
Accounting for the Rise in College Tuition [pdf] - mhb
http://www.nber.org/chapters/c13711.pdf
======
rahimnathwani
<Spoiler alert>

"... our results show the Bennett hypothesis can fully account for the tuition
increase on its own."

i.e. prices go up after the government provides financial aid and/or loan
subsidies.

This was examined in another paper earlier this year:
[https://www.newyorkfed.org/medialibrary/media/research/staff...](https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr733.pdf)

Original articulation of the Bennett hypothesis:
[http://www.nytimes.com/1987/02/18/opinion/our-greedy-
college...](http://www.nytimes.com/1987/02/18/opinion/our-greedy-
colleges.html)

~~~
wyldfire
Wow, "On average, college graduates earn $640,000 more over their lifetimes
than nongraduates do." $640k/lifetime is really small.

~~~
garrettgrimsley
For reference, working 40 years at $30,000 a year will earn you $1.2 million.
Earning $640,000, or ~53%, more is certainly substantial.

Edit: The $30,000/year reflects current incomes, the $640,000 lifetime
difference is based on 1987 dollars, like @twoodfin pointed out. It works out
to greater than double lifetime earnings using the adjusted $1.3 million
figure.

~~~
Retric
65-18 = 47 years, 680k/47y = 13.6k / year.

Median income is 52k. Split the difference and assume it's 52 - (13.6k /2) =
45K * 47 = 2.115 million.

So, now 680k is an extra 32% which sounds great! Except that's pretax, and
takes ~100+k of capital to get and your get 4 years less for interest to
compound.

If you actually work out the numbers, paying for collage adds less money than
buying that much stock and giving your kids the interest from that stock while
they work. So, on it's on a BS is a poor investment, the only advantage is
it's a highly leveraged investment.

PS: For comparison the median plumber makes ~49k/year in the US. Median
electrician also makes ~50k/year.

~~~
garrettgrimsley
Your median income figure appears to be wrong. I think that you might be using
median household income rather than median per-capita income. The $680k (sic)
figure is also in 1987 USD, and if you don't adjust for inflation then it
throws your calculations off. See _The College Payoff: Education, Occupations,
Lifetime earnings_ [0] for a rigorous assessment. What you said about buying
stock vs paying for college is interesting and something to consider.

[0]
[https://repository.library.georgetown.edu/handle/10822/55930...](https://repository.library.georgetown.edu/handle/10822/559300)

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lordCarbonFiber
It's dumbfounding to me that we can continue to have this conversation and not
touch at all on the continuous reduction in the taxes that have historically
funded state schools. Easy access to capital and increased demand resulting
from the competitive job market are certainly major factors, but to absolve
the boomer generation of their hand in causing the problem (or go so far as to
demand the universities shoulder the costs over taxpayers as in the 1987
article, talk about pot calling the kettle black in terms of the greed
department) is absurd. As far as I can tell in a casual search, state funding
for higher education has been nearly monotonically decreasing since the 80s
(source for numbers on cuts in the last decade
[http://www.cbpp.org/research/states-are-still-funding-
higher...](http://www.cbpp.org/research/states-are-still-funding-higher-
education-below-pre-recession-levels)). Breaking the "I've got mine, time to
cut taxes" culture will go much farther in addressing the issue of education
costs than demanding less students have access to financial assistance.

~~~
WildUtah
"state funding for higher education has been nearly monotonically decreasing
since the 80s"

That's not because of taxes. Taxes haven't gone down.

Doctors and Pharma have extracted ever more cash from Medicaid. Wall Street
has badly mismanaged public pensions as public unions have demanded ever
richer pensions. Prison populations have multiplied. It all adds up to less
money in state budgets for education.

~~~
sanxiyn
Actually, state budgets for education increased, a lot, even if you adjust for
inflation. What decreased is state budgets for education _per student_. That
is, budgets increased, but the number of students increased faster.

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niels_olson
Is there any better articulation a of an object lesson in the power of
government subsidies?

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mizchief2
Supply and Demand. The same reason for everything else that goes up in price.
Government subsidies created more students who have the means to go to college
where previously they would have gone to a trade school or learned a craft on
the job. While at the same time public schools have gotten more lax on grading
so that students can get these grants and scholarships.

------
dang
Url changed from
[http://marginalrevolution.com/marginalrevolution/2015/12/sub...](http://marginalrevolution.com/marginalrevolution/2015/12/subsidies-
increase-tuition-part-xiv.html), which points to this.

