The College Cost Bubble

Consider this, when pondering the complaints of college-loan debtors, and the rising demands that the government funnel more money into college funding.

Since 1981, the total cost of living has risen by 153%.  5% a year. That’s a lot.

In that same thirty years, the cost of medical care has risen by 244% MORE than the overall cost of living.  Over 8% more annually.

Meanwhile, the cost of college tuition at public 4-year institutions has risen by 368% MORE than the cost of living.  Over 12% more per year.  17% per year, in all.   124% MORE even than medical care.

But, of course, we have a lot to show for the increase in medical care costs.  New drugs, vaccines, transplants, non-invasive surgery, and an ever-lengthening longevity.  Diseases that were once a death sentence (AIDS, leukemia, etc.) are now controllable or curable.

Now, ask yourself: What are the comparable improvements in the quality and effectiveness of higher education in the last 30 years?  What has that 368% bought us?

Of course, it is rightly pointed out that cash-strapped state governments have over time reduced their financial contributions to public colleges.  Indeed they have, and that has helped pushed tuitions up.  But how much of the problem are these tightwad legislatures and governors?

About 13%, that’s how much.  State subsidies of in-state tuition have declined by about 13% in inflation-adjusted dollars since 1981 (from about $8000 to about $7000 per student).  So about $1000 of the annual cost of public college tuition is the result of state aid reductions.  The rest went to pay for all the improvements (?) in the quality of higher education.

When prices escalate faster than everything else, without improvement in quality, it constitutes a bubble.

How big a bubble is the cost of college?  Compare it to the recent housing bubble.  From 1981 to 2006 (the bubble’s high point), new home prices (including land) rose 254%, which is 101% more than the overall inflation rate.  Of course, much of the increase occurred in its last 5 years.  And, in fact housing tended to improve over that time, arguably in quality but definitely in size.

So, public college costs are rising faster than the cost of living, faster than the cost of health care, and faster than new housing (even before that bubble burst).

Politicians are asking what to do about it.  But the first question is:  WHY?  Until we answer that, there will be no solutions.

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