Wednesday, December 13, 2006

Why Is College Tuition So High?

Economist Greg Mankiw has a great post on his blog about why college tuition has risen so much in the pst few decades. He gives 3 possible explanations:

1. Increasing costs due to Baumol's cost disease (which I explained in this earlier post).
2. Higher demand for a college degree since the wage gap between college-educated and non-college educated workers has been increasing.
3. Price discrimination means that the published tuition is not really the price that most students are paying. So the average price that a student is paying is much lower. And the increase is due to increasing skill at price discriminating

This topic is very relevant to you guys since you and your family will start paying these tuition fees in about a year. Any other possible reasons you can think of? Which one of these reasons do you think explains most of the increase?


Anonymous said...

I believe that the main reason is number 2. This is one of the few forms of perfect price discrimination, but I do not think that is a major reason for the price to go up. Because it is getting harder and harder to get a job without a college education, more and more people want this. Looking at this problem with supply and demand in mind, when the demand increases as much as it has, the equilibrium price and quantity both go up. I think that the 1st explanation is good enough to explain why the price has not gone down but I do not think it is a good enough reason to make the price go up.

- Brian Meier

Anonymous said...

In the past decade, Colleges have become a giant marketing scheme. For example, I get on average 5 emails a day from colleges I haven't even visited or spoken with. Keeping this in mind, the answer to why college tuition has risen so much is simple. Arguement number 2, which states that because demand and supply have increased for colleges, price is going up and up. Every kid and family at walker is, to some degree, a victim of the marketing event that the college search has become. Because colleges are going to such great lengths to make their campuses and facilities appealing, hoards of students are interested, increasing selectivity. The answer is just simple supply and demand... supply shifts left, demand shifts right, and the tuition of college soars.


Anonymous said...

I agree with Brian and Caitie. Number 2 is my choice. I think that the main reason for an increase in college tuition is because of the increasing gap between college educated people and non- educated people. Since the gap would be getting bigger, there is a higher demand for educated workers. This makes perfectly good sense. Companies would be willing to pay more for educated workers because they are in higher demand. Therefore, colleges would increase their tuition's because there is a high demand for students to get college educations. So, I think that the gap between educated and non-educated people is the main reason, Mankiw has come up with, for the increase in college tuition.
-Morgan Hale

Anonymous said...

I believe that the main reason is number three. In addition to the point that most students on average are paying less than the advertised tuition fees I think that by increasing these "shown" fees when a person gets the lesser fee, then the person who is paying would probably feel like they got off with a very good deal since they would probably not look into what the true average a student or students family pays for tuition at that university.


Anonymous said...

I agree with Brian in that the main reason is reason number two. I think that the other two, while they might have some impact, are not nearly as significant. One of the main reasons for this high price is the direct result of the higer demand for a college level education. With the increase in technology, it is almost necessary to have a college degree to obtain a solid stable job and income. As a result of this, more students are naturally wanting to get a college level degree to benefit in the long run. This higher demand has been realized by colleges all around the nation, and as a result the tuitions have skyrocketed (as well as the difficulty of admissions).

-Nick Wellmon