<p>The problem is simple: too many students are applying to too few colleges.</p>
<p>Why does this problem exist?
The educational system is a mix between a public and private system, and therefore market inefficiency exists.</p>
<p>The argument behind the system is public schools provide a cheap alternative to the private system, creating an equitable education system in which everyone can participate. However, they actually increase the cost of education for everyone by creating a shortage of spots at schools (i.e. there is a supply shortage of education for the given demand of education). </p>
<p>The results from two sources: 1) the failure of public schools to anticipate the expanding incoming student body and 2) the creation of an entry barrier for new, cheaper private universities.</p>
<p>1) Public schools calculate the need for expansion based on population changes. They ignore the fact that a higher proportion of the population will attend college as the technical and cultural importance of holding a degree increases. Moreover, even when they do accurately anticipate growth in the student body, they are too internally inefficient to produce infrastructure to meet the demand. A good example of this is the University of California system, which has come to be known for stuffing three students into doubles, placing hundreds of students in each lecture, and continually increasing fees. </p>
<p>2) The phrase “cheap private school” may seem innately paradoxical, but private schools would in fact be the cheapest form of education if the public system did not exist. In a completely private system, new private schools would be created to take advantage of the astronomical profits available through post-secondary education today. Because these schools would rely on student tuition and housing for profits, they would compete with one another for new admits, and would therefore be forced to lower their costs until the point of market equilibrium (where the number of students who are ready, willing, and able to attend college is equal to the number of spots available at universities).</p>
<p>Unfortunately, this series of events is inhibited by the presence of a public system that offers education at a below-market-rate. A new private school would be forced to price itself far below the cost of current public schools in order to encourage applications (a student would not pay more or equal to the cost of a well established public school to go to a new private school). Therefore, profit potential is not large enough to foster private college entrepreneurship.</p>
<p>Established private schools are able to be selective and expensive to the point of ludicrousness because they have no new competition. This educational oligopoly creates an aura of elitist exclusivity and prestige among the top schools, and has undoubtedly been a catalyst in the creation of the current U.S. plutocracy. </p>
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<p>The public school system which set out to be cost effective and equitable ended up producing results quite antithetical to its original purpose. </p>
<p>The problem may be uncorrectable. Instant privatization would likely cause the cost of college to skyrocket to $50k/year at all schools, and then go into a period of extreme downward volatility. The unpredictable nature of revenue would make it impossible for colleges to plan development and for students to budget their education. Gradual privatization appears better from an infrastructure and cost perspective, but it is difficult to see how the supply of education would be affected during the interim period. </p>
<h2>In the end, there will be no changes will be made because the people who have the power to change the system are all rich IV alumni who would rather keep the system in place, even if the understood the problem. </h2>
<p>Also, as a side note, Adam Smith wrote about this issue in his fifth book of The Wealth Of Nations.</p>