The Secret Reasons for Tuition Hikes

BCEagle91 · January 18, 2009, 9:33am

I know several parents paying full fare and they know that college is a wealth redistribution system but it’s somewhat of a duty and these folks have the means to do so.

I understand that there’s a lot of need but those indirectly paying for those needs are getting ripped off - yes, they are willing participants because they believe the storyline but that puts them into the same category as Madoff’s customers, those that took out subprime loans and us for bailing out the banks where executives are still cleaning up on salary and bonus.

ST2 · January 18, 2009, 11:04am

Its simply demand and supply. As long as there are more students who want to attend a school, then there are spaces, the school can and will charge whatever the market will bear. The same is true for your most desirable students - as long as there are less of them than schools want - they will use money and incentives to attract the most desirable future students. That is the American capitalist way - good old supply and demand. Combine that with need based aid, to ease social conscience and you have the present system. For us it worked great - for some others it might not work as well.

BCEagle91 · January 18, 2009, 11:15am

Supply and demand forces are corrupted by the presence of easy-money policies as the value of money enters a state of flux.

Atana · January 18, 2009, 11:53am

Toadstool,
If ones going to hand out moral outrage for scamming perhaps it might better be directed to the entities which are largely responsible for the tuition escalation rather than some scholarship kid and his or her potter or social worker parents.

The 6% yearly tuition rises correlate very closely to the adoption of the system wherein the resources supporting education were largely redirected through the coffers of corporate financiers. And as such that’s the real scam, because what it does is cause students and families to have to borrow large amounts of money for high tuition, to obtain resources through organizations who have redirected the resources which would have made it unnecessary to have the high tuition. And that’s quite a scam and one over the last generation has cost our government (and the people) billions. And if one were to check the numbers the direct monetary, social, and economic costs of this particular scam are massive. Much more than throwing out a grant or scholarship for every potter, social work or ecologist major that ever was or might decide to become one. As noted earlier that amount of redirected resources is about 570 billion and that’s only a good estimate getting the true costs of this mess is nigh on impossible.

And the scam you and the rest of us has been supporting isn’t even one which the scammers can properly run.
For example one of the dominant companies providing the services (scam) had it’s stock value increase some 2000% over a short period of about 10 years, raised fee revenue 220%, and has received massive government subsidies. But last year they went hat in hand to the government to lobby for more liquidity infusions because they could not sustain their ability to sustian services (or the scam).

Concerning saving and scrimping to pay tuition. It’s a good attribute to have, as is the willingness to work hard for a future advantage. But given the unparalleled tuition escalation caused by our current system it’s very likely that fewer and fewer people will be able to use this route to enter academe. Basically it will reach an apogee where it would be close to impossible to make enough or save enough to compensate for high tuition costs. And ironically then the only people who could save or work enough to pay tuition without aid, will be the people who already have enough status that they do not need college anyway.
We’re getting closer to that surreal point every year. Because the middle classes have lost a substantial portion of their real earning power over the last generation.

So there’s not much point in reviving Horatio Alger’s heroes, even with all their proficiency in scrabbling out of the gutter they’d have to give up in disgust if mired in our current system.

ST-2
The purist capitalist model doesn’t quite apply to how our current situation in higher education has developed. It’s much closer to the political form of corporatism insofar as the government has derived and sustained a system predominately for the advantage of a limited group of financial fellow travelers. And they are protected from potential competition by that same government. And its a system in which the governmental systems provide the propaganda to make the common people who are its fodder believe that its all for their own good.

Supply and demand models are basically irrelevant in this type of a system. Because the supply and the demand are bound to governmental and corporate liaisons which ensure that such market forces do not play any meaningful role.

The need based aid in our current higher ed funding system is really only enough to make the larger number of people not walk away from the game. Not enough to be genuinely meaningful from any of the social needs which this system was supposedly established to serve.

“Supply and demand forces are corrupted by the presence of easy-money policies as the value of money enters a state of flux.”

