College Tuition, the Free Market, and Government

[thegreekdog]

In the United States, a student can get favorable loans subsidized (guaranteed?) by the federal government to pay for attending college. Effectively, the federal government is subsidizing college education. That sounds great.

On the other hand, college tuition has increased substantially without a corresponding increase in quality or quantity. Some would say colleges, by and large, have decreased quality. And the government is subsidizing college (rather than college education).

So are colleges charging too much? If so, should the government stop subsidizing colleges? Let's discuss.

And I saw this today:

Student: Good morning Mr. Vice President. I was wondering how do you feel about the idea that government subsidies and interference with the free market, for example, by artificially increasing availability of student loans is at least partially responsible for rising tuition costs. And now we're facing a possible student loan bubble and subsequent collapse just as we're coming out of the housing crisis.

Vice President Joe Biden: Well, say the first part of your question again about how we're artificially creating what?

Student: By manipulating variables in the free market and giving out government subsidies that maybe is partially responsible for rising tuition costs.

Biden: By the way, government subsidies have impacted upon rising tuition costs. It's a conundrum here. But if we went the rate your view of the free market route what we would have done is we would have not of done that. We would not have increased pell grants, for example. And there would be 9 million fewer students in college today.

And there would be hundreds of thousands and millions of students who would not be in college who don't get Pell grants because there was no ability for them to borrow money through Perkins loans and/or have the tax deduction.

So you are right, in a pure free-market the college tuition would have to be lower because there would be fewer people going to school, they wouldn't have as much coming in. But the end result is we would probably have -- we go for the better part, half a generation, of going 16th in the world maybe down to 20th in the world.

[maasman]

Being a student myself I appreciate quite a bit since I probably wouldn't be able to go to college without it, plus the fact my dad is making himself about as poor as can be so we get more governmental help.

[thegreekdog]

Being a student myself I appreciate quite a bit since I probably wouldn't be able to go to college without it, plus the fact my dad is making himself about as poor as can be so we get more governmental help.

Are you receiving loans? If so, do you have to pay them back?

[maasman]

Being a student myself I appreciate quite a bit since I probably wouldn't be able to go to college without it, plus the fact my dad is making himself about as poor as can be so we get more governmental help.

Are you receiving loans? If so, do you have to pay them back?

Yes, which should come out to about $40k in the end, though I believe close to half is subsidized.

[thegreekdog]

Being a student myself I appreciate quite a bit since I probably wouldn't be able to go to college without it, plus the fact my dad is making himself about as poor as can be so we get more governmental help.

Are you receiving loans? If so, do you have to pay them back?

Yes, which should come out to about $40k in the end, though I believe close to half is subsidized.

So your college tuition costs approximately $80,000 for four years of which $40,000 (not including interest) will be paid for by you directly and $40,000 (not including interest) will be paid for by the government (through tax dollars or borrowing). What would your college tuition be if the government didn't pay the $40,000? I don't mean that in a "what if you had to pay 80 grand yourself." I mean that in a "what if your college tuition was only $40,000?" Would your education be any less valuable?

To put it another way, a year of college at the institution I attended back in the late 90s costs $20,000 (or more) more now than what I paid. Why did it increase so much? I think it increased because students will still go there despite the increased tuition. Why will students still go there even thought it costs appreciably more after 10 years? Because it's better than it was 10 years ago? Or because the government will pay for the difference? Does the college need the money to improve education?

[john9blue]

this might be relevant:

http://www.youtube.com/watch?v=VpZtX32sKVE

although i'm not sure how much of it is true.

QUESTION BROS: i have to seek out third party student loans by myself this semester, where should i start? anyone have good/bad experiences with private loaners?

[thegreekdog]

this might be relevant:

http://www.youtube.com/watch?v=VpZtX32sKVE

although i'm not sure how much of it is true.

QUESTION BROS: i have to seek out third party student loans by myself this semester, where should i start? anyone have good/bad experiences with private loaners?

BAD experience for me; much higher interest rate than federally subsidized loans (but that's really the only bad part).

[maasman]

Being a student myself I appreciate quite a bit since I probably wouldn't be able to go to college without it, plus the fact my dad is making himself about as poor as can be so we get more governmental help.

Are you receiving loans? If so, do you have to pay them back?

Yes, which should come out to about $40k in the end, though I believe close to half is subsidized.

So your college tuition costs approximately $80,000 for four years of which $40,000 (not including interest) will be paid for by you directly and $40,000 (not including interest) will be paid for by the government (through tax dollars or borrowing). What would your college tuition be if the government didn't pay the $40,000? I don't mean that in a "what if you had to pay 80 grand yourself." I mean that in a "what if your college tuition was only $40,000?" Would your education be any less valuable?

To put it another way, a year of college at the institution I attended back in the late 90s costs $20,000 (or more) more now than what I paid. Why did it increase so much? I think it increased because students will still go there despite the increased tuition. Why will students still go there even thought it costs appreciably more after 10 years? Because it's better than it was 10 years ago? Or because the government will pay for the difference? Does the college need the money to improve education?

