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Some of each of the above.

In the absence of a "socialist" state, US colleges provide poorer students with a free/subsidized education by charging richer students more

True for a lot of places. Last I heard you could get Harvard for free if your parents make less than some reasonably large amount ($70K or so)

US faculty receive massively higher salaries.

True, especially compared to the UK. There is in general a lot more money floating around the US university system to make life easier. My officemate recently moved from a postdoc position here at Big-Name American University to a lectureship at Mid-Ranked UK University and was bitching about how he lectures two and a half courses per semester (as opposed to the usual one course in the US) and has to do ridiculous things like taking out his own garbage because the university won't pay for cleaners.

In a country where college education is commonly used as a mark of social status, they can charge a premium and people will still pay

Well if we're comparing to the UK, then the UK is if anything more concerned with the status conveyed by education. The British elite will judge you not only by your university but by your high school.

The main reason, in the end, is that the US is the only major country where the higher education system isn't primarily an arm of the government. Great private universities just don't exist in other countries. There are upsides and downsides to this -- the upside is that America has most of the best universities in the world (can you imagine if it didn't?) and the downside is that they can be pretty darn expensive.

"The British elite will judge you not only by your university but by your high school."

I've never seen people judging based on high school in the UK. Who, exactly, is doing this?

http://en.wikipedia.org/wiki/Eton_College#University_admissi...

There's a certain prestige attached to some very famous, expensive private schools (called public schools in England alone, never quite worked out why). The number of Eton graduates running the country comes up a lot, for example.

But other than that, no one really.

>There's a certain prestige attached to some very famous, expensive private schools (called public schools in England alone, never quite worked out why). The number of Eton graduates running the country comes up a lot, for example.

That exists here in America too. Harvard and Yale account for quite a lot of our top executive and judicial branch posts. Most famously, every one of the 9 members of the Supreme Court is either from Harvard Law School or Yale Law School. In their own way, Harvard and Yale are America's Eton - where future leaders go to hobnob with other future leaders.

Yes, but Harvard and Yale are higher education institutions whereas Eton is a secondary education institution. That was hugh3's point: "the British elite will judge you not only by your university but by your high school."

I want to say the English equivalent of America's Ivy League universities like Harvard and Yale are its older private universities like Oxford and Cambridge, but the truth is the reverse (Oxford, for example, dates back to about the 9th century!)

Our Eton would be Andover.

They're called public schools in England because free and tax-funded education is a relatively new phenomenon. At a time when people could choose between private tuition at home and religious tuition in classrooms, public schools offered a classroom education to any fee-paying member of the public, regardless of creed.

To approach your points individually:

- The wider middle-class in the US are used to paying for quality. It's not so ingrained in the UK mindset, where we have been used, up until recently, to government subsidies.

- The UK market is still emerging. Note that charging $14k is only available as of next year - and will most likely continue to rise. As it does, fewer will go to university and the 'value' will drop.

- US Faculty do have higher salaries (~x1.5 - x2.0 in my experience), but good people are deserting UK universities in droves because of massive cuts in salaries, conditions and facilities. My own research group had seen 4 people from 25, including 2 faculty, leave in the past 12 months for better-paid positions abroad. I expect that we'll see another 5 go in the next 12 months. None of them have been replaced.

- Typically, a college degree in the US has been worth the outlay. It's only the last 3-4 years that people have been questioning the worth of the college degree as an investment en masse, i.e. the US market is not currently stable and won't be so for another few years as people begin to reconsider what was previously a no-brainer. This will eventually translate to higher social status for a degree (as used to be the case) and cheaper prices (and so less debt necessary).

- In the last 10 years, in the UK we have begun to view a university as a business. We're asked about cost centers, what we can sell commercially and requested to make PR material for wide circulation. As a business, we are forced to charge what the market will bear. But because there's not a huge amount of competition between universities (at least on price), that doesn't make for a particularly healthy market.

I find most of what you say here fairly uncontroversial, but this raised eyebrows a bit:

This will eventually translate to higher social status for a degree (as used to be the case) and cheaper prices (and so less debt necessary).

That seems to violate a fundamental law of economics to me: If the demand for a good increases relative to the supply, the price will increase, which will reduce demand. If the supply of the product increases then the price will fall, encouraging more people to buy the product. Prices adjust up and down until the demand matches supply. So cheaper prices for degrees, by allowing more students to enroll, would seem to me to decrease status, not increase it.

Yes and no. If fewer people have degrees, the status will go up. If more people don't even consider them, demand also goes down and hence prices. So status and cost can both drop until it becomes cheap enough that everyone gets a degree as a matter of course. And then the cycle starts again...

Just like any luxury good, they'll restrict the supply while keeping the price high. Simply because many people don't even consider Prada shoes as an option hasn't made them any cheaper.

We're not considering only luxury goods though. There'll always be other suppliers of shoes willing to cut their prices to match demands, just like other colleges will cut their prices to match a spectrum of demand.