BCeagle, that was well phrased.

cadbury · January 18, 2009, 11:58am

This article, and much of the discussion on this thread, focuses primarily on state institutions. Paying $20-25K at state unis is outrageous; but paying $40-50K or more at private LACs and universities is arguably even more so.

The availability of (and willingness to take on) student loans is clearly a factor. But another important factor that is missing from this discussion is the insidious role that USNWR has played in this whole mess. For years now, institutions have been spending money like there’s no tomorrow in an attempt to ratchet up their dubious rankings.

bluebayou · January 18, 2009, 12:49pm

Why? Who else should pay instead? Taxpayers?

Why? The full cost to educate someone at a private school exceeds $70k, so everyone who attends is subsidized. Why shouldn’t the rich pay full fare? What price do you think is “fair”?

mafool · January 18, 2009, 1:08pm

Maybe there are 2 or 3 out there, but I really believe that is apocryphal. No offense intended, because I know nothing of the intent of the poster, but it reminds me of Reagan’s famous and invented Welfare Queen.

My son receives substantial financial aid at one of those “expensive, elite” colleges. Any money he spends while there or on break comes from his summer earnings.

Now, he may have an opportunity to go somewhere desirable by virtue of having a well-heeled friend whose family has property someplace cool, but it certainly is not the result of overpaid aid! I assure you!

mafool · January 18, 2009, 1:14pm

In a single word: yes.

The notion of a state university system, as with public K-12 education, is that the education of our young is a community responsibility and it also pays dividends to the society.

I have no problem with OOS students paying much higher tuition, but in-state students’ college educations at state schools should be substantially subsidized by my and your state taxes.

To think otherwise is, I believe, very short sighted. And many of my state legislators appear to need the services of a good optometrist.

BCEagle91 · January 18, 2009, 1:17pm

I had a look at the MA state budget and it looks like pain all over the place.

ST2 · January 18, 2009, 1:23pm

Atana - sounds like you want to change our entire economic system. The college admission/attendance system works on the same principals as the rest of our economy. Obviously not perfect, but I can’t think of another place I would rather live. Having lived in Europe, Canada & Australia, I fully stand by that statement. Just a question of making it work for you. Then again, I suppose it all depends on which side of the fence you view the situation.

BCEagle91 · January 18, 2009, 1:35pm

Our economic system has failed. Are you watching the real unemployment numbers and how employment is falling off a cliff? Why are we considering nationalizing banks? Is that a sign of a healthy economic system?

No it doesn’t. There are government subsidies at many levels. Student debt can’t be discharged in bankruptcy.

We’ve been borrowing $60 billion per month from the rest of the world to fund our consumption. Is that sustainable forever? Do you think it rational to borrow beyond your means to repay it forever to fund consumption? What if the rest of the world decides that it doesn’t want to continue loaning us that money?

Yes, there’s fantasy vs reality.

cellardweller · January 18, 2009, 1:41pm

While an education at a public school may have become more and more expensive in constant dollar terms, education at elite institutions has become more affordable and average net tuition after aid has been falling every year. Well over half of all Ivy League students are on some form of financial aid as compared to less than a quarter 20 years ago. All these schools are vastly more economically diverse than they ever were. Even those who receive no aid are heavily subsidized by the endowments of the schools. Nobody is paying anywhere near the full cost of an education at the top private universities and LACs. The ROI from such an education is increasing, not decreasing. Even in the current economic downturn, the last area the top private schools have been planning any cuts is financial aid. At many of the schools, they have had to increase the aid budgets as the needs of currently enrolled students has risen.

As many smart students from around the world are realizing, an education at an elite American university is still a relative bargain. I have two nieces who graduated from Brown last spring with non-descript liberal arts degrees and very average GPAs. Neither had any problems tapping into the school’s alumni network to find well paying jobs while a number of their friends at less selective colleges are still looking, more than eight months after graduation.

With the vast increase in the number college graduates, the value of a typical bachelor’s degree has eroded, while that of an elite education has risen. While the number of college graduates increased by 50% over the past decade, the number of graduates from elite colleges has stayed constant. These graduates have better job opportunities, higher rates of enrollment at top graduate and professional schools and much higher chances to land tenure track positions if they decide to stay in academia.