I meant that half of my loans are subsidized. The annual tuition here is $40k counting room/food.

If I had zero help from the government, I think we would have to pay close to $20k a year I think, easily. If that happened I would be going to a different school and/or trying for more scholarships.
I think the problem is twofold:

1) Colleges are abusing the help the government is willing to give
2) People are abusing the help they can get to make up for the abuse the college is doing

In essence, they both push each other to higher prices.

[thegreekdog]

I also think that is the answer.

If I step back from the anarhco-capitalist ledge, I do think the federal government should help with student loans (at least for public institutions). However, I think the colleges and universities are taking advantage.

[Nola_Lifer]

I also think that is the answer.

If I step back from the anarhco-capitalist ledge, I do think the federal government should help with student loans (at least for public institutions). However, I think the colleges and universities are taking advantage.

Well, by the Federal Govt increasing the amount of people who can get loans would increase demand. An increase in demand would mean an increase in prices. I think the backlash to this is more students are enrolling into Community Colleges, which are cheaper. Some students enroll into CC to increase their chances of getting a scholarship to a "better" University or to increase the amount of the scholarship.

[thegreekdog]

I also think that is the answer.

If I step back from the anarhco-capitalist ledge, I do think the federal government should help with student loans (at least for public institutions). However, I think the colleges and universities are taking advantage.

Well, by the Federal Govt increasing the amount of people who can get loans would increase demand. An increase in demand would mean an increase in prices. I think the backlash to this is more students are enrolling into Community Colleges, which are cheaper. Some students enroll into CC to increase their chances of getting a scholarship to a "better" University or to increase the amount of the scholarship.

I don't necessarily disagree. I wonder if there is a price that's too high for college. Some colleges get hundreds of thousand of applications for 10,000 or less spots.

[Lootifer]

Another point to add to your argument (even though im on the other side lol) is how many people are being artificially incentivised to go to collage when they otherwise would take potentially much more pareto efficient career/development paths..?

I think the core problem is with the incentivisation of only one type of career/development path. Are there similar efforts put into incentivising trade skill tuition (ie apprentiships)? What about on the job training for things like teacher/healthcare aids...?

When you inflate the demand in only one area of course the price is going to go up.

[thegreekdog]

I agree with that too Lootifer.

[Lootifer]

If you had similar incentvistion for substitutes you would cancel out the inefficiency caused by the orginal incentives. And since I feel that education should be something that everyone has equal opportunity to obtain, I would suggest this is the better option (rather than relying on the free market plus some Friedman kind of concession/ticket approach).

[thegreekdog]

If you had similar incentvistion for substitutes you would cancel out the inefficiency caused by the orginal incentives. And since I feel that education should be something that everyone has equal opportunity to obtain, I would suggest this is the better option (rather than relying on the free market plus some Friedman kind of concession/ticket approach).

I guess it depends on what the "incentive" is for attending college (as seen by young people or their parents). Ostensibly, the reason to attend college in the minds of young people or their parents is that the young person is more likely to get a better (read higher paying job) going to college than not.

So, my questions are:

(1) Does money matter as much as being happy?
(2) When you have to pay off college loans, does money matter all that much anyway?
(3) Related to #2, if college tuition prices continue to increase, will your post-college job provide enough money to pay off student loans? I'm waiting for this to start getting more air time from the press. "College student gets $35,000 a year job and can't pay off monthly loans."

[Woodruff]

In the United States, a student can get favorable loans subsidized (guaranteed?) by the federal government to pay for attending college. Effectively, the federal government is subsidizing college education. That sounds great.

On the other hand, college tuition has increased substantially without a corresponding increase in quality or quantity. Some would say colleges, by and large, have decreased quality. And the government is subsidizing college (rather than college education).

So are colleges charging too much? If so, should the government stop subsidizing colleges? Let's discuss.

There is no question at all in my mind that colleges have noted the increase in college loan guarantees and raised their rates accordingly.

Does that mean I think that guaranteed college loans are bad? No, I don't. But I definitely think something needs to be done to correct that aspect.

[thegreekdog]

In the United States, a student can get favorable loans subsidized (guaranteed?) by the federal government to pay for attending college. Effectively, the federal government is subsidizing college education. That sounds great.

On the other hand, college tuition has increased substantially without a corresponding increase in quality or quantity. Some would say colleges, by and large, have decreased quality. And the government is subsidizing college (rather than college education).

So are colleges charging too much? If so, should the government stop subsidizing colleges? Let's discuss.

There is no question at all in my mind that colleges have noted the increase in college loan guarantees and raised their rates accordingly.

Does that mean I think that guaranteed college loans are bad? No, I don't. But I definitely think something needs to be done to correct that aspect.

Yeah, don't get me wrong, I think government subsidies for college are find (if I take off my anarcho-capitalist cap). I just have a feeling this is going to bite us in the ass someday (although I'm sure someone will come by and point out that we spend five thousand times more on the military).

[Woodruff]

this might be relevant:

http://www.youtube.com/watch?v=VpZtX32sKVE

although i'm not sure how much of it is true.

