
Why Does College Cost So Much? - mhb
http://economix.blogs.nytimes.com/2011/02/18/why-does-college-cost-so-much/
======
anonymoushn
I suspect that Peter Schiff is closer to the mark.

<http://www.youtube.com/watch?v=AIcfMMVcYZg#t=1m30s>

His hypothesis is that increasing the capacity of students to pay (to almost
arbitrarily high levels) by providing government guarantees of student loans
allows allows schools to charge ridiculously high tuition. To some extent,
this is correct, and there is no reason for the people involved not to want to
increase tuitions. For the school, higher tuition will mean the school can
improve itself and become more attractive to students. For the lenders, higher
tuition means more loans returning 5% or more for which the government assumes
all the risk.

It isn't entirely accurate to say "the government assumes all the risk"
either. Student debts are the most toxic debts around, and cannot be thrown
off in bankruptcy. If you refuse to pay, the government is authorized to
garnish your wages or raid your savings.

This isn't to say that Schiff's hypothesis explains the entirety of the
increase in the cost of tuition, but I think that it plays a much larger role
than what is discussed in the article.

~~~
slavak
This seems to be a much better explanation than the article provides, which
seems to be along the lines of "the smart people teaching in college must be
paid a lot."

The answer to the question posed by the headline is: It isn't. The correct
question would be "Why does College cost so much IN THE US?," which implies
there's a fundamental difference between the higher education system of the
United States vs. that of a large part of the world.

You COULD claim that professors in other countries are being paid ridiculously
low wages, but this sounds far fetched. A much more convincing explanation, in
my opinion, would involve the difference in the way the economy of higher
education works in the US versus other parts of the world.

------
neutronicus
Where I went to school, there was an "international programs in engineering
office," a "minorities in engineering program office," a "engineering student
entrepreneurship office", and many more that I can't remember, presumably
duplicated on the liberal arts side, all populated by people earning salaries
from the University.

It seems like there are a lot of people earning livings off of the University
system who aren't educators or researchers. Maybe there's been a lot of growth
in this sort of thing since the cheap-college days of yore?

~~~
_delirium
The high-level administration has multiplied also, in addition to the more
peripheral administrative initiatives growing. Where there might have once
been a Chancellor and perhaps a Vice Chancellor, there's now a whole Office of
the Chancellor, a slew of Vice-Chancellors and Executive Vice Chancellors and
Provosts and Deans and Associate Deans, all with staff, etc. Their pay has
also increased, even relative to other university pay; the salary multiple of
top-level administrators relative to a median professor in 2010 versus 1960 is
much larger.

It seems to largely be a result of the professionalization of the
administration; in ye olden days universities were largely self-run by the
faculty, with Deans and Vice-Deans just being professors who moved up into
that position, sometimes rotating in temporarily. Now there's a whole category
of professional career administrators who jump school-to-school, roughly
parallel to the executive-management class in private-sector organizations
(and they expect salaries in the $200k-$600k range).

------
larsberg
I wonder what role the diminished state of funding has had on increased
college costs. In the 90s, the money from DARPA/ONR and even NSF flowed quite
readily into schools, which take 50-55% of that as "overhead" costs. Now,
military research funding is more commercially targeted, and the combination
of competition and shrinking funding for the NSF has turned it into a dogfight
over scraps (at least so it seems in CS).

------
mcgillroy
how I love socialist europe: free world class college in germany and france,
in holland and danmark, in austria and switzerland. that and world class
health care for free too.

yes taxes are high, insanely high by american standards - but in the end it
more than evens out. plus life is less stressful.

~~~
brudgers
From what I understand about the German education system , significant
features of US education are missing [I cannot speak to the others] -
primarily a pursuit of universal access to higher education and the
opportunity for second, third, and fourth chances at a college degree.

To put access in perspective, University of Phoenix has 400,000 students - the
entire German higher education system issues about the same number of _Abitur_
each year. In the US more than half the population [55%] has some college
compared to 22% of the German population with post-secondary education. The
percentage of the US population with Masters and PHD is almost as large
[10.5%] as the percentage of German population with any type of University
degree [13.6%].

[http://en.wikipedia.org/wiki/Educational_attainment_in_the_U...](http://en.wikipedia.org/wiki/Educational_attainment_in_the_United_States)

[http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/In...](http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/Content/Statistics/BildungForschungKultur/Bildungsstand/Tabellen/Content100/Bildungsabschluss,templateId=renderPrint.psml)

<http://en.wikipedia.org/wiki/Abitur>

~~~
ceejayoz
Is it possible that German businesses do the smart thing and don't require a
bachelor's degree for basic data entry and other similar tasks?