I think the point is that a Harvard degree will remain viewed as worth more than a Podunk College degree, regardless of the demand because the supply is naturally self-limiting. However, the cost of Podunk College will oscillate with the demand/supply.

If the demand for a good increases relative to the supply, the price will increase, which will reduce demand.

That only applies for normal goods. For luxury goods, an increase in price acts as a signal indicating increased quality. These goods (and I count a college diploma as one) act as status symbols, indicating the superior wealth and social status of their possessors. In this case, an increase in price only serves to amplify the signaling function of these goods, and can engender increased quantity demanded.

In other words, the demand curve for a college education is non-linear. On at least some segment of the curve, quantity demanded increases as price increases. We are in one of those segments right now.

I think your first and last points are probably most accurate.

Rich people will pay, and poor and middle class students will use grants and loans to get through. The problem with that is the loans seem like a great deal, because of the racket, and only when students get out of college and are still waiting tables to they realize that the coming out of school with tens of thousands, to hundreds of thousands of debt, debt which you cannot escape, is a bad deal.

Perhaps I'm jaded because I funded my education with student loans that I used to receive a B.S. in Psychology and wish I would've studied engineering. I tried to move into post graduate studies, but I couldn't afford it - by that time I had a family and couldn't afford the time away from work.

The military paid off my student loans, but my degree has been useless since.

My deepest sympathies for your degree in psychology.

It seems that the best thing we could do for the university system is to stop treating all degrees as equal. We need folks standing outside the university gates on day one of freshman year going "Hey you, what are you studying? Cultural studies? Hahaha, no really, here's a calculus textbook, get to work."

I agree completely. Getting a degree in philosophy sounds cool until you realize that you've just wasted your money and could have studied philosophy for free by reading books while you paid the bills with the education from your CS degree, etc.

That's the the thing really though isn't it. It's YOUR degree. Who are you to say that someone made the wrong choice? I have liberal arts and a music degree. I'm now a self-taught web developer earning good money, building a start-up and paying my student loan (interest free because I stayed in New Zealand) off. My arts education helped with my general understanding and comprehension of the world and I credit it for making it easier for me to pick up development.

I'm so sick of the belittling of the humanities by commerce and science. We're all needed, if there's any elephant in the room robbing people of value there, to me it is commerce. I studied some marketing while I was at uni as well, and it felt like I was no longer at university but at some parallel universe on my campus where suddenly creative thinking was discouraged, intellectual creativity was discouraged and you'd succeed if you submitted answers the lecturers wanted to hear.

NOTE: I'm also educated enough in research methods to know that my anecdotal proof is not conclusive, however I find that in NZ, the people who I meet who generally seem like they're less intelligent are the ones with business degrees. It's the science and humanities grads who are the ones who seem smarter and more motivated. There's even a successful business person here (bob jones) who refuses to hire commerce grads and insists on hiring humanities and science grads because he believes they're more suited (once trained) to coping with a complex business environment..

That was my impression in the UK. One could argue the toss whether, say, being able to read ancient texts in the original Greek was easier or harder than quantum physics (or the relative usefulness of either) but there was general contempt for the seeming lack of intellectual curiosity and love of learning for its own sake among business students.

Most of whom, depressingly, would become our managers.

Well I minored in religion, so I understand your feelings on this. My point wasn't that those degrees are worthless, just that they are worthless for the purpose of job security.

There are of course exceptions, but a CS major has a much higher chance of getting a job out of college than a humanities major.

One thing that gets lost in most of these debates is the fact that many students don't pay the sticker price that universities advertise. At most of the top 50 universities in the US, something like 50% of students receive some sort of financial aid/subsidy. These discounts are often substantial.

The $50k sticker price is a tool universities use to price discriminate based on a family's ability to pay and how much a university wants a student. Thus, it's not crazy to see a talented student from a low-income background paying something like $2k a year to attend a top-tier university. Of course, this doesn't really answer your question. This phenomenon still leaves the 50% of students paying full freight, and only applies to wealthy universities that can afford such financial aid programs.

Financial aid is pretty hard to obtain now days. Your parent's must be in the lower range of salaries combine for you to obtain anything other than unsubsidized loans. Pell Grants and other such things are pretty uncommon from what I've gathered. Once I managed to become independent as a student, I was making too much (35k a year) for any student aid so I had to pay full price (albeit I was smart enough to go to school in a state were education is pretty cheap, Florida if you have to know).

From what I've heard, financial aid is much easier to get at Harvard than, say, FSU.

For who? Did you mean to pick a different state for your example?

For Florida residents, Florida state colleges are tuition-free for all qualified applicants, but these schools pad enrollment with students who do not show college-readiness but choose to attend and pay (subsidized) tuition anyway.

http://www.floridastudentfinancialaid.org/SSFAD/factsheets/B...

Harvard is tuition-free for all but the wealthiest few who can easily afford their share without sweating.

