Making College Affordable

Patricia Murphy from The Daily Beast has an article out (a few days ago) that builds on a theme I tried to emphasize in my post about the (flawed) article from the Wall Street Journal that criticized current federal student loan policies for being too generous. The Daily Beast article makes it very clear that the driving force behind the increasing cost of college in America is spending by the colleges themselves, and that this spending is rather impervious to spending constraints on the part of the students themselves:

“We are paying through the nose for prestige,” Goldrick-Rab said. “And colleges are finding that the more you charge, the more people want it and are willing to pay for it.”

Prestige on college campuses comes in many packages. In some cases, it’s Division I sports teams, the majority of which are subsidized by student fees and general school funds. In other cases prestige comes in the form of well-known tenured professors, some of whom Goldrick-Rab said may teach one class a year while part-time, low-salaried instructors pick up the extra teaching load…And not to be forgotten in the prestige arms race are the buildings and amenities, even at public institutions, that would give any country club a run for its money. Looking for a rec center with an acre of cardio and weight machines like the ones used at the Beijing Olympics? Then UMass Amherst could be the school for you. The aquatic enthusiast should head to the University of Cincinnati, whose rec center promises “850,000 gallons of fun,” with three indoor pools, a vortex, a bubble couch (whatever that is), and a current channel for those “looking for an upstream workout…”

In this way, college degrees these days are emblematic of Veblen Goods, where an increase in price actually drives up demand for the degree, not the reverse. These peculiar market dynamics (that have probably been exacerbated by the lackluster labor market over the past 5 years) mean that the cost of financing a college degree has very little relationship to the over cost of college (which is driven by spending by the colleges themselves).

Rather than making student loans themselves more expensive, I think the US government would be better served by tying eligibility for student loan funding and eligibility for grants from states (in the case of public Universities) to some combination of effectiveness and spending restraint. That is, the US government should use its considerable market power in the realm of financing higher education to force Universities to directly restrain spending and/or improve educational outcomes, rather than making college harder to afford without offering any sort of incentive for colleges to cut spending.

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