Most believe it is unbridled capitalism that has led to the massive increases in tuition, which is why Obama’s tax credit is so necessary, otherwise only the children of wealthy parents would be able gain a higher education. This couldn’t be further from the truth; there are two things that drive up the cost of tuition: Demand for better living standards and government intervention.
The first of the two is obvious, ask any person who went to college in the seventies or eighties what their dining hall was like and they will likely describe something along the line of a high school cafeteria with slightly better food. But take the University of North Carolina, Chapel Hill for an example of what today’s modern dining halls are like at college campuses, not only do students at UNC-Chapel Hill have multiple places to dine, they have such things as Mediterranean food, an American grill, the Lean & Green-for the vegetarians, the Dinner Grill, and a Subway.
It’s not just the dinning that has gotten better; it’s other things such as the dorm rooms. Many college dorm rooms (granted, not all) now have air conditioning which many students of the seventies and eighties would have killed for. The gyms are far more state of the art than anything students from decades ago got to handle as well and there is far more staff on the payroll for such things as crisis counseling or increased professors to keep the class sizes smaller. These are things that were never around in the early eighties when tuition was a fraction of the cost it is today. But those things all cost money and the colleges and Universities would certainly go out of business if they didn’t raise tuition prices to pay for those costs.
Now the second of the two causes in rising tuition prices is a bit harder to swallow. A few months ago I was chastised by an audience of my peers when I stood before them and declared the federal government should permanently suspend all aid to undergrad and graduate students. One person yelled above them all before I could even explain myself that she would have never been able to go to college had it not been for federal aid and that I was only seeking to spread the gap between the rich and the poor. At first I began to doubt my own words because not a single person in the room of about thirty was content just sitting in their seat silently. Everyone wanted a piece of me. But after they calmed down I proceeded to explain how government intervention has played a key role in keeping tuition rates high.
Suppose that before the next academic year the Federal government did indeed permanently and indefinitely suspend aid to undergrad and graduate students. What would happen next? Tuition would likely stay the same, it may even go up slightly, but what will happen to enrollment? Students like the girl who stood up and berated me wouldn’t go to college. Hundreds of thousands of high school graduates simply would not go to college that next year because they couldn’t afford it. So how are the Colleges and Universities supposed to pay for their new fancy gyms, fine dining, and air conditioned dorms on top of all the other basic costs that go into running an institution? They can’t if their prices no longer fit the market demand.
The government has been propping up tuition rates through no fault but their own. One thing that sticks out when you draw your own graph of tuition rates over the past thirty years with federal spending on aid for higher education included is that when tuition goes up, so does the government spending on aid. The Universities have begun to realize that no matter how high they raise tuition the government will always be there to insure the less affluent can afford the education they deserve so the institutions continue to raise their tuition to fund more gym equipment, bigger football stadiums, better food, prettier dorms etc etc. But if the government refrains from giving aid the colleges lose their bargaining abilities. The colleges can no longer raise their tuitions because they will end up with not enough students to fund the university. The fact of the matter is 47% of students are currently making it through college on federal aid so that means the next incoming class would probably have 47% less students than average which means the university would make about 47% less revenue on the incoming class than they typically would be used to. The Universities cannot operate under such low revenue so they’ll have to meet market demands and in order to do so they will be forced to either lower their tuition dramatically or go out of business. And since they are greedy capitalists who would prefer to continue making money rather than filing for chapter 9, they will lower their tuition rates and be met by an onslaught of young students of all income brackets who are ready to learn.
What should be most evident to people is that tuition rates are rising, not due to capitalism, but because of government intervention building what I can no longer deny, a tuition bubble. Prices can't rise the way they are without braking the law of Supply & Demand, and that can only happen through the government because the government, aside from the Federal Reserve, is the only thing that can directly influence the markets to build bubbles. If you will recall how the housing bubble came about, you'll remember that prior to the housing bubble's collapse, the rate of home-ownership was on the rise. Home-ownership essentially equals Supply. So if Supply is on the rise, Demand will fall which means price of home-ownership will fall as well. But as everyone from the Austrian School of thought knows, the price of home-ownership didn't fall. In fact, it continued to climb. The only way the price of housing can defy the natural market laws of Supply and Demand is through intervention in the market. Hence, the bubble grew and burst and landed us right where we are today. Where I draw my conclusion that there's a tuition bubble is through the similarities I see between the housing bubble and college tuition rates. There's no doubt the government is meddling in the market of higher education, Federal Aid rose by 72% from 2008-2009 for God's sake. And there's also no doubt that college tuition is on the rise. Both of those two statements are undeniable. But nonetheless, college attendance is on the rise. An Increase in students essentially equals an increase in Supply. So if Supply of students is on the rise, Demand should fall which means prices should fall as well. But as you and I know, the price of a college tuition isn't falling. Should we be worried? Yes, all bubbles burst. A bursting bubble is extremely natural when government tries to avoid the natural market, which it is currently doing by unintentionally raising the prices of tuition. As the tuition rates continue to rise, which I assure you they will, the government will also increase its aid. This will inevitably lead to the bust through one of two ways: either the government realizes it can't afford to keep boosting aid and freezes it rate of increase, or students in the upper class stop going to college. The first of the two is very likely, government will at some point be unable to sustain the amount of aid it gives to students and will either freeze its rate of increase in aid or maybe even cut aid (when was the last time government ever cut anything though?). If this is the route we take, then we go back to the scenario I described earlier where students will stop going to college because they will not be able to afford it without government help so prices come crashing down to market levels otherwise the colleges go out of business. The second of the two routes that leads to the inevitable tuition bubble burst is what will happen if government does not stop raising aid, and that is the upper class students will be unable to go to college or their parents will be less inclined to pay for the tuition. If government continues to stay involved in the higher education market than prices are only going to continue to rise. This is where we have to take into account exactly who is getting the federal aid for college tuition. It's generally upper-middle class down to the lower class students who are getting aid. The upper class students are left out, and for good reason, their parents have no problem paying. But if government continues to inflate the cost of tuition than eventually the wealthy parents are going to say enough is enough and have their children join the workforce out of high school instead. I went to school with plenty of rich kids who had careers lined up before they even set foot on a college campus. They're well connected and have no problem skipping the collegiate years. In fact, they'll probably end up better off because they'll get four-years of real world work experience before a college student ever graduates. But to get back on topic, the wealthy families not only pay their kids way through college without federal aid, but they also contribute a massive amount to their child's college and when that child graduates and gets rich they'll donate money as well. If the government inflates the tuition rate too high, the rich will leave the college campuses and revenue will drop severely for colleges, causing the bubble to burst. There's no way to avoid a bubble being burst once it has started growing, but the longer it has time to grow, the harder the bust. If you don't believe me, look at what the housing bubble did to us after just eight years of government manufacturing. CITATIONS: "Student Loan Market Created a Tuition Bubble Rivaling the Housing Bubble. When Banks and Government Subsidize Markets the Average American Gets an Education in Debt Serfdom. For Profit Schools Dominate the Pell Grant Market." Finance My Money. Web. 19 Aug. 2011.
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