QUESTION BROS: i have to seek out third party student loans by myself this semester, where should i start? anyone have good/bad experiences with private loaners?

Scour the scholarships and grants first. Seriously...there is SO MUCH grant money that goes unclaimed every year it's incredible.

[Woodruff]

Another point to add to your argument (even though im on the other side lol) is how many people are being artificially incentivised to go to collage when they otherwise would take potentially much more pareto efficient career/development paths..?

I think the core problem is with the incentivisation of only one type of career/development path. Are there similar efforts put into incentivising trade skill tuition (ie apprentiships)? What about on the job training for things like teacher/healthcare aids...?

When you inflate the demand in only one area of course the price is going to go up.

EVERYONE (and I mean EVERYONE) in high school these days are really pushed to go to college. Sure, trade schools and the like are still an option, but even here in deeply blue-collar Nebraska, they're not looked at as a first option by almost any authority figure. It's always "college first" unless the kid themselves is just dead-set on being an electrician or mechanic or some-such. So yes, much more could be done to promote the other paths that are just as viable career paths (if not moreso).

[Symmetry]

One aspect that you might be missing TGD is that you're largely talking about undergraduate courses, rather than postgraduate work and academic research.

A lot of the money that universities receive from undergraduates gets put back into education for postgraduate students. The US University system is very very good for research precisely because of this.

The other aspect, which is often ignored, is that an American student could get an equally good degree, and often a better one, abroad for significantly less. International competition tends to be left out of these things, even when they look better on your resume and give significantly less debt. Same thing for UK students.

[Night Strike]

(3) Related to #2, if college tuition prices continue to increase, will your post-college job provide enough money to pay off student loans? I'm waiting for this to start getting more air time from the press. "College student gets $35,000 a year job and can't pay off monthly loans."

That sounds eerily familiar.

[thegreekdog]

One aspect that you might be missing TGD is that you're largely talking about undergraduate courses, rather than postgraduate work and academic research.

A lot of the money that universities receive from undergraduates gets put back into education for postgraduate students. The US University system is very very good for research precisely because of this.

The other aspect, which is often ignored, is that an American student could get an equally good degree, and often a better one, abroad for significantly less. International competition tends to be left out of these things, even when they look better on your resume and give significantly less debt. Same thing for UK students.

I did not think about how the colleges use the funds, that is true. I am not familiar with postgraduate work (other than law school, which is another beast entirely).

International degrees come with other costs however (and not just financial... you're away from home for an extended period of time and most people are still relatively provincial in nature).

[BigBallinStalin]

There's several forces working on the price of tuition, but it should be noted that aggregating tuitions and universities comes with the assumption that all tuitions and universities are homogenous (which of course isn't true; it's just simpler to work with).


Anyway, what's affecting the price of tuition?

1) government-induced inflation, which prevented deflation, thus preventing an increase in the value of US dollars.

2) increased demand
---(a) from the government-subsidized interest rates on loans
---------this reduces the real price of tuition for many demanders. For example, some portion of people who would've considered working now, saving money, then going to college can go to college now.

---(b) from decreased opportunity costs--e.g. job opportunities in the economy look less valuable than staying in school for a Masters).

3) After discovering that the government will be providing subsidized loans, the universities expect the demand for their services to increase. They'll perceive that they can raise their prices without incurring a significant loss in tuition payments, and so far so good. (another "good intentions not leading to good outcomes" story).

4) Federal government has been decreasing spending on post-grad. and undergrad. education since 2002. Without these sources of income, some universities will simply increase their prices.

[BigBallinStalin]

this might be relevant:

http://www.youtube.com/watch?v=VpZtX32sKVE

although i'm not sure how much of it is true.

QUESTION BROS: i have to seek out third party student loans by myself this semester, where should i start? anyone have good/bad experiences with private loaners?

I hope you enjoy loans with 10% interest rates!

[Symmetry]

One aspect that you might be missing TGD is that you're largely talking about undergraduate courses, rather than postgraduate work and academic research.

A lot of the money that universities receive from undergraduates gets put back into education for postgraduate students. The US University system is very very good for research precisely because of this.

The other aspect, which is often ignored, is that an American student could get an equally good degree, and often a better one, abroad for significantly less. International competition tends to be left out of these things, even when they look better on your resume and give significantly less debt. Same thing for UK students.

I did not think about how the colleges use the funds, that is true. I am not familiar with postgraduate work (other than law school, which is another beast entirely).

International degrees come with other costs however (and not just financial... you're away from home for an extended period of time and most people are still relatively provincial in nature).

That's true, but German universities, for example, cost virtually nothing, and most non-humanities subjects use English as standard. Many humanities subjects do too.

Sample Link

I appreciate the cost of moving abroad, and the barrier it holds. I lived and worked in Japan for three years without returning to the UK. It's tough, but an experience I'd recommend to anyone. Plus, if you're not tens of thousands of dollars in debt each year a couple of flights home aren't so big an obstacle.

I genuinely wish more students would consider their options abroad.