Why College Costs Rise, Even in a Recession

Two words: credit bubble.

The combination of government backing and preferential treatment for student loans vis-a-vis all other forms of credit in e.g. bankruptcy means that it is one of the few credit markets which has not catastrophically contracted in the current crisis. That is the system functioning as designed: the intent was to make it artificially appealing to lend money to students who, by nature, have no jobs, no assets, and no immediate prospects of repayment, all strikes against them for any other sort of consumer credit.

What wasn't anticipated was that the combination of the social prestige attached to a degree plus the extraordinary amount of credit available would remove any pricing pressure from colleges.

There are also some pricing transparency issues caused by this, much like insurance causes pricing transparency issues in health care. We've got a young crowd here, right? Many of you went to expensive colleges, right? Can you identify the total price of your college education within $1,000?

crickets chirp

Funny how that works. Nobody forgets what the price of their house was, or how much the angels invested, but when it comes college our best answer is "Hmm, good question. I think I got a scholarship or something? Maybe somewhere in the low $100,000 range?"

(Full disclosure: I'm as guilty about this as anyone else. I can tell you what the sticker price for WashU is and what my student loans ended up being but I can't reliably account for the hundred thousand dollar difference between those two numbers.)

Not just college, it seems. http://www.boston.com/news/local/massachusetts/articles/2009... Instead of a library, the [prep school] is spending nearly $500,000 to create a 'learning center', though that is only one of the names in contention for the new space. In place of the stacks, they are spending $42,000 on three large flat-screen TVs that will project data from the Internet and $20,000 on special laptop-friendly study carrels. Where the reference desk was, they are building a $50,000 coffee shop that will include a $12,000 cappuccino machine.

College costs rise, "even" in a recession? I recommend taking a look at this chart over a one year period: http://www.google.com/finance?catid=us-63372821

Education fell less than the market as a whole starting in August, then shot upwards in October, around the time people understood that this would be a prolonged depression. One of the biggest costs of education is forgone earnings. When the job market sours, the total cost of education drops, demand at a given out of pocket dollar cost increases, and no one is ever going to lower prices when demand increases.

But that's honestly par for the course with the New York Times. This is the same publication that employs an economics columnist who can't even manage his own finances. (Edmund Andrews)

I sort of look at recessions or depressions like an object in an elliptical orbit at perigee, where its speed is the lowest, and where the smallest push can have the largest effect on it. Education is one way to spend this time, but another is to notice that a lot of people try to crawl into a hole and wait it out. The successes will be those who were willing to take risks when the economy isn't doing well.

WTF^2. I can't decide what's more irritating - the dreadful writing or the bullshit justifications from (most of) the educational establishment. Instructive but aggravating.

I'll take a guess and say easy access to credit for creditless students. Plus universities have big 5 year plans with that money; money allocated before the recession. So most of the capital improvement projects were started when students, parents, and gov't were looser with the purse strings.

And universities somehow never follow the rules of economics. Scales of economy fail to kick in when they should. Large schools get larger and the price per student creeps up, never down. And the building projects get more extravagant and expensive. At my alma mater you see where the money is going. Old buildings were built like a brick shithouse. Strong and cheap with a fallout shelter. The new ones look like the set designer of MTVs Real World was given the comission. Instead of 2 per room. One student a room for a spacious 4 room suite. Instead of brick and stone we've got glass and steel. This wouldn't be bad if alumni paid for them, but when they are named "New student residence 2008" it means they are waiting for a large donation for a building thats already built and paid for by students.

College is mostly (but notice I do not say entirely) a form of pampered post-highschool luxury resort living for American kids. Only a very small part of what you get out of it is so-called education, and a large portion of what you pay them does not go towards just paying to impart that education to you.

I think it is heading for a collapse, or at least a serious adjustment as new competition arises, especially in the form of all-online, or mostly-online-enabled education initiatives. If I were to simplify and distill down to it's core what having a degree means, to employers, it means that said degree-holder knows X, Y and Z, has applied that knowledge and accomplished some things with it, an external party has confirmed to the truthfulness of this, and said party are themselves trustable. Ie, they passed a test(s) by a trusted test-giver. This is clearly a generalization but that is the essence of it, and you can deliver that service much faster and cheaper today than ever before in history.

Because it's a racket.

Because they have to compete for goods and services with the government, which can and does print the money. This means their costs reflect real inflation a few months ahead of other products.