So the relevant qualifier to my statement above is top 50 institutions in the country. Florida isn't among them. To make the qualifier more precise, I was thinking of institutions that are members of the Consortium on Financing Higher Education (COFHE, http://web.mit.edu/cofhe/) which is a group of private universities that behave similarly.

Florida is also relatively cheap to begin with, as with many state schools (GA Tech alum myself, hehe). The big numbers are posted by private schools. However, the top private schools have great financial aid. Under $120k/year, Harvard and Yale are free. The aid phases out after that, but doesn't phase out completely until $250k+.

Source? For Harvard, your numbers appear to be high by a factor of 1.5 to 2. http://isites.harvard.edu/icb/icb.do?keyword=k51861&page...

Perhaps because they are the best in the world and there is a huge demand (from across the globe) to get in? http://www.arwu.org/ARWU2010.jsp

That's a valid point, and an impressive list - but perhaps they are able to be the best in the world because they are able to charge so much.

That's not always true historically, though. It seems more like a relatively recent phenomenon, but US schools were still the best in the world a century ago. Perhaps it's more accurate that they are able to continue cementing their lead by charging so much.

Thomas Sowell is one of many commentators who point out that United States universities will be attractive at EQUAL quality, because they are located in the United States. But indeed, as United States universities attract students from all over the world, that helps even second-tier universities raise the quality of their programs, by gaining diverse groups of students with reasonably strong academic ability.

UK fees, even at the new £9k (~$14k) rate, are still heavily subsidised by the state. To study my course (Imperial, CS) as an overseas student is £22.5k (~$36.5k).

I always thought that universities charge overseas students a premium as it's the only chance to make money?

Yes, it is incorrect to assert that overseas students pay the "real cost". They pay as high as the market will take. The real cost will be somewhere in the middle.

From speaking to someone on the board of a major UK uni, the funding provided is something like 11k, if I recall correctly. He added that if the uni opts for the 9k fees then the overall funding provided by the government in advance would jump up to 14k (presenting a cash flow problem for the government in the short term).

You are forgetting - a bubble is a bubble.

The US has too many students, and not enough seats. Just like California had too many house investors, and not enough condos.

Of course, there might be some structural reason (the UK has better state sponsored education, or the size of the US means there's more competition for the top 2 schools), but it's mostly just transient.

There's a mad dash for the top schools. Don't ask me why. The top schools crank their prices through the roof, spending their gains on new buildings, or bonuses for the administration, or football scholarships, or maybe even research. The flood of new grads on the market means you would have to be nuts to employ somebody without a sheepskin, so the cycle cranks up a notch. Only to fly apart when the affordability ceiling is reached (and few grads have a sheepskin, and suddenly people start looking for bright high-school leavers for such essential jobs as keeping HR records in order), or you can't even get a job as a burger technician without a PhD.

As someone under a ton of debt, I'd like to know the answer to your question too.

For a fun-time experiement, plot college cost vs. :

minimum wage inflation health care

since the 70s or so.

Right around 1980ish, health care and college costs started heading for the roof relative to inflation.

edit: I haven't worked the math to differentiate between average cost of ivy league schools and average cost of state schools. I think the current difference sits at 4x or so for list price.

Right around 1980ish, health care and college costs started heading for the roof relative to inflation.

Interesting - right around the time computers started making business processes way more efficient, a few areas unaffected by computers started skyrocketing in cost (relative to inflation).

I wonder what could be causing this phenomenon?

http://en.wikipedia.org/wiki/Baumols_cost_disease

Click this: http://en.wikipedia.org/wiki/Baumols_cost_disease

A ' was forgotten

404?

The hyperlink is taking out the ' for some reason. Not sure why exactly.

It must be some protection against code injection. Here is the link in a different format, avoiding the explicit single quote: http://en.wikipedia.org/wiki/Baumol%27s_cost_disease

Are you seriously suggesting that the costs of healthcare provision and education are unaffected by computers?

I'd be surprised if there wasn't somewhere you can do an online degree in the application of IT for cost savings in healthcare.

So far, I don't think the computing revolution has significantly affected healthcare or educational productivity.

Until we start replacing teachers with Khan or similar products, productivity is capped at # of students=~30 x number of teachers. Same for medicine.

Both this and the other link aren't working, try this:

http://en.wikipedia.org/wiki/Baumol_effect

"The UK punches above its weight in research and quality of education, yet the maximum fee universities can charge is around $14k per year."

My US alma mater, a middle-of-the-road state university, costs $9k per year for residents, or $21k per year for non-residents. A lesser university is $5k per year, and a junior college is $3.5k per year. (Tuition and fees only, room and board not included.)

This has only been true very recently. It used to be about $3k a year, and before that it cost nothing at all, and before that, you got paid to go to university with a grant.

Only this year has the UK launched these awful fees (did you see the riots?) and now put itself in a position where students are now paying the same as some of the public schools in the US. If there was an easy way for UK students to get California residency, it would be cheaper for them to come here than go to a domestic university, as the overall cost of living is much lower.