none of the upside of the scarcity. It's not awesome.

RougeFemme 13y ago

This is true for for-profit colleges. But some public and non-elite private colleges risk pricing themselves out of existence - or at least into dire financial straits - if they raise their prices too high and if student loans dry up.

skylan_q 13y ago

If colleges raise prices, won't this make it more attractive/affordable for new colleges to open, thus increasing supply? Yes. Hence "bubble". The government did everything in its power to funnel money into housing back from 1999 through 2005. If someone was against this, they were against people having homes. This resulted in a housing boom. Today, the government gives out giant loans to students who will never be able to repay them. If you are against this program, you are "against people getting an education".

tsotha 13y ago

It would be if you assumed the purpose of college was to impart information. It's not. All that stuff about "teaching students to think" is just bullshit, frankly. The real reason you have to go to college to get a good job is the school you went to gives employers an indication of how smart you are. Prior to Griggs v Duke Power employers could just give you an IQ test, and all the big ones did. If you wanted to work for IBM you could get a job even without a college degree if you did well on the IQ test. But with that single court ruling employers had to cast about for another way to rank applicants, and the most obvious solution was by college exclusivity. So if you went to Harvard they want you. Not because you were likely to learn anything at Harvard you couldn't learn at State U. It's because they know you have to be pretty smart to get into Harvard as only one in about twenty applicants is actually accepted. So Harvard (with the highest rejection ratio) can charge whatever it wants (and it's worth every penny), whereas schools that take everyone can't charge more than enough to keep the lights on. It's hard to establish a new school. Parents will want to know "Is it a good school?" Since this is one of the biggest decisions in Junior's life, they're going to go conservative and try to get him into established colleges with solid reputations. Your new college has a chicken and egg problem - you can't get a lot of applicants unless you reject a lot of applicants.

reader5000 13y ago
I think this is a big part of it. I think of it as a signalling tax on the young extracted by the old. "Ah ya think you're smart eh? You want a job eh? Promise me $100k+ your future earnings and we'll talk".