The TL;DR of this essay might perhaps be:
- College degrees are more valuable than ever in post-industrial economies, so applicants to top-tier schools are up 240% over the last 25 years
- Meanwhile, available spots at top-tier colleges in America have increased just 2% over the last 25 years (Thanks to Tyler Cowen & others for complaining about this publicly)
- Microeconomics 101: Fixed Supply + Increased Demand = Increased Price
- That’s the obvious part
- The non-obvious part is that this is intentional...
- ...because the Charity-status ( 501(c)(3) ) of Colleges in America depends on more-than-half of their students being unable to afford the education (read: “receiving financial aid”)
- That Charity-status protects the Investment Returns of College Endowments from Uncle Sam & the IRS
- Investment Returns Compound over time, and there is no more powerful force on Earth — anyone not playing the game to maximize Compound-returns will lose to everyone who is
- Thus: if Colleges want to keep their Investment Returns tax-free, Tuition MUST remain unaffordable for at least 50% of undergrads
I wasn't aware of this at all. Do you have a source? Non-profits don't generally need to give away their money.
I tried to touch on this idea in the “Case for Charity: A Charity Case” section, but my approach is to view it idealistically / as things should or might be.
And in a hypothetical world where Colleges charge double-digit fractions of a family’s net worth, while generating as much investment profit as our best companies and hedge funds, but where 0% of students received any “aid”......
.....and the institution was still allowed to remain a non-profit and have returns tax-sheltered....
....I can’t imagine that such a state of affairs would be allowed to continue.
Which organizations are allowed to be considered 501(c)(3) and on what basis and what privileges that affords them is a matter that is hypothetically at the prerogative of Congress.
I know trust in Congress/the political process is pretty damn low these days.
But my point with the “best play it safe” comment was basically...if I were colleges, I wouldn’t roll the dice.
I doubt that's changed much. The "sticker price" for elite colleges has always been too high for most families to afford, but most students' families don't pay that price.
If you want to prove that maintaining charity status is a cause of tuition increases, you'll have to try harder.
Room and Board is a major driver of the increased cost of colleges.
Do you see a problem with universities increasing the quality of student housing, sports programs like football, and college administration, and that this desire to spend more to get more students to pay more tuition dollars is an undesirable feedback loop that perpetually increases tuition costs over time?
Can we all agree that this is an awful idea societally and for the individuals involved? If you couldn't get credit to go, it's because the market is sending a signal that it's a really bad idea to go. Yeah, it sucks if your dream is to do [insert unmarketable degree here] and there are few jobs for people who do that and the training costs just as much as an engineering degree. The idea that "society" should subsidize that is narcissistic at best.
And one of the major reasons for that is that we continue to produce an oversupply of liberal arts graduates, who then get stuck in food service rather than actually working as a teacher or psychologist, while their existence suppresses wages for anyone who can actually find work in those occupations because the employers can choose the lowest bidder from a desperate population of qualified applicants.
It's like saying corn farmers are having a hard time, so let's subsidize the production of corn. Well, then there's too much corn, and what does that do to the price of corn?
This is a loaded question based on a faulty assumption. A societal shortage of people in these professions would cause their compensation to increase accordingly, incentivizing more people to enter them until an equilibrium is reached. This is basic supply and demand. Also...
> So it's individually quite stupid to major in anything _other_ than engineering, business or premed.
This is based on the faulty premise that everyone has the same skill set and can succeed at engineering, etc. as opposed to other fields where they may have a comparative advantage.
This is similar to any other area, really.
Wouldn't it make sense to bring college education back to its original purpose?
Even "public" school salaries are determined by the market.
Second, to exaggerate just a wee bit, engineers need big expensive labs and modern computers, whereas French literature majors only need a supply of French literature.
This would still be true even if college cost 10x less than it does now. Very few 18-22 year old full time students can afford any level of tuition.