Funmurphys: the Blog

College Costs

Dave Nicklaus is a pretty sharp business columnist for the St. Louis Post-Dispatch. He had a good column today about ever rising college tuition costs:

As in health care - another part of the economy where costs are out of control - third parties pay much of the cost of a university education. When the state government, the federal government or private philanthropists are paying much of the freight, the discipline that's inherent in most business-to-consumer transactions doesn't exist.

What's more, universities have a power that no ordinary merchant has: They get to look at your tax return. Don't think that scholarship, loan or work-study offer came out of pure altruism. Think of financial aid as a discount off list price, like the rebate on a new car. Thanks to the data you provide on your financial aid form, the university can practice almost perfect price discrimination, charging each consumer as much as his or her bank account will bear.

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And, because universities have no profit motive, Vedder [Richard Vedder, professor of ecomomics at Ohio University and author of Going Broke by Degree: Why College Costs Too Much] says, they are extremely inefficient. For every dollar that colleges spent on instruction in 1929, they spent 19 cents on administration. That rose to 33 cents by 1960 and 48 cents by the mid-1990s.

As for the faculty, Vedder makes a strong case that productivity has been declining while pay has risen steadily in the past 20 years.