I have a hard time believing 55% of the jobs in the US require a college
education to perform.

~~~
brudgers
Some people believe education has intrinsic value.

~~~
yummyfajitas
Some people believe an XBox has intrinsic value.

And much like the people who believe education has intrinsic value, they
should pay for it themselves.

~~~
brudgers
In the US, most people pay for education with private money.

------
reader5000
College is how the older generation exploits the younger generation, in
addition to ss and medicare. The demand for work is inelastic (and purchasing
a college degree is roughly purchasing a necessary license to work), there is
no competitive market in colleges (colleges do not compete for students on
price), and basically there is no way the system could NOT financially destroy
the upcoming generation. The bastion of hope is that as old people die off and
young people take political power, student indebtedness will be erased.

~~~
watchandwait
This pattern is more common than you realize. Anytime the government
introduces a subsidy, from farm bills to mortgage deductions to limits on the
number of doctors, it hugely benefits those with an existing stake in that
market. The value of the subsidy is quickly capitalized into the market--
farmland prices escalate with the subsidies, for example. As a result, new
entrants get none of the benefit of the subsidy, but instead get to pay
higher, distorted prices to enter the market to provide or buy that good or
service. Government subsidies not only cheat the public at large, but even in
a specific industry they reward the current stakeholders and punish the next
generation of stakeholders.

------
btipling
The article links to this other article which I find to be a better summary of
the book and answer to the question:

<http://www.insidehighered.com/views/2010/10/19/feldman>

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timdellinger
A year in college (tuition + room and board) is still cheaper than a year in
prison (tuition + room and board).

Both have price pressures that are similar in some respects, including both
state-funded and for-profit versions.

Both systems have mediocre performance at their primary missions
(rehabilitation, education). There are significant start-up costs in both
systems that make starting a new facility difficult.

Decisions are made by leadership in both systems to optimize for things other
than customer benefit.

------
nhangen
On top of this, I'm amazed at the differences in cost between state and out of
state tuition. Is this because of state funding, or is it because it's another
income stream for colleges and universities?

~~~
brudgers
Traditionally, the former. More frequently the latter as state universities
increasingly strive to attract out of state students as a way to offset price
controls set by state legislatures.

------
cletus
Inevitably the comparison will be made to those countries that provide free
higher education as being superior. I strongly disagree, for several reasons:

1\. Anything that's free but is limited gets abused. You need look no further
than the NHS in the UK were most GPs are employees of the NHS. Office hours of
9-4 (ie no incentive to provide a better service) are typical, the system
clogged up with people who either don't need to see a doctor or, in the case
with many old age pensioners, they simply go to the doctor for someone to talk
to.

2\. I would love to see some study in this but it is my belief that reducing
the cost of higher education increases the earning potential of college
graduates. When I went to university (in Australia) it certainly seemed to be
the case that the earning potential difference between graduates and non-
graduates wasn't anywhere as near as the difference in the US;

3\. Free systems create extra demand from people who don't really want to be
there and are simply going for the lifestyle, which may in turn keep others
who really want to go out;

4\. Governments may pay per college student but those funds aren't distributed
equally. When I went almost nothing was spent on first-year students. Most of
that money was diverted to research activities, which brings into question the
quality of education the government was paying for;

5\. If you accept the premise that paid college leads to higher earning
potential, countries that have free higher education will lose people to those
countries where you pay as the labour mobility is high and only getting
higher. I believe this at least in part explains the brain drain from Eastern
Europe to the US in the 90s; and

6\. Demand will be increased by other countries. In Germany, for example, you
have a lot of Brazilians who go there for free university, typically going
there for 6-12 months prior to learn German.

One of the reasons that college costs so much is probably the same reason
health care (in the US) costs so much: it's a protected market of sorts. In
the US, IP laws mean drugs in Canada and elsewhere cost a fraction of what
they do in the US (and most of the cost basis for drugs in the US goes on
marketing not research).

If you want to be a doctor (of cours) you need to go to college. But what
about a computer programmer? Many of the best companies will require a college
degree. A computer science education is obviously useful but not a
prerequisite to learning to program. Most programmers I know learnt to program
before or outside college.

So what you have a captive market.

It would be reasonable to assume that competition between colleges would sort
this out but that doesn't seem to be the case. Sure there is competition for
students and teaching/research talent but that's not the same thing. For
example, a friend of mine believes (rightly or wrongly) she'll probably never
get a great teaching job because her PhD (in history) isn't from a top school
like Harvard or Princeton (IIRC).

So you can choose to make a purely economic decision and go to a cheaper
school but the cheaper and more expensive schools aren't necessarily
equivalent, either in fact or in perception (which can be far more important).

I suspect this won't change until something disrupts the higher education
system itself.

