Tuition inflation has risen at a faster rate than the cost of medical services, child care, and housing. Moreover, underlying costs at American colleges are the highest of any large country in the developed world.
A new paper by economist Beth Akers of the Manhattan Institute my former employer asks why college tuition is so high and still rising. The proximate causes of tuition inflation are familiar: administrative bloat , overbuilding of campus amenities , a model dependent on high-wage labor , and the easy availability of subsidized student loans.
However, the deeper question is why the market has allowed these cost inefficiencies to persist. In most industries, competition brings down the cost of products over time. Akers explores four potential explanations: students overestimate the return to a degree; colleges are not transparent about their true prices; too few institutions operate in each regional market; and there are significant barriers to entry for new educational providers.
The decision to go to college is fundamentally a cost-benefit calculation. If the financial return to college is high enough, then students should theoretically be willing to pay high amounts for tuition, because they still come out ahead in the long run. But few students are sitting down with Excel spreadsheets to calculate the return to college; instead, they rely on impressions of how much a college degree will earn them in the long run. Yet only some degrees are worth paying top dollar.
Even if that is the case, a sufficiently competitive market for higher education should still bring down the price of college. Akers therefore identifies another problem: the true price of a college education is usually hidden. This makes comparison-shopping across a wide swath of institutions impossible. Application fees and time constrain the number of colleges each student can apply to, so the number of colleges among which a student can compare prices may be as little as one.
Knowing that students will have few alternatives by the time they actually see what they will pay, colleges have every incentive to be stingy with financial aid. For you. World globe An icon of the world globe, indicating different international options. Get the Insider App. Click here to learn more. A leading-edge research firm focused on digital transformation. Good Subscriber Account active since Shortcuts. Account icon An icon in the shape of a person's head and shoulders. It often indicates a user profile.
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