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June 8 2017

The Riddle of Skyrocketing College Tuition: It May Not Be What You Think

by Charlotte Hays

Quote of the Day:

Politicians who campaign on “reinvesting” in higher education to lower tuition are basically campaigning to waste taxpayer money.

--Preston Cooper in today's Wall Street Journal

The financial cost of a college degree has become so steep that it is a hot button political issue.

Liberals argue that the problem could be solved or mitigated by pouring more of the taxpayer's money into higher education. Conservatives tend to say, no, the largessse of public funding insulates colleges and universities from the market and allows tuition to become ever more unrealistic for families.

Preston Cooper, a research analyst at the American Enterprise Institute, says we should not trust our intuition on this. He writes in today's Wall Street Journal:

Tuition goes up no matter what state legislators do. Public colleges, with state boundaries insulating them from competition, and generous federal student aid programs at their disposal, charge as much as they can get away with. Changes in state funding are largely irrelevant.

In a new study, I compare tuition and direct state funding changes at four-year public colleges between 2004 and 2015. This covers both a boom in state funding (2004-08) and a bust (2008-12). Sure enough, the relationship is quite weak. Less than 5% of changes in state funding pass through to higher tuition. In other words, if funding falls by $100 per student, tuition will rise by less than $5.

Colleges do tend to cut spending when state funding goes down. But the expenditures they cut are usually in areas unrelated to instruction, such as research and administration. When funding goes up, colleges largely plow that money into higher spending rather than return it to students through lower tuition.

Cooper doesn't solve the problem of what makes college tuition go up, but he does rule out more public money as either the cause of the problem or the solution. At least, when politicians say we need to throw more of our money at colleges, we can say why this is not the case. But I'd still like to know why tuition continues to rise. Insulation from the free market does seem to be a factor.

Meanwhile, the financial rewards of having a college degree are declining.

A skeptic might add that the intellectual value is declining too because of many college's ability to introduce students to new ideas that make them uncomfortable (or better still, introduce them to the old ideas on which our civilization is built).

Independent Women’s Forum’s mission is to improve the lives of Americans by increasing the number of women who value free markets and personal liberty. Sister organization of Independent Women’s Voice.
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