Why Is College So Expensive?

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College tuition only goes in one direction: up. Some years it might go up less than others—and that’s seen as big news—but it always seems to outstrip inflation and wage growth.

This is true even in a struggling economy, where not just low-earning families but also the middle class have struggled to handle tuition payments. And it’s true not just for traditional college programs, but for colleges offering accredited online degrees as well. The question is—why?

Salary competition with other colleges—and private industry.

Colleges aren’t uniformly spending more on professor salaries. In fact, they often seek to cut costs in this area. It’s true that many new professors are hired as part-timers or adjuncts, with depressingly low salaries—and tenured positions are rapidly becoming more rare.

However, in some areas—such as science and economics—schools are competing with private employers to attract the top talent, and private employers pay high salaries. This means schools have to compete financially to attract researchers that can get the schools ranked high in top-college lists that value research. If the highest-level schools cut the salaries of these top earners, they’d lose them to competitors.

Administrative salaries.

Top administrative salaries can be considerably higher than professor salaries. College presidents get paid a lot—sometimes more than $1 million per year at some universities.

Because market pressure doesn’t encourage lower costs.

Most companies charge what the market will bear for products and services. Essentially, they charge as much as people will pay. The ceiling is set by lower-price competition as well as the general price resistance of consumers, who may not be willing to pay more than a certain amount for what the company is selling.

It doesn’t work that way for colleges. There’s very little price competition in the market, either for traditional programs or for distance education degrees. One reason for this is that it’s notoriously difficult to comparison shop. So many families end up paying less than the sticker price on college tuition because of financial aid that the initial tuition price is often meaningless. Interest on student loans makes the exact dollar amount a student pays even less clear. In addition, annual tuition hikes make costs difficult to predict long-term.

In addition, the federal government and private lenders work to make sure students can go to college—regardless of the price or their level of income. This means there’s no established price ceiling beyond which consumers can’t pay—and colleges have no market pressure to keep costs down. In other words, they raise costs because students continue to pay them.

However, in a struggling economy, large tuition hikes are increasingly becoming PR problems for colleges—and it’s possible that colleges will feel the pressure to lower costs in the decades to come. Hopefully, economic pressures will lead to more meaningful and broad-based tuition reductions across the board.

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