Because of government subsidies. The government subsidizes college prices by backing student loans. This creates a vicious circle. Colleges raise their prices, the government ensures those prices can be met, and students are on the hook for it.
This is also ultimately why house prices are high. The government subsidizes house prices by backing mortgage debt.
Exactly. It's much like the housing market: government-subsidized financing was supposed to help poor people purchase homes and advance the "ownership society". Instead it mostly just drove up prices.
College education prices have been rising faster than the rate of inflation for years. The only reason they've been able to get away with it is the corresponding increases in financial aid. If the subsidies get cut back they'll have to get some financial discipline. For a start they could quit wasting money on unnecessary gold-plated facilities. You don't need fancy dorms, classrooms, and labs to deliver a solid undergraduate education.
I don’t necessarily buy the idea that student loans are driving price increases, but there’s a tangible difference between subsidizing producers versus consumers (corn subsidies are generally the former, student loans are the latter).
The student loan issue is kinda like the Health Insurance issue in America (strictly an opinion). Prices are driven up because colleges can charge whatever they wish and the students pay for it in the form of loans mostly backed by the Government (STAFFORD etc.). Colleges have no incentive to reduce tuition cost because the money flows either way (student or the govt. ). Remove the option of getting subsidized/backed by the Govt, the colleges will either have to reduce the fee or be at the risk of not getting enrollments and ultimately lose money. They don't want that. No one does. Similarly, remove the middleman i.e health insurance companies, doctors/hospitals can directly charge a patient and voila, a visit to get stitches will not be billed at $1000.
The institutions are the ones receiving the benefits of the subsidized loans; the students bear the long term costs of the 'student loans'.
"Where the supply curve is more inelastic than the demand curve, producers bear more of the tax and receive more of the subsidy than consumers as the difference between the price producers receive and the initial market price is greater than the difference borne by consumers." [1]
http://en.wikipedia.org/wiki/Effect_of_taxes_and_subsidies_o...
The cost to the consumer of buying a house is probably higher than it would be without these incentives, actually, because it ends up causing more money to spill into real estate.
It's the same with college costs: every additional dollar of federally subsidized loans made available to the public adds a dollar to the cost of college, almost necessarily so.
Not sure if you're being sarcastic. The comment you are responding to is specifically saying that by doing all those things that it makes the nominal prices of homes more expensive. It's basically identical to the idea that by guaranteeing/subsidizing college loans (and disallowing most borrowers from discharging loans in bankruptcy) that the government has been instrumental in the skyrocketing cost of college.
Yes, government-backed loans reduce the apparent cost of higher education, increasing the amount people are willing to pay, driving up the costs, and reducing access to people who are unwilling to take the loans.
"With all factors present, net tuition increases from $6,100 to $12,559. As column 4 demonstrates, the demand shocks — which consist mostly of changes in financial aid — account for the lion’s share of the higher tuition."
And then:
"so much of the subsidy is translated into higher tuition that enrollment doesn’t increase! What does happen is that students take on more debt, which many of them can’t pay."
Once again, this is where government intervention into the market is causing adverse side effects. If there wasn't a student loan system, their would be no way for students to finance their education and thus colleges would have to cut costs to become affordable. When students can borrow and pay whatever exorbitant prices prices will continue to inflate as everyone bids up the price.
Additionally, we are seeing the costs of goods that are produced in America increase (education, healthcare, housing) because they do not have the returns to scale as other industries.
The government backs the loans and this ends up being a massive subsidy for academia. If loans were priced accordingly, far fewer loans would be issued and there would be fewer students in college, and fewer colleges and universities.
There were fewer students, fewer colleges, and lower enrollment rates. A big reason why college costs have risen is due to the artificial demand created by subsidized loans.
|subsidizing education lowers the cost, making it more attractive than it otherwise would be compared to the alternatives
The saddest thing, is that it clearly hasn't. Tuition costs have sky-rocketed, as has interest rates on education loans. It's become absurdly expensive.
Cart before the horse! Any evidence of cause-and-effect here? Its also true that "government loan subsidies have increased to offset rising college prices".
I am not debating the existence of subsidized loans. I am questioning the correlation b/w subsidized loans and high tuition which you seem to be making.
The same goes for the housing market. Govt interventions has only made home prices more expensive vis a vis other items we may consume.
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