Why does college tuition continue to rise during economic hardship and high unemployment? Will tuition prices ever become affordable again? Costs associated with obtaining a college degree have gone out of control.
Why does college tuition continue to rise during economic hardship and high unemployment? Will tuition prices ever become affordable again?
The dramatic rise in college tuition might have you asking a lot of questions. Costs associated with obtaining a college degree have gone out of control. Surprisingly, the trend of increased college tuition hasn’t decreased during the worst economic downturn in recent history. With the unemployment rate currently standing at 10.20% tuition has still managed an increase of 6.50% in the fall of 2009. Worst of all, many of the reasons students have been given for rising tuition simply aren’t accurate.
In a free market college tuition prices are a product of supply and demand. Unfortunately, these free market forces aren’t allowed to play out because of government interference. All of the programs designed to help students pay for college have caused prices to skyrocket. Grants and guaranteed federal student loans are the main reasons for out of control tuition costs. That’s right, the very programs designed to help students are actually hurting our pocket books.
Guaranteed Student Loans
If students couldn’t borrow money through government guaranteed loan programs fewer students would have money for college. Private institutions would never loan this money out for fear of going broke from loans in default. When more students have access to guaranteed financing through government loan programs, demand for college placement increases. This results in a situation where students compete for a fixed amount of college positions with federal money.
Universities know this is taking place and can increase prices accordingly. They no longer have any incentive to control costs and reduce wasteful spending. Consequently, the gap between actual teaching faculty and administrators has shrunk. Along with the ever growing amount of Assistants, Directors, Deans and Heads comes supporting staff and office facilities. Throughout history the answer has always been increasing tuition prices, but never eliminating non-core expenses. This process starts a cycles of wasteful and unnecessary programs.
At public colleges, tuition has generally been driven up by rising spending on administrators, student support services, and the need to make up for reductions in government subsidies, according to a report issued by the Delta Cost Project, a nonprofit based in Washington, D.C. – Kim Clark
The chart above shows the ratio between average incomes and tuition at Stanford University at various points in history. The data shows a clear deterioration to just 1.53 in 2009. The average college student must work more than two thirds of a year (full time) to pay for just one year of tuition at Stanford. This is compared to just one-fifth of a year to pay for one year of tuition in 1960. With increased government sponsored loan programs and other entitlements no reason exists for this trend to change in the future. Adding to that Ben Bernanke and the Federal Reserve sponsored inflation and you have rapidly rising costs.
Anytime our government interferes with free market systems costs go up and quality goes down. This is caused by moral hazard through guarantees and decreased competition. Colleges know they can charge higher tuition prices because of guaranteed loans. At the same time a greater amount of students are pursuing higher education so colleges don’t compete for enrollment as much as they use to. Instead prospective students fight for acceptance at universities. This is a recipe for skyrocketing tuition costs and a massive burden of debt for young academic Americans. The average college student is $20,000 in debt by graduation. Worst yet, many acquire consumer debt through credit cards and mortgages soon after. This certainly doesn’t sound like a good start to achieving financial security.
Want to become a better trader? Click here to sign-up for a FREE trading e-course taught by a former floor trader!
[wordbay]gold bar[/wordbay]
Leave Your Response