BCEagle91 · January 18, 2009, 1:48pm

“Nobody is paying anywhere near the full cost of an education at the top private universities and LACs and the ROI from such an education is increasing, not decreasing.”

We have seen vast amounts of capital destroyed in the current economic mess and overall deflation in income. I listened to some accounts of older people describing what they saw in the great depression and what struck me was that those in the professional class had a lot more to lose when businesses shut down because there was no business or where customers didn’t pay their bills.

We’re trying to inflate our way out of our problems right now and we don’t whether or not this will work. But the stimulus had better go do those lower down on the economic ladder or there will be widespread unrest.

Good luck on those high-income jobs.

ST2 · January 18, 2009, 1:53pm

BCEagle91 a quick response to your post.

“Our economic system has failed. Are you watching the real unemployment numbers and how employment is falling off a cliff? Why are we considering nationalizing banks? Is that a sign of a healthy economic system?”

Seemed to be doing OK before the last 8 years. Amazing the damage that 1 man can do.

“No it doesn’t. There are government subsidies at many levels.” You don’t think that subsidies exist throughout the system? - that is truly a pipe dream.

“We’ve been borrowing $60 billion per month from the rest of the world to fund our consumption. Is that sustainable forever? Do you think it rational to borrow beyond your means to repay it forever to fund consumption? What if the rest of the world decides that it doesn’t want to continue loaning us that money?”

From what I remember we had a budget surplus prior to George taking over. If you have never lived outside the US - try it before you make extreme judgements about living here.

" Then again, I suppose it all depends on which side of the fence you view the situation.
Yes, there’s fantasy vs reality."

It may be a fantasy to some people including you, but it was a reality to us and quite a few people I know. But then again, it is probably easier to complain then to make it work for you. Now that is reality.

LongPrime · January 18, 2009, 1:54pm

sounds like the standards of “elite” schools, need to go to Super Elite. :)

As in W’s time 2002-2006, and again Fall 2008, Please help stimulate the economy and get banks to lend by borrowing as much as you can and then some more. It is either you borrowing else the politerate will borrow and pay for you. :)

cellardweller · January 18, 2009, 2:19pm

It may not be such a bad thing for all the inflated salary jobs in IB, consulting or corporate finance to vanish. That will stop these industries from draining some of the brightest students away. As an MIT alumnus still involved in technology, I always found it somewhat unfortunate that the opportunity to make a quick buck would siphon away so many talented graduates from more productive and creative careers in science and technology. The newly minted MIT grads may no longer make an easy six figure salary upon graduation but starting salaries for top engineers will still remain very attractive. Very good ones will always be worth they weight in gold.

BCEagle91 · January 18, 2009, 2:19pm

“Seemed to be doing OK before the last 8 years. Amazing the damage
that 1 man can do.”

This is a problem with both parties, bankers and our legal system.
There were manifestations of this in the Clinton years too with LTCM
and the internet bubble. Bush had to deal with a major deflationary
incident and answered it with another inflationary bubble. The
alternative would have been high interest rates to allow the economy
to clear. This has become politically unacceptable though and it’s not
a way to get reelected. Clinton figured this out and came up with an
interesting approach to inflate before his second-term election.

“You don’t think that subsidies exist throughout the system? - that is
truly a pipe dream.”

I work for a private company in high-tech. Last time I checked, we
didn’t get anywhere near the level of subsidies that higher education
gets at the state or federal level.

A look at a chart of our trade deficit showed that it was falling
during the Bush I’s term. It peaked in 1992 and has been steadily
heading downhill since then.

Been there, done that. We have assets and property in two other
countries and I’m considering moving more assets overseas should we
need to relocate.

Pride goes before a fall.

BCEagle91 · January 18, 2009, 2:29pm

“It may not be such a bad thing for all the inflated salary jobs in IB, consulting or corporate finance to vanish. That will stop these industries from draining some of the brightest students away.”

