Saturday, February 19, 2011

Why College Is Expensive

A comment I posted on "Why does college cost so much?" by Tyler Cowen:
Colleges and universities do lower their costs of teaching. They use low cost adjuncts, grad students and post docs. They increase class sizes, use large lecture halls and eliminate courses with low enrollments. Schools look for ways to save on heating, cooling and other and energy costs. There is no shortage of competition for students at US colleges as at each beginning term there are many unfilled seats at many of the colleges and universities in the US. A greater part of tuition has gone to non-teaching parts of universities, e.g. administrative, fund raising, sports, buildings, dorms, stadiums, and other physical structures, etc.

Obviously many schools have pricing power and can and have raised their prices without seeing ill effects in applications.

It has been like this for decades.

A more logical reason for pricing power at private universities is the existence of state schools.

State colleges took away from private colleges, the most price sensitive element of college students and parents, lower income and middle class students. Private universities became a luxury good and a sign of affordability for the rich. While private colleges these days do provide financial aid, most colleges do so for only about half or less of their students for less than half the tuition and room and board costs.

Without state colleges there would have been greater pricing and political pressure on private colleges to make schools affordable for the middle and lower income group. Colleges would have be more frugal with their spending to keep costs and financial aid low so more middle class and lower incomes students could attend.

Basically, state colleges allowed private colleges to become luxury goods for price insensitive consumers, which allowed private schools to raise prices without much concern.

2 comments :

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  2. Private universities are generally more expensive but it may also be a good idea to look at net tuition costs versus the published ones. Tuition costs in general can be decreased significantly via grants and scholarships.

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