~~~
psykotic
Your conclusions are poorly supported by the evidence and reasoning you
proffer.

> 1\. Anything that's free but is limited gets abused.

Free does not mean unrestricted. Degrees in law and medicine are highly sought
in Denmark, and the universities raise the academic requirements for initial
entry and continued study accordingly.

> 2\. I would love to see some study in this but it is my belief that reducing
> the cost of higher education increases the earning potential of college
> graduates. When I went to university (in Australia) it certainly seemed to
> be the case that the earning potential difference between graduates and non-
> graduates wasn't anywhere as near as the difference in the US

Supposing there is a correlation, what is its relative significance? For
example, Danish doctors are paid less than most of their US counterparts. But
that is due to uniform salary standards in the public healthcare system.

> 3\. Free systems create extra demand from people who don't really want to be
> there and are simply going for the lifestyle, which may in turn keep others
> who really want to go out

How so? If the academic standards are raised to compensate for higher demand,
only the most talented and willful be able to complete their studies. On the
contrary, in an educational system where money is often the gating factor, you
lose talented people who cannot afford tuition.

> 4\. Governments may pay per college student but those funds aren't
> distributed equally. When I went almost nothing was spent on first-year
> students. Most of that money was diverted to research activities, which
> brings into question the quality of education the government was paying for;

Professors are contractually obligated to spend a large percentage of their
time on teaching. As a consequence, assuming you don't teach empty classrooms,
the total teaching load across a faculty scales roughly with the number of
students.

The first-year classes are cheaper to teach per student because classes are
larger. But if you break everyone into groups of 15-20 people with their own
TA (another professor or graduate student), the quality of the teaching
doesn't suffer. In fact, the best teachers usually teach the first-year
classes.

I don't see a difference here compared to US universities.

In Denmark there's no such thing as a research-only professorship supported by
per-student government contributions, and equipment expenses and research
assistant salaries are only covered at a very low level or not at all. My
cousin is a biomedical researcher at the University of Aarhus, and his group
spends an inordinate amount of time on applying for research grants to cover
such expenses. That part is not very different from the US.

> 6\. Demand will be increased by other countries. In Germany, for example,
> you have a lot of Brazilians who go there for free university, typically
> going there for 6-12 months prior to learn German.

That's a real and present problem but it can mitigated by stricter quotas.
From talking to academics at Danish universities, my sense is that many Ph. D.
programs are being overrun by Chinese students who are studious but not very
talented. For various reasons, that hasn't happened at the undergraduate
level.

------
tastybites
College costs a lot for the same reason that houses do: you can either be rich
and buy in cash, or leverage up and amortize a huge payment into relatively
small monthly payments, making it seem affordable.

Once purchasers start leveraging to purchase a good or service, price
elasticity goes way up. Not to mention both are part of the classical
'American dream'.