That’s one consideration. The other is to consider who pays those inflated salaries. It’s basically been the robbery of Main St to go to Wall St. Main St is ****ed right now.

“As an MIT grad still involved in technology, I always found it somewhat unfortunate that the opportunity to make a quick buck would siphon away so many talented minds from more productive and creative careers in science and technology. The newly minted grads may no longer make an easy six figure salary upon graduation but starting salaries for top engineers will still remain very attractive.”

There have been some high-profile job cuts in engineering companies in the last month and I’m starting to wonder if even these are safe if we continue on a deflationary spiral. In many companies, the engineering folks are the last to go, especially if they are on strategic projects.

I recall the internet bubble and something that a coworker told me. He had a friend that graduated and started at Yahoo and was a millionaire after a few months. On paper. Unfortunately his shares were locked up and he was back to a normal engineer when he was able to sell some of the shares. I recall a lot of the new grads that we hired going out and buying BMWs on credit. Those of us that were around for a while shook our heads as we knew about the cyclical nature of our industry. When layoffs and rumors of layoffs started a few years later, they didn’t know what to do. The old guys had already seen it before and socked the cash away from the internet bubble.

Atana · January 18, 2009, 3:05pm

ST2,
Our entire economic system, of which higher education is a component, is obviously in very serious trouble. And it is a system which is not sustainable insofar as what we have developed is largely a bubble sustained by very questionable debt, credit institutions and practices. In the 90’s there was a very well written essay which indicated that the US economic and political system was falling into the trap similar to the French just prior to the revolutionary era. An elite class which pursued its own agenda to the exclusion of duty for the stability of the state, and an increasing marginalized middle class.
And it’s an incredibly vulnerable system we’ve mucked our way into…if the Chinese chose to use their portion the US debt they hold as a strategic weapon/asset they could ruin our economy almost overnight. And investing more money or handing over more funds for more tulips is an option that buys time (on credit) but can’t work in the long term.

In regards to higher education funding, that has closely followed the model provided by that 90’s essay, insofar as the it’s function as a social safety valve and as a means of ensuring the stability of the middle classes has been largely co-opted. Higher education funding is reliant on massively subsidized companies who have made incredible profits but in doing so have brought it close to the margins of sustainability.

And they have done so by more than just being the engine for incredible tuition increases.
A equal albeit more subtle effect is the undermining of the perception that higher education exists as and for social betterment. And that perception is increasingly being undermined especially for those in the middle classes.

And once they lose that perception of higher education it does not bode well for our other structures. Essentially any further extension of this loss of faith by the middle classes could have very unexpected and serious consequences for the stability of our country.

And from a political and governmental perspective they are already making projections and strategic planning about how to react to this escalating decline in status of the middle class and the potential reaction by that increasingly marginalized middle class. The British offices of strategic and economic analysis have already openly stated they expect various forms of non-violent rebellions from the middle class as their status continues to slide downwards. And those nice people at the Army War College have posted even more extreme projections. Which may account for the incredible number of troops expected in Washington DC this week, the context of which many do not yet fully comprehend.

Now in my case, I’ve done fairly well within our system. And so like many have a vested interest in seeing it continue to function. Especially higher education as that is my profession and I genuinely believe it does provide an essential element for social stability.
But it cannot continue much longer as it is currently structured. And so it’s better to advocate for reform of an existing system than to do nothing and wait for it to implode.
With all the implications that has for massive social problems.

I’ve had the bliss of working in countries where these systems have failed due to corruption or misplaced self interest by groups-and don’t want to experience it here…

bluebayou · January 18, 2009, 3:10pm

Instate students are already supported by taxpayers. But the question is by how much more? And, what state services would you reduce or taxes would you increase to pay for it? For example, the UCs run about $23k/yr for instate. California has a massive budget deficit so to subsidize the UC students more, someone else gets a lot less. Or the “rich” pay more (however defined) and they continue to leave the state in droves and/or shelter their incomes from taxes.

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The Secret Reasons for Tuition Hikes

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